Oil to $60.....by January?

[Rajiv]

Re: Oil to $60.....by January?

You might find "The Credit Markets - Tragedy or Farce? " an interesting read -- and as far as I am concerned, that only describes the visible portion of the iceberg.

[Gordo]

Re: Oil to $60.....by January?

There is historical precedent for a "dramatic correction" in commodity prices, the best one being IMO when Jay Gould tried to corner the gold market. See story below.

"Then on September 24 (1869), "Black Friday," gold quickly ran to $150 (again, remember that everyone was using excessive margin so these were huge relative moves), but the market was beginning to gather that the Treasury was preparing to make a move. Stories of the rally had reached back to the president and he instructed Treasury Secretary Boutwell to sell. Right before word hit the Gold Room that Treasury was dumping $4 million of gold, the price peaked at $160…and then the bottom dropped out, as gold plunged to $135.
[There is a story that when the gold price hit $160, the bells at Wall Street's Trinity Church.......tolled, and that by the time the bells fell silent gold had plunged to $138.]

[GRG55]

Re: Oil to $60.....by January?

January still has 31 days, last I calculated.

No time to go wobbly.

Yep. And let's not ignore the Wall St Wizards who will be full court press with their dooming and glooming offense as they push the Fed hard for a 50 bips cut on Jan 30. I expect the media will be full of "end of the economy as we know it" stories for the rest of the month. Could be a double top in the $100 zone for oil now...who knows.

[Gordo]

Re: Oil to $60.....by January?

Could be a double top in the $100 zone for oil now...who knows.

Thanks, GRG55, a "double top" would be nice but it looks like I may need an entirely new chart formation which I will call a "double drop" aka crash.
I may need TET for that one.

[Guest]

Re: Oil to $60.....by January?

Oil at $150

Oil gained 57 percent last year and reached a record $100.09 a barrel on Jan. 3. Crude oil for February delivery rose as much as $1 to $96.09 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $95.74 at 9:27 a.m. in London.

"In the next two to three years we expect prices to reach $150 a barrel,' Oil Secretary M.S. Srinivasan, the top bureaucrat in the ministry, said today (Indian Ministry of Energy). "Given this scenario, we are putting in more efforts in our exploration and production.''

"We're trying our best to get the oil majors to bid,'' V.K. Sibal, director general of hydrocarbons, said in Mumbai today at an event offering 57 oil and gas areas for auction.

India, Asia's third-biggest oil consumer, is competing with countries such as Nigeria to attract global explorers to seek reserves as decades-old fields in North America and the North Sea begin to dry up. India wants Chevron, Exxon and BP Plc to bid for the first time as local companies don't have the technology to search in deep waters and remote regions.

"Exponential Growth''

We expect ``exponential growth'' in the number of bids to explore in India because of a transparent system, Sibal said.

http://www.bloomberg.com/apps/news?p...Wis&refer=asia

[Gordo]

Re: Oil to $60.....by January?

Oil at $150

....."In the next two to three years we expect prices to reach $150 a barrel,' Oil Secretary M.S. Srinivasan, the top bureaucrat in the ministry, said today (Indian Ministry of Energy).......

Interesting theory below from the Oxylandr web page about the Fed "draining" $18 to $33 Billion from the economy last week in order to prevent oil from going over $100.

January 7, 2008
Watch the Feds watching oil

Posted by theroxylandr under Economics, Finance, Investing, Oil
[9] Comments
Few days ago I’ve posted my little theory that the Feds are conducting the harsh and unusual drain of funds to protect the important psychological barrier of $100 for a barrel oil.
The drain killed the Christmas rally and brought the markets on the verge of the technical breakdown. Today Feds did one final drain and the market, in its eternal stupidity, finally got the massage by sharply dropping the oil below $95.
Now the Feds may finally relax and I expect the increase of funds tomorrow. Then we’ll have the Jan 14 Taffy broo-ha-ha and I think the markets can go up for at least two weeks, because when lunatics get money they buy stocks, recession be damned.
By the end of the month the weight of negative earning surprises will finally take over the market and the rally will be over, but for now the party is on!
And because the recession will be already evident by February - believe me or not - I think that last week we saw the $100 oil for the last time for the next 5 years. Down she goes from now
Update: What I gave you was an optimistic

[zmas28]

Re: Oil to $60.....by January?

