Oil is a bubble and will drop back to $50

Originally posted by St Udio
your exacty correct...

No, that isn't 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...

Found by who and using which set of inflation numbers? Unofficial US inflation figures are MUCH higher but what on earth does that have to do with 100 USD per barrel price ranges? How can the true price of oil be 124 USD per barrel when a failure to properly restrict world oil supply led to a barrel of oil costing 8 USD ( and it was falling) back in 1998? Did the USD devalue by 1500% in ten years? We all know the FED is printing money like it's going out of fashion but lets not go overboard when there is absolutely no evidence to suggest that the money supply has been inflated by such a percentage margin.

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

What fear? What surge in demand in China? Who's so fearful that they keep buying and stockpiling oil despite the fact that no war seems to be in offing? Shouldn't we rather ask why nations with oil reserves and production capacity are targets of such rumours and then attempt to discover who the rumour mongers are?

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

Even with the devaluation of the dollar ( and it's not that severe as compared to the Euro/yen/Yuan) oil should not cost much more than 20-30 USD a barrel and even if one includes fear of war and general instability 50 is as high as it should go in a 'free' market which this one obviously isn't.

Afterthought:

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

And i don't expect the blind to miraculously see either.

Stellar

Watch this if you want to now why it is costing so much to get fuel, it has nothing to do with any shortage, it is a short video, almost 9 minute video, from the Keith Olbermann show.

www.youtube.com...



[edit on 20-6-2008 by goose]

Originally posted by marg6043
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.

And we should listen to such statements as they are very clearly statements of a discovered trend or the intent of the organization that person represents. I can easily agree that we will never again see oil below 100 USD a barrel but that's because people like you will accept that this is a 'market phenomenon' and the result of a 'free' flow of goods according to supply and demand considerations. While people assume that the markets actually work that way the speculators and corporations in charge of investment and capitol flows will be able to keep hiking the price while blaming it on ' the market'.

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

Sure as at 100 USD can you make a massive profit even with deep sea offshore drilling! That is such a massive premium that you can practically open ever former 'uneconomical' well in the world and make yourself a killing on the markets .

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

What it in fact means is that little new drilling will be made and when it's made at all it will not be in the cheapest places but in the more extensive marginal reserves with the cheap stuff being held for a rainy day.

This is great news.

I don't see how this is good news for anyone but those idiots who think that hiking oil prices is somehow going to 'save the planet' by starving to death a few hundred million more people every year. As ATS policy does not allow me to fully express my disgust for such inhuman reasoning i wont say anything more.

What about 'saving the planet' is so appealing to the intellectual types when even conservative reasoning processes can expose the fact that restricting energy and resources supplies are always a bad thing for the vast majority?

One more reason why i don't want to be called a intellectual or , god forbid, a 'liberal'.

Stellar

Bubbles seem to be inflating faster and more dangerously now. I worry about what bubble they will inflate to replace oil.

Originally posted by Karlhungis
Bubbles seem to be inflating faster and more dangerously now. I worry about what bubble they will inflate to replace oil.

one candidate could be all forms of alternative energy production.
just look at the Canadian & US Solar Power stocks on the NYSE

reply to post by Dr Love


What you describe is an advertising ploy and nothing more. The "$2.99 gas for two years option" is in liu of a $2,000 - $3,000 cash back rebate.

So, let's to some calculations:

If you're buying a full-size truck that averages 15 MPG and gas is $4.00/gallon, you'll save (12,000 miles/15 mpg) * ($4.00 - $2.99) = $808 for two years or $1,616. This is $384 - $1,384 less than the cash back rebate you could have opted to receive.

No, let's do the calculations for a mid-sized car (because really, who in their right mind would buy a truck that gets 15/mpg):

If you buy a car that averages 23 mpg and gas is $4.00/gallon, then you'll save (12,000/23) * ($4.00 - $2.99) = $527/year or $1,054 over two years. This is much less than the cash back rebate.

No, let's say gas goes to $5.00/gallon today:

Using the mid-sized car you'd save (12,000/23) * ($5.00 - $2.99) = $1,049 per year.


So, the whole "gas for $2.99 for two years" would only benefit someone if they bought a vehicle that already got good gas mileage AND if gas hit $5.00/gallon or more. The savings really depend on the vehicle and the price of gas, but as you can see, the odds are Chryster will come out on top.

[edit on 20-6-2008 by cardinalfanUSA]

Ok, so I couldn't figure out to save my edited post, so here's the edit:


Using the truck you'd save (12,000/15) * ($5.00 - $2.99) = $1,608 per year.


