[Oilguy]

World markets appear to be hovering over a precipice as Europe’s sovereign debt crisis, slowdowns in India and China and further bank downgrades threaten to send stocks and commodities down even further. Falling oil and gas prices may offer some respite to consumers but are they enough to help the economy or are they a symptom of deeper problems?

To help us look at these issues and more we are joined by the well known investor, adventurer and author Jim Rogers. Jim is the creator of the Rogers International Commodity Index, he also recently completed a book called: A Gift to my Children – which helps people learn from their triumphs and mistakes in order to achieve a prosperous, well-lived life. Please click on the following link to find out more information on A Gift to my Children.

In the interview Jim talks about the following:

• Why recent oil price falls are a good buying opportunity
• Why oil prices could fall to $40 a barrel
• Investment opportunities with the renewable energy sector
• Why he is optimistic about Nuclear energy
• Why agriculture offers good opportunities to investors
• Why Myanmar is the best investment opportunity in the world right now
• Why there could be further unrest in the Middle East
• Why we should let Greece fail

Interview conducted by. James Stafford of Oilprice.com

Oilprice.com: Jim, thanks for taking the time to join us today.

Jim Rogers: I'm delighted to be here, James. My pleasure.

Oilprice.com: It’s been an interesting period in the energy world as we’ve seen oil prices steadily decline over the past few months and with the problems in Europe and slowdowns in India and China do you expect this trend to continue?

Jim Rogers: Well, there is certainly a correction going on for various reasons. I think Saudi Arabia's trying to help re-elect Mr. Obama. There are also stories that JP Morgan has problems in its London office with a lot of unauthorized positions they're having to liquidate. I don't know what's going on, but I do know that corrections are normal in the industrial world. There's nothing unusual about it. If it continues, there’s an opportunity to buy more.

Oilprice.com: I read a report by the Economist Phil Verleger who thinks that the Saudi’s massive increase in oil production along with other economic problems could cause oil prices crash to $40 a barrel oil and $2 a gallon gasoline by November. Do you think this is a reasonable forecast and we could see oil at these levels?

Jim Rogers: We could see anything. We certainly saw lower prices than that back in 2008 when there was a collapse. When things are collapsing, all sorts of strange things happen. We found that out in 2008 and we will probably find out in the future, as well. If oil does go to $40, that means it'll just be setting up an even more bullish scenario for the duration of the bull market.

Oilprice.com: How do you see the energy markets reacting to the Iranian sanctions, which are going to be coming into effect on the first of July?

Jim Rogers: Oh, I don't see that having much effect at all. Everybody already knows about that - nothing new to the markets. They have long since adjusted to this news, whether it be stock markets, smuggling, etc. The Iranian sanctions are a non-event as far as I'm concerned.
Now, an attack on Iran would not be a non-event, but this is just more noise.

Oilprice.com: The Middle East Petocracy’s, along with Venezuela and Russia must be nervously watching the price of oil. Can you see potential problems developing in these countries and other oil producing nations if prices continue to fall?

Full article at: http://oilprice.com/Interviews/Falling- ... ers19.html

[Lore]

Jim forgot that the oil producers simply cannot make any money at $40/barrel and will therefore constrain output to a level at which they can. SA needs at least $100/barrel to keep the folks happy back home.

[ralfy]

Lore is right. Also, if the oil price drops because of an economic crisis, then income levels may also drop given problems concerning availability of credit, employment, etc.

[SeaGypsy]

Lore, you are exactly on it. It's amazing how wrong these so called experts can be and often are. I doubt he believes his own tripe.

[dissident]

There will be no tar sands or even offshore output at $40 since it is below cost to extract it. So this article is yet another wishful thinking wankfest.

[Pops]

For the month we have more 'days of supply' right now than any time in the last 10 years.
http://www.eia.gov/dnav/pet/hist/LeafHa ... S_DAYS&f=W

Part of it is less demand, part is less refining capacity - we've closed down 500kb of refining capacity since Dec: 17.7 - 17.2kbd.

