Was today a strange day or was it just me?????

[ghotib]

If we are going to ration oil consumption then there goes the prospect of the price going to the moon.

Price of motor vehicle fuel, or price of oil, or price of something else? Whatever, rationing is not the same thing as price control.

Government intervention, socialism, is aimed at least partly at avoiding a price shock in this sort of situation.

Errr... socialism? Anyway, if we're into peak oil or even just a super spike, what kind of intervention could Australian governments do that would avoid price shocks?

So don't plan your strategy around a price spike that may not happen.

By the way, OPEC can't actually meet the 500kbpd output hike it is proposing unless it produces at an unsustainable rate, continuance of which threatens permanent damage to fields.

I've seen reports like this too. They make me think that in a year or two "high" petrol prices will seem like a really good problem to have.

I seem to be getting more bearish by the minute. Maybe I should just go to bed.

Ghoti

 

[ghotib]

In the event this does happen, would it be best not to have anything in the market at the time? Or which would be the best sector to have your investments in if there is to be a oil shortage?

Materials? Maybe it's time to start some serious study of oil inputs to manufacturing. I think I asked here once before if anyone knows what proportion of oil goes into plastics, rather than fuel? I don't know the answer to that, and I don't know enough about recycling and recovery for plastics to have a clue about the impact of super-high oil prices on them and on competing products. Anyone???

Ghoti

 

[doctorj]

It's worth mentioning that OPEC's ability to reduce oil prices as they are quoted in the media is indirect at best.

Without going into the specifics, the price quoted is generally for light sweet crude. This fuel is the easiest and cheapest to process into fuel. Oil is graded as either light or heavy, sweet or sour. It's sweetness has to do with the level of sulfur impurities and light/heavy has to do with viscosity (Light is like petrol, heavy is like tar). Most of OPEC's reserves are heavier, sourer varieties than the light sweet crude quoted in the media. This oil trades at a discount to the light sweet crude.

The good news is that heavy, sourer varieties can be refined into an endproduct of the same quality axs the light sweet crude. The bad news is that it requires significant investment to enable an existing refinery to process these more corrosive/thicker oils.

The world is refining heavy/sour oils at current production limits, or near to. New capacity to refine this oil is several years away. No matter how much more oil OPEC pump, the quoted price is going to be comparitively unscathed.

 

[DTM]

It's worth mentioning that OPEC's ability to reduce oil prices as they are quoted in the media is indirect at best.

Without going into the specifics, the price quoted is generally for light sweet crude. This fuel is the easiest and cheapest to process into fuel. Oil is graded as either light or heavy, sweet or sour. It's sweetness has to do with the level of sulfur impurities and light/heavy has to do with viscosity (Light is like petrol, heavy is like tar). Most of OPEC's reserves are heavier, sourer varieties than the light sweet crude quoted in the media. This oil trades at a discount to the light sweet crude.

The good news is that heavy, sourer varieties can be refined into an endproduct of the same quality axs the light sweet crude. The bad news is that it requires significant investment to enable an existing refinery to process these more corrosive/thicker oils.

The world is refining heavy/sour oils at current production limits, or near to. New capacity to refine this oil is several years away. No matter how much more oil OPEC pump, the quoted price is going to be comparitively unscathed.

Thanks Doctor J, nice informative post. It makes me think that the oil could easily hit $100 per barrel in the next two years as some analysts are predicting.

Daniel

PS Is that Patrick Ewing's signature on the ball instead of Doctor J's?

 

[doctorj]

Another thing to consider is that China is implementing tougher emission limits on their fuels come June or July this year in time for the Olympics.

For their refineries to comply with this, they'll either need to carry out significant upgrades or buy better quality oils. I'd expect this to put an upward pressure on Light Sweet Crude prices from the middle of the year until new production facilities come online.

PS. Pretty sure its Sir Julius...

 

[doctorj]

I know its bad form to reply to yourself, but I just came across this and thought it might prove interesting.

