>$50 Oil anyone?

[rederob]

Oil at $93 is still cheap compared to the alternatives. That's the problem.

It's cheaper than beer!
It's even cheaper than bottled water.
Let's hope the "hydrogen" powered cars don't use bottled water in the electrolysis process.

ps. oil still over $94, so POG to $800 in near term is still looking a chance

 

[SevenFX]

It's cheaper than beer!
It's even cheaper than bottled water.

If you compare it by the Litre...then maybe YES, but if you compare the rate of consumption & nesseserty by the week...

Bottled water seems to come as tap water with the bonus fancy bottle, in which case, tap water still being much cheaper.

SevenFX

 

[Aussiejeff]

Any comments on where you think this graph might be heading? I know why I sense that growing up in the 60's-70's were "good times".... so what if we had no computers then!!

AJ

 

[rederob]

Oil is sitting between A$90-100 or there abouts at the moment - do I think it'll go up to say A$120-130 in the next year or so? Maybe. Do I see it there in 3-5yrs? Probably not. I think high oil prices today are a product of low oil prices in the early 90s, discouraging exploration and incremental development of technologies like horizontal drilling, fracturing and deep sea/sub sea drilling. High oil prices of the last few years has seen an explosion of exploration (try getting a rig in the US if you're not a major) and increases in technology that should help insulate us from further rises in the medium term.

As a long term investor, I make it my business to eliminate as many possibilities that can go against me as possible.
So when I read posts that "buck the trend", I look for the rationale behind them.
This poster suggests it's unlikely that oil prices will be as high as A$120-130 in 3-5 years time.
Are his views supported anywhere?
There's certainly no analysis - not even a long term price chart - just his views.
His principal theme is that technology, combined with "an explosion of exploration" will insulate us from high prices in the future.
So how do they stack up?
I'll give the poster an opportunity to present his case "for".
If he doesn't, I'll do some analysis on his behalf.

 

[doctorj]

Be my guest.

 

[Wysiwyg]

From what i`ve read, the chinese/indian growth spurt is also the reason behind oil supply issues.(obvious to most) If this is the case then once their ever increasing infrastructure is established will it not require a constant supply of fuel to maintain?Of course there may be fluctuations in price/bbl but the demand isn`t going to reduce to less than what it was 10 years ago.Not unless the human race slows to a crawl and masses of people experience hardship again.

 

[Wysiwyg]

Just to add to my post .... in Brisbane at present there is a tunnel being built under the river and another bridge over to address present and future traffic.There may be more examples of present major infrastructure moves within Aus.

 

[Bushman]

Quite amusing I thought. Now who is going to order me a diamond filled martini?

http://www.marketwatch.com/news/breaking.asp?id=news/features/expensive_things.asp

 

[Smurf1976]

As a long term investor, I make it my business to eliminate as many possibilities that can go against me as possible.
So when I read posts that "buck the trend", I look for the rationale behind them.
This poster suggests it's unlikely that oil prices will be as high as A$120-130 in 3-5 years time.
Are his views supported anywhere?
There's certainly no analysis - not even a long term price chart - just his views.
His principal theme is that technology, combined with "an explosion of exploration" will insulate us from high prices in the future.
So how do they stack up?
I'll give the poster an opportunity to present his case "for".
If he doesn't, I'll do some analysis on his behalf.

Exploration is all well and good. But the experience of Texas (for example) is that once production has peaked, even a dramatic increase in drilling can not reverse the decline. All it can do, at best, is slow the decline but not reverse it.

Consider the established 45 year trend of declining discovery, that demand has exceeded discovery for over two decades and that we're now seeing an explosion in drilling (with declining production) in numerous once-prolific oil provinces (including Saudi). It all points towards the world being at or near peak in conventional crude oil the way I see it.

Also worth noting that oil production has been on a gently DOWN sloping bumpy plateau for the past two and a half years. Another very telling warning that all is not well.

Even when you factor in tar sands etc the end result is a world drilling more and more just to keep production flat. Running faster and faster just to stand still is another way to look at it.