Thanks, GRG55, a "double top" would be nice but it looks like I may need an entirely new chart formation which I will call a "double drop" aka crash.
I may need TET for that one.

Found this interesting chart on the Web. Looks like we're fairly close to the inflation-adjusted peak in oil price almost 30 years ago!
Time will tell if the price of oil is reflecting inflation (over a long time) or if there are structural factors underpinning them.
Chart is in Jan 2007 dollars, which should be worth a few % more than Jan 2008 dollars.

[Guest]

Re: Oil to $60.....by January?

... Time will tell if the price of oil is reflecting inflation (over a long time) or if there are structural factors underpinning them.

Zmas28 -

In a discussion with Fred from yesterday, my impression was that at least some fundamental and structural factors underpinning the oil price are acknowledged already by iTulip as being very real components of the oil price. To presume the fundamentals contributed nothing to the current price of oil nudging $100 would be a quixotic viewpoint - all one needs do is scan the world at the myriad instances of nations jostling to secure future oil, and one can understand a "fundamental" price component certainly exists alongside the "currency debasement premium".

Or, if I've read Fred's explanation of the iTulip position from yesterday's discussion completely incorrectly, then this is a wonderful opportunity for him to correct me.

And here's a newsclip which aptly summarizes why the likelihood of a significant global recession "taking down the oil price" in 2008 is not considered one of the larger probabilities (I believe this is also in line with IMF forecasts, for whatever they are worth here):

<< The world economy will still grow at a fair clip - with Asia growth taking up any slack. Global growth is estimated to [have] hit 4.6 per cent in 2007. Because China, India and Russia now account for more than half of global growth that rate is unlikely to fall below 4 per cent in 2008. >>

I'm going to take a contrarian stance to all the bears on energy around here, and stick my neck out predicting $125 a barrel oil in 2008 (or 18 months at the outside!). How's that for a radical prediction?!!

_______________

Stephen Leeb suggests we have $200 oil "within three years", i.e. by 2010. Now how the heck are we supposed to stage a global recession if we are going to see $200 oil in three years??

[Gordo]

Re: Oil to $60.....by January?

From Reuters The Times of India, January 13, at Worldnews Network
NICOSIA: Speculators have driven oil prices to record highs rather than any supply shortage and OPEC is ready to boost output when the market needs more, OPEC's secretary-general said in an interview published on Sunday.........
"At present there is a weakening in the global economy, but I do not think that the price of oil will collapse," Badri said. "Nor will this... have a notable impact in the development of demand in the coming months.".................

Practically every time I have seen a major corporation (Enron, Worldcom, etc.) deny that it is going bankrupt, it goes bankrupt.

I hope the same principle applies to the OPEC denial of a price collapse.

[zmas28]

Re: Oil to $60.....by January?

Lukester,
You raise good points & I don't think we are in disagreement. Just some misalignment on the time scale perhaps. My view is that from a cyclical view point (long commodity cycle, which could be fifteen years or longer but still a cycle) commodities are going from a trough of undervaluation to what will become a peak of overvaluation at some point in the future. This movement is underpinned by increasing demand on one hand and slow-to-react supply on the other. Over even longer time periods than this cycle, I expect the price of oil to cycle about some mean in real, inflation-adjusted terms. I would expect this "mean" to increase over time if there is some structural (permanent) change, such as would be the case with something like peak Cheap Oil.

[Guest]

Re: Oil to $60.....by January?

I think until some real energy alternative to hydrocarbons is rolled out effectively on a global scale, the business of calling "inevitable major cyclical turns" from here on out where energy is concerned will be increasingly a "rear view mirror" methodology. There - I've been really blunt and unequivocal, and no doubt highly irritating to those who disagree vehemently on this "insight" (which they will term "nonsense").

I have no clue about all the rest of "decoupling". Yes, I'd bet it's likely global stock markets could go down together, although when I look at places like Brazil, frankly I find that one hard to believe) but I believe anything that is mined with massive energy inputs will see it's own end user price firmed up (and "firmed up" may be a big understatement in only 3-4 more years!) by energy's price action, and energy is not going to behave nearly as cyclically as people model from looking at past cycles.

People are making very conservative estimations, and don't grasp that "cyclical energy consumption" is a concept that flies right out the window when you get past $150 oil - because the mere fact of having arrived at $150 oil, signifies that there is a "problem" somewhere within the cyclical paradigm in that resource.

