CNN Special: Oil @ $300/barrel and gasoline @ $4/litre

[Thomas Beyer]

Who also saw the CNN special last night about a potential dual scenario, where oil refineries in the US are hit by a hurricane and a Saudi oil loading terminal is attacked by terrorists ? (I think it was also aired lat year)

The scenario would reduce oil supply by about 8-12% immediately, and create havoc on the world`s oil market, sending crude up 100% overnight and gas threefold to almost $10/gallon due to shortages.

Nice plug for Alberta (Ft. McMurray) and Brazil. Brazil apparently now has 75% (yes: seventy five percent) of all new cars on ethanol derived from sugar cane. The report clearly showed that the current US policies of corn based ethanol is failing.

They predict a stock market crash of around 20%, soaring food prices, recession, immediate drop in travel, and riots.

While it was as always a bit over the top, I think this scenario is actually QUITE LIKELY .. i.e. VERY HIGH ENERGY PRICES AND ABRUPT CHANGE because of some sudden event.

What does this mean for the average real estate investor ? What does this mean for ON, BC, SK or AB real estate ? How do you prepare yourself for such a likely HIGH ENERGY price and SUDDEN scenario ?

How will your portfolio look like if a flight to Mexico, Europe, Belize or Hawaii costs $2500 (instead of $1000), gasoline is $4 per liter or gas is at 40 cents per GJ.

The scenario was set in fall 2009 ... you have been warned !

Your thoughts ?

 

[joeiannuzzi]

I do believe in $300 oil and not just because of the news article that Don has mentioned at the REIN meetings. The following link was from a CNN broadcast a few years ago.

http://www.youtube.com/watch?v=4IwtAQzrfiw

The possibility of a worldwide shortage of oil definitely exists. No one has any idea how much oil is in the middle east since the books were closed 2 decades ago..Here is a summary of the world`s largest oilfields and their annual production.

Gawaar is the largest reservoir in the world. It contains 75-83 billion barrels of oil (unaudited). These numbers come from the Saudi royal family and cannot be confirmed. If water levels in Gawaar creep up too high, it could collapse and cripple the global economy.

Burgan (the one set on fire in then Gulf war) is the largest reservoir in Kuwait (#2 in the world) and contains 66-73 billion barrels. Production is down to 1.7 million barrels from 2 million per day. Field is expected to produce for 30-40 years.

Cantrell (offshore of Mexico) has 35 million barrels and hit peak production in 2004 and is now in decline. A recent report says their output could decline by 75% by the end of 2008.

Venezeula has 30-32 billion barrels of reserves in it`s largest reservoir. Chavez has driven out foreign workers due to his policies. These experts now leave and the country does not have the level of qualifications and the people who work there and oil production drops. The money that is supposed to go to the poor often stays with the rich.ight:100%">

Romailia in Iraq has 20 billion barrels of reserves. This and a Russian reservoir are the only major oilfields that have increased output in the past five years.

Oil supplies will decline and demand will increase.

I do not believe that ethanol is economcially feasible because it requires more energy to extract it from food than to consume its equal amount.

A stock market crash is also another possibility in the United States because of the current account deficit, devaluation of the US dollar, consumer spending decerasing due to demographics and the unfinished fallout due to the subprime situation. For more details, please look at this special report by world famous demographer Harry Dent called "The Long Winter Ahead"

http://www.hsdent.com/store/the-long-winte...38c810229014031

I think that the average real estate investor has to invest for cash flow now more than ever. Regardless of which market you are in, this startegy will work every time. For Sudbury, BC, AB and Sask, the economic fundamentals wil likely be strong due to their presence of natural resoruces and metals. This trend is up due to the economic emerging world powers of China and India. Recall that over 90% of human history. China has been the most powerful nation on Earth. We are reverting to a long term average by seeing this nation dominate once again. The world is polarizing into two distinct regions. Those who have energy and those who don`t. As Jim Dines has said `The war for the last drop of oil has begun"

I do agree with you Thomas that we have been warned and would also add to take action now rather than later. No one will ever care about your/family`s financial future more than you/all do.

Tourism worlwide would be affected as fewer people take the vacations they take today.

 

[willy]

Hmmm... makes you think.
How is the Manitoba sugar cane crop this year?

Don`t have much of a strategy that way except to continue investing in properties where the tenants pay heating costs. I get a little bitter when I see windows open and the furnace running, and I doubt that things will change when oil prices blow through the roof. Not many renters are tree huggers, it seems to me, when you get right down to it.

Part of our goal has always been to build a self-sustaining house, off the grid, using solar, wind, geo-thermal, and all those other crazy sounding energy types. Rising prices would probably just accelerate that plan for us, and others, which would lead to an improving of the technology, and probably a reduction of the cost.

If you take an optimistic view, a world oil shortage could be a good thing, forcing countries and companies (the real power) to invest r&d money. Up until now, it`s always been kind of a pet project, because consumers are slowly shifting to a greener outlook. Oil shortages would force change, and as history has proven time and again, any problem is surmountable if you throw enough money at it.

Wouldn`t it be funny, if Alberta drifted into an economic slump, because everybody shifted to green technologies and didn`t want to pay crazy prices for oil anymore?

It`s all crazy talk, I know.

w

 

[Thomas Beyer]

QUOTE (willy @ May 20 2008, 12:36 AM) Hmmm... makes you think.

