[mark000]

I spent yesterday looking at recent graphs and data for oil supply, demand and price. Also I have been reading a lot about the current financial situation/credit crunch and have decided it is totally impossible to tell where the price of oil is going to be come New Years Day 2009.

On the one hand, if lots of banks start failing and the credit crunch morphs into a crisis, I can see the price of oil plummeting as oil traders freak out over demand. On the other hand, a significant disruption to supply could send the price thru the roof.

Which is more likely, based on your take of the situation?

[kokoda]

It will jump around a little bit by the general trend will be upwards.

[joeltrout]

I put neither because I think it will go to $100 but not because of credit crisis.

I think it goes to $100 because of demand destruction and bearish traders.

Joeltrout

[the48thronin]

I put neither because I think it will go to $100 but not because of credit crisis. I think it goes to $100 because of demand destruction and bearish traders.

due to economic collapse even further? I concur...

Due to increased cnservation because of concern over diminishing supply... I do not agree. I guess we are again at the chicken/egg stage but 100$

[eastbay]

I spent yesterday looking at recent graphs and data for oil supply, demand and price. Also I have been reading a lot about the current financial situation/credit crunch and have decided it is totally impossible to tell where the price of oil is going to be come New Years Day 2009.
On the one hand, if lots of banks start failing and the credit crunch morphs into a crisis, I can see the price of oil plummeting as oil traders freak out over demand.
On the other hand, a significant disruption to supply could send the price thru the roof. Which is more likely, based on your take of the situation?

$150 by 15SEP08. Six weeks from now. Everything points up for oil.

[Micki]

I spent yesterday looking at recent graphs and data for oil supply, demand and price. Also I have been reading a lot about the current financial situation/credit crunch and have decided it is totally impossible to tell where the price of oil is going to be come New Years Day 2009.
On the one hand, if lots of banks start failing and the credit crunch morphs into a crisis, I can see the price of oil plummeting as oil traders freak out over demand.
On the other hand, a significant disruption to supply could send the price thru the roof. Which is more likely, based on your take of the situation?

No kidding. If the oil price could be "figured out" we would all be billionaires now.

Furthermore, your voting doesn't give enought options:
Technically for instance we touched $50 before running up to past $145. Say $150 for simplicity sake.
50% retrace of last run is quite common and if not violated too badly still indicates strength (Gann rule). So a pullback could go to $100 and we would still be in bullish territory.
Therefore you can have $100 and shortly followed by $200.

I am personally in the stagflationary and PO camp and therefore expect price appreciation.
Just to take a stab, I think oil will touch somewhere in the range $105-110 and start to resume uptrend. This is not a figure that is really anchored in any analysis except that I don't think we will see a full 50% retrace. It is however a sufficient pullback to scare off weak hands and amateur traders. For that reason I am also, in the absence of some dramatical event, not expecting a V bounce.

On top of the purely economical (i.e recession/inflation/US$ etc) I see upside risks in form of:
-geopolitical events
-hurricanes
-bad supply news (i.e. Mexico depletion and other bad revelations)
These are oil bullish.

Having that said, if $100 support fails, technically it looks as if it could go to $80 as a re-test of 2006 high.

[yesplease]

I think it'll $100 before it goes to $200 over the next few years, but I've been wrong before.

[TreebeardsUncle]

Hello.

Actually, have been doing very well prediciting the price movements of oil (average 19% stock price appreciation over the last 5 years) and a gain over 90% from October,2007 through July,2008 in Helmerich and Payne which makes flexible drilling rigs.
There are 4 major patterns that typically determine the mid and long-term behavior in oil prices: the business cycle, in which recessions occur about once every 9 years (The housing slump is part of that pattern and the recession will occur in 2009.), the oil investment cycle, in which under-investment in the 80's and 90's has led to under-capitalization in oil development by the 2000's, the annual variation in gasoline demand/ aka the summer driving season, and the peak oil ramp up in price.
Furthermore dollar deflation brought on by the fed's attempt to rescue mortgage brokers and investment bankers has further inflated commodities and deflated stock price valuations in pre-interest-cut dollar terms. In addition, as Stephen Loeb (the author of How to Make Money when Oil Hits $200/barrel) has stated that when the price of oil rises more than about 80% per year the results are deflationary rather than inflationary, presumably largely due to demand destruction which we have started to see in the US when gasoline reached around $4.00/gallon on average in early June, and then started to decline after peaking at about $4.10/gallon about the third week in June. Oil rig drilling stocks, particularly HP which peaked on June 23rd at $77.xx (up from $3x.xx in November), also started to decline around that time.

