[threadbear]

Many people on these forums read the rise in oil price as a purely peak phenomenon, irrespective of all the financial machinations involved. Oil prices rising to 147.00 per barrel, was in large part a function of weakening currency, money flows seeking higher yield, etc.. etc... Supply and demand were actually not the strongest part of the dynamic.

Now...we have the opposite occuring, a strengthening US dollar, demand tailing off, etc... Does the current price of oil, accurately reflect across the board deflation, and the seizing up of credit markets? The answer to that is probably a resounding, YES.

However, the tendency to extrapolate from the present into the future, based on just a few months of a current trend, is, in my humble opinion, mistaken.

Oil is going to head back up, in nominal terms, after every last oil bull on this board has capitulated!

So People... Don't outsmart yourselves!

[Plantagenet]

Great post, threadbare.

You are right again.

+1

[threadbear]

Why Plantagenet, What can I say? Thanks. I try.

[emersonbiggins]

Right you are.

However, without the mere presence of exchanges like NYMEX, one wonders if oil might not have hit stratospheric levels ($300+) prior to the economic crash?

I suppose we'll never know.

[the48thronin]

you mean just because there is a finite amount of oil it will contin ue to become rarer as we continue to guzzel it up even at reduced rates? Novel thought that!

lol

+2 tho

[AirlinePilot]

Thread,

I wont give up on the basic theory, and I'm still very much long term bullish.....but....

If this present economic calamity gets much worse, than the entire concept of PO and its ramifications gets put off and shoved off the table for a very long time. If anything it pisses me off as it just puts us closer to real crisis once the economic engine gets back on its feet.

Capitulation? Not here, just frustration at the way this particular event feeds inaction and false hopes.

[pup55]

I suppose if the rate of economic contraction and demand destruction exceeds the rate of decline of the resource, it could be argued that since there is surplus oil, the price will drop, even though the nominal amount pumped can and will be less than the previous year.

In that case, the peak of next cycle up, if there is one, will be lower than the previous for production, but perhaps much higher for the price.

If the 1982 model is any guide, this could go on for awhile, and be catastrophic for the energy industry

[threadbear]

The destruction of currencies will outpace the effects of demand destruction of oil and other commodities.

It might take a little while before it's readily apparent, but I think it's definitely going to start showing up. If the stock markets have put in a floor today, and start to trend just a little bit higher, confidence may be restoring, even if just a little. This means the debasement of fiat has been successful and the international bailouts are beginning to work their way through the system.

Loans are still going to be very tough to acquire for the individual and many businesses, though. That, together with rising prices of basic commodities is going to make for a terrible economic environment, and housing prices continuing to move down.

Not a happy picture.

[threadbear]

On the other hand, I could be so completely off base, and forces of deflation could so overwhelm the central banks, that everything will continue to plunge in price. We'll see.

Whoever thinks that they can predict this market based on precedent is nuts. There has never been anything QUITE like it.

[happychicken]

Does anyone know how low the price of oil would have to go before it becomes economically unviable to produce fuel from unconventional sources, or expensive old wells?

happychicken

[AirlinePilot]

Whoever thinks that they can predict this market based on precedent is nuts. There has never been anything QUITE like it.

Thats a good observation. I've seen and read several expert opinions that attempting to find any historical "fit" or pattern to what is going on is impossible. It's nothing like anything thats happened before.

[fullerine]

Does anyone know how low the price of oil would have to go before it becomes economically unviable to produce fuel from unconventional sources, or expensive old wells?

happychicken

60 bucks

[ReverseEngineer]

Whoever thinks that they can predict this market based on precedent is nuts. There has never been anything QUITE like it.

Thats a good observation. I've seen and read several expert opinions that attempting to find any historical "fit" or pattern to what is going on is impossible. It's nothing like anything thats happened before.

My bet would be that when the Roman economy went down the toilet, when their supply lines broke down and they couldn't get food into Rome and the various provinces went into chaos that you would find a good precedent. Except of course they didn't have a multi TRILLION dollar market in Derivatives or computers to hurry along the collapse What took the Roman Empire 20 years to accomplish we probably can accomplish in 20 days now. Progress. LOL. To Err is Human, to REALLY fark it up takes a Computer.

Reverse Engineer

Reverse Engineer

[Temperedoil]

Two resources in particular that the Romans fell short of in the latter days of the Western Empire were gold and water.

