Oil: The Plummet Persists

[Jack]

-An increasingly dismal outlook for the global economy has sent crude oil prices into a tailspin, and there appears to be little the Organization of Petroleum Exporting Countries can do but slow the fall.-crude shot to a record US$147 a barrel just four months ago and has since collapsed, hitting less than $50 yesterday.

-Some forecasters foresee oil at $30 a barrel

-There appears to be no confidence among investors that demand projections will hold up under the onslaught of bad news on the economy. “Maybe $50 is conservative given the putrid, putrid look of the economy,” independent analyst Stephen Schork said. “If we`re not out of the doldrums nine months from now, we`re looking at $30 oil.”

(Globe and Mail 081121)

 

[Dan_Eisenhauer]

Why the panic over the price of oil???


When was it last $50 a barrel? Certainly within the last 2 years. But the Oil Sands, and all the other oil related projects were making money @ $50.00. So, today we are back to $50.00. If those projects made sense two years ago, they will make sense today.

But, no one in their right mind thinks that the price of crude will stay at or below $50 for very long. It is a finite resource, and most of the known reserves have probably been found, unless they begin exploring the deep oceans. Because oil is probably a dwindling resource, the price has to go back up again. Projections I have read and heard, including our own Don Campbell`s, suggest a realistic sustainable price today of around $80.00.

In spite of all the naysayers, the Americans are NOT going to stop buying Canadian oil because it is "dirty". There will be a bunch of bellicose politicians in Washington who will jump on the band wagon, and for the sake of a few votes, will shout, "Blame Canada!", and, "Ban its oil!" As soon as they realize that we can sell our oil to China and other parts of the world, and they do not have a safe supplier of oil, those voices will go silent... very quietly.

The price of oil rose to its lofty heights this summer, not because that is where the market price of oil should be, but because of the speculators, read hedge funds, who bet on oil futures. As the price began rising earlier his year, that caused more and more speculators to jump on the band wagon, causing an even more dramatic rise.

I can`t remember Warren Buffet`s quote exactly. But, it is something like this: "When everyone else is buying, be fearful. When everyone else is selling, be optimistic". Clearly, the hedge fund "experts" got greedy by their own misdeeds, and should take a few lessons from Buffet.

 

[Jack]

QUOTE When was it last $50 a barrel? Certainly within the last 2 years. But the Oil Sands, and all the other oil related projects were making money @ $50.00. So, today we are back to $50.00. If those projects made sense two years ago, they will make sense today.

Do you think costs may have also gone up slightly over that period?

Do you think the median income in Fort McMurray was $125K?

There`s been this little thing called "cost-push inflation" that`s happened since 2006, meaning that projects which may have made sense at a WTI price of $50 back then will not make economic sense today!

 

[wealthyboomer]

QUOTE It is a finite resource, and most of the known reserves have probably been found, unless they begin exploring the deep oceans.Didn`t Cuba recently have an oil discovery that puts them on par with the USA?
20bn barrel oil discovery puts Cuba in the big league
• Self-reliance beckons for communist state
• Estimate means reserves are on a par with US
http://tinyurl.com/6ogest
QUOTE In spite of all the naysayers, the Americans are NOT going to stop buying Canadian oil because it is "dirty". There will be a bunch of bellicose politicians in Washington who will jump on the band wagon, and for the sake of a few votes, will shout, "Blame Canada!", and, "Ban its oil!" We love the US appetite for oil, although there is question that Obama is committed to `alternative resources`, and oilman Pickens has a personal investment in `alternatives` to reduce the US oil dependance.

 

[Jack]

QUOTE Didn`t Cuba recently have an oil discovery that puts them on par with the USA?

That was Brazil. Major offshore oil deposit recently discovered.

Either way, you`re right. To assume that we`re the only option for oil extraction is a very risky strategy - just ask Mr. Stelmach!

 

[wealthyboomer]

QUOTE When was it last $50 a barrel? Certainly within the last 2 years. But the Oil Sands, and all the other oil related projects were making money @ $50.00. So, today we are back to $50.00. If those projects made sense two years ago, they will make sense today.

Will they still be able to make money at that price with the NEW Royalty plan?

 

[housingrental]

[But, no one in their right mind thinks that the price of crude will stay at or below $50 for very long. It is a finite resource, and most of the known reserves have probably been found, unless they begin exploring the deep oceans. Because oil is probably a dwindling resource, the price has to go back up again.




Isn`t the history of most resources that on a real basis one of price declines? Isn`t that the standard economic paradigm? Shouldn`t that be the assumption when looking out long term? There`s always been changes in demand, substitution of resource, and technological improvements that have worked to push down prices over time.

 

[ZanderRobertson]

for a really good analysis of energy and oil futures etc. I strongly recommend everyone interested read "1000 Barrels a Second" by Peter Tertzakian. It was recommended by another member on a previous thread and is fantastic.

To answer your question (based on what I learned from the book) there will be substitution away from oil and it`s already happening and has happened in previous oil price shocks, but there are no silver bullets which will reduce our dependance upon oil for the next 10-30 years. Natural gas, liquified coal, renewables, nuclear, and likely others that I`m forgetting will ease demand somewhat, but not enough to completely placate oil.

The future demand for energy will be absolutely huge, far bigger than most of us can imagine. For some reality on this, think about the fact that even though China has come a long way in terms of demand, there are still about 800 million + people seeking the energy dependent lifestyle in China (car, heated home, etc.)

This recent price shock is the first wave, and now that the price is dropping to an unsustainable level, a great many people will think the high prices are gone, thereby stimulating demand again. The "breaking point" will come next. Tertzakian says this breaking point will start to bring about real change in energy demand and also types of energy used.

Read the book!

by the way, does anyone know of any other books on energy that provide as clear of perspective as this one (contrasting or supporting Tertzakian`s analysis)?




QUOTE (housingrental @ Nov 22 2008, 01:51 PM) [But, no one in their right mind thinks that the price of crude will stay at or below $50 for very long. It is a finite resource, and most of the known reserves have probably been found, unless they begin exploring the deep oceans. Because oil is probably a dwindling resource, the price has to go back up again.




Isn`t the history of most resources that on a real basis one of price declines? Isn`t that the standard economic paradigm? Shouldn`t that be the assumption when looking out long term? There`s always been changes in demand, substitution of resource, and technological improvements that have worked to push down prices over time.

 

[mcgregok]

[quote name=`housingrental` date=`Nov 22 2008, 01:51 PM` post=`42654`][But, no one in their right mind thinks that the price of crude will stay at or below $50 for very long. It is a finite resource, and most of the known reserves have probably been found, unless they begin exploring the deep oceans. Because oil is probably a dwindling resource, the price has to go back up again. Isn`t the history of most resources that on a real basis one of price declines? Isn`t that the standard economic paradigm? Shouldn`t that be the assumption when looking out long term? There`s always been changes in demand, substitution of resource, and technological improvements that have worked to push down prices over time.
[/quote


Here is a link for Henry Groppe. His overall oil trend has been fairly accurate since 1955. Has been volital over the years but I think his view is worth looking at. You will have to check out google for more info on Groope to check out who is is.

Check out this link