So What is Next?
In the Very Near Term
This is going to be a week back-to-school selling season. Also retail Christmas sales and spring sales prices are going to be high,
with price increases coming up about 10%, while sales volumes will be lower than average due to American consumers's credit being tapped out. The price inflation is due to the deflation of the dollar and partly resultant gasoline price inflation. The main reasons why gasoline, deisel, and oil have been declining lately is due to investors concerns about demand destruction and particularly the gasoline market sentiment moving from being anticipatory of summer demand before the fourth of July to a sense of the demand being realized and the results conclusive after the fourth.
We are off the peak price now and should expected a jagged fall-off in price through the late summer through at least the mid fall.
The American stock market in general tends to decline in the third quarter due to big banks writing off losses for tax purposes.
A good time to buy into oil rig drillers is in late September through mid October when the annual low in oil is reached. It is good to buy in when a sector is not immediately in favor. Natural gas should also be relatively low in late August through early September before anticipation of winter fuel shortages become increasingly influential.
Next Summer
The fed is planning on raising interest rates this winter. By that time, after housing prices have passed through their period of steepest descent this fall, due to the foreclosed banks setting the prices in a very weak before-returning-to-school season amid a glutted market, the feds will feel safe enough to begin to combat inflation without greatly disrupting the housing market. The banks are in the process of repositioning themselves now through October or so. Thus expect oil prices to be comparable to where they are this summer, with slight to moderate dollar inflation and a moderately recessionary economy competing against the effects of a continued east Asian demand surge, Mexican depletion, and supply development lags.

[patience]

TreebeardsUncle, I've read your post several times, trying to understand your thoughts about the banking situation. Do you think then that the banking/credit mess can be largely behind us by 4th Qtr.? Or just the housing market decline?

How do you see the failing of banks and derivatives unwind playing into all this? I'd appreciate your insights.

edit: This may be a bit off topic, but I see it as one big, complex economic knot, each facet affecting all others.

[pup55]

Let's look at the four things we always look at when this sort of conversation comes up:

a. Are people using less oil? Well, I have to say that right now, they are using about 95% as much oil as they always did. This would make this period pretty similar to the 1973-1974 time frame as far as the demand destruction goes. Did the price drop during this time frame? Yes, the average 1975 price was about 10% lower than the average 1974 price. The average (YTD) for crude oil is $114, so maybe $100 is your average price next year, if history is any guide, which it may not be.

b. Is there any headline in the paper that can cause the price of crude oil to collapse? No, I still think there are a dozen things that can cause the price of crude oil to skyrocket again. It's hurricane season.

c. China: Are those guys using less energy? No, they had to change their pricing rules to keep their growth at "only" about 4%. At this rate of growth, the 5% demand destruction in the US will be offset within about two years.

d. Economic armageddon: Is there any indication that the US is headed toward some economic catastrophe, so severe that it causes even more significant demand destruction? Well, it appears that at least through November, Bernanke and Paulson have the intent of shoveling as much "funny money" into the economy as it takes to keep the system running. This can and will continue for exactly as long as the Chinese, Russians and Saudis are content to see their USD/Tbill holdings be inflated away. Since the downside for them is even more catastrophic than the current situation, they will keep the game going for awhile longer.

These four factors are not as strong as they were a year ago, but I have to say none of the four suggest any "collapse" in the oil price back down to the levels seen in the good old days, say 2005, when we were "shocked" that crude oil got up to 65 when Katrina hit.

[evilgenius]

A secular downtrend wrought by diminished demand will be the main driver behind cheaper oil. I have said in the past that I thought oil could come down to the $110-$115 range. I am interested in the thoughts of those that think it could go as low as $100.

