Oil drops in $4-5 dollar spurts every time the DOW or financials start to slide. Same pattern last few weeks. Assuming it is IBs rotating out to prop the market.
From my amateur candlestick chart-reading perspective...
The recent pullback is just hitting the lower end of the uptrend. However the monthly opening and closing prices show that the price floor is about to drop out.
Given the explosive up move in the past two years, I think the bottom is going to drop out.
who disbelieve or have reasonable doubts about the existatnce of the PPT
note the use of the word EQUITY below
(from the asia times)
Adler quotes Steve Randy Waldman of Interfluidity (What Happens 28 Days later?): "Since the Fed cannot retire loans made via TAF and its repo program without adding to those 'elevated pressures', the loans should be considered an equity infusion, because theyll be repaid at the convenience of the borrower rather than on a schedule agreed with the lender." What Waldman did not say was that the Fed had ventured into a broad nationalization of the prime dealers on Wall Street by being an equity investor.
Does the same argument apply to the new Term Securities Lending Facility (TSLF)? On the face of it, it's harder to view TSLF as an equity infusion, since the Fed is not handing out cash. But to firms holding illiquid securities that the Fed will accept as collateral, the program is equivalent to a not-so-efficient cash infusion, because the Treasuries the Fed lends are liquid and can be converted to cash easily in private markets, according to Waldman.
So, this new facility might well be a form of equity, if the Fed is willing to roll it over indefinitely and require payment only at the convenience of borrowers or when a normal market for them reappears. Waldman thinks what happens after 28 days is pretty clear. The swap will be rolled over and over and over until the mortgage-backed security market stabilizes. This could be a year from now, or perhaps 10. That may sound ridiculous but it is essentially what happened in Japan.
If demand destruction is outweighing other supply and demand issues, I'd expect prices to fall much further.
Add ag products & 'base metals' as well.
Now the question - if spec in these commodities were the few remaining profit centers remaining at IBs... does this mean another round of write downs in the uncontained containment category?
If big money leaves oil, where will it go? Stocks? Doubtful. Real estate? Ha. Bonds & Bills? Not yet. Seems to me that oil will remain high until interest rates start to crank up and provide attractive alternatives to buying oil.
Maybe I'm missing something here, but no way could that kind of real demand just spring forth suddenly. The emaciation of the dollar seems far more likely to me. Anything on the horizon that will strengthen the dollar significantly?
Hercules Offshore has five rigs that the company is preparing to, or has already begun evacuating. Three more rigs are likely to be evacuated, with a further three standing by. All other Hercules rigs in the U.S. Gulf of Mexico are out of the path of the storm.
High seas caused by the storm have interrupted operations at the Louisiana Offshore Oil Port, 18 miles (29 km) south of Grand Isle in 110 feet (33.5 m) of water. The port is temporarily not offloading oil from tankers, but has not evacuated the platform and will resume mooring tankers when conditions improve. The company's onshore storage facilities are unaffected and will continue to supply refineries.
dryfly: Is the destruction of money enough to overwhelm the flow coming out of the Fed? I could buy this, being that I am very skeptical of the Fed's ability to "print."
Pilots on the Houston Ship Channel, which serves the largest U.S. petroleum port, suspended inbound traffic to Galveston and Texas City today, the U.S. Coast Guard said on its Web site.
The Louisiana Offshore Oil Port suspended marine operations last night, though it's still making pipeline deliveries, spokeswoman Barb Hestermann said. The LOOP is the biggest U.S. crude-oil import terminal, with the capacity to receive 1 million barrels a day, or about 11 percent of U.S. imports.
Brent crude oil for September settlement dropped $3.60, or 2.9 percent, to $120.58 a barrel on London's ICE Futures Europe exchange
Currently Smoking Cannabis writes:
dryfly: Is the destruction of money enough to overwhelm the flow coming out of the Fed? I could buy this, being that I am very skeptical of the Fed's ability to "print."
Currently Smoking Cannabis | Homepage | 08.04.08 - 1:56 pm |
I fully agree - in the long run. But I do think the deflationary pressures will send a lot of this stuff to money heaven in the nearer time frame... and commodity speculation is a money death march from what I can see (and have seen in the past).
B. Setser recently posted an analysis in which he wrote that gulf producers confronting high inflation may benefit trying to keep oil prices high, even if they have sale less for a while.
I could buy this, being that I am very skeptical of the Fed's ability to "print."
Well, the huge jump in personal savings the past couple of months seems to validate the idea that the Fed can hand out money like candy but not necessarily get people to spend it.
Again, it could be a disaster for the Federal budget if they keep handing out stimulus checks, but they get saved instead of spent (and so don't generate commensurate tax revenues).
So far it seems like war has been the only effective way for economies to inflate their way out of problems in such a way that consumers aren't ravaged.
LOOP LLC is a Limited Liability Company whose primary business is offloading foreign crude oil from tankers, storing crude oil, and transporting crude oil via connecting pipelines to refineries
dryfly writes:
I fully agree - in the long run. But I do think the deflationary pressures will send a lot of this stuff to money heaven in the nearer time frame... and commodity speculation is a money death march from what I can see (and have seen in the past).
I see the deflationary winds blowing, but geopolitics has me feeling different about oil. I know I sound like a tinfoil hatter, but I believe that our involvement in the ME has little to do with crazy dudes wielding box cutters, and everything to do with a good ole resource war.
Of course, when the global economy deflates, all bets are off. Oil crashes and lead becomes the new gold.
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.
McMoRan Exploration Company is evacuating all non-essential personnel from its rigs, said Bill Collier, vice president of communications.
Shell Oil Company is evacuating roughly 40 personnel from its western Gulf of Mexico operations, according to a press release at 7 a.m. Monday, and BP Plc is in the process of evacuating two contracted drilling vessels from Rowan, Inc., from the same region.
Chevron began evacuating personnel from the central and western Gulf of Mexico as a precaution, spokeswoman Qiana Wilson said.
My impressions is that people historically believed that it took a 25% increase in gasoline prices to cut demand by 1%. Once prices got above $4/gallon in the US, it appears that Americans' sensitivity to increased prices got significantly higher -- we're now responding to a 25% increase in prices by cutting consumption by something like 2%.
This means that the rate at which oil prices can increase is substantially lower than people expected earlier.
I fully agree - in the long run. But I do think the deflationary pressures will send a lot of this stuff to money heaven in the nearer time frame... and commodity speculation is a money death march from what I can see (and have seen in the past).
I agree if you assume a national drop in house prices of 50% that would be more that the equivalent of entire domestically traded companies on the stock market (I have read roughly 15 trillion). I would be comfortable buying oil around 100 because oil production is peaking IMO.
Amazing how many abandoned the notion of peak oil. Nature's not making the stuff anymore.
All those people who argued that "they weren't making any more land" were right. The simply overlooked the fact that credit had driven real estate prices up far more than any other fundamental issues.
It's been no different with most other market these days.
It simply doesn't matter how little of something there is if there isn't the buying power to purchase it (or rent supertankers to hoard it in).
The "bigs" won't fully leave the comm. trades, this is just day-to-day flows that keep the day of reckoning off for a little while longer.
The destruction of money FAR outweighs the ability to "print" IMO....unless the president in 2012 wants a repeat of the entire 1930's (continuing on until ??) they need to back off and soon. You'll notice that the alphabet soup "auctions" get smaller and smaller with each passing week. Increasing the "agreement" with the ECB by "only" $5B was a tell.
Think how many tricks they have left??
I count not too many with a big buyer of our debt not giving a crap in about three weeks time.
Maybe it's not big money; maybe it's just big credit.
I definitely had not factored this in to the extent I should have. Thanks, ac.
Of course if that 30 billion of Bear Stearns bond had defaulted it would have wiped out 2 trillion in CDS's overnight so I think its all related. The FED cannot back up all the corporate debt.
The last thing the Treasury Dept wants is a collapse in oil prices. It's OPEC who is coming to the salvation of Treasury auctions. Cut off their revenues and they have less money to spend. Lets see what happens with rates then....
MS: I'm pretty nervous about that time frame, actually. If I could just time travel to 18 months in the future (intact), I'd be much happier these days. End of the games until the end of the first year of new POTUS could be hell.
The last thing the Treasury Dept wants is a collapse in oil prices. It's OPEC who is coming to the salvation of Treasury auctions. Cut off their revenues and they have less money to spend. Lets see what happens with rates then....
