Oil going to $200 very soon?

[Mega]

http://www.ft.com/cms/s/0/4200dc9e-1...nclick_check=1

So, anyone think its going back to $50?

Mike

[rabot10]

Re: Oil going to $200 very soon?

http://www.ft.com/cms/s/0/4200dc9e-1...nclick_check=1

So, anyone think its going back to $50?

Mike

I think it could go back under 90 for a short time, If I think that it is more likely to go to 300 and never look back. Know what i mean Mike lol

Your Bud,

rick

[Mega]

Re: Oil going to $200 very soon?

I think so Rick.
Mike

[Shakespear]

Re: Oil going to $200 very soon?

We are going into the summer driving season so pressure on gas will/may stay high.

[Chris]

Re: Oil going to $200 very soon?

Oil in 2012: $200 or $50?

CIBC World Markets analysts recently predicted that oil would sell for $200 a barrel in 2012, as oil supplies grow ever tighter relative to demand. That would imply a continued global boom for the next four years, which would bring inflation, perhaps validating CIBC’s prophesy as the dollar went the way of the 1923 Reichsmark. All the same, that’s not the way I’d bet; I think $50 is more likely. We are probably not quite at the end of this unprecedented oil and commodities bubble, but we are surely getting close.

To take the hyperinflationary possibility first: The St. Louis Federal Reserve has since 1991 calculated a monetary statistic “money of zero maturity” which is M2 minus small time deposits plus institutional money market funds. In the absence of M3 statistics, discontinued by the Federal Reserve in March 2006, MZM is a decent measure of broad money supply. MZM increased by a moderate 9.18% in 2007. However in the three months to April 14 2008, it has increased at an astounding annual rate of 30.3% reflecting the massively expansionary monetary policy the Fed has followed since January.

If the Fed keeps up that rate of growth for the next 4½ years then since prices follow monetary growth, by the end of 2012 prices would have risen by about 236%. In other words to have the same real price as today’s $115, oil would sell for $386 per barrel. A price of $200 per barrel would then represent a moderate oil price, reflecting a decline in real oil prices to little more than half today’s level in real terms. Needless to say, if the US dollar had been alone in suffering this level of inflation, the euro would in 2012 be selling at over $5 and the yen would be running at $1 = 28 yen.

So how likely is this hyperinflationary scenario, and how likely is $200 oil without it? continues....

Comment here...

[atreyu42]

Re: Oil going to $200 very soon?

I think it could go back under 90 for a short time, If I think that it is more likely to go to 300 and never look back.

This article says oil will deflate:
http://www.telegraph.co.uk/money/mai...4/cnoil124.xml

It seems commodities is where we must put our money now anyway, but nobody says which commodity can be better that the other. In that case, wouldn't it be better to be in a commodity index as somebody said?

[GRG55]

Re: Oil going to $200 very soon?

Comment here...

The rest of the world would doubtless go into recession as the US withdrew partially from the world market, so oil and other commodity prices would decline in real terms, but the dollar prices of non-oil imports could be rising so rapidly that the overall price level continued to inflate...

This is the exact scenario that iTulip has described previously in discussions about the future of the bonar...

There are thus only two factors that may save us from 30% inflation and $200 oil by 2012: a revival of good sense by the Fed and the politicians (very unlikely) or a full scale revolt by dealers in the US Treasury bond market. The latter is not at all improbable; the government’s borrowing is increasing substantially, with the current year’s deficit heading towards $500 billion even before recession has properly taken hold, so bond markets are going to be asked to absorb a LOT of debt. At some point, even with the Bureau of Labor Statistics doing everything it can to massage inflation figures, bondholders and dealers will come to realize that they are being asked to buy Treasury bonds that yield less than zero in real terms.

A good healthy “buyers strike” would then push up Treasury bond yields, probably forcing Bernanke’s resignation (as it did the resignation of his predecessor G. William Miller in 1979) and force a tighter monetary and fiscal policy on the US powers that be...

This is the "Waiting for another Volker" scenario. Possible. But not probable. Given the behaviour of the last Democratic Adminstration, which sanctioned and supported the Nasdaq Bubble, and the present Republican Administration, which sanctioned and supported the Property Bubble, what are the probabilities of such a radical behaviour change regardless of who wins the White House? The reaction in Congress and the Senate to the present circumstances wouldn't appear to support the appointment of another Volker anytime in the forseeable future either.

...There are a few counterexamples: Iraq’s oil reserves have doubled since that country was reopened to international exploration in 2003, while Brazil, whose Petrobras enters freely into joint venture agreements with Big Oil, has made major new oil discoveries recently. However, while oil prices continue to rise the search for new oil sources is likely to be restricted to only a limited number of geologically promising areas.

Once oil demand starts to tail off and interest rates rise, the current situation will reverse. Badly run countries such as Venezuela and Nigeria will quickly run out of money. Current policy will then be reversed, and the major oil companies will once again be allowed to explore and produce on an efficient and profitable basis.

Oil prices will then decline more rapidly, and wealthier and better run oil producers such as Russia and Saudi Arabia will also find themselves in difficulty, and become less recalcitrant in international politics and less resistant to help from the multinational oil companies. Slackening oil demand will also give time for new supply to come on stream, and for environmental objections to massive supply from tar sands and oil shale to be overcome. The result, as in 1981-86 will be a decline in oil prices, gradual at first but probably accelerating until a floor is reached at which new exploration becomes pointless and the oil price is once again as far below its long term marginal cost as it is today above it....

