The Oil Drum | DrumBeat: December 15, 2006

191 comments on DrumBeat: December 15, 2006

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Euan Mearns on December 15, 2006 - 10:57am

A message for SAT

Hello SAT - after an absence lasting exactly 30 days I see you're back with a couple of cautious posts.

So lets cut straight to the quick. What will the oil price be 1 year from now?

Every year at this time I have a bet with a friend about the oil price:

Last year I bet on $52.35
He bet on $60 - so it looks like I lost.

Does this make me an optimist or a pessimist? I'm sure there may be a few folks round here who'd be interested to know your thoughts.

PS - if anyone else wants to give opinions then please fire away!

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Flakmeister on December 15, 2006 - 11:26am

I'll venture that the Dec 07 contract will be $69 but I would not be surprised if it was $85

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GliderGuider on December 15, 2006 - 11:35am

I have a standing bet on another board. We bet a barrel of oil that the price would be either over or under $70 on Aug. 30, 2008. I bet over, he bet under. Loser sends the winner the WTI Cushing Spot price of a barrel. I'm still comfortable with that bet.

In fact I think it will be back to $70 before the end of 2007. I further think it will do that without any significant fear premium. I'd tack on at least $10 if a FUD event breaks through the public consciousness. That's not based on anything but my gut feel, though. A year ago I was willing to predict $100 by then, so either I'm getting more realistic or less pessimistic as time goes by.

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SelfAggrandizedTrader on December 15, 2006 - 2:40pm

Can you believe the British? I get kidnapped. My family refuses to pay the ransom, "on principle," whatever that means. I finally manage to escape -- thank you MacGyver -- and as soon as I get home this guy demands an oil price prediction. I'm still wearing my hostage clothes. I was about to climb into the hot tub. Jeeze.

Euan, oil prices cannot be predicted. You are gambling. I strongly recommend that you seek help, or at least find ways to profit from unpredictable price swings, whether they turn out to be up or down.

All right, all right, all right. If that's what it takes to get you to call off your dogs. You want a prediction? I'm going to come clean with you, Euan, my mom just brought down a fresh set of charts from the attick a few minutes ago (she's like you, no, "welcome back," no hug, just right down to business). These charts don't go all the way out to Nov. 15th, 2007, so i'll have to extrapolate this line (as I'm sure you all know, extrapolation can be -- how should I put this? -- extremely inaccurate). Hang on a second. Where's my ruler? OK. Wait a minute, Nov. 15th is off the edge of this paper, so I'll have to put another sheet over here and then draw a line down to estimate...$82.

I think a strengthening dollar over the course of the next three or four months, along with continued pre-recession commodity declines, will keep oil in the $50-$70 range in the short term (that's funny, isn't it, $50-$70 range?) and then prices will start to move back up once the recession is underway. Does that make sense? I feel like i'm still a little bit out of it. My God, what has been going on with Brittney Spears?

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dbarberic on December 15, 2006 - 5:13pm

I recommend a long straddle strategy of investing in oil by purchasing both a call and put each with the same exercise price and date. This strategy will capture a gain in rapid price movement either up or down. If the experation date is passed without any movement up or down, the loss for the investor is the purchase price of the options.

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Hurin on December 15, 2006 - 5:48pm

I'm curious. Why do you suppose the dollar will be strenghtening?

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SelfAggrandizedTrader on December 15, 2006 - 7:49pm

Hurin,

The dollar tends to strengthen prior to a recession. Technical factors and trader's commitments are both pointing to a stronger dollar. The media is falling all over itself talking about a dollar collapse. Finally, while the dollar has recently declined a bit based on growing recognition of a U.S. slowdown, other currencies (for example, the Euro)have yet to see this effect. As soon as people realize that other countries economies will also slow as a result of the U.S. slowing, this situation will correct.

The U.S. dollar index recently dipped below 82.50. Today it closed at 84.06. I think it will approach 90 in the coming half-year or so.

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Euan Mearns on December 15, 2006 - 7:25pm

Euan, oil prices cannot be predicted.

find ways to profit from unpredictable price swings, whether they turn out to be up or down.