The flip side is if oil prices collapse, the US will have a lot more leeway in monetizing its own debt and devaluing its currency to try another reflation attempt.
In other words, if the US doesn't have to worry as much about a collapsing dollar making oil too expensive, it can start buying its own debt with "printed" money. It can even attempt to drive down long bond rates with this technique if the currency markets will tolerate it.
well I'd like to be "over" this too but think of it this way....if the market just dropped and stayed flat where would we be? (at least those of us who do this full-time).
As much as I hate the lying, cheating, stealing (especially the I-banks)-it keeps me with a steady stream of income. I shudder to think what happens when we finally do reach a bottom.....IMO it will be quite a trough....
I still have friends that think the market is not manipulated...and they trade full-time......well they did...
It would be helpful if you would post graphs like this with a log y axis.
What I want to see, for instance, is how far oil would have to drop to duplicate, in percentage terms, a drop from 80 to 60. On a linear chart that drop will look larger than it is.
If the chart were semilog we could just inspect visually and not have to crank out a calculation and discover that the magic number is $108. You can see that the drop from 140 to 108 looks half again as larger as a drop from 80 to 60 - but it's not.
As much as I hate the lying, cheating, stealing (especially the I-banks)-it keeps me with a steady stream of income. I shudder to think what happens when we finally do reach a bottom.....IMO it will be quite a trough....
Happened in 2004-05 Guys who made 200k in 2001, 2002 made 50k in the flatter 04-05 years.
Chrysler historically leased about 20% of the vehicles it sold, so if a whole new round of juicier incentives doesn't entice customers to "Shop til you Drive", August may look even worse than July.
CSB, personally, I'm splitting my time between working on invisibility and time travel. These are personal goals in my life, and I expect to meet them soon.
One of the world's greatest investors, Bill Miller, after having been paid millions and millions to manage other's money, has a 2.18% annualized return over the last 10 years. So if you put a big chunk of money with him in 1998, you lost money to inflation and cash. If you dollar-cost-averaged into his fund you got absolutely slaughtered!
He lost money for the last 5 years since 2003, one of the best deadcatbounce periods in recent history.
This coming December, if not much sooner, we will run into a period where the S&P500 is below its 10-year-ago actual level.
This will likely get some press.
Recall this, the next several years, is the period where contributions to retirement funds will be constrained due to a slow economy and an unispiring track record for stock investors, and baby boomers who have accumulated stocks for most of the later half of their lives (since late 80's, early 90's with the inception of 401k's etc) will be selling to fund their daily costs (which will be rising with increased costs and debt service).
This will spark a cry for a more diversified investment option menu in retirement funds. You already have seen large pension funds continue to diversify away from stocks into commodities and real estate. This will put further pressure on stock prices as they move from THE place to put investment money to one of several places to invest longterm, and total stock-buying dollars will further decrease, a generational shift that compress p/e ratios to below historical levels.
People who say the growth in stocks will mirror the growth in American and American consumption and ingenuity need only look to GM and Ford. Given the sharp increase in car ownership over the last several decades you'd think anyone who invested in these companies based upon the forseable tremendous growth in vehicle ownership would have been handsomely reward..quite the contrary.
Anyone saying that it is unfair to take current depressed stock values to make long-term judgements about stock prices, and that now is the time to buy, needs to consider if the current prices levels are simply a return to normal valuations, that the stock boom of 1999 and last summer were blow-off tops fueled by the explosion of stock buyers for retirement and the derth of longterm sellers. Greenspan coined irrational exuberance in 1996. Perhaps that should be used to judge the highend of historical stock valuation in terms of p/e's going forward (after adjusting for inflation).
That was just a blip in the road compared to what's coming....how about not making a thing and Wall St. lay-offs reach 10's of thousands. The problem is that none of those people have ever been party to a real slow-down ala the mid 70's so they know not what to expect because the leper king (paulson) says it will be "all contained"-as in contained to the planet earth.
If someone could kindly point out to me (as well as many others) just where is yield (on anything) going to materialize from?? I just don't see it magically appearing ala the current mantra.
I think we should follow Sadaam Hussien's example. Last time we invaded Iraq, he set all the fields ON FIRE and oil prices only doubled for very short time.
This time we invaded, didn't set the fields on fire and prices have hextupled.
If someone could kindly point out to me (as well as many others) just where is yield (on anything) going to materialize from?? I just don't see it magically appearing ala the current mantra.
+1 MS We're still in a global ponzi scheme IMO
Average Joe
Baby boomers who are on the older side 60+ will start to redeem their stocks for cash as they need to pay for higher food and energy prices. On the other end young people aren't putting that money back in as they are spending it on Mac computers they don't know how to use and BMW's they can't afford to fill up. Worse Off are those in their 50's who are too old to start saving significantly and too young to retire.
Retirement..I believe that word is going to lose it's lustre soon..
I don't see it for myself..In fact I think I'm going to do all my traveling now because I'll be working when I'm older..Buying c paper somewhere..greeter etc...
Doing all you can to invest wisely, save, carry minimal debt have proven to be the anti-smart thing to do...
Benny and the Boneheads could put a dagger for good threw the heart of this beast with a quarter point increase tomorrow but I think the poor dumb ass is to stupid to figure it out.
Mat Simmons argues we should a floor in oil prices to keep new investment in energy. I think we are going to be too smart by a half and run the risk of real problems with shortages.
Buster writes:
"From my amateur candlestick chart-reading perspective...
The recent pullback is just hitting the lower end of the uptrend. However the monthly opening and closing prices show that the price floor is about to drop out. "
from another amateur: I have learned not to make bets until the corner is turned, and there seems to be support at the July 29 lows.
In such a retrace you would expect to spend a couple of weeks testing the 120 region anyway.
despite the chatter about 'peak oil' (the existence of which I am not at all denying), the history of the petroleum industry is one of huge booms followed by huge busts. Look it up.
I don't see why the current boom should end any differently.
Personally - as much as it sucks to spend ~$50 to fill up my Corolla's relatively miniscule gas tank, I'd like to see prices remain this high. If gasoline sinks back to $2 a gallon, Americans will forget all about the need to get off the petroleum addiction and Detroit will go right back to making ginormous urban assault vehicles.
Renato,
I could not agree more... and I just watched in DVD "who killed the electric car" this WE (everybody should see it). It is more than sad, just plain revolting.
perhaps similar new technology will have a better-faster chance now, thanks to the internet and... bloggers.
I would certainly consider converting my car to a "plug in" (no need to buy new and generate more junk).
Oil will be whatever the overlords want it to be.
America just doesn't get it. America just doesn't want to admit that they the "super power" are at "oils" mercy. How can this be they say. We are America "they say". This cannot happen to "us". As usual they would like to blame "somebody else".
With a democrat sure to win the presidency, oil execs are scaling back on their top-shelf prostitutes. Someone might ask them to testify before Congress - under oath - about illegal market manipulation.
Meanwhile, gold seems to rise and drop roughly at the same time oil does (but don't say it's following oil).
not so sure, I trust people's common sense.
if the technology is good (and affordable) people will adopt it. It is still expensive, but it is virtually a civic duty for anyone who can afford it to adopt zero-low emission cars and all energy saving techs for homes. The more people buy the cheaper they become for everybody else.
We do not need GM-Ford to agree to make the cars we want, we can go to trusted techs who will do the conversion (and that will be yet another way for me to help putting my auto techs kids thru college:-)
All I can say is it looks like someone is selling their winners for the past couple of weeks. However, it looks like a stampede with the herd trying to head out the door at the same time. From google finance (finance.google.com), the sector summary is:
Basic Materials: -4.51%
Energy : -4.07%
Capital Goods: -2.32%
Finance: -1.18%
Healthcare: +0.93%
Cons. Non-Cyclical +0.81%
In the individual stocks:
WLT -17.32%
HK: -14.23%
WNR: -13.32%
BUCY -16.36%
TRA -14.78%
POT -10.40%
It is almost as if some knew that a 25% bps (rate increase) was coming tomorrow. Seems really strange that all recent winners (energy, basic material, agriculture, steel, etc) are being sold off big time. Even with an oil sell off, you should not see this across the board in all sectors.
While I appreciate that the Fed is now officially beyond the bounds of what it's charter intended, what you posted earlier is qualitatively different from the existence of a PPT that intervenes "Deus ex machina" to suddenly swing prices upwards.
