[charliehelyes]

Oil now on the front pages

[Qolio]

Indeed. Yesterday there was a similar front page headline in our biggest financial newspaper:

And I was very surprised when they actually mentioned Peak Oil in the article.

[katkinkate]

My peak oil google alert has recently started to give me several times the number of articles as usual and each article is about 'peak oil', not just a mention of oil and a peak in something else. There has been a definite increase in awareness in the media and it's generating a big reaction from the denialists. I think the genie is out of the bottle.

[phaster]

I WOULD HAVE THOUGHT that with

Russian invades georgia OIL goes down??

Hurricane(s) hit gulf coast and disrupt sproduction OIL goes down??

August global oil supply fell by 1.0 mb/d to 86.8 mb/d ditto??

OPEC crude supply in August fell by 195 kb/d to 32.5 mb/d ditto??

Just checked oil is down to about $92 in after hours trading, so overall from just over a $100 down to $92 thats about 8%, on the day Lemon Brothers caused the market to drop 4.4%

so my question is does this make sense? its like something big is betting big $$$ on a real glut in the market (yeah I know the forecast global oil demand has been lowered for both 2008 and 2009 but the other events IMHO should have driven the price up) guess thats why there is that standard disclaimer, past performance is no indication of what will happen

oh well back to the drawing board for me, trying to figure out a model that works cause I've got a model that is working as good as the financial markets (in other words not at all)

so anyone else having better luck at trying to predict whats happening?

[vtsnowedin]

oh well back to the drawing board for me, trying to figure out a model that works cause I've got a model that is working as good as the financial markets (in other words not at all)

so anyone else having better luck at trying to predict whats happening?

Nope!!:(

Having seen that demand distruction takes place in th US at 143/bl and that 100/bl seams to be accepted I can't imagine producers wanting to sell it for any less then a 100 or trying to push it back to 140 soon. I would expect them to dial back the pumps until supply matches 100 dollar demand leaving any over capacity in the ground for future higher prices. But that would be assuming logic and common sense and I havn't seen much of that of late.

[miskatonic]

Over exposure in the oil markets is my guess. Oil isn't a safe harbor anymore? Maybe the oil market was leveraged much like the housing market? I am throwing things out there because I don't really know. I have a very good understanding of peak oil but I am at a loss. It would help to have hard numbers and somebody that is better at math than I am.

Count your blessings that we do not have the upward momentum of oil that we saw in the recent past. . With Lehman Brothers, Fannie Mae, Freddie Mac, and now AIG the return to cheap oil may be the only thing saving the world's bacon at the moment.

[jbrovont]

We'd be looking at double-barreled buck-shot if oil was still at $140/bbl.
There's only one conclusion I'm drawing from the price of oil seeming to move against supply pressures: traders are counting on economic conditions to destroy more demand than shortages are going to raise prices.
(projected demand / projected supply) must be less than one for this to make sense. To be on the down-slope, integrating

f(t) = demand(t)/supply(t)
where demand(t) = demand at time t
and supply(t) = supply at time t
and dP (delta price) = change in price over time

and f(t) = the ratio of demand to supply. When f(t) falls, price falls. When f(t) rises, price rises. Therefore, we know that if price is falling, f(t) is falling.

First, we calculate the tangent of the price function. We actually don't need to run the equation, we can look up the values and find that. Oil closed at 92.83 today, down 2.88. If we're looking for the effect of LEH's bankruptcy on demand, we can reasonably use this number to see what the market priced in today based on that information. Change in Y over change in X gives us -.031 rounded. That's our instant slope. A line tangent to the price function would have this slope. We'll call our slope function s(x)

Price of oil we'll express as p(x)
This morning at open, p(x) = 95.71
At close, p(x+1) = 92.83
We'll evaluate the market based on discrete units of 1 day (h=1)


Remember your calc: s(x) = [p(x+h)-p(x)]/[p(h)]
We end up with
-.03102 = p(x+1) - p(x) / p(1)
-.03102 = (92.83 - 95.71) / p(1)
-.03102 * p(1) = -2.88

p(1) = 92.84
Close enough; our equation checks.

So, what exactly is s(x) representing? s(x) represents how current conditions are affecting the rate of change of the ratio of projected demand to projected supply. What does a negative value mean? Supply is rising faster than demand is, demand is falling faster than supply, or demand is falling while supply is rising. What does |s(x)| represent? If |s(x)| > 1, supply is outstripping demand. If |s(x)| > 1, there is more demand than supply. (projected)

Where are we in figuring out why the price of oil is falling?
We know:
1) Supply > Demand
2) The ratio of demand to supply is shrinking
What good is all this? If we extrapolate that tomorrow's price:
p(t+1) = p(t) + p(t)*s(t)

some calc:
[p(t+1) + 0) / p(t)] = 1 + s(t)
1+s(t) = p(t+1)/p(t)

Substitute:
1+s(t) = .9699
p(t) = 95.71
.9699 = p(t+1) / 95.71
p(t+1) = 92.83

Our equation checks. How can we use this? Over a known period of time, we can use this system of equations to evaluate projected demand or projected supply as long as we know the supply, demand and price on a given day, and the price on a later date. By running this system, we can determine what supply and what demand the market has priced in for t+1. Enjoy

Over exposure in the oil markets is my guess. Oil isn't a safe harbor anymore? Maybe the oil market was leveraged much like the housing market? I am throwing things out there because I don't really know. I have a very good understanding of peak oil but I am at a loss. It would help to have hard numbers and somebody that is better at math than I am.
Count your blessings that we do not have the upward momentum of oil that we saw in the recent past. . With Lehman Brothers, Fannie Mae, Freddie Mac, and now AIG the return to cheap oil may be the only thing saving the world's bacon at the moment.

[miskatonic]

I knew I should have paid attention in 7th grade. Now my head just hurts.

[phaster]

thanks for reminder!!!! "unencumbered by the thought process" I tried (and failed) to include other factors like politics using scalers coefficients on various conditions, in other words it had a general form:
f(t) = demand(t)/supply(t) + scaler(1) (condition(1)) .... scaler (n) (condition((n))

I thought it would give me an edge, but alas there were lots of discontinuities in the function I created (instead of being continious) which I guess would mean that either there really is an unholy alliance of forces at work manipulating the market, or my model like many others tried on wall st and other financial markets is an abject failure.... wait a second perhaps I am onto something, an unholy alliance of forces at work manipulating the market, that explains everything!

We'd be looking at double-barreled buck-shot if oil was still at $140/bbl.
There's only one conclusion I'm drawing from the price of oil seeming to move against supply pressures: traders are counting on economic conditions to destroy more demand than shortages are going to raise prices.
(projected demand / projected supply) must be less than one for this to make sense. To be on the down-slope, integrating
f(t) = demand(t)/supply(t)
where demand(t) = demand at time t
and supply(t) = supply at time t
and dP (delta price) = change in price over time--snip--

[Cid_Yama]

The Secret:

Imagine you can create money out of thin air. Also, imagine you can now use that money to make any bet, and size bet you want, in the markets.

Now imagine, your whole goal is to move the market, and you WANT that money to disappear again after you've moved the market. You don't care, you can just create more when you need it.

This allows you to transfer capital wherever you want it and manage the deleveraging.

That's a machine you don't want to be in, you'll get crushed in the gears.