[yesplease]

Oil's short run elasticity means that it'll go up and down in price drastically depending on supply/demand. My bet is that demand is going to drop relative to supply such that oil will dip to ~100 before it increases relative to supply such that it'll go to ~200 over the next few years.

[NoWorries]

As I predicted a couple of months ago in this forum: The big story by year end will be the Economic Crisis, not Peak Oil. As to how one will affect the other, I predict that oil will drop like a stone once the economy enters full-blown recession. By that I mean < $100 bbl.

However, there are at least 3 significant variables in the mix that could offset this price decline:
1--Hurricane in the Gulf of Mexico;
2--Israeli attack on Iran's nuclear facilities;
3--terrorist attack.

I would assign a greater than 50% probability that at least one of these events will occur by year end, and send oil prices to the $150 level at minimum by end of 2008.

[shady28]

I think you will see oil below $100 by the end of 2008 via demand destruction. It's also happening now in many other commodities.

I also expect oil to be back down below 75 next year, if not this year. If the economy accelerates to the downside, I wouldn't at all be suprised to see an implosion back down into the 40/bbl range. link

"US petroleum deliveries for the first six months of this year, a measure of demand, experienced the largest year-to-year decline since 1991, the last time the US was in a deep recession, the American Petroleum Institute said July 18.
... The effects of slowing demand were visible in US petroleum imports, which sank to their lowest first-half level since 2003, at less than 13 million b/d. Crude oil imports fell 2.5% from a year earlier, while product imports slipped nearly 10%. Imports of most major products showed declines."

[eastbay]

After following the price of oil these past few years it's clear no one can accurately (except by chance) predict the price on a quarterly basis. But over the coming two or three years and on into the future, it will be so costly our lives will have to adjust in ways 99% of people today couldn't even imagine.

We all know these events will occur over time:
* War
* Rapid Depletion
* Storms
* Inflation Risk
* Emerging Markets
* ??

That's why, although the energy bears seem to be having their fun for now, the bulls will win in the end. And win Big!

edit for typo...

[shady28]

A secular downtrend wrought by diminished demand will be the main driver behind cheaper oil. I have said in the past that I thought oil could come down to the $110-$115 range. I am interested in the thoughts of those that think it could go as low as $100.

You are already very close to right - oil dipped to 116 today. I'm about as certain as I can be that we'll see 100/bbl oil again this year. If the economy really comes down hard - which it appears to be doing right now - we could see oil drop much much farther.

Oil isn't the only thing falling either. We've got a commodities market implosion going on right now. Gold, corn, soybeans, platinum, palladium - it has all been plunging since early July.

[mark000]

OMG I just clicked. Both are going to happen! Financial system crisis with super expensive oil!

Peak oil on its own would have been bad enough for the world, but we're gonna have it happening, via a supply disruption (that the worlds non existent spare capacity wont save us against) along with the financial shitstorm of the credit crunch evolving into a calamity.

2 epic catastrophes at once! HOLY SHIT! The potential for anarchy to break out within a week of some starting event has just become way more possible to me.

I'm having an ultra doomer moment.

[MrBill]

Enjoy your doomer porn. Then have a cigarette afterwards! ; - ))

[Alnitaka]

NoWorries, you said that one of the criteria for oil going up is a hurricane in the Gulf. The 2008 August 9 00Z run of the Global Forecasting System (GFS) shows exactly that happening, with landfall in Florida on the 22nd and on New Orleans on the 23rd. The 12Z run also shows a cross-Florida Gulf strike, but not as deep and so less damage. The 06Z and 18Z runs show a close call for the Carolinas. These models are available at http://www.nco.ncep.noaa.gov/pmb/nwprod ... arib.shtml .

So there is a possibility of such a hurricane on or about August 23. Maybe get back into energy funds and gold in about a week?

[Blacksmith]

I don't pretend to know anything about economics, but I do know the oil industry.

Oil companies will make acceptable profits at $60 oil, however exploration and exploitation will take a hit and the result is that next time oil will climb even higher.

For now buy a bigger vehicle and rev up you RV and enjoy it while it lasts.