Yeah, they're breaking every rule and writing new ones as they go, but that doesn't posit daily purchases of futures to jack the market.
Once prices got above $4/gallon in the US, it appears that Americans' sensitivity to increased prices got significantly higher -- we're now responding to a 25% increase in prices by cutting consumption by something like 2%.
Even so, a 2% change in the oil supply could drive price from 100 to 125/barrel. Doesn't take much to get astronomical prices with that elasticity.
The marginal cost for new oil is up to about $80/barrel, so it really can't fall below that. Last year I made a rough guesstimate of 90-100 short term and 130-150 long-term (US consumption will have to about halve over the next 15 years or so and that will take really high prices). So I think it'll drop further. The question then will the Saudi cut back on their full-out pumping so they sell their oil later at $150 rather than now at $100? If so, prices won't stay down long.
There are large amounts of puts on oil at strikes starting at 115 and going lower. If the market gets a stronger move downward, there will be more selling as those short the puts sell to hedge their exposure. This could result in a short-term plunge in prices.
Have you had a look at the paper by the Dutch institue, CIEP? They are positing a change in pricing regime from the cost of the marginal unit to what they call the 'real User Value'...with a period of oscillation between the two IIRC.
I wouldn't put a whole lot of money on the Democrats. They've got an enviable track record in come-from-ahead Presidential losses, and Mr. Obama gives every indication that he hasn't learned a thing from those past debacles. He's managed to transform a 25-pt lead in Massachusetts to 9 pts, so if the McCainiacs have made those strides in one of the most liberal states in the nation, just imagine what's happening in the rest of the country.
Of course, the joke will be on McCain once he takes the oath of office and grasps the size of the economic shitpile confronting him.
Some people commented that they hated the term "demand destruction". There was a piece by the Barclays oil guy (the research isn't publicly available) that pointed out that people are misusing the term.
It's obvious that there will be less demand as prices rise. However, what demand destruction implies (at least how he defines it, which may be the true definition) is that demand will be lower if prices fall back to their previous level. That is what happened after the 1970s energy crunch.
He argues that there is no such "destruction" visible in the data, at least globally. (One may note that he is an energy bull.) However, the collapse in SUV sales probably points to at least some longer term demand destruction in the U.S., at least. Whether that amounts to anything in the face of subsidized demand elsewhere is wildly unknown.
Were SUV sales pushed down by high oil prices or lack of credit (HELOC's). How many people purchased and fueled SUV's using HELOC's versus cash during the credit boom?
I wouldn't put a whole lot of money on the Democrats. They've got an enviable track record in come-from-ahead Presidential losses, and Mr. Obama gives every indication that he hasn't learned a thing from those past debacles. He's managed to transform a 25-pt lead in Massachusetts to 9 pts, so if the McCainiacs have made those strides in one of the most liberal states in the nation, just imagine what's happening in the rest of the country.
Of course, the joke will be on McCain once he takes the oath of office and grasps the size of the economic shitpile confronting him.
bluestatedon | 08.04.08 - 6:39 pm | #
Some people commented that they hated the term "demand destruction". There was a piece by the Barclays oil guy (the research isn't publicly available) that pointed out that people are misusing the term.
[...]
He argues that there is no such "destruction" visible in the data, at least globally.
Okay how about 'Demand Diversion'?
Regardless average folks here in the US sure aren't in a position to continue to consume at these rates & prices...
If oil currently has a speculative bubble, now is a perfect time for government policy to push malinvestment out of oil futures into alternative energy. Malinvestment is always bad, even if it develops technology, of course (see 10 years ago), but if you are going to malinvest you might as well spread the money around to skilled workers while you're at it.
The problems with alternative energy are no longer theoretical, but technological and a matter of infrastructure. This is true in a broad range of areas, from wind turbines to high-efficiency capacitors to aneutronic fusion and everything in between. Bold and decisive action by Democratic leaders could push this stuff through. I wonder what their freaking problem is.
And, yes, it would have to be the Dems. The Republicans have permanently lashed their futures to oil and will sink with it.
Firstly, right now, Eduardo is just a tropical storm. Couple of days off to shut everything off and then turn everything back on, and no permanent damage.
Secondly, for you oil bears, Cantarell is still stuffed.
To quote from http://www.istockanalyst.com/article/viewiStockNews+articleid_2410381~title_Mexico's-Cantarell-Oil.html
' The deputy director of the Northwest Marine Region of Pemex [Mexican Petroleum] Exploration and Production (PEP), Javier Hinojosa Puebla, said that Cantarell's production volume at the end of this federal administration will be above 600,000 barrels. He rejected the idea that the oil field's decline will be more pronounced than expected.
"It is performing in accordance with our simulation model that has a tolerance range of +/-5 per cent," he said. Interviewed at the end of his participation in the debate forum entitled Policy and Tools to Promote National Industry Related to the Oil Sector, the official emphasized that PEP is doing the work necessary to manage the oil field's natural decline. Between 2000 and 2007, the oil field contributed 56.8 per cent of the nation's total crude oil production, with an average contribution of 1.8 million barrels per day.
"We are incorporating improved secondary recovery projects, the optimization of exploitation, the drilling of unconventional wells, dehydration, gas handling, and nitrogen control," in order to manage the field's decline, he indicated. '
Look, that isnt spin from a marketdroid. Thats an engineer - anyone who has been to any sort of "manage the media" training would be shot if they said "tolerance range of +/-5 per cent" to a journalist with tape running. Its engineering gobblidigook, right ?
As a reminder, in 2003, Cantarell did 2.2 million barrels a day - thats about 20% of US imports, by itself. Its now doing around 1.1 and the guys with the white shirts and lack of social skills are saying 600, 700 tops in a couple of years.
Next, Kuwait. Cute little leak out of the Emirate here into Al Watan ...
" As a sign of the increasing maturity of Kuwait''s light crude fields, the rate of water production from the country''s fields is expected to soon overtake the 2.7 million barrels per day oil output."
Now, water cut is your enemy in the oil field. If it goes up, it never ever ever falls, and the more fluid you move, the more water you're goanna get (rising water cut is to production engineers what rising late mortgage payments are to Tanta).
I live in Houston and know many people who work for oil companies. Oil is about to crash big time. It has been inflated for reasons other than fundamentals.
See, what annoys me about Char and similar people writing headlines in the MSM is we have had a "crash big time" in the price of oil. It crashed from about $150 to about $120 - a fall of $30/barrel in mere weeks.
Similarly, if it falls another 20 bucks, we will have $100 oil and have fallen 30 percent from it's peak. Oh noes, a "crash big time".
A price which is roughly 20 bucks a barrel more than it was at 2007's peak, and roughly double what it was at 2005. On behlaf of the industry, cry me a river.
Would the separation of energy firms into Oil Producers and Oil Distributors lower the energy prices?
I am not into socialism however hearing that Exon is spending only 5 bln on oil exploration and 10 bln on buying back stock, makes me wonder. Are our large oil firms too large for their own good?
$100/bbl oil will still squeeze the US economy through a sh!t kicker of a recession...
Ian, what does it cost to find and bring a barrel of oil into production these days?
Dr. Chaos, that is a distraction IMNSHO - current liquids production by the 7 largest publicly traded oil companies is about 15% of daily global demand - forecast to fall to about 12% per Wood Mackenzie and PFC data. On a who controls the barrels measure (reserves), Exxon is the 14th largest oil company on the planet.
Emma Anne, thank you. And if prices crater well below the marginal cost of replacement expect another period of underinvestment that will only be fully appreciated when the global economy tries to grow again after the wretched excessed of peak credit are wrung out.
Well, a lot of that depends on where you are trying to get it, and what you have to do.
I'd be surprised if the new Brazillian offshore stuff or the Bakken shale are on this side of $60 a barrel for finding and development costs.
But the cost of putting Cantarell back to 2 mmbl - infinite. Just aint goanna happen - what could be done, has been done.
DrChaos,
The problem is essentially that all the rigs are busy, all the FPSO's are booked and all the petroleum geologists, geophysicists and reservoir engineers are employed. From the point of view of Exxon, Aramco or Sibneft, you cant spend more cash.