By the time oil hits $200 or $300, and keeps heading north from there, this mindset will still be employing the (by now ever more exasperated) cyclical paradigm expectation. By then I'm imagining, oil prices must have advanced maybe a couple of standard deviations out beyond the outer boundary of the prior major 1970's petroleum bull market in inflation adjusted terms, and the old cyclical paradigm wisdom will be insisting this must then imply a truly massive correction ahead in petroleum products.

If that cyclical paradigm got fatally compromised by a one-time factor (the depletion inflexion point only occurs once in history, and is not hypothetical) then re-employing cyclical paradigms for petroleum prices repeatedly at future points to understand what's due to occur will not function as a predictor. The predictor remains caught, continuing to disbelieve that old skeptics bugbear - "it's different this time". That old bugbear observation was after all the very hallmark of the thinking of greater fools, so it is not easily abandoned by thinking and skeptical people.

Meanwhile, here in early 2008, $150 oil is only a stone's throw away. There were people on these pages early last year, when oil was maybe at $65, who agreed that if it ever got to $100 or $150 oil a barrel they'd "have to" start seriously rethinking their "cyclical" paradigms.

Now we are at $100 but the rethinking of the old paradigms is not in evidence. There is a fear of being "wrong" on this question - so the skeptical stance is regarded as the hard headed stance. But eventually, (and "eventually may be sooner than the day after tomorrow) when the cycle paradigm gets broken by the one time event (global averasge annual petroleum production stops growing any further), that time-hallowed skepticism rooted in prior cyclicality actually becomes the less hard headed view.

Who will have understood energy realities by the 2010's, if we actually see $200 oil in three to four years, and everyone here keeps forecasting a significant bear market for petroleum all the way from here to there? I can't find anyone around here who is not tending to the view we will see a serious drubbing in oil prices and the commodity sector ex-precious metals.

___________


BEARS WILL BE PROVED WRONG ON GLOBAL GROWTH DERAILMENT (and for those concerned about potash and fertilizer stocks selling a t60 times earnings - the fundamentals underpinning soft commodities in the next decade is larger than anything you've seen in your lifetime. Check back in 3 years and see if this was true or not.)

COMMODITY RUN HAS LEGS - Scotiabank expert bets on strong 2008
Gary Lamphier, The Edmonton Journal

Published: Saturday, January 12

The battered U.S. economy may be sliding into recession, and spooked investors may already be heading for the exits, but don't expect the big bull market run in commodities to end any time soon.

With gold hitting $900 US an ounce for the first time Friday, oil still hovering north of $92 a barrel, and prices for such diverse products as coking coal, potash, sulphur, corn, soybeans and uranium at or near record highs, the commodity story seems far from finished.

In fact, Scotiabank commodity guru Patricia Mohr remains decidedly upbeat on the outlook for 2008 and beyond, as China's resource-hungry economy continues to power along at annual growth rates of roughly 10 per cent, despite a modest cooling of late.

Mohr recently hiked her average 2008 price forecasts for several key commodities, including gold, oil and even natural gas, and she's particularly bullish on agricultural fertilizer products like potash and sulphur, as prices for soybeans, corn and wheat go vertical.

Mohr is now calling for crude oil prices to average $90 a barrel this year, and natural gas to average $7.50 per million British thermal units (MMBtu).

In 2007, oil prices averaged about $72 a barrel, while natural gas flatlined most of the year, averaging just $7.15 per MMBtu.

"I actually feel quite comfortable with that $90-oil forecast," says Mohr, after bumping her estimate up by a couple of bucks in recent weeks.

"I've also moved the natural gas price up a little bit (from $7.15), although that's just a technical thing. My sentiment hasn't changed. I'm just moving it up because I've got the crude price so high, although I'm still worried about LNG (liquefied natural gas) tempering prices by late summer."

As for gold, Mohr has also grown increasingly bullish since mid-December, when she predicted gold prices would average $850 an ounce in 2008. With U.S. jobless numbers rising, retail sales softening and the worst of the U.S. housing meltdown still ahead, she now expects the Fed to slash the benchmark U.S. interest rate by a full percentage point by mid-year, to 3.25 per cent.

That will lead to a widening of interest rate spreads between the U.S. and Europe, she reckons, and a weaker greenback. And that, combined with growing U.S. economic uncertainty, should spell even higher gold prices.

"I've now got an average 2008 gold price of $920, moving as high as $950 on a temporary basis in the second quarter," she says.