This is a laughably utopian view of how things will play out in the current global political environment. That Venezuela and Nigeria will have a sudden change of heart, embrace Big Oil, and welcome outside investment is foolishly naive.

The kleptocrats in Nigeria will continue to strip off more than enough revenues to keep their Swiss bank accounts brimming, regardless of falling production or price. If the citizens get too far out of line the civilian government will be displaced, once again, by the military - the country has a history of exactly this.

Populist demagogues like Chavez will run their countries into the ground long before they admit to, and remedy, any error in previous policy; one need look no further than Mugabe's Zimbabwe or Castro's Cuba, where they did not even have the benefit of dispensing oil revenues to cronies to hold power. Russia and Iran [and to some degree Saudi and the rest of OPEC] have a strong incentive to continue to assist Chavez to hold power; I see no reason why they won't do that.

By 2012 that process will only have gone part way; nevertheless an oil price of $50 before the end of that year seems probable. Oil prices may well be on a long term upward trend, as supplies become restricted to geologically and politically more difficult areas, but $50 per barrel is already (absent hyperinflation) well above the real oil price in 1986-2002 and should easily prove sufficient to reward both efficient exploration and more intensive production from the tar sands of Orinoco and Athabasca....

Here is where Hutchinson's argument really starts to fall apart:

• He says Iraq oil reserves have doubled, but fails to mention its production and exports are barely at 2002 levels [and there is little prospect of any further export increases in the next few years].
• He suggests that $50 is "sufficient to reward...efficient exploration" but also states that oil prices will fall until a floor is reached "at which new exploration becomes pointless".
• That's of course after he lauds Brazil for its joint ventures with Big Oil and its major new discoveries. That these same ultra-deep water, ultra-expensive discoveries would be among the very first exploration programs to be abandoned on any significant oil price decline is conveniently overlooked.
• As we recently discovered with Canadian gas, the effects of rising currency, rapidly inflating development costs, and just a moderate decline in the commodity price, brings on a immediate cessation of E&P activity. Although far from perfect, investors and the industry are much more aware of ROCE (return on capital employed) performance metrics than they were in the 1970's commodity cycle. Long before oil got to $50 there would be a complete collapse of investment in every high cost program around the world including the Canadian oil sands, deep water exploration and enhanced recovery projects using CO2. The rising cost of money that Hutchinson insists is a necessary condition for $50 oil ("...a full scale revolt by dealers in the US Treasury bond market...") would eliminate all the marginal conventional activity as well.
• Finally, $50 oil is not completely out of the question, I just think it's improbable based on these arguments. The strongest argument against a long-term collapse in oil prices is the fact that Aramco has spent tens of billions of dollars on drilling and development projects in the past few years, and we are not seeing any notable increase in Saudi exports. If the OPEC country that is alleged to have the cheapest and easiest oil to exploit cannot offset its decline rates with such an enormous increase in investment and activity, what does that say? Orange lights are flashing...

[nathanhulick]

Re: Oil going to $200 very soon?

One day we will be telling our children about the good old days when gas was only 4 bucks a gallon, just like our parents tell us about the good old days when it was 20 cents a gallon.

[metalman]

Re: Oil going to $200 very soon?

One day we will be telling our children about the good old days when gas was only 4 bucks a gallon, just like our parents tell us about the good old days when it was 20 cents a gallon.

was 70 cents when i was in college. come to think of it college was a few thou when i was in college. bought my house for less than four years in my college costs today.

[GRG55]

Re: Oil going to $200 very soon?

One day we will be telling our children about the good old days when gas was only 4 bucks a gallon, just like our parents tell us about the good old days when it was 20 cents a gallon.

And you could buy an urban bungalow for $20,000...

[blazespinnaker]

Re: Oil going to $200 very soon?

http://www.ft.com/cms/s/0/4200dc9e-1...nclick_check=1

So, anyone think its going back to $50?

Mike

Oil will not decline significantly, as China will buy whatever it can with all its reserve money. It has an endless thirst for oil.

Gold, on the other hand..

[Chris]

Re: Oil going to $200 very soon?

One day we will be telling our children about the good old days when gas was only 4 bucks a gallon, just like our parents tell us about the good old days when it was 20 cents a gallon.

If it makes you feel better (which i doubt it will), in the UK we are now paying $10 a gallon. It hasn't yet detered anyone from driving but hauliers are starting to get a little hot under the collar. The government here have no chance of reducing the tax burden on fuel given their massive (and irresponsible) spending programs over the last decade. It should make for an interesting summer.

[BiscayneSunrise]

Re: Oil going to $200 very soon?

On my recent expedition to Costco to investigate the rice shortage story, I noticed that fresh soybean oil was only $5 a gallon. It would probably been even cheaper when bought in bulk.

Just wondering when the big diesel users will find themselves using cheaper vegetable oils, further exacerbating rising food prices.

[nathanhulick]

Re: Oil going to $200 very soon?

On my recent expedition to Costco to investigate the rice shortage story, I noticed that fresh soybean oil was only $5 a gallon. It would probably been even cheaper when bought in bulk.

Just wondering when the big diesel users will find themselves using cheaper vegetable oils, further exacerbating rising food prices.

thats definitely something to think about.