Isn't that about as much as all the fracked oil every one is so giddy about?




Kinda flies in the face of all the hype about a glut, huh? Not sure why refiners would be closing if there is such a glut.


The reason KSA is pumping as fast as possible is pretty clear, high prices are strangling their Golden Goose. Better to make a $60 profit than no profit at all.

[rockdoc123]

Kinda flies in the face of all the hype about a glut, huh? Not sure why refiners would be closing if there is such a glut.

Refineries have always been a marginal business and as the "kit" gets older it requires more and more maintenance at a cost that is ever escalating. Regardless of how much is out there or how much is potential to be produced the price is still high for refineries who have never really figured out how to improve on their efficiency. I suspect the story is more complex than one imagines....the bottlenecks in pipelines creates some issues with price differentials across North America and means that some refineries may be paying a "premium" due to infrastructure imposed supply. I don't know the answer, all I'm saying is it is more complex than we think.

The reason KSA is pumping as fast as possible is pretty clear, high prices are strangling their Golden Goose. Better to make a $60 profit than no profit at all.

I think it has more to do with market share than anything else. At the higher prices SA still makes a lot of money although they should theoretically have less demand for their product (i.e. their lifting costs are lower than pretty much everyone else so the profit margin jumps up quickly). They still remember from the Yamani era when high prices brought in expensive oil as competition and eroded SA market share. To avoid that producing more volume can help to keep the price low enough to manage how much expensive oil comes on stream. It is a trade off for them....they need a high enough price to be able to fund all the fiscal & social programs in SA that keep the populace appeased but at the same time they need to have the price low enough that they eliminate some of the competition.
I can't comment on the notion that Obama may have made a deal with the Kingdom to keep prices low....seems a bit far fetched but anything is possible in politics I guess. What is clear is the disconnect in Brent and WTI means that SA probably isn't worried too much about North American shale oil.

[pfreyre]

The only way I see this happening is if we have massive liquidity crunch/deflationary depression. This would mean a massive drop in money supply and shadow banking assets/liabilities.

This will, in effect, put producers out of business, yet also make oil unaffordable in real, not nominal terms. Purchasing power for most people will fall much further than the oil price, making oil considerably more expensive in real terms, even as prices are bottoming.

[rockdoc123]

Rather the Kingdom is scraping the bottom of the barrel with an expensive reworking of several legacy fields including Manifa. Those 900,000bpd of heavy petroleum, for which there is a limited world market, are going to be refined in a brand-new spanking refinery, for the domestic market. The world is still and will always be undersupplied with oil.

hardly the story at all. The mega-projects resulted in spare capacity in SA rising from 9.5 MMB/d to 12.5 MMB/d. Of that oil only a small portion (~10%) was either heavy (<20 API) or particularly sour. Last year in response to the Libya situation the Saudis increased production by a few hundred thousand barrels a day, very quickly all light but enough sulphur that it was difficult for the European refineries to handle it where they cannot deal with sulphur even at 1%.
The view that there is a limited world market for their heavy oil (Safaniya or Manifa) is neither here nor there if they refine it themselves and sell the products.

Saudi Arabia is no longer the Swing Producer, hasn't been since 2005

what is your proof for this statement? They are currently producing at 2 MMB below their spare capacity. Their lifting costs are incredibly low so they can make money down to very low oil prices. The only problem they have is they have a lot of necessary funding commitments in country that keep the general populace calm and collected. But the roll of swing producer is quite transitory...as a consequence SA could easily open up the taps and force oil prices down further for a short period of time and not affect their ability to fund projects at home, they just couldn't do that for any length of time.

Every bit of exported production and capacity is accounted for at current prices,

not the case at all. As I said SA has about 2 MMB/d of spare capacity still sitting there. In the US storage volumes are at a thirty year high and continue to build and in essence that is spare capacity if someone could figure out how to debottle neck it all.

[Plantagenet]

..oil producers simply cannot make any money at $40/barrel and will therefore constrain output to a level at which they can. SA needs at least $100/barrel to keep the folks happy back home.