"Given the uncertainties and the very jittery financial markets -- particularly the stock markets -- I really do think gold is going to move higher, as high as $950. It could move even higher than that." Gold prices averaged just under $700 an ounce last year.

Mohr sounds even more upbeat on the outlook for potash and sulphur, which are used to make fertilizer. With living standards in China, India and other developing countries on the rise, global demand for corn and wheat is growing (see Journal investment columnist Ray Turchansky's piece on page E4). At the same time, ethanol output is on the rise, thanks to government policies to support the use of biofuels, stoking even greater demand for corn and wheat. The result? Prices for many ag products have soared.

"I remain very confident that potash prices are going to move up even higher from here, and sulphur is just going to fly in early 2008," she says. Mohr expects spot potash prices in Vancouver to top $325 a tonne in coming months Coking coal, which is used to fuel the giant steel mills of Japan and South Korea, should be another bright spot in the early months of 2008. In her December forecast, Mohr predicts the price of Western Canadian premium-grade hard coking coal will jump by nearly 50 per cent, to $140 per tonne, surpassing the previous 2005 peak of $125.

Even base metals should show on-going strength in 2008. Although prices for uranium, nickel, zinc, copper and aluminum all backed off their record highs in the final months of 2007, Mohr figures the secular bull market in commodities will keep prices at historically high levels for years.

For 2008, Mohr expects uranium prices to average $95 to $100 a pound, roughly on par with last year's average of $99.

Meanwhile, she expects zinc to average $1.05 a pound (versus $1.47 last year), and aluminum to average $1.05 a pound (versus $1.20 in 2007). Nickel prices, which spiked to nearly $24 a pound last year and averaged nearly $17 for all of 2007, should moderate to an average of $14 a pound this year, she says. Still, that's very high in historic terms -- more than twice the average price in 2005, for instance. Copper, which has staged a rebound of late, is also expected to stay firm in 2008, posting an average price of $2.95 a pound. That's just nine per cent below last year's record average price of $3.23 a pound.

"The U.S. is still very important, but China is more of a driving factor when it comes to resource plays." says Mohr. "And I still think that they're likely to have 10-per-cent-plus growth in 2008."

glamphier@thejournal.canwest.com

[zmas28]

Re: Oil to $60.....by January?

The graph I posted earlier showed "inflation-adjusted" oil prices, ie. in Jan 2007 dollar terms. But the adjustment used CPI numbers, which are relatively benign.
The thought occurs as to what the same prices would look like if the nominal prices were instead adjusted using the dollar index (trade-weighted DX-Y), whose value has declined significantly more than the CPI would calculate. I would guess that the current oil price would be somewhat lower than the adjusted price peak of Dec 79. Just a guess that the buying power of the dollar in international trade has dropped off more than the internal, domestic buying power of the dollar as measured by the CPI numbers.
Since oil is internationally traded in dollars, I would think the dollar index might be a better discounting unit, in which case we might not be as close to the 79 peak in "real" terms. Just a thought.

[Rajiv]

Re: Oil to $60.....by January?

Lukester,

If the scenario outilined in Three Billion Dead: The Future of Biofuels and the Future of Resistance occurs, how much demand destruction do you think will occur.

That is the scenario I am most concerned about!

[Gordo]

Re: Oil to $60.....by January?



If the large auto manufacturers have finally realized that the high price of oil is killing the car business, then they will start finding real solutions to high oil prices.

Garbage is a start but converting sewage to energy production would make every city sewage plant an energy factory.

