Where are oil prices headed?
Posted by Gail the Actuary on May 16, 2009 - 9:45am
Above $70, before they drop under $40
15% (338 votes)
Below $40, before they go above $70
15% (330 votes)
Above $70, on their way to much higher
34% (742 votes)
Below $40, on their way to much lower
3% (70 votes)
Whichever way the stock market goes
10% (218 votes)
I give up--prices no longer make sense to me
20% (439 votes)
Other
3% (60 votes)
Total votes: 2197
“A third of humanity doesn't want to ride bikes anymore; that has profound geopolitical implications.”
—Anne Korin, the co-director of the Institute for the Analysis of Global Security (May 1, 2005)
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Other -- price stable around $65 for the rest of the year.
By the winter swine flu mutates and the price falls to $2.
Hello Goghgoner,
"By the winter swine flu mutates and the price falls to $2."
Interesting scenario, but I think it needs further elaboration. If enough people are sick and dying [hope not!] the $2/bbl might be the average global wellhead price, but since so many skilled people are sick or dead--it can't get moved through the very long infrastructure supply chain, so if you happen to live in an area far from a wellhead [like I do in my AZ Asphaltistan :(], gasoline might be $20/gal and empty food shelves.
EDIT: This is basically what happened when the horses dropped dead and/or got really sick back in the 1873 Equine Outbreak--people had to pull the cargo buggies themselves, but they could not move enough wood and coal to even keep most trains running.
EDIT2: Imagine KSA marching 3,000 unskilled, un-informed rookies into a shutdown Mega-huge refinery with only the directive to 'fire this baby up'! I am sure they will. :(
After reading your comment, I ran across the article below. I think you are right, however, I was just using swine flu as an example of one of the seemingly infinite possibilities that may effect the price of oil in the future.
LINK
Other, we all see the error of our ways and stop using oil completely, the oil companies start giving away free oil so they no longer have to pay for storage on the high seas. What? you don't believe me?
Ok they'll start paying us to take it off their hands, It's still cheaper than trying to hold on to it /snark
Other: forcasting anything is a fools occupation. Read "The Black Swan" or "Fooled by Randomness".
BTW: The only reality is "Here" and "Now". Just thought I would mention that.
"Do not try to avoid predicting. I am not urging you to stop being a fool. Just be a fool in the right places." -- Nassim Taleb
It's irrational to expect people to be rational, and vice-versa.
As long as the Fed and other central banks are printing money and there is nowhere else for it to go, oil prices will go up.
The liquidity is lent to banks and other 'bank- like' organizations that can access central banks' lending facilities. These in turn lend to funds who buy 'can't miss' stocks and commodities. The funds seek to earn profits to offset losses from 2008.
That the increase in cost will ricochet through the rest of the economy in the form of more bankruptcies is not apparent to those in finance. I suspect the world's economy will not function as designed without extremely cheap petroleum: under $35 a barrel.
Under the circumstances there is a way to run short term for both stocks and oil. I wouldn't be surprised if oil reached $100 a barrel.
Numerous articles here have suggested that extreme volatility will be a feature of the decline phase of peak oil. The trend right now is clearly up and there is a powerful mechanism to support the trend.
When it becomes clear that central bank liquidity is pushing up oil prices these banks will face a dilemma. They can cut liquidity which will cause energy prices - and stock prices - to collapse and will also hasten the bankruptcy of the finance companies that are now dependent upon central bank support or ... they can continue to supply liquidity, support insolvent finance and allow high energy prices to collapse the overall economy.
I expect:
next few months = $60-70
end of 2009 = $45-60 (due to second round effects of financial crisis and overflowing storage capacity; will be much lower if swine flu returns with a vengeance)
2010 = $80
2011 = $120
2012 = $170
2013 = $250 (second crash somewhere round this time)
2014 = $60
$100 was high enough to topple the economic structure of 2008. Admittedly, much of the economic activity of that time was smoke, mirrors, and legalized fraud, but I can't see what's left supporting prices much above where we are today.
(Just my Spidey Senses Tingling here, I don't have any data to back that up.)
Hi Last_Historian,
Your predictions make a lot of sense to me - unless there are some totally unanticipated geo-political events like an over throw of the KSA or a major swine thing.
