Oil is a bubble and will drop back to $50

I've recently come across this information. The first source I heard from is an investors newsletter that I subscribe to, predicting that oil will drop back to about $50, because it is a bubble and is overvalued just as the housing market was in 2006/07 and as the Tech industry was in 98/99 before the dotcom crash.

The oil bulls are correct in their explanations of why prices have jumped, to a record $138.54 a barrel on Friday. It's indisputable that worldwide demand has surged, chiefly driven by strong growth in China, India and the Middle East. It's also true that most of the world's reserves are controlled by governments in places like Russia and Venezuela that mismanage production, thus curtailing supply growth.

But rather than forming a permanent new plateau for prices - as the bulls contend - those forces are causing a classically unstable market that's destined for a steep fall.

money.cnn.com...

[edit on 19-6-2008 by TheBandit795]

They say a little optimism can go a long way and I have to admit initially this theory did cheer me up, but when I thought about it the author really is not sticking his neck out here.

Crucially the time frame has been neglected, you see I could say hey we will no longer have to depend on fossil fuels in the future and I will be right but when would I be right.

I suppose that is the clever part if you can predict commodity prices then you would be a rich person, is this guy rich ?

I can only say I would like him to be right

George Soros gave an interview a few weeks ago and said the same thing. Sorry, can't find the link but it's in the awesome speculation thread by Justin Oldman and DonWhite.

I'm not sure what to think but I sure hope it's true.

All the banksters bailed out of the mortgage and lending stocks and moved into commodities because they are not regulated in the same way. Now everyone gets what they are doing so the question is - Where will they go next to fleece the world of its money?

reply to post by kosmicjack


the fact is that the global demand of petrol is higher than the available resources. We would need to double the petrol output in order to keep the price to 50$ during the next 20 years. Well.. this will not happen..

reply to post by kosmicjack


I am going to make a psychic prediction here and say............water. Thats the next place they will go to fleece the worlds people of their money. The buy up or privatization of water has already begun, and in about 10-20 years, you will see the fleecing begin.

I, for one, do not buy the argument that oil will drop to $50 a barrel. I do not believe that the price of oil is jumping because of pure production capability/demand issues. That is one factor, of course, and it cannot be overlooked or ignored, but nor should the fact that taking Iraq as an independent producer out of the picture allows for better control of price. (Lowered competition in the market) Which, in my opinion, is the very same reason we want Chavez out of power in Venezuela. Big oil doesnt like independent producers doing what they hell they want with the price of their oil. It forces them to lower their own prices to be competitive.

The third factor besides supply and demand is oligopoly and price fixing. Thats the real reason we will not see a return (except perhaps for brief periods to avoid an investigation/political reasons) to $50 a barrel oil. The more rogue producers they can knock out and take control of, the more consistently they can fleece us.

reply to post by TheBandit795


Let me give you my overly-simplistic view of why I think they're right. Car companies are now offering a guaranteed $2.99/gallon gas for the first two years with the purchase of a new car (12,000 miles a year max).

This tells me they know it's coming down, and quite substantially at that. That's over a dollar less a gallon from what it costs right now where I am, and I'm in a "cheap gas" part of the US.....relatively speaking.

Peace


[edit on 19-6-2008 by Dr Love]

reply to post by Illusionsaregrander


I totally agree. Water is where its at. That's why there is such a big push by the Global Warm-ongers. And the Decider's Paraguay purchase sits on top of a HUGE aquaduct...

I agree with Bandit and Dr. Love.

Another bit of news that points to a lower oil price was Kerkorians company investing in Ford Motor Co. and now holding a larger percentage of the stock.

Information on that found here: www.breitbart.com...



Seems too that congress' threat - usually empty - about reining in the speculators may have hit home with them.

The speculators don't want to kill the Goose that Lays Golden Eggs so they'll back off a bit, congress will pat itself on the back and go its merry useless way until the speculators seize upon another money making scheme.

Flagged. Starred. Keep posting this.

Our economy has been bubble-driven at least since the dot-com bubble appeared on the scene. We simply have too many people with too much money trying to make more without doing any productive work. While I can't blame them too much, I can blame the economy and the ignorance of the populus for allowing it to happen at such an alarming rate.

• The dot-com bubble was started by a sudden realization that the Internet was a way to reach more customers, without having to maintain costly real-estate based stores/warehouses. It busted because the investors were too lazy to research claims and the fly-by-night Internet stores were only interested in making cash off lazy investors and not running a business,
  
  
• The housing bubble occurred when the same investors began looking at real estate as a way to make their big bucks without working. The 'no money down' crowd took full advantage of this untapped marketplace full of investment dollars, and again made the real money. This bubble is just now collapsing and it will be a dark day when it finally does collapse.
  