It's not demand and supply and other amateurish reasons that is the root cause of the spurt in oil prices since 2H2007, and it's not those reasons why it's falling now. Since 2H 2007, all those sudden increase in speculative contracts on long oil were driven by just one factor: the Fed cut aggressively in 2H2007, and now, Big Ben is facing a rebellion in the FOMC to address the inflation genie which he has uncorked! So those speculative longs are taking handsome profit, understand people?
My argument was never about the abundance of oil reserves in the US. Please don't change the subject. My argument was that US Oil shows all of the signs of typical monopolistic behavior.
The US firms have enough reserves for at least 20+ more years. Given the energy market was competitive, the Exxon R&D would be much higher then 5 bln. Its your supply and demand laws for any competitive market.
However if the firms within the sector have PRICE CONTROL, they dont have to increase R&D to keep their margins because they DO NOT HAVE TO COMETE.
Its typical monopolist strategy from a basic Economics for Managers course.
I am glad that Oil Executive learned their lessons, however they did not learn them well enough. In the long run, firms that engage in such behavior become dinosaurs and die out (Does GM blues sound familiar.) I bet separating the production side of oil business from distribution would do well for shareholders of those firms in the long run. Those companies would be forced to innovate and invest their excessive cash flows in other energy means.
And the fact that OIL companies prefer to spend their $ on PR campaigns rather then oil exploration, just supports my point.
Will anyone in Congress have guts to address the problem, rather then replete after oil executives; its supply and demand so the donations will keep flowing?
Will we ever expect higher integrity from our politicians and punish them by voting their careers into abeese for any promise they do not deliver?
Let me simplify my argument:
If oil sector were competitive, the firms would rush into Oil exploration to take opportunities of the price spike. However we do not see that happening. At least the R&D of oil firms does not show it, while they have plenty of cash for it.
Therefore, the US oil sector has been engaging in monopolistic behavior.
Take some petroleum geology in addition to the One Minute Economics for Managers - the issue is GLOBAL access to reserves - as Ian alluded to the price trend for oil has been steadily upward over a five year period, while at the same time the F&D costs to replace barrels has also been climbing...while replacement rates have been falling.
Think about it ala Chamberlin's method of multiple working hypotheses rather than fitting to a pre-conceived destination.
It's a very nice argument.
1. You are illiterate.
2 You don't know geology.
Therefore, you (I in this case) are absolutely wrong.
While at the same time someone provides little explanation why
"while at the same time the F&D costs to replace barrels has also been climbing" - the Research and Development / investment for those firms is all time LOW, (proportionally to their earnings).
I do realize that there is increase in global demand, that US firms are not market makers, Etc. However they are pretty successful in the lobbing to open new resources (lands) while not investing in whatever resources they have. They are also pretty successful in increasing their margins, both in distribution and production business without doing anything innovative, but rather fixing their potential output.
Not to mention increase in the tax cuts for Oil firms for decreased investments.
I mean, if i were monopolist I would do pretty much the same - milk as much cash as possible while feeding BS Supply vs Demand PR story everywhere I could.
I lie, I would actually think long term and diversify into other energy related businesses, however it is not the point.
The point, US energy firms have too much price control over US market. They were able to consolidate in the late 90's with the blessing of US government and they are ripping benefits (and us, a little) now and in near future.
I actually hope I am wrong. However in order to prove that, someone would have to show me data that US Oil has increased its R&D or at least kept it proportionally to their earnings on the same level.
Domestically, I think the drop in the price of oil is mostly due to a drop in the quantity demanded rather than a shift in the demand curve. If prices dropped back to $30, we'd be right back to our old habits. Internationally, I think we're seeing demand destruction as more and more of the world's poor are priced out of the market. There's also probably some psychological impact of the Brazilian and African discoveries that has to work it's way through the system. Soon people will realize that the finds are that big in relation to world consumption and the deep oil in very deep water is very expensive to exploit.
All to say that prices in the long run are going nowhere but up. Way up.
Um have you considered switching to decaf? Here, in no particular order is food for thought:
For all the access power of the US oil industry, with a Republican White House, Senate and Congress it could still not get ANWR opened...though again that discussion misses the central point regarding the access to reserves on a global basis. The vast majority of oil reserves and production are controlled by national oil companies, far more than the US majors and all the independents rolled together.
Refining margins for the major oil and gas companies have been negative on multiple occasions.
On a world wide basis, the size of exploration discoveries peaked in the 1960's (the exploration peak in the USA was much earlier). Oil production from the USA peaked in the early 1970's.
Chamberlin was way ahead of his time, he proposed that when thinking about a geologic interpretation one tries to consider more than one idea on what it might be...
All right, I am wrong.
INTL
Operating Income \t 8,096.00 \t 5,573.00 \t 11,882.00 \t 10,130.00
Research & Development \t 5,755.00 \t 5,873.00 \t 5,145.00 \t 4,778.00
XOM
Operating Income \t 70,474.00 \t 67,402.00 \t 59,432.00 \t 41,241.00
Research & Development \t 1,469.00 \t 1,181.00 \t 964.00 \t 1,098.00
The reason XOM has such low R&D vs Operating Income ratio because THERE IS NO OIL to be discovered off coast of US territory AND the OIL sector is very competitive industry.
My sincere Apologies,
tomorrow I'll write a letter to CA congressman begging to vote to increase tax benefits to firms involved in oil exploration and open up the arctic reserves.
the numbers are:
INTL
Operating Income 8,096.00; 5,573.00; 11,882.00; 10,130.00.
Research & Development 5,755.00; 5,873.00; 5,145.00; 4,778.00
XOM
Operating Income 70,474.00; 67,402.00; 59,432.00; 41,241.00;
Research & Development 1,469.00; 1,181.00; 964.00; 1,098.00.
Oil redux 101.
First in line at the gas station.
Oil < $50/bbl in 2009. Mark it nuncle.
Oils well that ends well.
Oil drops in $4-5 dollar spurts every time the DOW or financials start to slide. Same pattern last few weeks. Assuming it is IBs rotating out to prop the market.
From my amateur candlestick chart-reading perspective...
The recent pullback is just hitting the lower end of the uptrend. However the monthly opening and closing prices show that the price floor is about to drop out.
Given the explosive up move in the past two years, I think the bottom is going to drop out.
Best to stick with the core inflation numbers.
Asphalt will continue to rise and then get hot in the sun, as inflation eats away the core of The American Heart.
CNBC said the plunge came right after Obama's speech.
More demand destruction in the works?
for homedad43 and doggy dog world
from previous thread
who disbelieve or have reasonable doubts about the existatnce of the PPT
note the use of the word EQUITY below
(from the asia times)
Adler quotes Steve Randy Waldman of Interfluidity (What Happens 28 Days later?): "Since the Fed cannot retire loans made via TAF and its repo program without adding to those 'elevated pressures', the loans should be considered an equity infusion, because theyll be repaid at the convenience of the borrower rather than on a schedule agreed with the lender." What Waldman did not say was that the Fed had ventured into a broad nationalization of the prime dealers on Wall Street by being an equity investor.
Does the same argument apply to the new Term Securities Lending Facility (TSLF)? On the face of it, it's harder to view TSLF as an equity infusion, since the Fed is not handing out cash. But to firms holding illiquid securities that the Fed will accept as collateral, the program is equivalent to a not-so-efficient cash infusion, because the Treasuries the Fed lends are liquid and can be converted to cash easily in private markets, according to Waldman.
So, this new facility might well be a form of equity, if the Fed is willing to roll it over indefinitely and require payment only at the convenience of borrowers or when a normal market for them reappears. Waldman thinks what happens after 28 days is pretty clear. The swap will be rolled over and over and over until the mortgage-backed security market stabilizes. This could be a year from now, or perhaps 10. That may sound ridiculous but it is essentially what happened in Japan.
Asia Times Online :: Asian news and current affairs
If demand destruction is outweighing other supply and demand issues, I'd expect prices to fall much further.
Add ag products & 'base metals' as well.
Now the question - if spec in these commodities were the few remaining profit centers remaining at IBs... does this mean another round of write downs in the uncontained containment category?
Like the man said, the market will fluctuate.
Angry, in MOD or 2008 dollars?
If big money leaves oil, where will it go? Stocks? Doubtful. Real estate? Ha. Bonds & Bills? Not yet. Seems to me that oil will remain high until interest rates start to crank up and provide attractive alternatives to buying oil.
Maybe I'm missing something here, but no way could that kind of real demand just spring forth suddenly. The emaciation of the dollar seems far more likely to me. Anything on the horizon that will strengthen the dollar significantly?