But that aside, the only part I wonder about is the "end of 2009" dip in prices. We know that all the "smartest guys in the room" bought execss oil from last year and put it into storage. Now, they need to meter it out as prices rise - what I believe you were getting at with "overflowing storage capacity". So, this will dampen any quick rise in prices over the next several months i.e. your $60-70 predicition sounds good. But regardless of the financial crisis issues, is it really likely that these guys, and other oil producers, are going to permit $45? They accepted $40 a few months ago because they had crude in the pipeline and had little choice but to sell it for whatever they could get. Do you really think they are going to get into this situation again?
My guess (admittedly a WAG) is that this dip will not go below the $60 price point (which you did suggest as the high end of the range).
2010= $80
2011=Yuan804
2012=Yuan120
2013=Yuan150
2014=Yuan200
2014=Yuan400.
Check your assumptions.
I like that, very funny!
I agree. Up in the next few moths. Down by the end of the year when the sucker's rally ends. I don't think that we have solved any of our financial problems, we just postponed them at enormous cost.
There are always pull backs in a market crash link and this crash we are in still has a long way to go.
The oil price will see-saw in a general upward trend in the $45 - $90 range for the next three to six months.
UNLESS there is a major change in the geopolitical arena. War, oil will go higher. War in an oil-producing region, oil will spike. Economic shutdown or fears of pandemic, oil will fall. Collapse of Mexico's government, oil will spike.
I voted don't know. I expect there'll be oppressively high prices in a year or three but the trajectory meanwhile is liable to be raised by falling supply, but lowered by further economic contraction (GM folding and its consequences).
I am of the view that price is not the wisest variable to focus on, because:
(1) it is very sensitive to the squeeze/stretch between supply and demand.
(2) global market prices are notoriously jittery, subject to positive feedback speculation -- speculators pile onto a rising price, and jump off a falling one.
For these reasons I think it better to focus on the less erratic variables such as production, which we can make much better forecasts of (unless we are CERA, IEA, oil-corps or govts, it seems). We can foresee falling net energy production, and heavily falling purchasing ability. Just how the oil price wiggles between these opposing factors is less clear and not so important (unless you're an energy investor with short-term preoccupations?).
Me, I like Totoneila's comment that "the market can stay irrational longer than you can stay solvent." ,-)
If the rumours about China moving to denominate its trade in Renminbi are true, then rationally there should be a long-run fall in the value of the USD. That implies a long-term drift upwards in oil prices (along with everything else). What will the market do? Who knows?
There are signs the next shoe is about to drop in credit markets, with increased foreclosures speeding up the decline in real estate values and credit availability. Add that to the problems in unsecured credit (credit cards) and business finance and the shoe looks like a size 11.
The bankruptcies of Chrysler and GM will have unforeseen effects too.
On the other hand (or foot) we haven't seen the effects of the stimulus packages (US, China) yet.
How many feet does this animal have? Who knows?
Wishing don't make it so ... and neither does whining!
The only way for the Chinese to denominate its trade in its own currency is to trade its own currency. The Chinese have to get out there in the real world and get dirty. Just like the other countries have done, like USA Japan, Eurozone, GBP,Canada, Mexico, etc.
The Chinese want desperately to avoid this because their currency is basically worthless ... It only has two things going for it, (Three if you consider it not being a dollar as a virtue.)
Many currency analysts believe the Renmimbi/Yuan is overvalued. This is mainly because of the dollar- denominated trade imbalance between China and the US. What these analysts miss the imbalance is structural rather than founded in currency. The trade is actually a looping of the US supply chain overseas to China - we pay the Chinese doppelgangers (of the US workforce) a fraction of US wages and we pay in dollars. This wage difference - between what the Chinese slaves actually earn and what their USA counterparts would earn - is the imbalance, not the relative value of Yuan/dollar.
This wage imbalance is reflected as a virtue to the Yuan. To redress this imbalance it is not a currency adjustment that is needed but for workers in both countries to achieve real wage parity ... which would eliminate the need for China trade in the first place!
