Oil Booms and Busts - Deja Vu all over again

[74-911]

A year ago it was "drill baby drill" and just how high can oil go?

Now: all the local refineries have turned off units to cut production and today one of the big marine fabricators (build offshore drilling platforms) announced that due to contract cancellations and postponements, if no new contracts are signed by Oct. 1, the layoffs will begin..

The cycle continues.

[m21sniper]

AFAIK oil is still WAY too artificially inflated right now. Should be about $55-60 a bbl.

[jyl]

I have not been following oil as closely as I was last year. However, I am inclined to bet on oil breaking over $100 in 2010. Need to dig into the data but that is my preliminary inclination.

For continuity's sake, maybe we should revive this old thread? Will Oil Go Down From Here? Any Bettors?

[red-beard]

Originally Posted by jyl

I have not been following oil as closely as I was last year. However, I am inclined to bet on oil breaking over $100 in 2010. Need to dig into the data but that is my preliminary inclination.

The only reason oil will go north of $100 is inflation.

[sammyg2]

Agree with both of you but as snipe pointed out, two different issues. One is crude oil and the other is refined fuels.
Causes are clear, first:
demand is obviously significantly lower than a year ago. People aren't jumping in the family truckster and driving across the country to go to wallyworld as much as before, and airline travel is way down.
Second:
A new very, very large refinery in India has come on-line and is displacing quite a bit of previously exported fuel. More fuel available, less being produced, means lower prices. But that's only fuel.
Crude oil is still way over-inflated as sniper said, and that is directly due to the parasitic bottom-feeding speculators. they made an incredible amount of money running the price to $145 last year, they are greedily awaiting a chance to do it again. They will artificially manipulate the market and jack the price waaaay up as soon as they get the excuse.

I'll all for investment and free market, but what they are doing is hoarding contracts without ever taking possession of the product. IMO that is cheating, that is wrong, and it needs to be made illegal.
I've written to darn near everyone in washington asking that they pass a law that states that a buyer of commodity contracts much actually take physical possesssion of at least 10% of all products purchased on contract.
That would stop the weasels from buying contracts, sitting on them, and eventually flipping them after the price goes up.
At current supplies and demand, oil should be well below $50 a bbl instead of the $71 or so we're seeing.

What's scary is that if this trend continues, lots of small independent refining companies will close for good as we saw in the 80's and 90's.

Eventually demand will again climb, and we could be in even more trouble than we were last year.
We could be paying $10 a gallon for gas and electricity costs could be two or three times what they are now.

But our current government will be insisting that we are all much better off because much of the almost unaffordable energy will be "green".

[74-911]

Originally Posted by jyl

I have not been following oil as closely as I was last year. However, I am inclined to bet on oil breaking over $100 in 2010. Need to dig into the data but that is my preliminary inclination.

For continuity's sake, maybe we should revive this old thread? Will Oil Go Down From Here? Any Bettors?

I suspect you are correct about $100 oil next year. I know production costs / barrel are all over the place based on where the oil is but is there a realistic price / barrel which allows producers to explore for and bring new wells on-line at a reasonable profit level and at the same time not gouge consumers ??

These continual wild swings in the price of oil are damaging to everyone concerned. yet there is no end in sight.

[jyl]

There have been some reports recently that Congress is looking at regulating commodities trading in the manner that you describe. I do not know how much momentum this effort has.

I agree with you that financial speculators increase the volatility in oil prices. I think they cause the highs to be higher and the lows to be lower. And since higher volatility should increase the cost of capital and hence the required return for the energy industry, in theory it should increase the average oil price.

This is bad for the economy and should be dealt with. Yet another example where the "free market" needs some government safeguards.

From a pure self-interest standpoint, I like the volatility as it creates trading opportunities, in oil and also in energy-related stocks. But it is still a bad thing and needs to be reined in.

[m21sniper]

Originally Posted by red-beard

The only reason oil will go north of $100 is inflation.

Speculation is the real culprit.

The only reason it's as high as it is now is because of speculation. The gov't should regulate the living snot out of oil pricing to cut the "bottom feeders" completely out of the market. It's too important a strategic resource to let a bunch of greedy douches drive the price up to the point that it collapses the economy (again).

Originally Posted by 74-911

I suspect you are correct about $100 oil next year. I know production costs / barrel are all over the place based on where the oil is but is there a realistic price / barrel which allows producers to explore for and bring new wells on-line at a reasonable profit level and at the same time not gouge consumers ??

These continual wild swings in the price of oil are damaging to everyone concerned. yet there is no end in sight.

It's all caused by speculators.

These scum need to be put on a leash.

Originally Posted by jyl

From a pure self-interest standpoint, I like the volatility as it creates trading opportunities, in oil and also in energy-related stocks. But it is still a bad thing and needs to be reined in.

So how can one take advantage of this on a personal level? Edumacate me plz.

[NICKG]

Originally Posted by red-beard

The only reason oil will go north of $100 is inflation.

i think it will go big again, based on the fact that people want to invest in something...

[NICKG]

Originally Posted by m21sniper

Speculation is the real culprit.

The only reason it's as high as it is now is because of speculation. The gov't should regulate the living snot out of oil pricing to cut the "bottom feeders" completely out of the market. It's too important a strategic resource to let a bunch of greedy douches drive the price up to the point that it collapses the economy (again).

yes they should.....