Associated Press

Oil Contrarian Sees Bubble Ready to Burst

Monday April 4, 5:48 pm ET
By Brad Foss, AP Business Writer

Crude Oil Contrarian Believes Oil Prices Could Plummet to $28 Per Barrel As Early As Summer
Most energy analysts on Wall Street expect oil prices to remain high for the foreseeable future because of strong demand and limited supply.
Then there is Tim Evans, a contrarian who says today's crude oil prices above $50 a barrel reflect nothing more than a market bubble fed by speculation and unwarranted fear. Evans, a senior analyst at IFR Energy Services in New York, believes oil prices could plummet to $28 a barrel as early as this summer.
"I guess that makes me the lunatic fringe," Evans said, followed up by a burst of laughter.
Evans' basic message is that the world's oil supply is sufficient to meet demand, that motorists will soon show that they're not willing to pay any price for gasoline and that the market is unreasonably receptive to worst-case-scenario thinking.
The 45-year-old analyst, who earned his bachelor's degree in mineral economics from Pennsylvania State University, has led energy research at IFR, a division of Thomson Financial, for the past 10 years, following stints as a copper trader and an analyst at a mining concern. Evans writes a twice-daily technical analysis of the petroleum markets that costs $395 a month and is read by institutional investors, major oil companies, fuel distributors, traders and journalists.
Oil prices began rising above historical norms a few months before the U.S. invaded Iraq and have maintained their upward momentum since then due to rising demand, a shrinking supply cushion and market worries about everything from a hurricane in the Gulf of Mexico to pipeline sabotage in Iraq. The declining value of the dollar and increased hedge fund activity on futures markets have magnified the runup.
Rapid economic growth has largely masked the negative impact of high oil prices in the U.S., analysts say, though the airline industry has been stung, as have low-income families and those living on fixed incomes. Gasoline demand is about 2 percent higher than a year ago in spite of pump prices averaging $2.15 a gallon.
Veteran oil market analyst Peter Beutel of Cameron Hanover Inc. said Evans' outlook is not as crazy as his willingness to publicly stick out his neck.
"I don't disagree oil prices are going to drop precipitously at some point," Beutel said. "But, boy oh boy, they tell analysts to pick a time or pick a price, but don't do both. I certainly honor his bravery."
When pressed to do just that, Beutel said he could envision $28 a barrel, too -- in 2008.
Most oil analysts have steadily raised their oil price forecasts over the past two years, keeping themselves in sync with the market's upward momentum.
They back up their upward revisions with data pointing to a limited global supply cushion at a time of rising demand, particularly in the United States and China. They also cite the declining value of the dollar and they voice fears about possible supply disruptions all around the world: from labor strife in Nigeria to refinery snags in America.
Goldman Sachs analyst Arjun Murti last week raised his forecast for 2005 from $41 a barrel to $50 a barrel. The report said the market may be in the early stage of a "super spike" that sends prices as high as $105 a barrel -- the price Goldman Sachs said may be necessary to significantly curb energy consumption.
The report has contributed to a recent rise in crude futures on the New York Mercantile Exchange, where oil for May delivery settled Monday at $57.01 a barrel. Nymex futures closed at a record $57.27 a barrel on Friday.
Evans scoffed at the Goldman Sachs report, saying "the probability of reaching that price level is so small it's, like, laughable."
"Yes, $105 could happen. Texas could slide into the Gulf of Mexico. There could be a nuclear war with Iran. But you know that in a scenario like that I somehow don't think the world economy is going to be screaming for more oil."
Evans is not the only contrarian -- there are still a handful of analysts forecasting prices below $40 a barrel in the second half of the year -- but he may be the most blunt voice of opposition to the bullish market consensus. He sums up the group-think this way: "Greed makes you stupid."
Some of Evans' main arguments are as follows:
-- There is no worrisome lack of supply. With 1.8 million barrels a day of excess production capacity, Saudi Arabia can quickly pump enough oil to offset any disruptions, short of the most catastrophic scenarios.
"Oil prices have been rising for the last 18 months on hypothetical supply disruptions," Evans said. "Every time we come up with a new 'what if?', the oil price manages to go $5 higher."
-- Higher prices will eventually cause gasoline demand, which is now about 2 percent higher than a year ago, to taper off. And higher prices will lead producers, including Saudi Arabia, to pump more oil.
-- The U.S. Strategic Petroleum Reserve, which the Bush administration has been filling at an average rate of nearly 250,000 barrels a day, is nearly full. By August, the market should have that much more supply of light, sweet crude available to it.
All of these factors have been ignored, Evans said, by the growing number of hedge funds and other speculators betting on crude futures, proving only that there is demand at any price for "paper barrels."
When asked why the market would ignore what he considers to be an adequate supply situation and instead focus on everything that could wrong to disrupt it, Evans answered with a question.
"Why did people chase Internet stocks in the late 1990s, and why did they shift from looking at earnings to looking at revenues and from looking at revenues to looking at the number of hits on a Web site as a method of valuation?"

 

[Smurf1976]

Price of motor vehicle fuel, or price of oil, or price of something else? Whatever, rationing is not the same thing as price control.


Errr... socialism? Anyway, if we're into peak oil or even just a super spike, what kind of intervention could Australian governments do that would avoid price shocks?
Ghoti

Under IEA rules, during an emergency the Australian Government is required to limit oil consumption to a level which matches Australia's allocation.

The market continues in the context of price but physical allocations to individual countries are set by an international agreement, not traders or oil companies. This level would by definition be below business as usual consumption.

Exactly how the government would meet its international obligations (and we are a net importer so there is no "opt out" choice) is open to debate but all recognised methods of rationing are fundamentally based on socialist principles rather than capitalism. We all suffer together.

The aviodance of the market sorting it out (higher prices lowering demand) is the specific purpose of introducing rationing in the first place. The reasons why this is considered desirable are fundamentally social. High prices are socially and politically unacceptable, hence the pressure on government to "do something".