Do tell.
Energy Current - News for the Business of Energy
Hercules Offshore has five rigs that the company is preparing to, or has already begun evacuating. Three more rigs are likely to be evacuated, with a further three standing by. All other Hercules rigs in the U.S. Gulf of Mexico are out of the path of the storm.
High seas caused by the storm have interrupted operations at the Louisiana Offshore Oil Port, 18 miles (29 km) south of Grand Isle in 110 feet (33.5 m) of water. The port is temporarily not offloading oil from tankers, but has not evacuated the platform and will resume mooring tankers when conditions improve. The company's onshore storage facilities are unaffected and will continue to supply refineries.
If big money leaves oil, where will it go?
Money heaven?
OT but strangely related...
JetBlue charging $7 for pillow, blanket kit
NEW YORK - JetBlue Airways Corp. said Monday it is now charging customers for pillows and blankets.
[snip]
dryfly: Is the destruction of money enough to overwhelm the flow coming out of the Fed? I could buy this, being that I am very skeptical of the Fed's ability to "print."
DP,
Check out whazzup with the Independence Hub...
HoHoHo XOM new 52 week low look out below.
Gas will be 3.00 a gallon by October 1st. It is an election year, right?
Storm Closures
Pilots on the Houston Ship Channel, which serves the largest U.S. petroleum port, suspended inbound traffic to Galveston and Texas City today, the U.S. Coast Guard said on its Web site.
The Louisiana Offshore Oil Port suspended marine operations last night, though it's still making pipeline deliveries, spokeswoman Barb Hestermann said. The LOOP is the biggest U.S. crude-oil import terminal, with the capacity to receive 1 million barrels a day, or about 11 percent of U.S. imports.
Brent crude oil for September settlement dropped $3.60, or 2.9 percent, to $120.58 a barrel on London's ICE Futures Europe exchange
So does this means some hedge fund is liquidating positions to cover bad bets?
Other valuable commodities are down too. BHP, POT, etc.
Shrub's buddies have to get out while the getting is good.
Methinks many Hedge/Quant heads had $120 as their trigger point. The rest is self-fulfilling prophecy, just in the reverse direction.
Currently Smoking Cannabis writes:
dryfly: Is the destruction of money enough to overwhelm the flow coming out of the Fed? I could buy this, being that I am very skeptical of the Fed's ability to "print."
Currently Smoking Cannabis | Homepage | 08.04.08 - 1:56 pm |
I fully agree - in the long run. But I do think the deflationary pressures will send a lot of this stuff to money heaven in the nearer time frame... and commodity speculation is a money death march from what I can see (and have seen in the past).
B. Setser recently posted an analysis in which he wrote that gulf producers confronting high inflation may benefit trying to keep oil prices high, even if they have sale less for a while.
I could buy this, being that I am very skeptical of the Fed's ability to "print."
Well, the huge jump in personal savings the past couple of months seems to validate the idea that the Fed can hand out money like candy but not necessarily get people to spend it.
Again, it could be a disaster for the Federal budget if they keep handing out stimulus checks, but they get saved instead of spent (and so don't generate commensurate tax revenues).
So far it seems like war has been the only effective way for economies to inflate their way out of problems in such a way that consumers aren't ravaged.
What are we waiting for?
LOOP LLC is a Limited Liability Company whose primary business is offloading foreign crude oil from tankers, storing crude oil, and transporting crude oil via connecting pipelines to refineries
http://www.loopllc.com/f1.cfm?n=1
NDBC - Station GDIL1
Is the fact that the prices in the chart are shown up to mid-2009 an error or related to the "futures" aspect?
dryfly writes:
I fully agree - in the long run. But I do think the deflationary pressures will send a lot of this stuff to money heaven in the nearer time frame... and commodity speculation is a money death march from what I can see (and have seen in the past).
I see the deflationary winds blowing, but geopolitics has me feeling different about oil. I know I sound like a tinfoil hatter, but I believe that our involvement in the ME has little to do with crazy dudes wielding box cutters, and everything to do with a good ole resource war.
Of course, when the global economy deflates, all bets are off. Oil crashes and lead becomes the new gold.
If big money leaves oil, where will it go?
Maybe it's not big money; maybe it's just big credit.
Credit can drive up prices then simply vanish into thin air... never to return again.
"Is the destruction of money enough to overwhelm the flow coming out of the Fed? "
You can check it here at Fed Flow of Funds Accounts
http://www.federalreserve.gov/releases/z1/Current/z1r-3.pdf
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.
One down one to go.
Amazing how many abandoned the notion of peak oil. Nature's not making the stuff anymore.
McMoRan Exploration Company is evacuating all non-essential personnel from its rigs, said Bill Collier, vice president of communications.
Shell Oil Company is evacuating roughly 40 personnel from its western Gulf of Mexico operations, according to a press release at 7 a.m. Monday, and BP Plc is in the process of evacuating two contracted drilling vessels from Rowan, Inc., from the same region.
Chevron began evacuating personnel from the central and western Gulf of Mexico as a precaution, spokeswoman Qiana Wilson said.
My impressions is that people historically believed that it took a 25% increase in gasoline prices to cut demand by 1%. Once prices got above $4/gallon in the US, it appears that Americans' sensitivity to increased prices got significantly higher -- we're now responding to a 25% increase in prices by cutting consumption by something like 2%.
This means that the rate at which oil prices can increase is substantially lower than people expected earlier.
ac writes:
Maybe it's not big money; maybe it's just big credit.
I definitely had not factored this in to the extent I should have. Thanks, ac.
I love Calculated Risk.
I fully agree - in the long run. But I do think the deflationary pressures will send a lot of this stuff to money heaven in the nearer time frame... and commodity speculation is a money death march from what I can see (and have seen in the past).
I agree if you assume a national drop in house prices of 50% that would be more that the equivalent of entire domestically traded companies on the stock market (I have read roughly 15 trillion). I would be comfortable buying oil around 100 because oil production is peaking IMO.
Amazing how many abandoned the notion of peak oil. Nature's not making the stuff anymore.
All those people who argued that "they weren't making any more land" were right. The simply overlooked the fact that credit had driven real estate prices up far more than any other fundamental issues.
It's been no different with most other market these days.
It simply doesn't matter how little of something there is if there isn't the buying power to purchase it (or rent supertankers to hoard it in).
Prices will fall.
Naw, the Iranians and the Israelis will do their part to keep oil prices up.
CSC-
The "bigs" won't fully leave the comm. trades, this is just day-to-day flows that keep the day of reckoning off for a little while longer.
The destruction of money FAR outweighs the ability to "print" IMO....unless the president in 2012 wants a repeat of the entire 1930's (continuing on until ??) they need to back off and soon. You'll notice that the alphabet soup "auctions" get smaller and smaller with each passing week. Increasing the "agreement" with the ECB by "only" $5B was a tell.
Think how many tricks they have left??
I count not too many with a big buyer of our debt not giving a crap in about three weeks time.
Ciao
MS
Maybe it's not big money; maybe it's just big credit.
I definitely had not factored this in to the extent I should have. Thanks, ac.
Of course if that 30 billion of Bear Stearns bond had defaulted it would have wiped out 2 trillion in CDS's overnight so I think its all related. The FED cannot back up all the corporate debt.
The last thing the Treasury Dept wants is a collapse in oil prices. It's OPEC who is coming to the salvation of Treasury auctions. Cut off their revenues and they have less money to spend. Lets see what happens with rates then....
I count not too many with a big buyer of our debt not giving a crap in about three weeks time.
Agree (means nothing to anyone here but..) and I like the time frame MS.
stuart,
Tie that in with MS comment on the other dollar recycler...interesting times.
energycon-
ya beat me to it....
Ciao
MS
MS: I'm pretty nervous about that time frame, actually. If I could just time travel to 18 months in the future (intact), I'd be much happier these days. End of the games until the end of the first year of new POTUS could be hell.
Thanks for the input.
The last thing the Treasury Dept wants is a collapse in oil prices. It's OPEC who is coming to the salvation of Treasury auctions. Cut off their revenues and they have less money to spend. Lets see what happens with rates then....
The flip side is if oil prices collapse, the US will have a lot more leeway in monetizing its own debt and devaluing its currency to try another reflation attempt.
In other words, if the US doesn't have to worry as much about a collapsing dollar making oil too expensive, it can start buying its own debt with "printed" money. It can even attempt to drive down long bond rates with this technique if the currency markets will tolerate it.