Since currency analysts refuse to discuss the disastrous effects of our government and business policies on our own workers, the analysts' emphasis is always on the more abstract 'trade imbalance'. In effect the US has shipped its workers' savings overseas to China. If US workers could have kept jobs and earnings over the past twenty- five years there would be accumulated US savings, instead the Chinese have them ... doing neither themselves nor American workers any good. The Americans can't use the savings to repair damaged balance sheets - or prevent them from being damaged in the first place. The Chinese are too greedy and stupid to spend (invest) the dollars in the only place they can be spent ... in America. The Chinese may as well not have the dollars at all, for what they do - or don't do - with them!
This is what torments the Chinese endlessly, the effective worthlessness of their massive cash hoard. They can only spend it in America and it has value only IN America. The Chinese can buy petroleum with dollars ... then the money and the petroleum is gone ... wasted.
Even OPEC doesn't want Yuan as a dominant currency; if the USA is forced to buy Yuan, Americans will simply drive (a lot) less and crude prices will plummet. If the blame for high gas prices can be shifted to China the risk is that Americans will simply boycott gas and also boycott Chinese goods ... an extremely costly gambit for China. The oil producers night gain more (hopefully) valueable yuan but would certainly gain a lot fewer of them. USA is oil's Number One Customer, not China, this could change literally overnight and the undertainty of such a change is a great risk to the producers. This uncertainty would outweigh any benefits that producers might gain from the shift from dollars. Accepting Yuan is one thing but subsituting one for the other is not likely and the circumstance of buying oil with yuan alongside dollars risks having the oil market putting a relative real value on the yuan ... intolerable to the Chinese.
Another considered virtue of the Yuan is really nothing more than the 'scarcity premium' the Yuan commands. Because the Yuan doesn't ever leave China except to go to trading powerhouses like Belarus and Argentina there are few Yuan in circulation compared to dollars. In order for the Chinese currency to trade internationally at a level of say ... the Japanese Yen, the government would have to print a lot more Yuan ... and the value the Yuan commands due to scarcity would evaporate. This would create a tremendous dilemma for China as id does not have much domestic demand ... printing a lot of Yuan to satisfy international demand (if it was to be a reserve currency) would push prices up in China - the country would soon experience severe inflation/stagflation. That domestic inflation would make the yuan worth less and the dollars worth a lot more - Chinese would seek to repay debts and buy goods with dollars and the dollar demand would increase its value.
Keep in mind, for the yuan to be a truly international currency it would have to trade freely for other currencies within China, something that is not allowed currently. Since the Chinese also do not have a well- developed finance sector - along with no real contracts, transparency, rule of law, property rights, etc. - credit and money supply creation would be heavily dependent upon the Beijing government rather than the private sector. The yuan would likely to be quite volatile/unstable as a consequence.
If China chose to export some of their domestic inflation to its (new) Yuan- trading partners such as Iran, Sudan or Venequela these would soon demand dollars instead of the rapidly devalueing Yuan. Because of the structural wage imbalance mentioned above, China couldn't be able to export any inflation to is number one trading parter.
I've mentioned this before in other comments but the 'instant inflation' outcome is never given consideration by currency analysts and holds true for any other fiat medium considered as a substitute reserve currency for the dollar. Replacing the dollar by the Euro or the Yen or an IMF marker would require printing a lot more of them. The inflationary effect of such an increase would automatically eliminiate what is desired of the substitute reserve currency. Since the dollar wouldn't simply disappear, the 'Niewe' currency would simply become a proxy for the dollar .. s substitute dollar, something you take when you can't get your hands on the real thing.
Another special claim the Chinese make is that the Yuan is backed ... with a large dollar reserves! I will leave to the Chinese to explain how the derivative Yuan can have more value that what it is derived from.
The Chinese are helpless to control their own destiny. The smart move for them is to sell their Treasuries back to the US for printed dollars and use that cash to buy other currency reserves. This means the Chinese would have to buy dollars in the markets, but the market would then determine the real value of the yuan - rather than the bleating of the Chinese ruling caste.
The Chinese are buying gold but this is not as a currency basis. It is likely that the gold would disappear as soon as convertability was announced so the Chinese may as well not buy the gold. The Chinese don't seem to have figured out Steve's first law of economics: the cost of managing a surplus increases more rapidly than the increase in size of the surplus itself. The cost of managing eventually exceeds the value of the stuff. Theoretically, a large enough surples of anything would be worthless while its management cost would be infinite!