GM to make biofuel out of garbage
14/01/2008 18h32

An Ethanol statione
©AFP/File - Alain Julien

DETROIT, Michigan (AFP) - General Motors Corp. is planning on making biofuel with garbage at a cost of less than a dollar a gallon, the company's chief has said.
The US automaker has entered into a partnership with Illinois-based Coskata Inc. which has developed a way to make ethanol from practically any renewable source, including old tires and plant waste.
The process is a significant improvement over corn-base ethanol because it uses far less water and energy and does not divert food into fuel.
"We are very excited about what this breakthrough will mean to the viability of biofuels and, more importantly, to our ability to reduce dependence on petroleum," said Rick Wagoner, GM's chief executive officer, on Sunday.
GM, which was late in introducing gas-electric hybrids, is the industry leader in flex-fuel vehicles that can run on gasoline blended with up to 85 percent ethanol.
It is currently producing more than a million flex-fuel vehicles a year globally and is committed to making half its production flex-fuel by 2012.
It is also introducing 16 new hybrid vehicles over the next four years, including a plug-in hybrid which can run on electricity alone, and will soon have the world's largest fuel-cell test fleet when it delivers more than 100 Chevy Equinox fuel cell vehicles to customers in the United States, Europe and Japan.
But while these may be the vehicles of the future, flex-fuel is the best "interim" solution as it will take 12 years to replace most of the vehicles currently on the road, Wagoner told reporters at the Detroit auto show.
"There is no question in my mind that making ethanol more widely available is absolutely the most effective and environmentally sound solution," Wagoner said. "And it's one that can be acted on immediately."
Coskata's first pilot plant will be up and running in the fourth quarter of 2008 and the fuel will be used on GM test vehicles.
"We will have our first commercial-scale plant making 50 to 100 million gallons of ethanol running in 2011," said Coskata chief Bill Roe.
The prestigious Argonne National Laboratory analyzed Coskata's process and found it generates up to 7.7 times the amount of energy used and reduces CO2 emissions by up to 84 percent compared with a well-to-wheel analysis of gasoline.
The process also uses less than a gallon of water to make a gallon of ethanol compared to three gallons or more for other processes.
President George W. Bush's energy policy includes plans to increase the consumption of biofuels from 7.5 billion gallons in 2012 to 36 billion gallons in 2022.

[Jim Nickerson]

Re: Oil to $60.....by January?

If the large auto manufacturers have finally realized that the high price of oil is killing the car business, then they will start finding real solutions to high oil prices.

Garbage is a start but converting sewage to energy production would make every city sewage plant an energy factory.

GM to make biofuel out of garbage
14/01/2008 18h32

An Ethanol statione
©AFP/File - Alain Julien

DETROIT, Michigan (AFP) - General Motors Corp. is planning on making biofuel with garbage at a cost of less than a dollar a gallon, the company's chief has said.
The US automaker has entered into a partnership with Illinois-based Coskata Inc. which has developed a way to make ethanol from practically any renewable source, including old tires and plant waste.
The process is a significant improvement over corn-base ethanol because it uses far less water and energy and does not divert food into fuel.
"We are very excited about what this breakthrough will mean to the viability of biofuels and, more importantly, to our ability to reduce dependence on petroleum," said Rick Wagoner, GM's chief executive officer, on Sunday.
GM, which was late in introducing gas-electric hybrids, is the industry leader in flex-fuel vehicles that can run on gasoline blended with up to 85 percent ethanol.
It is currently producing more than a million flex-fuel vehicles a year globally and is committed to making half its production flex-fuel by 2012.
It is also introducing 16 new hybrid vehicles over the next four years, including a plug-in hybrid which can run on electricity alone, and will soon have the world's largest fuel-cell test fleet when it delivers more than 100 Chevy Equinox fuel cell vehicles to customers in the United States, Europe and Japan.
But while these may be the vehicles of the future, flex-fuel is the best "interim" solution as it will take 12 years to replace most of the vehicles currently on the road, Wagoner told reporters at the Detroit auto show.
"There is no question in my mind that making ethanol more widely available is absolutely the most effective and environmentally sound solution," Wagoner said. "And it's one that can be acted on immediately."
Coskata's first pilot plant will be up and running in the fourth quarter of 2008 and the fuel will be used on GM test vehicles.
"We will have our first commercial-scale plant making 50 to 100 million gallons of ethanol running in 2011," said Coskata chief Bill Roe.
The prestigious Argonne National Laboratory analyzed Coskata's process and found it generates up to 7.7 times the amount of energy used and reduces CO2 emissions by up to 84 percent compared with a well-to-wheel analysis of gasoline.
The process also uses less than a gallon of water to make a gallon of ethanol compared to three gallons or more for other processes.
President George W. Bush's energy policy includes plans to increase the consumption of biofuels from 7.5 billion gallons in 2012 to 36 billion gallons in 2022.

Not to detract from whatever respect you are due, when I see something like your post above without a link to the source, it strikes me that your post could be a total spoof. Surely I am not the only person who visits iTulip who appreciates posters going to the bit of trouble necessary to put up links to material that is referenced. I'll be damned if I am going to spend my time to go to great lengths to attempt to verify what you have posted.

Thank you.