In other words, ac, it doesn't pay to play with other people's money?
In other words, ac, it doesn't pay to play with other people's money?
Oh absolutely it does.
Look at all those people getting 300 days free rent after taking $500,000 from some poor dope (US taxpayer) that may not even see half of it back.
Longs are liquidating.... oil is going low.
Keep on rotating between (Short Oil) and (Short Financials + Real Estate).
Ready??? R-O-T-A-T-E.
Financials down tomorrow. Small bounce in oil.
This is easy money.....
In other words, ac, it doesn't pay to play with other people's money?
Oh absolutely it does.
Don't forget Jamie Dimon...
Heard there are 5 million empty homes. When we get to 10 million empty homes I will start to look at the Real estate classifieds... for cheaper rent.
Thanks AC!
My monday is shot now...At one time I was a semi comfortable dope...Now I'm just trying to find CSC to meddle in his dope....
well I'd like to be "over" this too but think of it this way....if the market just dropped and stayed flat where would we be? (at least those of us who do this full-time).
As much as I hate the lying, cheating, stealing (especially the I-banks)-it keeps me with a steady stream of income. I shudder to think what happens when we finally do reach a bottom.....IMO it will be quite a trough....
I still have friends that think the market is not manipulated...and they trade full-time......well they did...
Ciao
MS
It would be helpful if you would post graphs like this with a log y axis.
What I want to see, for instance, is how far oil would have to drop to duplicate, in percentage terms, a drop from 80 to 60. On a linear chart that drop will look larger than it is.
If the chart were semilog we could just inspect visually and not have to crank out a calculation and discover that the magic number is $108. You can see that the drop from 140 to 108 looks half again as larger as a drop from 80 to 60 - but it's not.
As much as I hate the lying, cheating, stealing (especially the I-banks)-it keeps me with a steady stream of income. I shudder to think what happens when we finally do reach a bottom.....IMO it will be quite a trough....
Happened in 2004-05 Guys who made 200k in 2001, 2002 made 50k in the flatter 04-05 years.
Short GS?
This is just the lull before the winter storm. $5 gas will be here this year.
Chrysler historically leased about 20% of the vehicles it sold, so if a whole new round of juicier incentives doesn't entice customers to "Shop til you Drive", August may look even worse than July.
20% drop in already dismal sales. Yikes.
CSB, personally, I'm splitting my time between working on invisibility and time travel. These are personal goals in my life, and I expect to meet them soon.
Well, just in time for the Baby Boomer retirees.
The buy and hold mantra is dying a slow death.
One of the world's greatest investors, Bill Miller, after having been paid millions and millions to manage other's money, has a 2.18% annualized return over the last 10 years. So if you put a big chunk of money with him in 1998, you lost money to inflation and cash. If you dollar-cost-averaged into his fund you got absolutely slaughtered!
He lost money for the last 5 years since 2003, one of the best deadcatbounce periods in recent history.
This coming December, if not much sooner, we will run into a period where the S&P500 is below its 10-year-ago actual level.
This will likely get some press.
Recall this, the next several years, is the period where contributions to retirement funds will be constrained due to a slow economy and an unispiring track record for stock investors, and baby boomers who have accumulated stocks for most of the later half of their lives (since late 80's, early 90's with the inception of 401k's etc) will be selling to fund their daily costs (which will be rising with increased costs and debt service).
This will spark a cry for a more diversified investment option menu in retirement funds. You already have seen large pension funds continue to diversify away from stocks into commodities and real estate. This will put further pressure on stock prices as they move from THE place to put investment money to one of several places to invest longterm, and total stock-buying dollars will further decrease, a generational shift that compress p/e ratios to below historical levels.
People who say the growth in stocks will mirror the growth in American and American consumption and ingenuity need only look to GM and Ford. Given the sharp increase in car ownership over the last several decades you'd think anyone who invested in these companies based upon the forseable tremendous growth in vehicle ownership would have been handsomely reward..quite the contrary.
Anyone saying that it is unfair to take current depressed stock values to make long-term judgements about stock prices, and that now is the time to buy, needs to consider if the current prices levels are simply a return to normal valuations, that the stock boom of 1999 and last summer were blow-off tops fueled by the explosion of stock buyers for retirement and the derth of longterm sellers. Greenspan coined irrational exuberance in 1996. Perhaps that should be used to judge the highend of historical stock valuation in terms of p/e's going forward (after adjusting for inflation).
Tim-
That was just a blip in the road compared to what's coming....how about not making a thing and Wall St. lay-offs reach 10's of thousands. The problem is that none of those people have ever been party to a real slow-down ala the mid 70's so they know not what to expect because the leper king (paulson) says it will be "all contained"-as in contained to the planet earth.
If someone could kindly point out to me (as well as many others) just where is yield (on anything) going to materialize from?? I just don't see it magically appearing ala the current mantra.
Ciao
MS
I think we should follow Sadaam Hussien's example. Last time we invaded Iraq, he set all the fields ON FIRE and oil prices only doubled for very short time.
This time we invaded, didn't set the fields on fire and prices have hextupled.
It's totally our fault.
If someone could kindly point out to me (as well as many others) just where is yield (on anything) going to materialize from?? I just don't see it magically appearing ala the current mantra.
+1 MS We're still in a global ponzi scheme IMO
Average Joe
Baby boomers who are on the older side 60+ will start to redeem their stocks for cash as they need to pay for higher food and energy prices. On the other end young people aren't putting that money back in as they are spending it on Mac computers they don't know how to use and BMW's they can't afford to fill up. Worse Off are those in their 50's who are too old to start saving significantly and too young to retire.
Tim,
Retirement..I believe that word is going to lose it's lustre soon..
I don't see it for myself..In fact I think I'm going to do all my traveling now because I'll be working when I'm older..Buying c paper somewhere..greeter etc...
Doing all you can to invest wisely, save, carry minimal debt have proven to be the anti-smart thing to do...
good luck with peak stupidity all around us....
It would be interesting to see the the graph denoted in Euros too.
Benny and the Boneheads could put a dagger for good threw the heart of this beast with a quarter point increase tomorrow but I think the poor dumb ass is to stupid to figure it out.
Mat Simmons argues we should a floor in oil prices to keep new investment in energy. I think we are going to be too smart by a half and run the risk of real problems with shortages.
Buster writes:
"From my amateur candlestick chart-reading perspective...
The recent pullback is just hitting the lower end of the uptrend. However the monthly opening and closing prices show that the price floor is about to drop out. "
from another amateur: I have learned not to make bets until the corner is turned, and there seems to be support at the July 29 lows.
In such a retrace you would expect to spend a couple of weeks testing the 120 region anyway.
Benny and the Boneheads could put a dagger for good threw the heart of this beast with a quarter point increase tomorrow
Tomorrow would be an even worse day to be Ken Heebner, if the Fed does indeed hike.
You think oil's getting hit - take a look at the glod stocks (XAU or HUI). Pow! Right in the kisser!
despite the chatter about 'peak oil' (the existence of which I am not at all denying), the history of the petroleum industry is one of huge booms followed by huge busts. Look it up.
I don't see why the current boom should end any differently.
Personally - as much as it sucks to spend ~$50 to fill up my Corolla's relatively miniscule gas tank, I'd like to see prices remain this high. If gasoline sinks back to $2 a gallon, Americans will forget all about the need to get off the petroleum addiction and Detroit will go right back to making ginormous urban assault vehicles.
69 comments and nobody noticed that, according to this graph, it's 2009???
Um, so who won that presidential election in 2008...?
Renato,
I could not agree more... and I just watched in DVD "who killed the electric car" this WE (everybody should see it). It is more than sad, just plain revolting.
perhaps similar new technology will have a better-faster chance now, thanks to the internet and... bloggers.
I would certainly consider converting my car to a "plug in" (no need to buy new and generate more junk).
rnato:
I couldn't agree more. In the same boat spending $50 to fill up my Civic, but if it leads us to finally get away from 12 MPG SUV's I'm all for it.
Oil will be whatever the overlords want it to be.
America just doesn't get it. America just doesn't want to admit that they the "super power" are at "oils" mercy. How can this be they say. We are America "they say". This cannot happen to "us". As usual they would like to blame "somebody else".