  
• The gold bubble is expanding as well, again with dozens of gold-traders vie for investors in the booming metals market. Investors are eager to put their dollars here, because it is touted as a hedge against economic collapse. It is, but it will also crash as everything else crashes and the money supply dwindles.
  
  
• Oil is the latest bubble, for those who think the economy will continue. unfortunately for them, the economy will not continue, and oil will drop, I believe, back to $20 a barrel before all is said and done. The ironic thing is that it is the very price of oil that will be the trigger for the coming collapse, as it is the one thing that affects every single aspect of the economy.
  
  
• Thanks kosmicjack. Water will indeed probably be the next bubble. As I see it, AlGore and his ilk are jealous of the wads of cash 'made' by those who are in control of the latest investment fad, so they are creating their own fad. Carbon credits, water, wind turbines, etc., etc., etc. will definitely be the next bubble.
  

Keep posting, my friend. Every person who finally understands what is happening is another person who we can perhaps save from total devastation.

TheRedneck

(edited to include the last item)


[edit on 19-6-2008 by TheRedneck]

In regards to the New Car gas savings.

I could be wrong, but my calculations only put the savings around $700-800 dollars per year, based on current pricing (average)

So the New Car Dealers are out about $ 1200-1600 for every car sold under this arrangement.

Doesn't seem like all that much to me, cost of A/C option for most cars.

An opinion on the "oil bubble" much more expert than my own;

www.moneyweek.com...

There’s been endless talk of commodities being in a bubble. Oil is in a bubble, we hear. But supply has to exceed demand in a bubble. It does not. Last February for the first time in the history of the world demand for oil exceeded production – that situation has remained the case for 90 days. But there is no supply shortage of bonds. And you have to question the real value and use of the underlying asset.

The bubble, if it’s anywhere, is in bonds and they, in my humble opinion, will be the next one to pop.

It is still just an opinion, and of course could be wrong.

He mentions the crunch in supply vs demand as beginning in Feb. 2007.

Hmm. I wonder what happened at that time that impacted oil supply so sharply? Or, maybe China suddenly purchased a huge amount of cars that month?

Lets take a look;

en.wikipedia.org...(2007)

The Bush administration hired the consulting firm BearingPoint to help write the law in 2004.[3][4] The bill was approved by the Iraqi cabinet in February 2007.[5] The Bush administration considers the passage of the law a benchmark for the government of Prime Minister Nuri Kamal al-Maliki.[6][7]

If you go on to read the whole article, you see that 80% or so of the worlds second largest proven supply of oil fell into the hands of big oil. Coincidence? I wonder. That "second largest proven reserves" is estimated to be very, very low.

www.alternet.org...

Iraq's energy reserves are an incredibly rich prize. According to the U.S. Department of Energy, "Iraq contains 112 billion barrels of proven oil reserves, the second largest in the world (behind Saudi Arabia), along with roughly 220 billion barrels of probable and possible resources. Iraq's true potential may be far greater than this, however, as the country is relatively unexplored due to years of war and sanctions." For perspective, the Saudis have 260 billion barrels of proven reserves.

But the real gem -- what one oil consultant called the "Holy Grail" of the industry -- lies in Iraq's vast western desert. It's one of the last "virgin" fields on the planet, and it has the potential to catapult Iraq to No. 1 in the world in oil reserves.

Its a supply and demand issue, but the issue is that now four companies have a choke hold on on of the biggest supplies in the world.

i wish what you said was correct, but unfortunatly it is not. in order for oil to hit $50 a barrel the dollar would have to be worth what it was back in 1999 or 1998. inflation is the reason for oils rise, and inflation is only going upwards. oil is not really "worth" much more than it was back then it is just what we gauge its worth with has been devalued.

This has little to do with the price of the dollar, and everything to do with supply and demand. If oil was going to drop, why would someone like Boone Pickens (The oil man) invest so heavily in alternative energy. Just listen to him for yourself. He says oil will continue to to climb. He even clearly states that this is not a bubble. The prices will continue to stay high.

www.cnbc.com...

Maybe we should start investing in a different economy. I hear hydrogen is making its debut as an economy (as opposed to the current Gas Economy) in Southern California with the new Honda FCX Clarity being leased to the public. I know for a fact that the cost of hydrogen (with production taken into account) is the same cost as Gas was in 2006 AND you can make a solar powered hydrogen generator. Its as clean as you can get.

I believe it, the prediction of the next bubble to crash will be the energy bubble.

Buy if Bush gets away with opening land for drilling, the new wave of speculators call the wildcatters will drive the gas prices up again.

So we just have to wait and see.