So, the whole "gas for $2.99 for two years" would only benefit someone if they bought a gas guzzler AND if gas hit $5.00/gallon or more. The savings really depend on the vehicle and the price of gas, but as you can see, the odds are Chryster will come out on top.

reply to post by dbates


I dont think this has much of anything to do with supply and demand. The demand for gas is on the decline, so why are the prices not receding?

reply to post by Karlhungis

Nothing will replace the oil bubble. Fuel prices affect every single aspect of the economy.

Already, I am hearing reports of people having to quit their jobs because the jobs do not pay enough for them to drive back and forth to work. Already, I am hearing reports that trucks are sitting idle and being dumped back onto the market. Already I am hearing reports that companies are planning layoffs because their sales have dropped.

It works this way: when the housing bubble burst, it was because the money for housing dried up. People became financially stressed and the market was flooded with homes that began to have lower sale prices. As that happened, some of the more skiddish investors pulled out of the market, drying up the funds and allowing the bubble to weaken.

Once the housing market began to weaken, contractors quit building as much, choosing to not invest as much in pre-built homes. This meant less jobs in the industry, less material being bought, which led to less workers needed to make windows, cabinets, doors, siding, lumber, etc. People began to choose lower-cost existing homes which were devalued because they were not selling, which led to less custom homes being built and therefore more decay in the support industries.

Housing affects a large part of our economy. But it does not affect computers/electronics, automobiles, food, or luxury items. Also, there is a winner in the housing crash, those who make materials for or who do remodeling. So while a housing crash is far from a good thing, it is also not the end of the economy.

Oil/fuel is different. As fuel prices rise, the cost of shipping rises almost instantaneously. Fuel is the single largest cost for anyone handling shipping (by truck). Diesel is rapidly approaching $5 a gallon nationwide, up from $1 a gallon just 6 short years ago. That's a 500% increase in 6 years, which has led to about a 300% increase in actual truck operation and shipping costs.

This has had the effect of putting quite a few trucks out of business. As more truck operations go under, two things happen: there is less competition in the trucking industry, so the trucks that remain are getting higher prices for their service, meaning the cost of everything, economy-wide, goes up to cover the increased cost. Two, the trucks that go out of service flood the market and drive down the cost of trucks, meaning less new truck sales and less people who have jobs building them.

As prices continue to go up, people have less disposable income to buy that new computer or TV. The electronics industry suffers and loses jobs. People try to eat less, or at least eat cheaper food, so the food industry suffers. Service industries which have fuel costs as well have to increase their prices, so people use less services. Automobiles are seen as a bane rather than a convenience due to the high cost of operation, so the automobile industry begins to hire less. In short, every single aspect of the economy begins to crumble and unemployment eventually will skyrocket.

Wages are depressed because employers are fighting with higher operating and material costs, with no money left for the workers (unless the businesses want to raise their prices and suffer more sales losses). So people are squeezed more and more with each passing day. Government programs will take up part of that slack through social programs, but these programs require tax dollars to pay for, and with fewer workers paying taxes, tax rates will either have to skyrocket, or programs will have to be cut.

Of course, there is a third option, and it is being used. The government can borrow money (From China, from the Fed), but this means that other countries will see the dollar as a bad investment and the value will drop. The dollar's value affects everything we purchase from overseas. If you could buy a widget for $1, but now the country that makes the widget sees the value of the dollar as half of what it was, you'll have to pay $2 for that same widget. Other countries want value, not green pieces of paper. This puts more pressure on the economy from higher prices, including energy prices which set up a vicious spiral. That spiral only points one way - down.

Eventually, all the money that has been 'printed' (which only exists as value of goods and services in actuality) will disappear and we will be left indigent and financially helpless. This is what happened during the 1930s. Back then, attempts were made to slow the economy so it would crash softly. Now attempts are being made to speed up the economy, which will result in nothing short of a high-speed collision with reality.

When that collision happens, there will be no more bubbles, because there will be no more money to prop them up. There will also be no more money for people to live on or to buy fuel with. That means that prices will indeed drop, I believe well past $50 a barrel for oil. I would bnot be surprised to see oil dip to under $5 a barrel eventually, although even at that price, it will be out of reach for most. Gasoline for $0.10 a gallon is expensive when one makes $0.05 a day for their labor.

TheRedneck

reply to post by StellarX


Obviously you missed the sarcasm of my post, perhaps you don't know me very well in my posts that has to do with corporate American and our own government gouging the citizens.

Neither has read the post on any of the topics that have to do with the markets.

Is ok, I understand the confusion.

reply to post by TheRedneck


That is exactly what the proponents and supporters of offshore drilling, aka big corporate barons of America are doing now, they are starting to use propaganda to gain support for their new wave of ways to keep their wealth and money train going.

