The Oil Drum | A Thursday Open Thread

73 comments on A Thursday Open Thread

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The Interloafer on January 19, 2006 - 1:33pm

It really doesn't seem like they're going out on much of a limb with that one. $70 by October? It's $66 now!

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Oil CEO on January 19, 2006 - 1:46pm

This is the same Goldman Sachs whose Arjun Murti made the famous $105 price-spike forecast last year and maintains a $70-$105 target as far as I know. But yeah, $70 from $66 - I guess that's why they get paid the big bucks. They must be reading this web-site to be coming up with bold predictions like that.

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tom deplume on January 20, 2006 - 1:16pm

Split the difference and we have $88 bbl which is in line with yoy increases since 2000.

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step back on January 19, 2006 - 5:30pm

Speaking of $66 /bbl today
(Actually it's closing in on $67 /bbl)
There is a part of this I never understand.

The stock market (Dow Jones)is soaring up up and away as if energy prices mean nothing. I heard one chicken squawker opine yesterday that "the market" has gotten used to --accustomed to-- these high oil prices and therefore they are no longer a problem.

There appears to be a huge disconnect.

Heard from one friend that they shut off heat to their home and just freeze & grin & bear it cause the heating bills are too high.

At same time, David Brooks of NY Times crows in today's editorial about how much wonderful "growth" is going to be happening in the deserts by 2025 as 75 million more prosperous Americans add on to our population rolls. Hooray for suburbia he writes. Has he bounced off the rubber pads in his room or what?

The more you try to piece the puzzle pieces together, the less it makes sense.

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Leanan on January 19, 2006 - 5:41pm

Eventually, reality will set it.

Remember the dot-com boom? Everyone was making money hands over fists. The Juno glass company saw its stock jump a shocking amount in a few hours - until traders realized they weren't Juno, the free e-mail service. A few people warned that this couldn't continue forever - that the base of the economy was still natural resources. But the boom continued for a year or two after the first warnings were sounded, and many truly believed we had a "new economy," where what counted wasn't widgets made or sold, but clicks on a Web page.

Of course, we know how that ended. The doomsayers were right, just not immediately.

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Fletcher on January 19, 2006 - 8:19pm

But not for David Brooks, evidentally, because he is intellectually dishonest and a compulsive and congenital suck-up to people in power. So he will continue to distract sensible people by bouncing off his rubber pads in his room.

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Halfin on January 19, 2006 - 5:52pm

The market tends to look ahead only a few years at most, because things get so uncertain beyond that point. Oil prices are not expected by traders to increase much over the next few years, and so far today's prices have not been enough of a burden to significantly hurt the overall economy. Put these together and there are reasonable prospects for continued economic growth over the next year or two.

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step back on January 19, 2006 - 7:15pm

My phone was ringing:

"Hello?"
"It's me, The Economy."

"How ya doing?"

"If you want to know the truth, I'm hurting."

"What ya mean? All the analysts say you're doing great!"

"They don't feel my pains. Only I do.
My joints are aching.
The grease and oil that makes my body parts move isn't flowing as freely and abundantly as it used to.
Sure my heart is pumping money and my lungs are breathing in the fumes of ambition and greed. But that aint't good enough."

"I thought money was everything?"

"No. It's not. Economies like me don't live on moola alone. We need to be constantly fed with innovation, energy and real, hard core improvements of life style, not just the massaging of reserve numbers. The numbers game only goes so far and then someone realizes it was just hot air."

"So where are you hurting most?"

"My infrastructure is killing me.
I feel as if billions of new creatures are having an exploding population party game inside of me. It's stressing me out. They need to be fed. They need to be housed. They need health services. But the cost of doing all that is getting to be too much for me. My joints are aching just as my tentacles grow to span the globe. The lubricants aren't getting to all the parts anymore. Those analysts don't feel my pain."

"Sorry to hear. Hope you feel better soon."

"Thanks for hearing me out buddy."

Click.

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Leanan on January 19, 2006 - 7:23pm

Sterling Newberry is one economist who agrees with you. He thinks the numbers are signalling a recession:

http://www.bopnews.com/archives/005823.html

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geewiz on January 19, 2006 - 9:59pm

Bravo! Well Done! (insert clapping here) You are gonna get quoted somewhere and live off the millions in royalties.
Just kidding about the royalties, but i bet this shows up in print somewhere.

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Oil CEO on January 19, 2006 - 7:22pm

I've done a comparison of the US markets to the price of oil. Thanks for reminding me, I'll update it and post it. It shows what I think is a definite downward pressure of oil on the market.

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Agric on January 19, 2006 - 10:48pm

I understand your take on the disconnect, Step Back, there are some fundamental reasons:

there is a lot of liquidity (spare money) sloshing around: firstly the Fed has been 'printing' it at about twice its normal rate for the last month and more, secondly some corporations have repatriated overseas profits at a massive tax discount over the last year
stocks recently made new 4 year highs, traders read this as being a bullish sign
US economic numbers still look reasonably good
nothing too worrying in corporations quarterly results so far
there are no signs of serious economic trouble (like house price crash, inflation, run on $, sharp drop off in consumer spend...)
traders expect shares to go up in 2006, I saw a survey of 63 where only 7 expected the DJIA to end 2006 below 11,000

Yes, there are some very big fundamental problems with the US economy but nothing new so the markets will tend to disregard them until something breaks. Besides, most market traders are somewhat disconnected from fundamental reality.

Things will begin to go downhill for US stocks soon enough, but they could remain at current levels for another 2 or 3 months, might even stage a bit of a rally higher in that time.

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Nate Hagens on January 19, 2006 - 10:56pm

I agree with everything you said - I would add that valuation is always trumped by supply and demand in the short term. If there are dollars needing a financial home, (foreign banks, mutual funds etc) they will end up in stocks when they are going up, irrespective of the fundamentals. When this happens and persists IN THE FACE of fundamentals, a) it will continue longer and higher than most can imagine because people short,lose, then cover, short, lose, then cover etc and b) when it reverses it will be uglier than most imagine (1999 and 2000 come to mind in US equities).
How many TOD readers are long term bullish on US stocks? i would bet close to none, except maybe for JD. Time will tell.

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Peter Schober Germany on January 20, 2006 - 4:06am

Regarding price prognosis; take a look at www.tecson.de.They show a price developement chart based on a 50 / 50 mix of Brent and Saudi Arabian oil.
The curves of 2004 were with only slight deviations repeated on a higher level in 2005.It seems this is continued in 2006.

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