I work at a luxury automobile store in the Pacific Northwest, gas prices have taken a major toll on the automotive industry. Relatively new Kias are selling for more at auctions then what you could have bought them new a year ago. If you have a big V8 truck or SUV and you want to trade it in we are hitting it, for sometimes, $10k below book value; our pre-owned inventory of big SUVs and trucks are mostly advertised for losses. I would hope that oil will go down, but $50 a barrel I doubt. The U.K. is paying almost $10 a gallon for diesel, their fuel costs have been going up for years. Gas may go down 50 cents to a dollar a gallon, I think that’s the best we will get for know, but eventually it will go up again. This is something we have to live with and our entire country is going to have to alter their lifestyles. The world is evolving, millions in china and other countries, for the first time, can own an automobile. Oil, like diamonds and platinum, is something you get from earth and we only have so much. Until we can come up with a means of producing synthetic fuel at an affordable cost our lives will have to adjust to higher oil prices.

Gas will be $5.00a gallon this summer and it could keep going up, (Premium is $4.96 a gallon where I live). Any major alternatives are still five to ten years away; we need to adapt. Oil affects more then just cars. The boating industry, which is very important to the Puget Sound summer economy, is taking a hit. Owner/operators of semi trucks are paying $1300 to fill their rigs.

We will see the railroad industry experience a second renaissance. One gallon of diesel will move one ton of railroad freight about 360 miles. Like Europe, trains will be all over the place. Check out your local commuter rail, I bet its filled near capacity.

Motorcycles and scooters are turning into transportation rather then recreation. My bike gets nearly 60-mpg. They think I’m joking at work when I talk about adding a scooter franchise to our pre-owned department.

Unless we create a viable competitor to gasoline, which will force them to drive down prices, we will have to deal with $5 a gallon gas. Since OPEC really has no competition they can do whatever they want.

“Grandpa, tell me about those things called Hummers.”

Originally posted by dbates
This has little to do with the price of the dollar, and everything to do with supply and demand.

Presuming that the market is in fact free and demand is not being manipulated, right?

If oil was going to drop, why would someone like Boone Pickens (The oil man) invest so heavily in alternative energy.

Because his making such a killing in profits these days that he can more than afford to play the shell game where he invests just enough ( and probably in the wrong technologies) for it to contribute very little? Should i take a stab at it and start listening the 'worse' alternatives so we can just how 'unlucky' he is with his other investment strategy?

Just listen to him for yourself. He says oil will continue to to climb.

/me runs into wall head first. What did you expect him to say? Your a bright guy and i just wonder why it has been so easy to convince you that the oil people should in fact be claiming , to prove that their 'on the level', that oil should drop again? Why would any oil man in his right mind say that there is no shortage on the market and that there is there shouldn't be? In fact why have the world managed to run out of oil in ten years flat when in 1998 oil prices slumped so badly that exploration rigs were rusting everywhere? Why has the world reserve growth beaten consumption level for thirty years flat?

He even clearly states that this is not a bubble. The prices will continue to stay high.

www.cnbc.com...

I just don't understand why you will trust a capitalist to tell you when the price of such a commodity is likely to fall!

Stellar

Originally posted by sty
the fact is that the global demand of petrol is higher than the available resources.

It's not and if there has been any shortages on world markets they have not only been exceedingly small but also largely due to the war in Iraq and other similar large scale ARTIFICIAL supply disruptions and NOT because there is not oil to be had in ground at such still extraordinary cheap rates.

We would need to double the petrol output in order to keep the price to 50$ during the next 20 years. Well.. this will not happen..

That's just nonsense and it in fact deserves to be called a blatant and obvious lie. If you are not aware knowingly spreading misinformation or lies is against the rules of this board. Not that i will need help to point out just how absurd such a claim is but now you wont be able to claim that you didn't know know any more about this boards operation than you do about the oil business.

Stellar

Originally posted by TheRepublic
i wish what you said was correct, but unfortunatly it is not. in order for oil to hit $50 a barrel the dollar would have to be worth what it was back in 1999 or 1998. inflation is the reason for oils rise, and inflation is only going upwards. oil is not really "worth" much more than it was back then it is just what we gauge its worth with has been devalued.

your exacty correct...

the fair price for a barrel of oil since the 70's inflation and devaluation of the USD has been found to be $124.00 per bbl...
not far from the present window of $129-139 per bbl... which actually includes the fear of war factor and the surge in demand by China and India

When and If the USD becomes stronger and of higher value ... then perhaps a $100 per bbl could be the new benchmark price




Afterthought:

the price of "50" might be in Euros
but i don't see oil at 50 USDollars

[edit on 20-6-2008 by St Udio]

Well today in the news they say that 50 dollars is nothing but a dream, oil prices will never be under 100 dollars ever again.

Now this are the speculators talking and the big proponents of offshore drilling.

It means that even with new drilling in the US we are still going to have over 100 dollars oil prices.

This is great news.