....

Wouldn`t it be funny, if Alberta drifted into an economic slump, because everybody shifted to green technologies and didn`t want to pay crazy prices for oil anymore?

...

yes, this "green shift" will happen over time .. and @ $200/barrel and $4 / litre at the pump people will shift behaviour ... as has happened already as big SUV and big pick-up truck sales have dropped like a rock since April !

Alberta will still pump oil and gas 50 years from now and sell it to the world at ever increasing prices .. so we`ll be somewhat immune here to the world impact of higher oil/gas/energy prices ..

So, how will (your) real estate look like: with tinier houses, smaller condos, more energy efficient systems ?

 

[mortgageman]

Food riots/demonstrations are already happening in several countries because of escalating prices. Other countries are limiting rice exports. And I think North Americans are likely to soon see food costs taking up a substantial part of the family budget.
I think the day will come when far flung subburbs are ghettos because of transportation costs. McMansions will not be the rage because of the heating bills. Maybe North American cities and citizens will start looking and acting a whole lot more like Europeans. Smaller cars. More public transportation. More train travel. (I wonder if we`ll start seeing a move away from tractor trailers - especially given the lack of recruit drivers - and a return to rail freight as the main mode of transporting goods.) Less wastefull with food, fuel, water.... the list goes on.

 

[Nir]

Hello Thomas,

My response will be too general for the question but here is the way I look at it, I`ll share anyway:

If there will be a 3rd world war or other major major world events etc. and Canada will be involved I might lose everything I have. That`s beyond my control and a "risk" I am comfortable taking.

We, real estate investors, are all taking a risk higher than simply putting the money in the bank. The lower the RE risk the more people invest in real estate and the lower the return and vise versa – the higher the RE risk , the less people invest/buy, the greater the return. They just go together as a basic rule in economics and there is nothing we can do to change that. I invest in real estate because I`m comfortable with the "risk" and my ability to minimize it (but never eliminate) thanks to Don`s amazing material, people like you who are willing to teach other investors and share from their great experience and energy I have to actually do the due diligence required.

Major major future world events with some probability do not worry me because they are beyond my control and I simply have no other option. Working as an employee for 30 years is not an option for me

It`s great we are anticipating and following oil trends and I am also interested to know how/if people prepare for that.. perhaps this is something we can actually expect to happen(?)

This is just a friendly reminder as investors no matter how much due diligence we do to reduce risk,
some things will always be beyond our control/anticipation. and that`s fine!

Regards,
Neil

 

[Rickson9]

I like reading economic forecasts for their comedic value. It's the gift that keeps on giving!

 

[invst4profit]

My opinion is that if oil should skyrocket as in this scenario the actual price of fuel will be inconsequential compared to the world wide domino effect it will generate. The green movement will have no effect what so ever as far as preventing the ensuing collapse. In my opinion the entire green movement is simply a band-aid which will see no real positive return for 1000 years as far as undoing any damage caused to this date.

I believe there will be a World wide economic collapse such as we have only experienced once in the past 100 years culminating most likely in a 3rd world war.



It's fun to predict the future but no one really can say with any confidence what will really happen. There are far to many variables such as will governments continue to artificially prop up failed financial systems.

 

[TerryKruse]

I have always thought the Alberta Government should invest some of their oil revenue in helping renewable energy industries become more feasable. This could help create jobs and Alberta could continue to be an energy leader, which ever way the wind blows.



This would also help Alberta's energy image.



Terry

 

[bizaro86]

If oil went to $300 per barrel, it would be for a very short time, for two reasons.



1) There would be a huge demand response. People would drive/travel/heat less, and demand would be reduced.



2) Supply would respond. In my career, I'm involved with drilling new oil wells. We almost never drill a well that produces zero oil, but sometimes it's not enough to be economic at current oil prices. There are thousands of wells all over Alberta/the world "suspended" waiting for higher oil prices. If oil went to $300, we would turn them on because we would be making enough money to cover the costs of operating those wells (pumpjacks, royalties, etc) That would increase supply dramatically in a short period of time, and would allow the replacement of oil supply lost to terrorism or whatever.



Regards,



Michael

 

[Thomas Beyer]

It'll be there .. in your life time .. likely earlier ! It wasn't meant to be a "soon" prediction .. but an "eventually" .. driven by its three influencers: inflation, supply and demand !



Gasoline is already well over $2 in Europe !!



Luckily, we have loads of cheap natural gas .. so large truck fleets, buses, power generating stations and heating devices could be and will be converted from oil/gasoline/diesel soon .. reducing oil demand !



That'll leave all the world's cars (minus maybe 5-10% e-cars) and planes and the petrochemical industry for oil demand !

 

[bizaro86]

[quote user=ThomasBeyer]It'll be there .. in your life time .. likely earlier ! It wasn't meant to be a "soon" prediction .. but an "eventually" .. driven by its three influencers: inflation, supply and demand !



Eventually it seems incredibly likely. For example, at 4% inflation it would take 28 years for prices to triple from ~$100 to ~300. Hopefully I make it that long!



Regards,



Michael

 

[kir]

I hope WTI oil goes to 300/barrel, I have a small position in the HOU stock, which is a bullish outlook on oil. However, today it's down to 77/ barrel due to Greece debt issues. When US shows demand, and Europe is not an issue, I could see it doubling, but who knows...just a guess.



Kir