With a democrat sure to win the presidency, oil execs are scaling back on their top-shelf prostitutes. Someone might ask them to testify before Congress - under oath - about illegal market manipulation.
Meanwhile, gold seems to rise and drop roughly at the same time oil does (but don't say it's following oil).
So with Goldman analysts and others talking $150-$200 a barrel, was this a setup for the con?
"America just doesn't get it."
not so sure, I trust people's common sense.
if the technology is good (and affordable) people will adopt it. It is still expensive, but it is virtually a civic duty for anyone who can afford it to adopt zero-low emission cars and all energy saving techs for homes. The more people buy the cheaper they become for everybody else.
We do not need GM-Ford to agree to make the cars we want, we can go to trusted techs who will do the conversion (and that will be yet another way for me to help putting my auto techs kids thru college:-)
All I can say is it looks like someone is selling their winners for the past couple of weeks. However, it looks like a stampede with the herd trying to head out the door at the same time. From google finance (finance.google.com), the sector summary is:
Basic Materials: -4.51%
Energy : -4.07%
Capital Goods: -2.32%
Finance: -1.18%
Healthcare: +0.93%
Cons. Non-Cyclical +0.81%
In the individual stocks:
WLT -17.32%
HK: -14.23%
WNR: -13.32%
BUCY -16.36%
TRA -14.78%
POT -10.40%
It is almost as if some knew that a 25% bps (rate increase) was coming tomorrow. Seems really strange that all recent winners (energy, basic material, agriculture, steel, etc) are being sold off big time. Even with an oil sell off, you should not see this across the board in all sectors.
Mock:
While I appreciate that the Fed is now officially beyond the bounds of what it's charter intended, what you posted earlier is qualitatively different from the existence of a PPT that intervenes "Deus ex machina" to suddenly swing prices upwards.
Yeah, they're breaking every rule and writing new ones as they go, but that doesn't posit daily purchases of futures to jack the market.
that saying, still maybe, maybe not.
Once prices got above $4/gallon in the US, it appears that Americans' sensitivity to increased prices got significantly higher -- we're now responding to a 25% increase in prices by cutting consumption by something like 2%.
Even so, a 2% change in the oil supply could drive price from 100 to 125/barrel. Doesn't take much to get astronomical prices with that elasticity.
The marginal cost for new oil is up to about $80/barrel, so it really can't fall below that. Last year I made a rough guesstimate of 90-100 short term and 130-150 long-term (US consumption will have to about halve over the next 15 years or so and that will take really high prices). So I think it'll drop further. The question then will the Saudi cut back on their full-out pumping so they sell their oil later at $150 rather than now at $100? If so, prices won't stay down long.
There are large amounts of puts on oil at strikes starting at 115 and going lower. If the market gets a stronger move downward, there will be more selling as those short the puts sell to hedge their exposure. This could result in a short-term plunge in prices.
FE,
Have you had a look at the paper by the Dutch institue, CIEP? They are positing a change in pricing regime from the cost of the marginal unit to what they call the 'real User Value'...with a period of oscillation between the two IIRC.
Will chase down link and post shortly.
Oh yeah here it is...
Oil turbulence in the next decade (3 MB pdf)
"With a democrat sure to win the presidency,"
I wouldn't put a whole lot of money on the Democrats. They've got an enviable track record in come-from-ahead Presidential losses, and Mr. Obama gives every indication that he hasn't learned a thing from those past debacles. He's managed to transform a 25-pt lead in Massachusetts to 9 pts, so if the McCainiacs have made those strides in one of the most liberal states in the nation, just imagine what's happening in the rest of the country.
Of course, the joke will be on McCain once he takes the oath of office and grasps the size of the economic shitpile confronting him.
Some people commented that they hated the term "demand destruction". There was a piece by the Barclays oil guy (the research isn't publicly available) that pointed out that people are misusing the term.
It's obvious that there will be less demand as prices rise. However, what demand destruction implies (at least how he defines it, which may be the true definition) is that demand will be lower if prices fall back to their previous level. That is what happened after the 1970s energy crunch.
He argues that there is no such "destruction" visible in the data, at least globally. (One may note that he is an energy bull.) However, the collapse in SUV sales probably points to at least some longer term demand destruction in the U.S., at least. Whether that amounts to anything in the face of subsidized demand elsewhere is wildly unknown.
Were SUV sales pushed down by high oil prices or lack of credit (HELOC's). How many people purchased and fueled SUV's using HELOC's versus cash during the credit boom?
I wouldn't put a whole lot of money on the Democrats. They've got an enviable track record in come-from-ahead Presidential losses, and Mr. Obama gives every indication that he hasn't learned a thing from those past debacles. He's managed to transform a 25-pt lead in Massachusetts to 9 pts, so if the McCainiacs have made those strides in one of the most liberal states in the nation, just imagine what's happening in the rest of the country.
Of course, the joke will be on McCain once he takes the oath of office and grasps the size of the economic shitpile confronting him.
bluestatedon | 08.04.08 - 6:39 pm | #
Thanks BSD - my thoughts exactly.
Some people commented that they hated the term "demand destruction". There was a piece by the Barclays oil guy (the research isn't publicly available) that pointed out that people are misusing the term.
[...]
He argues that there is no such "destruction" visible in the data, at least globally.
Okay how about 'Demand Diversion'?
Regardless average folks here in the US sure aren't in a position to continue to consume at these rates & prices...
If oil currently has a speculative bubble, now is a perfect time for government policy to push malinvestment out of oil futures into alternative energy. Malinvestment is always bad, even if it develops technology, of course (see 10 years ago), but if you are going to malinvest you might as well spread the money around to skilled workers while you're at it.
The problems with alternative energy are no longer theoretical, but technological and a matter of infrastructure. This is true in a broad range of areas, from wind turbines to high-efficiency capacitors to aneutronic fusion and everything in between. Bold and decisive action by Democratic leaders could push this stuff through. I wonder what their freaking problem is.
And, yes, it would have to be the Dems. The Republicans have permanently lashed their futures to oil and will sink with it.
energyecon: thanks for the ref. I was getting the marginal price estimates from that paper. Good description of what we're up against.
Couple of points,
Firstly, right now, Eduardo is just a tropical storm. Couple of days off to shut everything off and then turn everything back on, and no permanent damage.
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Secondly, for you oil bears, Cantarell is still stuffed.
To quote from http://www.istockanalyst.com/article/viewiStockNews+articleid_2410381~title_Mexico's-Cantarell-Oil.html
' The deputy director of the Northwest Marine Region of Pemex [Mexican Petroleum] Exploration and Production (PEP), Javier Hinojosa Puebla, said that Cantarell's production volume at the end of this federal administration will be above 600,000 barrels. He rejected the idea that the oil field's decline will be more pronounced than expected.
"It is performing in accordance with our simulation model that has a tolerance range of +/-5 per cent," he said. Interviewed at the end of his participation in the debate forum entitled Policy and Tools to Promote National Industry Related to the Oil Sector, the official emphasized that PEP is doing the work necessary to manage the oil field's natural decline. Between 2000 and 2007, the oil field contributed 56.8 per cent of the nation's total crude oil production, with an average contribution of 1.8 million barrels per day.
"We are incorporating improved secondary recovery projects, the optimization of exploitation, the drilling of unconventional wells, dehydration, gas handling, and nitrogen control," in order to manage the field's decline, he indicated. '
Look, that isnt spin from a marketdroid. Thats an engineer - anyone who has been to any sort of "manage the media" training would be shot if they said "tolerance range of +/-5 per cent" to a journalist with tape running. Its engineering gobblidigook, right ?
As a reminder, in 2003, Cantarell did 2.2 million barrels a day - thats about 20% of US imports, by itself. Its now doing around 1.1 and the guys with the white shirts and lack of social skills are saying 600, 700 tops in a couple of years.
Next, Kuwait. Cute little leak out of the Emirate here into Al Watan ...
" As a sign of the increasing maturity of Kuwait''s light crude fields, the rate of water production from the country''s fields is expected to soon overtake the 2.7 million barrels per day oil output."
الأولى الصفحة الرئيســــــــــية - جريدة الوطـــــــــــــــن
Now, water cut is your enemy in the oil field. If it goes up, it never ever ever falls, and the more fluid you move, the more water you're goanna get (rising water cut is to production engineers what rising late mortgage payments are to Tanta).
Ian Whitchurch
I live in Houston and know many people who work for oil companies. Oil is about to crash big time. It has been inflated for reasons other than fundamentals.