SAT - I'm glad you escaped. $82 / 15 Nov 2007 - its in my diary. And two of the most sensible quotes I have for this month if not for this year.

Monday morning I phone my lawyer to sell the house and sink the lot into Brent Britney futures (note - no other readers of this site should even consider this without first consulting a fully qualified financial advisor who wants to rob you of your money).

I think a strengthening dollar over the course of the next three or four months, along with continued pre-recession commodity declines, will keep oil in the $50-$70 range in the short term (that's funny, isn't it, $50-$70 range?) and then prices will start to move back up once the recession is underway. Does that make sense?

Well yes - I guess the $ is down now and so may go back up again. And then no - why will oil prices rise when the recession gets underway? More full explanation required if you have the time please.

Darndest thing - I was writing my post the same time that you posted. So I have 2007 on a $72 average for Brent - was hoping that Khebab might have called by to put some flesh on the volatility aspect.

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SelfAggrandizedTrader on December 15, 2006 - 8:20pm

Markets are anticipatory. Historically, commodities have fallen in anticipation of recessions and risen in anticipation of the end of recessions. In other words, commodities have risen during recessions. If this is a typical recession, I don't see why things should be any different this time.

Note: I have often commented about my fascination with Stoneleigh's theories over at TOD Canada. This doesn't necessarily mean that I agree with him. He lays out a very convincing case, though, and could very well be right at some point. In the mean time, I continue to act based on the assumption that the coming recession will be more or less typical.

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Euan Mearns on December 16, 2006 - 7:34am

Yeh, Stoneleigh is very gloomy and I have tended to align myself with his gloooomy outlook. So I note that you are much more "optimistic" in referring to the comming recession as typical and not the recession to end all recessions. I have also noted that Stuart since his return is also less glooomy than most. One comment of Stuart's I picked up on was substitution of oil by other sources in India - I'm not sure how much flesh there is on that claim. In this regard, I wonder if one of the more important stories on Drumbeat today is not the French move to aid Gulf States develop nuclear power. I wonder how much oil and gas they burn in power generation?

I have no feel for how realistic a proposition this is. Could move on to Iran.. but probably best leave it there.

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Euan Mearns on December 15, 2006 - 2:43pm

Some thoughts - 2003, 2004 and 2005, demand ran ahead of the long term trend. 2006 demand has tracked sideways and my suspicion is that 2007 will be similar, with demand running at around 85 mmbpd (all liquids) on average for 2007 - checked by continuing high price. On this basis I'd estimate an average price for Brent (which is getting pretty scarce now) of $72 / bbl for 2007.

How to handle the volatility and above ground factors is a major problem. Property implosion in US and UK may send markets into a tail spin. Alternatively, loss of 3 to 5 mmbpd production from the ME owing to spread of conflict could send oil over $100 over night.

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BobCousins on December 15, 2006 - 3:05pm

A message for SAT
Hello SAT - after an absence lasting exactly 30 days I see you're back with a couple of cautious posts.

You do realise that SAT, Oil CEO and Hugo Chavez are all the same person, don't you?

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Euan Mearns on December 15, 2006 - 4:47pm

Bob - this notion of multiple cyber personalities is one that I find fascinating. As I spend most of my time doing primary research for TOD I find I don't have that much time to spend cross referencing posting habits. I may agree with 67% of what you say - but never had much time for Hugo myself.

At the end of the day, the things that matter to me most here are original research, analysis and insight.

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JoulesBurn on December 15, 2006 - 8:54pm

Perhaps WT and Hothgar are the same person. Wouldn't that be a kick?

"A schizophrenic, goes into a blog,..."

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SelfAggrandizedTrader on December 15, 2006 - 7:59pm

Oil CEO? I wish.

On the other hand, if anyone's crazy enough to pull something like that off, it's him.

Unfortunately, for existential reasons, I can't join you in supporting this particular conspiracy theory.

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191 comments on DrumBeat: December 15, 2006

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“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…”

—Winston Churchill, November 1936