At best, we're making a vastly greater effort to maintain what is so far a roughly flat oil supply. That isn't cheap by any means. And we're (at best) going to have to scale it all up another order of magnitude if we're going to meet rising demand. Possible perhaps but given the shortage of rigs and people to operate them plus the troubles with Iraq, Venezuela etc putting the best targets off-limits, I'm not at all convinced that we''ll EVER see conventional crude oil production go much higher than it did in 2005.

More to the point, we would require a pretty massive effort just to get conventional (excluding tar sands etc) production back up to the May 2005 peak. As it stands today, the available evidence is we've hit at least a temporary peak if not THE peak.

Putting it all together, I really don't see any means by which demand of 95, 110, 120, 130 or whatever other growth number you choose will actually be met in a sustainable manner. If it's met at all it will be via infill drilling of small targets that rapidly deplete, over production (which does serious permanent damage to fields) and stock drawdowns. In other words, at best we''ll meet rising demand via a "sprint race" that's followed by serious decline not long afterwards.

I'm open to all ideas of course. But I'd like to see some actual evidence, as opposed to economic theory, to back the notion that production will grow from present levels at least as quickly as forecast demand. As it stands now, I haven't found even remotely convincing evidence that it's likely to grow much at all. Lots of nice theories but no proof of them actually working.

Bottom line is the global situation right now looks very familiar to anyone who has studied what happened in any large area that's already peaked and declined. All the tell tale warning signs are there including the classic more and more drilling that isn't finding enough to even stabilise reserves. And now the production data looks ominous too.

 

[Aussiejeff]

Hahaha! Oil now at US$117.48

Oil had just breached the US$90 mark in early Nov 2007 and many wuz gaspin' about that.

It's interesting to go re-visit and review some of the comments made so, so long ago. Gee, isn't 5 months a long time.....



Chiz,

AJ

 

[wayneL]

Hahaha! Oil now at US$117.48

Oil had just breached the US$90 mark in early Nov 2007 and many wuz gaspin' about that.

It's interesting to go re-visit and review some of the comments made so, so long ago. Gee, isn't 5 months a long time.....



Chiz,

AJ

<pedandtic>

117.48 is the K contract. As it is heading to expiry, the M contract now has 6 times the open interest and qualifies as spot. This means the spot price is actually 116.63. In fact the cash price is $116.69.

</pedantic>

Sorry, just splitting hairs. Either way, our collective shock at $50 oil certainly is laughable.

 

[Aussiejeff]

<pedandtic>

117.48 is the K contract. As it is heading to expiry, the M contract now has 6 times the open interest and qualifies as spot. This means the spot price is actually 116.63. In fact the cash price is $116.69.

</pedantic>

Sorry, just splitting hairs. Either way, our collective shock at $50 oil certainly is laughable.

Oh dear. I stand corrected (pole-axed?) LOL

OK then, lemme put it to ya this way (me being a layman and all that...) this morning, Bloomberg is quoting a WTI Cushing Spot Price of US$119.37!!

Place yer bets, people. When will the dreaded $US150 per barrel mark be breached? I'll have a stab at approx. Jul/Aug this year. Will we be paying AU$1.65-$1.70 for unleaded by then (diesel would be close to AU$1.90)??

Must check out the lates e-Cycles......


AJ

 

[wayneL]

Oh dear. I stand corrected (pole-axed?) LOL

OK then, lemme put it to ya this way (me being a layman and all that...) this morning, Bloomberg is quoting a WTI Cushing Spot Price of US$119.37!!

Place yer bets, people. When will the dreaded $US150 per barrel mark be breached? I'll have a stab at approx. Jul/Aug this year. Will we be paying AU$1.65-$1.70 for unleaded by then (diesel would be close to AU$1.90)??

Must check out the lates e-Cycles......


AJ

... and just keeps grinding upwards. $150 isn't too far away is it?

 

[Temjin]

Always love to review thread like this, my money on $150 before this year! Regardless of a global recession, except if there is a depression.

 

[rederob]

Always love to review thread like this, my money on $150 before this year! Regardless of a global recession, except if there is a depression.

That's only $30 away, so I will call it a cheap shot.