During the recession back in 2008, oil fell to ca. $30/barrel.

We've got a global economic slowdown going on again this year, and the oil price is going to continue to trend lower. I don't think we'll get to $30-$40 again----IMHO this time oil is going down to around $50-$60.

[Lore]

..oil producers simply cannot make any money at $40/barrel and will therefore constrain output to a level at which they can. SA needs at least $100/barrel to keep the folks happy back home.

During the recession back in 2008, oil fell to ca. $30/barrel.

We've got a global economic slowdown going on again this year, and the oil price is going to continue to trend lower. I don't think we'll get to $30-$40 again----IMHO this time oil is going down to around $50-$60.

Notice, that those prices didn't stay down for very long. We are going to see these cycles at peak repeat with sustaining higher highs and higher lows as we thrash about and gasp for air at the top of the curve as predicted.

[Ferretlover]

The lower this spike, the higher the next spike. Can you imagine the Demand Destruction going on when's there's a lot of cheap (to us now) gas available?
And, there'll be a lot of "See? We have lots of gas. Let's put off doing anything with alternate energy," going around.

[Plantagenet]

We are going to see these cycles at peak repeat with sustaining higher highs and higher lows as we thrash about and gasp for air at the top of the curve as predicted.

That is possible, but so far the oil price isn't doing that.

The peak in 2011 was $127/barrel, and earlier this year was about $126/barrel, both significantly LOWER then the $148/barrel seen in 2008.

While the overall trend in oil prices is up, there is no reason to expect a series of "higher highs" or indeed, any kind of regularity about the cycles of new high and low prices through time. Oil prices are determined at each moment by transitory market conditions involving the overall economy, not by any pattern in oil prices. You might get a series of lower highs, followed by a superspike to an extreme high, followed by an extreme low at any point, as Ferretlover just suggested. However, all the peak oil model predicts is an OVERALL long term trend to reduced oil production and increasingly constrained oil supplies, which will produce a longterm trend of increasing oil prices, as long as the global economy keeps sputtering along.

[Lore]

We are going to see these cycles at peak repeat with sustaining higher highs and higher lows as we thrash about and gasp for air at the top of the curve as predicted.

Not necessarily.

The peak earlier this year was about $126/barrel, significantly LOWER then the $148/barrel seen in 2008.

That was a market blip, like $20/barrel lows. You need to look at averages over time.

[Plantagenet]

The peak earlier this year was about $126/barrel, significantly LOWER then the $148/barrel seen in 2008.

That was a market blip....

Sorry----Somewhere I missed your thoughts on which oil prices should be ignored because they are just "blips".

Please inform: What are the permissible upper and lower limits on oil prices that you recommend to exclude those prices that you believe are "market blips"?

[basil_hayden]

Seen Coach T around lately? Even he knows oil will never be $40 a barrel again.

[Lore]

The peak earlier this year was about $126/barrel, significantly LOWER then the $148/barrel seen in 2008.

That was a market blip....

Sorry----Somewhere I missed your thoughts on which oil prices should be ignored because they are just "blips".

Please inform: What are the permissible upper and lower limits on oil prices that you recommend to exclude those prices that you believe are "market blips"?

Already stated it. Pay attention to higher averages over time. We've already bounced back from the lows to around $87/barrel today.

[Plantagenet]

We've already bounced back from the lows to around $87/barrel today.

So what? One afternoon's price movement doesn't mean anything.

The overall price trend is definitely down right now, because of slowing global economic growth.

In fact, Jim Rogers suggested this trend could continue until the price falls to ca. $40/barrel. HEY! Thats what this topic is about!

[Lore]

We've already bounced back from the lows to around $87/barrel today.

So what? One afternoon's price movement doesn't mean anything.

The overall price trend is definitely down right now, because of slowing global economic growth.

In fact, Jim Rogers suggested this trend could continue until the price falls to ca. $40/barrel. HEY! Thats what this topic is about!

The operative word is "could", but it won't for the reasons already given. You only have to pay attention to long term trends based on costs and resources to understand that. Demand destruction has a floor.