[sammyg2]

Originally Posted by 74-911

I suspect you are correct about $100 oil next year. I know production costs / barrel are all over the place based on where the oil is but is there a realistic price / barrel which allows producers to explore for and bring new wells on-line at a reasonable profit level and at the same time not gouge consumers ??

These continual wild swings in the price of oil are damaging to everyone concerned. yet there is no end in sight.

Oil producers, much as refiners, don't directly control prices. "Gouging" isn't applicable in most cases. Some organizations like OPEC can control production which affects prices, but that is illegal in this country.
The selling price is not directly related to the cost to produce it at all.

the market prices the products, not the producers. Just like Ebay. The selling price is determined by the highest bidder.

[jyl]

Originally Posted by m21sniper

So how can one take advantage of this on a personal level? Edumacate me plz.

Trade oil-related securities. See linked thread for example.

[Jim Bremner]

I drink your milk shake!

[widebody911]

I'll all for investment and free market, but what they are doing is hoarding contracts without ever taking possession of the product. IMO that is cheating, that is wrong, and it needs to be made illegal.

I wait with bated breath for the free-market defense of these speculative practices.

[sammyg2]

Originally Posted by m21sniper

Speculation is the real culprit.


So how can one take advantage of this on a personal level? Edumacate me plz.

I actually made some money doing this early last year, but got out completely when i saw the games that were being played. It started to stink and didn't want that smell on me.

There are several ways to play these games, The easiest way (and I am not encouraging it) is to buy future purchase options.
Pay a fee for an option to buy at a set price later.
if the actual price is higher than the set price when you execute the contract, the difference is profit. Going long.

Or you can bet the price is going to drop. You can buy a purchase contract to purchase a commodity at a set price that is lower than current pricing. if the price drops lower than the set price, the difference is profit. That's called shorting.

it's very risky unless you have deep enough pockets to manipulate the market.
Some fools even leverage to buy options. they borrow the money to buy the options, hoping they will make enough money to pay back what they borrowed and have enough left over to make a profit. That can go really bad really fast if you bet wrong.

The big boys with the big bucks take it to another level, they actually buy contracts of oil to be delivered in 90 days or whatever.
they buy up millions of barrels at a time. if the price doesn't climb high enough or fast enough, they buy more until they disrupt the supply enough to artificially increase the price.
Other bastages see the price shooting up and they want to get in to, so they do. all betting the price will continue the upward trend.
The big boys see this and do two things:
They purchase a whole bunch of short term short contracts, and start selling off the oil they purchased but haven't taken possession of.
The price falls, they cash in their short options and make a killing.
Then they start over and buy some more oil contracts. Because of greedy small guys jumping in, it becomes easier to influence the market upward than downward.
We see a climb, then a smaller drop, then a larger climb followed by a smaller drop.
That's exactly what the market did when crude marched past $100 on the way to $145.
When Bush finally said enough is enough and threatened to get involved, the speculators cashed in and ran for the most part.

The big boys played the game all the way down and made even more money.
There's allot of rumors flying that some of the big boys are actually members of OPEC who through agents are actually buying up their own products and products of other OPEC members to manipulate the price.
We all know that doesn't fly in this country, but if memberxof OPEC found out that they are playing gaems against each other it might get ugly. Last year the Saudis actually walked out on OPEC and threatened to leave for good, some folks insinuated that the real reason was that they got caught red-handed.

I personally would not be surprised in the Saudis had figured out how to manipulate and control the market prices for crude behind the backs of other oil producing countries.

If nothing else it would make a good mystery drama, maybe a James Bond movie.

[m21sniper]

Thanks for the explanation Sammy.

[Porsche-O-Phile]

Completely plausible and good explanation.

These kinds of games go on in stock trading as well every single day. The big guys can manipulate the market whichever way best suits them. Everyone else is just kind of along for the ride and ultimately, gambling on which way the big boys are going to try to push it.

[GH85Carrera]

The American farmers used to have a free market. Lots of farmers saw the profit potential of milk or wheat. To many farmers were producing and the bottom fell out. Many farmers went bankrupt and lost everything. In the 30s the government started paying farmers to not produce at all to keep the prices up and profitable for the farmer. Now days a lot of farmers would not survive without the farm bill money. It is way more complex than I can understand. The oil business has the same problem only it is the entire world supply and demand that our government can't regulate. There is nothing we can do about Russia selling oil to China at whatever price they agree to.

Has the farm regulation stabilized the American farmer or made things worse?

[porsche4life]

Originally Posted by 74-911

I suspect you are correct about $100 oil next year. I know production costs / barrel are all over the place based on where the oil is but is there a realistic price / barrel which allows producers to explore for and bring new wells on-line at a reasonable profit level and at the same time not gouge consumers ??

These continual wild swings in the price of oil are damaging to everyone concerned. yet there is no end in sight.

I think the magic number for it to be profitable for the drilling companies is somewhere around $70-$75 a bl.

[Pazuzu]

Originally Posted by porsche4life

I think the magic number for it to be profitable for the drilling companies is somewhere around $70-$75 a bl.

There is $30 oil, and there is $90 oil, and there is everything in between. There is PLENTY of oil that can be extracted profitably for $30 a barrel. The industry as a whole would be fine at $45 a barrel, and we'd all be earning bonus checks at $60 a barrel. When it hits $100 a barrel, it becomes time to hire your two brother in laws to be executives in the company, and buy that second boat.