I believe the high oil price this year is due to: 1. weak U.S dollar 2. strong demand from BRICs 3. High speculation given a global equity market turmoil 4. limited reserve Do you guys think crude oil will hit 150 in two months and eventually 200 1H09? Or you guys think its gonna burst, then when? Welcome any thoughts on the Oil Factor. It has driven the global commodity price and dampen the stock market.
Noting 2, when do you see this abating? I agree that the weak dollar has definitely helped oil prices but in the long run we will see the dollar strengthen yet demand continue to outpace supply.
For oil prices to go down there should be some demand destruction to reflect the higher prices. The problem is three of the fastest growing economies China, Russia and India subsidize oil and hence you are not seeing the kind of decline in demand that you should see at these prices. There is a very good chance that these countries will continue to subsidize oil for some time for the following reasons Russia- Benefits from high international prices as it is the second largest producer, it will pass on the benefits to its own citizens in the form low oil prices. India- Inflation is already high at more than 11%, with elections coming in 2009 would not be too keen to increase the prices. China- Does not have any political considerations and does not benefit from high oil prices. However China has huge foreign currency reserves and can afford to subsidize. They will be hoping some other country bites the bullet first. I think it is really upto China now, but will they do it? I dont know.
Also in the developed world, demand for oil seems to be price inelastic. In the US gasoline prices went from 2.2 US$ in early 2007 to about 4.1 US$ now, but the demand has not changed that much.
I think the sleeper here is ethanol. It takes the equivalent of nearly 2 gallons of fuel to create 1 gallon of ethanol. My guess is that the oil companies are the biggest proponents of ethanol since it allows then to sell the same amount of oil as they did pre-ethanol mandate at post-ethanol mandate prices. 1/3 of the U.S. corn crop will be used for ethanol, which is not a small amount. Think about how much energy will be used to grow, harvest and convert all of this corn into ethanol. Ethanol will be seen as the worst policy of our generation.
there has to be a bubble for it to burst. none of the things you listed indicate mass hysteria surrounding oil. and the speculation thing was quelled today by a report from the IMF, which said speculators likely didn’t have anything to do with a rise in commodity prices over the last two years.
batterinram, i am actually based in China right now. I talked to my contacts from government officials, to economist and corporate. China has its own inflation issue and further raise the oil price cap will accelerate the recent trend down inflation. In my view, I don’t think they will do it again this year (just raised domestic oil price two weeks ago). And as you said, demand is inelastic, so i thought it will reduce much demand from China. I think if the Dollar starts to rebound as the Fed urges, it should help ease the high oil price. Otherwise, this global inflation will continue and continue to hurt the equity market. We had the worst 1st half in 26 yrs.
Pretty relevant article: Bye Bye Gas Subsidies http://money.cnn.com/2008/07/02/news/international/gas_subsidies/index.htm?section=money_latest Also several articles have come out pretty much showing speculation can’t be too much to blame, as no one is buying and hoarding, all the oil is being used, which means the end consumers are willing to pay these prices right now.
When they finish building out Dubai.
when oil is depleted. increasing demand, fixed supply (unknown)
Even assuming conservative growth rates for India and China, I read that the demand for oil in 5 years would be close 100 mil barrels a day compared with about 87 mil now. Given that supply is uncertain, the pain might be prolonged
For the sake of argument, on the supply side, I think there are some new sources of supply that are now economical at these higher prices. For instance, natural gas shale plays in the U.S. and oil sands in Canada weren’t economical at $40/bbl but are at $80/bbl. Obviously it will take a while for these to fully come on line.
They are creating their own Demand Destruction…
naturallight Wrote: ------------------------------------------------------- > For the sake of argument, on the supply side, I > think there are some new sources of supply that > are now economical at these higher prices. For > instance, natural gas shale plays in the U.S. and > oil sands in Canada weren’t economical at $40/bbl > but are at $80/bbl. > > Obviously it will take a while for these to fully > come on line. Especially when our legislative bodies won’t let us touch those resources.
Iraq should add 500k a day in the next 5-12 weeks and possibly add another 1-2mil per day in the next 12-24 months according to NPR
aldford Wrote: ------------------------------------------------------- > naturallight Wrote: > -------------------------------------------------- > ----- > > For the sake of argument, on the supply side, I > > think there are some new sources of supply that > > are now economical at these higher prices. For > > instance, natural gas shale plays in the U.S. > and > > oil sands in Canada weren’t economical at > $40/bbl > > but are at $80/bbl. > > > > Obviously it will take a while for these to > fully > > come on line. > > > Especially when our legislative bodies won’t let > us touch those resources. This wasn’t quite what I meant. The stuff I was referring to is all open. The stuff that is closed is a literal drop in the bucket and would not affect prices at all today. Oil is a global commodity, those guys who drill ANWR aren’t going to be selling it to the U.S. at a discount.
TrojanMan Wrote: ------------------------------------------------------- > I think the sleeper here is ethanol. It takes the > equivalent of nearly 2 gallons of fuel to create 1 > gallon of ethanol. My guess is that the oil > companies are the biggest proponents of ethanol > since it allows then to sell the same amount of > oil as they did pre-ethanol mandate at > post-ethanol mandate prices. 1/3 of the U.S. corn > crop will be used for ethanol, which is not a > small amount. Think about how much energy will be > used to grow, harvest and convert all of this corn > into ethanol. Ethanol will be seen as the worst > policy of our generation. Perhaps not the worst, but right up there at the top… I agree. When will oil complete its historic bull run? My gut says the closer we get to Labor Day…as every (
It’s gotta be soon. I think it’s time to start thinking of shorting the long end of the yield curve. Wonder what Joey DV would say? Willy
Thanks guys for all the input. Since our last talk, oil price seems going south. The current G8 meeting defintely puts downward pressure on oil price. Think its the start of bubble burst? Time to short oil? And if so, a pick up in global equity market in 2H?
I think its a bit silly to extrapolate a two week move! I might be wrong and Oil might go to $60 from here… but at the same time.all the four reasons (listed below) you mentioned are still true! I dont see how a two week decline signals the start of a downturn?! 1. weak U.S dollar 2. strong demand from BRICs 3. High speculation given a global equity market turmoil 4. limited reserve .