It's much like health. Australians expect socialisation of health care costs. Nobody expects to pay a million dollars for treatment even if that's what it costs. We accept restrictions (waiting lists) in order to limit the cost. Likewise we accept traffic jams to avoid the cost of new roads, standing on buses and trains to keep fares down and so on.

Looking at international historic examples, expect something like the following:

Ban all cars on Sundays, fuel coupons, shorter working week, enforce restricted shopping hours, prohibition of certain air routes where alternatives are feasible, "odds and evens" system based on registration plates, recording of annual mileage linked to some form of tax penalty and so on.

As for the price, that's a difficult question but remember that governments would be the major market player along with OPEC. Not governments directly buying oil, but government having absolute control over the level of crude oil demand.

Whilst not by any means certain, it is prpbable IMO that governments would pursue a moderate price scenario. Why triple the cost of oil to your country for a mere 1 or 2% volume increase? Governments think exactly like that with roads, water, electricity and so on so I can see no reason why they wouldn't with oil. It's very typical of government thinking on just about any subject

Personally I would prefer that the markets be left to sort it out, but history and actions to date suggest that is unlikely.

 

[DTM]

The all ords have really dropped too quickly for me to think that it will turn bullish any time soon. I think that it will do two things. It will either bounce for a few days starting tomorrow before it turns back down again, or it will free fall tomorrow. If it does bounce, I think that it will give other people who couldn't get out, a chance to do so. Will be able to see better once I get my EOD data for the ASX.

I'm very bearish on the US market and think that we will follow the US. The US looks like it still has a long way down to go.

As Tech pointed out, it looks like we are in an elliot wave 5. Elliot studies were psycological studies based on greed. Greed is the main driver behind the wave 5 and there seems to have been a lot greed lately.

Happy and safe trading

Sorry to quote myself but it does look like an elliot wave five and it'll only be downhill from here.

Shorter term trading will seem to be the GO from here on in.

 

[Rafa]

These posts have been very informative. Thanks.

I have a question.
What happens to property values if indeed we are in wave 5?

R.

 

[DTM]

These posts have been very informative. Thanks.

I have a question.
What happens to property values if indeed we are in wave 5?

R.

I think property value is more affected by economic factors rather than the stock market although property in my view, would be subjective like the stock market. ie All based on consumer confidence. I think that we are heading into a recession and property is going to drop. I have been speaking to a lot of developers who have been around a long time to see their views. They already see that there will be a property crash in about 12 months. They talked about the early 90's when houses in Mosman were selling for 4 million and the following year, it was selling for 1 million. I don't think the crash is going to be that large but a much needed correction is due for Sydney.

 

[DTM]

Forgot to add that a lot of the suppliers to Developer's are trying to get payment up front.

 

[Smurf1976]

I think property value is more affected by economic factors rather than the stock market although property in my view, would be subjective like the stock market. ie All based on consumer confidence. I think that we are heading into a recession and property is going to drop. I have been speaking to a lot of developers who have been around a long time to see their views. They already see that there will be a property crash in about 12 months. They talked about the early 90's when houses in Mosman were selling for 4 million and the following year, it was selling for 1 million. I don't think the crash is going to be that large but a much needed correction is due for Sydney.

There seems to be lots of anecdotal evidence emerging that property prices are falling. No absolute proof in terms of annual price change statistics, but the signs are becoming rather strong in some locations.

Only yesterday I noticed that a Hobart suburban real estate agent had dropped its "properties wanted in this area up to..." price by $50,000 compared to the level it's been stuck at for months. Not proof, but more evidence that prices may be slipping. Likewise the stories of 40% discounts on expensive properties in Sydney, slow sales in most states and so on.

I'll keep this brief since this is a stocks forum not a property one but if you want more info then you can check your own suburb at http://www.commbank.com.au/propertyvalueguide/

 

[Smurf1976]

Forgot to add that a lot of the suppliers to Developer's are trying to get payment up front.

So suppliers must be getting worried. More anecdotal evidence.

 

[Rafa]

thanks for those responses. the current property market is well overpriced and should fall. But I read on this thread before that during a wave 5, the best assets to hold are "real" assets, eg gold, as opposed to just numbers in a bank account.

Is property considered a real asset, becuase if it is, and cash devalues, then property in terms of cash prices will go up!

or have i got myself completely confused here???

R.

 

[wayneL]

Here's what history tells us about RE prices at the end of a wave 5

 

[Rafa]

Amazing... that is the chart i was after...

it looks like it took the best part of 2 decades for property to come back... but shares took the best part of 4 decades.

Thanks for that WayneL... much appreciated.

 

[DTM]

XJO (S&P top 200) hit a high of 4030 within an hour of trading and its reversed 40 points at 12.30pm.

It doesn't look like its slowing down, could be freefall.

 

[Investor]

The wave of profit downgrades is now driving the fear factor across the board.

 

[tech/a]

Hmmm.

Ive sold out of all positions from around 10 am.

Im happy to sit and watch.
Taxman will be happy thats the downside.
But if it keeps falling that wont be an issue.

 

[DTM]

Here we go again. XJO down 27 points by 12pm.

Its going to be free fall again.