The Oil Drum | Whither Oil Prices?

161 comments on Whither Oil Prices?

Comments can no longer be added to this story.

| Show without comments | PDF version

Bubba on September 16, 2006 - 10:35am

Although this discussion about near-term pricing is a fun distraction, it has very little to do with Peak Oil. The fact of the matter is that oil production has ceased increasing for over a year now (which Stuart regularly reminds us of), regardless of a continuous and huge run up in prices over the last five years. Prices are going down presently, not because there is more supply, but because demand growth has ceased, and demand for the marginal barrel cannot, at the current point in time, stand a $77 price.

Peak oil is about production capacity, and production capacity is extremely insensitive to short term pricing. The Gulf of Mexico Lower Tertiary Play will not start producing oil before 2009 if oil is $35/bbl or $135/bbl. The same is true for almost all of the projects on Chris Skrebowski's Mega-projects list. Most of those projects were justified on oil forecasts considerably less than $40/bbl and they will go forward in all cases, absent a worldwide economic contraction.

To be honest, most of the major oil companies would be happy for oil to move back to $50/bbl (or even $40/bbl) and stay there. Such a scenario takes them out of the political spotlight, it puts downward pressure on the cost of services and supplies, and it takes power and money out of the holders of the resources (governments of nation states) and puts it back in the hands of those who have the capability to extract the resource.

Sometimes it seems that we are watching the daily fluctuations of temperature in NYC and trying to make statements about global warming.

Comments can no longer be added to this story.

Halfin on September 16, 2006 - 1:39pm

Oil production and oil consumption are inherently equal, to within a couple percent. So when you say oil production has not increased, you can just as easily interpret that as that oil consumption has not increased. And that's not so hard to understand, in view of what you describe, "a continuous and huge run up in prices over the last five years".

Comments can no longer be added to this story.

westexas on September 16, 2006 - 1:59pm

An interesting note regarding consumption

http://www.forbes.com/business/feeds/afx/2006/09/15/afx3019146.html

BEIJING (XFN-ASIA) - China imported 95.8 mln tons of crude oil in the first eight months, up 15.3 pct year-on-year, with 11.82 mln tons in August alone, the General Administration of Customs said in a statement.

The imports of oil products rose 25.7 pct year-on-year to 25.75 mln tons from January to August, with 3.78 mln tons in August.

Comments can no longer be added to this story.

gtjeffers on September 17, 2006 - 10:49am

Excellant point about the marginal barrel unable to command $77 at the moment. In this post, we are discussing current oil trading prices, not Peak Oil. Prices today reflect the desire of market particpants - not environmentalists, doomsters, politicians...

I have worked on Wall Street for nearly 20 years. A former boss once said:
"a - fill in the blank with stock, bond, commodity - will keep going up till it stops going up, and it will keep going down until it stops going down". And "they always go up farther than you thought possible, and down farther than you thought possible". If do not trade for a living, this statements might seem simplistically obvious. When you have a great deal of money on the line... they can eat a hole in your stomach.

At the moment the short term trend is down, even though we had a couple of days of pause. As a trader, I would not reach for the falling knife, so i must believe that prices are headed lower. Prognosticating a price point of the bottom? Ha! These are always made by economists who do not a penny of their own money in the game.

Comments can no longer be added to this story.

Don in Colorado on September 18, 2006 - 3:27am

I don't know how you guys do this kind of thing for a living. It's insane.

All these people who put their life saving into speculative houses over the last couple of years. Reading the headlines today must be a nightmare for them.

Comments can no longer be added to this story.

gtjeffers on September 18, 2006 - 10:07pm

Can anyone tell me why I keep reading posts that Oil prices are down becasue of
"massive imports"? I reviewed the import data (for the U.S.) at the EIA website and the "massive imports" are actually down, year oover year for the first 6 months of 2006 from 2005. If I am missing something please let me know. Any help would be appreciated

Comments can no longer be added to this story.

Jack on September 19, 2006 - 6:33am

Where are you reading that? Oil prices can't, even in theory, be down because of massive imports. Gasoline prices could, in theory, be down because of massive imports of oil, but as you noted that is not the case. Oil prices could be down because of massive exports, but that is not the case either.

My feeling is that oil prices are down on a combination of expectations of lower demand (partially because of lower economic growth expectations) and reduction in the role of financial intermediaries/risk premium. Could all change soon, who knows.

Comments can no longer be added to this story.

gtjeffers on September 19, 2006 - 7:03am

Thanks for the reply.

Of course world Oil prices should not be down because of US imorts, unless of course, the tanker inventory world wide can't find a home... but that is the line coming from a number of Oil market analysts and advisors... US inventories have only 3 components (when you lump crude, distillate, and gasoline together) domestic production, imports, and consumption. Production is down, imorts are down, consumption is... down? Must be if inventories are up year over year

Comments can no longer be added to this story.

161 comments on Whither Oil Prices?

Comments can no longer be added to this story.

| Show without comments | PDF version

“If kindness and comfort are, as I suspect, the results of an energy surplus, then, as the supply contracts, we could be expected to start fighting once again like cats in a sack.”

—George Monbiot