I guess I better go out and buy an Escalade while the local dealership still has them at 30% off list.
See, what annoys me about Char and similar people writing headlines in the MSM is we have had a "crash big time" in the price of oil. It crashed from about $150 to about $120 - a fall of $30/barrel in mere weeks.
Similarly, if it falls another 20 bucks, we will have $100 oil and have fallen 30 percent from it's peak. Oh noes, a "crash big time".
A price which is roughly 20 bucks a barrel more than it was at 2007's peak, and roughly double what it was at 2005. On behlaf of the industry, cry me a river.
Ian Whitchurch
Would the separation of energy firms into Oil Producers and Oil Distributors lower the energy prices?
I am not into socialism however hearing that Exon is spending only 5 bln on oil exploration and 10 bln on buying back stock, makes me wonder. Are our large oil firms too large for their own good?
Amazing how many abandoned the notion of peak oil.
I would be very surprised if anyone knowledgeable abandoned the idea of peak oil. Did you think it meant oil prices could never drop?
$100/bbl oil will still squeeze the US economy through a sh!t kicker of a recession...
Ian, what does it cost to find and bring a barrel of oil into production these days?
Dr. Chaos, that is a distraction IMNSHO - current liquids production by the 7 largest publicly traded oil companies is about 15% of daily global demand - forecast to fall to about 12% per Wood Mackenzie and PFC data. On a who controls the barrels measure (reserves), Exxon is the 14th largest oil company on the planet.
Emma Anne, thank you. And if prices crater well below the marginal cost of replacement expect another period of underinvestment that will only be fully appreciated when the global economy tries to grow again after the wretched excessed of peak credit are wrung out.
er that was 12% in 2015
and wretched excesses - d'oh!
Energyecon,
Well, a lot of that depends on where you are trying to get it, and what you have to do.
I'd be surprised if the new Brazillian offshore stuff or the Bakken shale are on this side of $60 a barrel for finding and development costs.
But the cost of putting Cantarell back to 2 mmbl - infinite. Just aint goanna happen - what could be done, has been done.
DrChaos,
The problem is essentially that all the rigs are busy, all the FPSO's are booked and all the petroleum geologists, geophysicists and reservoir engineers are employed. From the point of view of Exxon, Aramco or Sibneft, you cant spend more cash.
It's not demand and supply and other amateurish reasons that is the root cause of the spurt in oil prices since 2H2007, and it's not those reasons why it's falling now. Since 2H 2007, all those sudden increase in speculative contracts on long oil were driven by just one factor: the Fed cut aggressively in 2H2007, and now, Big Ben is facing a rebellion in the FOMC to address the inflation genie which he has uncorked! So those speculative longs are taking handsome profit, understand people?
Josh,
But the spurt in oil prices didnt start in the second half of 2007. Look to where it broke $50 the first time.
Dear Energyecon,
My argument was never about the abundance of oil reserves in the US. Please don't change the subject. My argument was that US Oil shows all of the signs of typical monopolistic behavior.
The US firms have enough reserves for at least 20+ more years. Given the energy market was competitive, the Exxon R&D would be much higher then 5 bln. Its your supply and demand laws for any competitive market.
However if the firms within the sector have PRICE CONTROL, they dont have to increase R&D to keep their margins because they DO NOT HAVE TO COMETE.
Its typical monopolist strategy from a basic Economics for Managers course.
I am glad that Oil Executive learned their lessons, however they did not learn them well enough. In the long run, firms that engage in such behavior become dinosaurs and die out (Does GM blues sound familiar.) I bet separating the production side of oil business from distribution would do well for shareholders of those firms in the long run. Those companies would be forced to innovate and invest their excessive cash flows in other energy means.
And the fact that OIL companies prefer to spend their $ on PR campaigns rather then oil exploration, just supports my point.
Will anyone in Congress have guts to address the problem, rather then replete after oil executives; its supply and demand so the donations will keep flowing?
Will we ever expect higher integrity from our politicians and punish them by voting their careers into abeese for any promise they do not deliver?
p.s. Have a great day!
Let me simplify my argument:
If oil sector were competitive, the firms would rush into Oil exploration to take opportunities of the price spike. However we do not see that happening. At least the R&D of oil firms does not show it, while they have plenty of cash for it.
Therefore, the US oil sector has been engaging in monopolistic behavior.
DrChaos,
Take some petroleum geology in addition to the One Minute Economics for Managers - the issue is GLOBAL access to reserves - as Ian alluded to the price trend for oil has been steadily upward over a five year period, while at the same time the F&D costs to replace barrels has also been climbing...while replacement rates have been falling.
Think about it ala Chamberlin's method of multiple working hypotheses rather than fitting to a pre-conceived destination.
It's a very nice argument.
1. You are illiterate.
2 You don't know geology.
Therefore, you (I in this case) are absolutely wrong.
While at the same time someone provides little explanation why
"while at the same time the F&D costs to replace barrels has also been climbing" - the Research and Development / investment for those firms is all time LOW, (proportionally to their earnings).
I do realize that there is increase in global demand, that US firms are not market makers, Etc. However they are pretty successful in the lobbing to open new resources (lands) while not investing in whatever resources they have. They are also pretty successful in increasing their margins, both in distribution and production business without doing anything innovative, but rather fixing their potential output.
Not to mention increase in the tax cuts for Oil firms for decreased investments.
I mean, if i were monopolist I would do pretty much the same - milk as much cash as possible while feeding BS Supply vs Demand PR story everywhere I could.
I lie, I would actually think long term and diversify into other energy related businesses, however it is not the point.
The point, US energy firms have too much price control over US market. They were able to consolidate in the late 90's with the blessing of US government and they are ripping benefits (and us, a little) now and in near future.
I actually hope I am wrong. However in order to prove that, someone would have to show me data that US Oil has increased its R&D or at least kept it proportionally to their earnings on the same level.
Domestically, I think the drop in the price of oil is mostly due to a drop in the quantity demanded rather than a shift in the demand curve. If prices dropped back to $30, we'd be right back to our old habits. Internationally, I think we're seeing demand destruction as more and more of the world's poor are priced out of the market. There's also probably some psychological impact of the Brazilian and African discoveries that has to work it's way through the system. Soon people will realize that the finds are that big in relation to world consumption and the deep oil in very deep water is very expensive to exploit.
All to say that prices in the long run are going nowhere but up. Way up.
DrC,
Um have you considered switching to decaf?
Here, in no particular order is food for thought:
For all the access power of the US oil industry, with a Republican White House, Senate and Congress it could still not get ANWR opened...though again that discussion misses the central point regarding the access to reserves on a global basis. The vast majority of oil reserves and production are controlled by national oil companies, far more than the US majors and all the independents rolled together.
Refining margins for the major oil and gas companies have been negative on multiple occasions.
On a world wide basis, the size of exploration discoveries peaked in the 1960's (the exploration peak in the USA was much earlier). Oil production from the USA peaked in the early 1970's.
Chamberlin was way ahead of his time, he proposed that when thinking about a geologic interpretation one tries to consider more than one idea on what it might be...
All right, I am wrong.
INTL
Operating Income \t 8,096.00 \t 5,573.00 \t 11,882.00 \t 10,130.00
Research & Development \t 5,755.00 \t 5,873.00 \t 5,145.00 \t 4,778.00
XOM
Operating Income \t 70,474.00 \t 67,402.00 \t 59,432.00 \t 41,241.00
Research & Development \t 1,469.00 \t 1,181.00 \t 964.00 \t 1,098.00
The reason XOM has such low R&D vs Operating Income ratio because THERE IS NO OIL to be discovered off coast of US territory AND the OIL sector is very competitive industry.
My sincere Apologies,
tomorrow I'll write a letter to CA congressman begging to vote to increase tax benefits to firms involved in oil exploration and open up the arctic reserves.
the numbers are:
INTL
Operating Income 8,096.00; 5,573.00; 11,882.00; 10,130.00.
Research & Development 5,755.00; 5,873.00; 5,145.00; 4,778.00
XOM
Operating Income 70,474.00; 67,402.00; 59,432.00; 41,241.00;
Research & Development 1,469.00; 1,181.00; 964.00; 1,098.00.
Financial Statements for Intel Corporation - Google Finance
Financial Statements for Exxon Mobil Corporation - Google Finance
Good luck with that DrC!