Next, let's take a Look at China's upstanding business partners outside of the USA: Belarus (tyrant), Iran (Jew- hating madmen), Sudan (genocide), Venezuela (madman), Russia (tyrant)... good grief! The reserve status of the dollar was earned with blood ... America defeated Hitler and Tojo and liberated the world at great sacrifice. What have the Chinese earned with blood? They cannot peacefully manage a bunch of pacifist monks in Tibet! Who is taking any steps to redress the financial crisis? The heavy lifting is being done by the US at great risk to the future economic health of the country. The US is trying even if wrongheaded, the Chinese are bystanders, whining becaue they cannot get their own way. If the Chinese wish to have a leadership role in the world they must earn it by leading. Currently, China does not lead anything, except rhey are the 'world's leader' in worthless, cheap junk, poisoned food and climate- destroying pollution.
For all of his faults there is no Chinese equivalent to Obama. It is the fact, the reality of Obama's Presidency, not the man himself that gives stature to the US that the Chinese cannot hope to achieve by any means. Stature cannot be conferred by the whining of Chinese politicians and bankers to the IMF or in the Wall Street Journal.
Chinese prosperity today is a direct outgrowth of US business' and government decisions to transfer wealth from American working people to China. That country is now left to its own devices, the wealth transfer is over. What does China have going for it now that the US gravy train has stopped running? A massive and growing population (overshoot), a desertifying agricultural base, Fouled water and air, millions of highly inefficient factories/businesses/automobiles, a huge - if eompletely inept - miiitary, a bloated commercial/industrial infrastructure that does not produce what the locals need - how many salad shootes and battery drills do Chinese consumers buy? - and wages too low and unemployment too high to afford these goods even if they were to be somehow desireable!
The question is what is the future of the country rather than the future of the currency? I wouldn't hold my breath on Yuan as any kind of trading or reserve currency.
Under $40 for who knows how long.
Enormous Glut already, world economy does another swan dive into the fall, OPEC shits on itself again.
Last year at this time we did not know how high up was. Now we know it is $147. It didn't stay there long so let's call up $140. We now know what down is. It is about $40. So we have a nice round number to play with: $100.
If down is $40 and up is $140, then about right is halfway in between or one half of $100 or $50. $50+$40=$90 oil. The oil market doesn't have to do it of course, but it makes some sense.
There is usually a shortage at the top and a glut at the bottom, so that is no guide as to what comes next. Reversals are usually followed by a move in the opposite direction and that move is often in the area of 50 percent of the previous move. We have had a reversal in oil.
There are fundamentals at work in oil to reduce the apparent glut. Cars are still selling well in China and Germany. The summer driving season and agricultural demand is upon us. The dollar is falling again and inflation is likely around the corner since it is Fed and government fiscal policy to avoid deflation at all costs. And they are doing it.
Add in the decline in oil investment due to low prices and coming reduced competition from ethanol because of low prices and environmental regulation.
Prices could be headed for $90 before the customary seasonal decline beginning in about August.
I agree with the view that supplies are very high, and with demand so low from the current world crisis. we will continue to have a over supply for the shorterm which will create a problem as reserves max out. further destorying investment.
this senerio sets pace to see a price dive under $40 again, before we eventually see the natural decline and/or demand growth begin to catch us.
Will the declining economy destroy demand for oil faster than the Federal Reserve, Congress and Treasury Department destroy the value of the US dollar?
That's one of the key questions in my mind.
Since there is no time period defined this is not a very useful poll. My wild assed guess is for the period until October. There will be a sell off which has already started which will have a spike low in the 40's. Before October there will be a strong rally or several which take oil over 70.
Such predictions are worthless and for entertainment purpose only. There are only possibilities and probabilities. The future of price is not determined, particularly because the unit of measure, the dollar, is not fixed. Longer term, say 4 years any strong rallies in oil, baring war, well be highly dependent on currency valuations.
I fall in the prices make no sense camp.
What I'm reasonably certain of is that we'll use less oil.
Numbers can be manipulated.
Peak Oil can't be.
Steady prices for a couple of years... Along with a flat stock market... Then who knows?