Gold fell short due to the combination of the mines in Iberia (now Spain) not being as productive as they used to be or needed to be, and Rome running out of easy pickings in the form of neighbouring wealthy civilisations to invade and plunder whilst keeping the Empire secure from restless "barbarians".

On the water front, Rome itself was heavily dependent on supplies carried in by aqueducts. When invading tribes (Goths? Vandals?) damaged the aqueducts and rendered them unable to carry the vital supplies of water, Roman (as in the city) population fell precipitously - from about a million to about ten thousand in short order.

I wonder if the mass exodus from Rome would have led to housing in the city being dirt cheap for a while?

[TheDude]

Whoever thinks that they can predict this market based on precedent is nuts. There has never been anything QUITE like it.

Thats a good observation. I've seen and read several expert opinions that attempting to find any historical "fit" or pattern to what is going on is impossible. It's nothing like anything thats happened before.

Many are propounding the notion that we're looking at early 80s redux, where (as ROCKMAN likes to point out) there were no shortage of serious oil bulls, who all were promptly put in their place when the price collapsed.

How does the current industry situation differ from 1982?

1. Three years of flat production despite massive increase in E&P.
2. Decline in LSC.
3. Reliance on unconventional sources.
4. Nothing in the way of a foreseeable oil glut.
5. Lack of trained personnel in the industry.
6. Dozens more nations have passed peak; major producers are flat or declining.
7. New finds are meager in size and flow rate.

The economic situation is far more severe this time around, of course. Does it really matter who wins in this race to the bottom? Depression trumps geology or vice versa, in either case we're really screwed.

How much longer before no one has the $$$$ to push around the market, too? And since when is the jury definitely out? Global economic slow down = decline in use of all commodities. If this was just some monstrous asset bubble, how much was being spent to jack up prices across the board?

[jupiters_release]

All roads lead to food and gas shortages, unfortunately sooner than most of us would wish.

[deMolay]

In my opinion the economic calamity is a direct result and a sympton of Peak Oil and the end of cheap energy. We are witnessing the dying throes.

[lorenzo]

Well put Threadbear. I predicted oil would decline to $70 before the end of the year, and, as always, I was right. Like some others who were right, we knew the high price was not a reflection of supply and demand, but of a perfect storm of factors that turned commodities into a never-precedented object of speculation, waiting to collapse with the credit crunch.

My medium term view (guess) is that the price will rise again, slowly, after which the race to the "peak oil doom" prices will set in - and this time, they will reflect the fundamentals of physical supply constraints.

I give declining prices to the end of the year, then a plateau of half a year, and then already - mid-2009 - a gradual increase. Somewhere in 2010 the irreversible upward race will begin.

I bet that the third world (BRIC) is in such good shape that they will easily weather the current crisis, and rapidly begin to drive demand again, only this time as never before. Their pull will signal the beginning of peak oil catastrophe prices.

[rockdoc123]

If the 1982 model is any guide, this could go on for awhile, and be catastrophic for the energy industry

it will be for the small producers. the marginal cost of oil is currently somewhere in the range of $70 - $80 dependant on whether its producing or not. The little guys are toast. The big guys can work within cashflow for a few years, try to cut costs and wait for overall costs to drop. The heavy oil guys are set to take a big hit on NAV simply because their reserves will no longer be economic...Alberta will again be a small player. Even the big gas producers who leveraged too much are gone in my opinion. Chesepeake provides a good chunk of gas to the US, my prediction is they are out of business in a couple of months if gas prices don't get over $7/Mcf. The business they are in is incrediably capital intensive, they need financing and their big backer is on the ropes. If they go down US gas inventories will drop like a rock, add in a cold winter and the price is going to be $14 before you know it.
I'm not a doomer by any stretch of imagination but the worst thing that can happen in my scenarios was for oil prices to drop to unrealistic levels again. This just speeds up the train to the chasm.

[happychicken]

I'm not a doomer by any stretch of imagination but the worst thing that can happen in my scenarios was for oil prices to drop to unrealistic levels again. This just speeds up the train to the chasm.[/quote]

I agree. When the prices were really high in June/July 2 of my friends were swapping their cars and they were talking about buying smaller more fuel-efficient models. Then as soon as the price began to fall they bought bigger cars instead.

Humans are so fickle. The sun comes out for a few minutes and they forget it's been raining for 6 weeks.