A bottom forming? Well, prices blipped up today, but this global recession is barely out of the crib. Remember 1998? Oil hit $10 a barrel. Remember 1980? Oil demand fell by 11 percent in three years (globally).
I hate to say it, I try to be optimistic, but this global recession looks much worse. Where is refuge from this downturn? Europe? Asia? North America? South America? Manufacturing? Retailing? Real Estate?
Nada, nada, nada. Oil demand could easily fall by 10 percent (maybe more), while supplies rise by 2-3 mbd in nex couple of years.
I see honking gluts of crude to the moon for years and years.
Oiil may hit $10 a barrel again. Increases in crude oil demand will be long and slow in coming, if we are lucky to get any increases at all within three years.
Oil is deader than yesterday's newspaper.
We might want to re-think hytseria about supply. Price seems to moderate demand, especially above $100 a barrel, while stimulating supply. Add in recession, and you get glut-a-rooni.

Hmm bottom forming ?

I don't think so at least with the way I read the charts. I think oil will have to go to 30 before a bottom forms. Now that its blown through the support level at 50 the next one is at 30. It could turn now but thats pretty doubtful.

And to be clear I continue to assert oil could readily hit 150 or more in a matter of weeks just depends on when the market wakes up and what the real demand supply situation is.

But I'm pretty sure that in the interim we should see 30 first. It will be interesting to see it turn before it at least touches 30.

Now if the market blows through 30 god knows what the floor price would be I don't think we have any other fundamental base for a floor forming.

However I think that if we do hit 30 like I suspect we will see some serious cuts in supply that are probably unwarranted. We have a little resistance at 40 but I suspect the current bear market rally in the stock market will falter and this will work to allow oil to bust this temporary support level at 40 sending it on down to 30.

I don't think this bear market rally in the stock market will really take off until we see the bond market bubble collapse so I think we will see a number of still born bear rallies.

Whats worse however is if oil does punch through and head for 30 its going to send North American NG to 4 which is going to devastate the US UNG plays.

Now if this is the "real" bear market rally then oil could turn now and stocks turn first and that takes out the bond market. In any case we are certain to see yields turn around on the bond market eventually it get very volatile as the interest rates drop so I can't see the bond bubble lasting much longer.

Also although I think the current oil market is dysfunctional it is betting that KSA can do nothing to control the slide in oil prices and I really think that prices will continue to decline at least to 30 now until it becomes obvious that we do or don't have enough oil. So once the market answers this question it will become functional again.
It as three low price equilibrium points 50, 30 and say 15 although I've got no idea where the last one is. If we have plenty of oil it will settle on one of these three. If not then we don't have any long term stable points until we hit 200.

Really sticking my neck out I think we will smash below 40 before the end of the week and potentially see 30 in the next two weeks.

Did you see the comment the other day from the TODer in the shipping biz? He was pointing out that the drop in price meant that ships were moving faster, because costs of crew, etc. were outweighing costs of fuel. And he said that this shortening of the pipeline had, in effect, put an extra 2 mbpd on the market.

It could only be a brief burst of extra supply, or extra congestion at the receiving dock. In the long run, ships only transport what buyers buy.

Faster ships mean fewer ships can supply the same demand, which means fewer cargoes are on the high seas at any one time, which means a reduction in on-the-seas storage, and more competition for cargoes, so shipping rates should decline.

Is that US costs? Refinery acquisition costs? FUD?
If refinery acquisition costs, it tells us nothing, other than we were in a financial bubble, or rather, because we were in financial bubble, the true meaning of this graph is unknown.

(I sent you an email)

Is "asymptotic" the correct word to us to describe the situation? If you do use the term, then you are implying that there is a daily production rate that we cannot exceed. So that something like 1/(x-xmax) turns into a singularity at the x=xmax asymptote.

Lots of possibilities here. Factor in what Krugman had to say about such a curve regarding multiple equilibria that Khebab pointed out further below in the thread:

Just for fun, I created a quick plot of the number of bushels of corn required to purchase a barrel of oil (using the $/bushel cost) plotted against annual average oil production since 1960.

You can see the artificial peak of the oil embargoes of the 1970's in the data. But notice that on a commodity swap basis it is (in general) costing using more corn (equivalent) as the production flattens as we approach 75 million BPD of C+C.

Of course, one othe things noted about the agricultural production is the yield (and the variation each year). Here is the amount of land area production required for a barrel of oil using the cost equivalent method above.

It's the number of acres of corn production required for a barrel of oil, considering both the yield and the respect price of corn and oil. The curve is slightly different indicating the effects of lower yields in the early years. However, the general characteristic is the same.

A picture is worth a thousand words!
G

No, but this is:
(I don't go with fancy backgrounds, or non-zero scaled axes)

Not quite so impressive. The loops pre 1986 are the two OPEC oil shocks. The run-up after that remains pretty startling

Data from:
http://www.eia.doe.gov/emeu/steo/pub/fsheets/real_prices.xls
http://tonto.eia.doe.gov/merquery/mer_data.asp?table=T11.01b

G.

Inflation adjustment is shown in a post above this one. I would point out, though, that part of the effect we see is the fall of the dollar relative to other currencies and then its sudden rise. I will post those separately.

I would also point out that inflation adjusted data does not provide much insight into different periods of time that may refelct completely different social-economic conditions at both micro and macro conditions. The Raleigh of 1973 where in just going two miles from the campus I was in to rural/agricultural farmland is a thing of the past. And the OPEC oil embargo price shock of 1973, where gasoline prices at the local Starflite gas stations went from $0.199/gallon to $0.439/gallon (where you fed dollar bills into a vending machine type reader) does not necessarily reflect a "constant" expenditure percentage for our lives. What we saw this past summer(2008), in terms of cost cause and effect might be similar, yet other forces were at work then and now.

BTW, the background is the Delaware Bridge on the way to the NJ Turnpike.

The raw data I used is:

Refiners Aquisition Cost (composite) found at:

http://tonto.eia.doe.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm

The monthly production data are from the Monthly Energy Review, specifically Table 11b (Under International Petroluem) at:

http://tonto.eia.doe.gov/merquery/mer_data.asp?table=T11.01b

That's the "easy" data to retrieve. I'm working on (in my spare time) extracting the cost and production data even further back in as fine a resolution as we have here (that requires more time in the NCSU Library). The EIA has annual values available.

Here is the same data converted to € from 1994 to present.

The production data and the cost data all on one chart with $ and €.