I'm still looking for some evidence that doctorj's assertions have any substance. Contrarily, increased expenditure (more rigs in more greenfield sites) is seeing the law of diminishing returns express itself. Worse still, more drilling into producing fields to extract greater volumes is now occurring in an effort to satisfy demand. Oil peaks in these fields are being accelerated: The North Sea examples make for solemn reading if you are a consumer. (Google "Matt Simmons" and scroll through some of his recent slide shows for even greater alarm.)

This month sees us achieve 3 years of oil production without breaching the crude output peak reached in May 2005. That means above ground reserves are being strained and every geopolitical or terrorist event ratches prices up another notch.

It is true that profit margins are increasing for most producers, but so too are costs. The main game for them nowadays is reserves replacement (or enhancement) at lowest possible cost. And believe it or not, energy costs are a major cost contributor, and are destined to rise as oil prices rise.

 

[Aussiejeff]

It is ironic indeed to note the following quote by Caltex MD Des King in todays Herald Sun business section:

"SURGING oil prices and the strong Aussie dollar are eating into Caltex Australia's profits from fuel production."

With Caltex CEO also indicating that US$200 oil is going to occur in the future (at current rate of increase, not THAT far in the future), is it conceivable that fuel processing in Australia might become so unprofitable that they significantly reduce production? MD Des King hints as much - "However, we may consciously choose to reduce production should margins not outweigh the working capital costs". I shudder to think what effect THAT scenario will have on our pump prices, let alone the spectre of $200 oil (ULP pump price about AU$2.60???)

Funny. An old song just popped into my head - "Don't worry - be happy"

I guess we better lighten up and enjoy the moment. The near future might just be a tad less cheerful.

 

[Smurf1976]

Or worse. What happens if (when in my opinion) the likes of Caltex can't actually get enough crude oil to refine? First they can't do it profitably, that seems to be coming, but at some point I think they'll have trouble doing it at all, at least not at full capacity.

I'm convinced that at some point we'll see outright shortages of key oil products. Paying $1.50 or even $5 a litre is one thing, not being able to buy enough fuel to carry on business as usual at any price is a far more serious problem.

I seriously doubt the food industry, ambulances, public transport, police, fire or anything else essential has a workable plan to cope with this. No doubt one will be hastily set up when trouble hits, but that's only going to work if someone else misses out - and that means private motorists.

The day that happens is the day we stop worrying about interest rates, climate change, inflation and so on. It's the day we're faced with an outright crisis of massive proportions and it's coming in my opinion.

 

[Aussiejeff]

Hi guys,

Anyone care to speculate on the prospect of >$50 oil and the effect this will have on rthe economy? It is certainly effecting my trading.

Stock traders (who generally want to push the S&P up out of the channel it's in, I feel) have one eye on the oil chart and are as nervous as buggerry...and getting themselves into a bit of a flutter anytime the oil chart starts tracking northward intraday.

November crude has already had a couple of prods at the psychologically important $50 barrier, and some "ex spirts" think this is only the beginning.

Technically, this is not looking toppy at all, but my "guess" is we may see a retracement from here before it blows thru 50.

Cheers

I vote this as one of the best "hindsight" threads on this board.... especially given oil's meteoric rise (280%+) over the subsequent 3.5 odd years since Wayne first created this gem.

Care to update your thoughts based on these original comments Wayne? Looks like those "ex spirts" were right eh?

Cheers,

AJ

 

[wayneL]

I vote this as one of the best "hindsight" threads on this board.... especially given oil's meteoric rise (280%+) over the subsequent 3.5 odd years since Wayne first created this gem.

Care to update your thoughts based on these original comments Wayne? Looks like those "ex spirts" were right eh?

Cheers,

AJ

It was a typo, I meant to type $150.

But what is interesting was/is the oscillating sentiment with regards to POO/SP500.

 

[michael_selway]

It was a typo, I meant to type $150.

But what is interesting was/is the oscillating sentiment with regards to POO/SP500.

hehe unbelievable

What do you think about $USD1500 ber barrel in the next 5-10 years?

thx

MS