Today also in the news they were starting to use scare tactics, they were talking about people losing their jobs, their homes, no been able to feed their families all because oil prices and the are right up to that point.

But the drilling allowance is nothing but a hoax, because they are the ones that will reap the profits and people will still be losing their homes, the jobs and will have problems feeding their families.

Is all about the economy and what 8 years of oilman Bush has done for this nation.

We are supporting with tax payer and borrowed money a war that the only benefit that is doing to this nation is to make corporate American filthy rich and adding more personal debt to our national debt to our unborn children.

American needs a big upraising and we need to force this fascist government we have for accountability.

reply to post by TheBandit795


It's true value is actually more along the lines of $40-$45 a barrel.

Originally posted by marg6043
Obviously you missed the sarcasm of my post, perhaps you don't know me very well in my posts that has to do with corporate American and our own government gouging the citizens.

What sarcasm! I couldn't understand what was going on as DO know that you are normally on the ball when it comes to corporate America....

Neither has read the post on any of the topics that have to do with the markets.

Is ok, I understand the confusion.

I have in fact read plenty of your posts and i was still going to edit my post to make it clear that i was surprised by it. Since i can be sarcasm incarnate i normally pick up on it very fast and i don't know why i didn't catch on this time! Sorry for ranting and i hope someone else appreciates the post a bit more than you must have.

Stellar

reply to post by StellarX


Is OK, I guess I try to get sarcasm on my post but it didn't came out the way I wanted, I am glad that you understand my stance on the issues of politics and what is going on with our government.

This article reckons its a big scam & it does make excellent sense:

globalresearch.ca...

The Great Oil Swindle
How much did the Fed really know?
by Mike Whitney

Global Research, May 30, 2008
Information Clearing House

The Commodity Futures and Trading Commission (CFTC) is investigating trading in oil futures to determine whether the surge in prices to record levels is the result of manipulation or fraud. They might want to take a look at wheat, rice and corn futures while they're at it. The whole thing is a hoax cooked up by the investment banks and hedge funds who are trying to dig their way out of the trillion dollar mortgage-backed securities (MBS) mess that they created by turning garbage loans into securities. That scam blew up in their face last August and left them scrounging for handouts from the Federal Reserve. Now the billions of dollars they're getting from the Fed is being diverted into commodities which is destabilizing the world economy; driving gas prices to the moon and triggering food riots across the planet.

For months we've been told that the soaring price of oil has been the result of Peak Oil, fighting in Iraq, attacks on oil facilities in Nigeria, labor problems in Norway, and (the all-time favorite)growth in China. It's all baloney. Just like Goldman Sachs prediction of $200 per barrel oil is baloney. If oil is about to skyrocket then why has G-Sax kept a neutral rating on some of its oil holdings like Exxon Mobile? Could it be that they know that oil is just another mega-inflated equity bubble---like housing, corporate bonds and dot.com stocks—that is about to crash to earth as soon as the big players grab a parachute?

There are three things that are driving up the price of oil: the falling dollar, speculation and buying on margin.

The dollar is tanking because of the Federal Reserve's low interest monetary policies have kept interest rates below the rate of inflation for most of the last decade. Add that to the $700 billion current account deficit and a National Debt that has increased from $5.8 trillion when Bush first took office to over $9 trillion today and it's a wonder the dollar hasn't gone “Poof” already.

According to a January 4 editorial in the Wall Street Journal: “If the dollar had remained 'as good as gold' since 2001, oil today would be selling at about $30 per barrel, not $99. (today $126 per barrel) The decline of the dollar against gold and oil suggests a US monetary that is supplying too many dollars.” Wall Street Journal 1-4-08

The price of oil has more than quadrupled since 2001, from roughly $30 per barrel to $126, WITHOUT ANY DISRUPTIONS TO SUPPLY. There's no shortage; it's just gibberish.


As far as “buying on margin” consider this summary from author William Engdahl:

“A conservative calculation is that at least 60% of today’s $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the government’s Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme “leverage” of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population.”

So the investment banks and their trading partners at the hedge funds can game the system for a mere 8 bucks per barrel or 16 to 1 leverage. Not bad, eh?

Is it possible that gambling on oil futures might be a temptation for banks that are already underwater from a trillion dollars worth of mortgage-related deals that have “gone south” leaving the banking system essentially bankrupt?

And if the banks and hedgies are not playing this game, then where is the money coming from? I have compiled charts and graphs that show that nearly two-thirds of the big investment banks' revenue came from the securitization of commercial and residential real estate loans. That market is frozen. Besides, this is not just a matter of “loan delinquencies” or MBS that have to be written off. The banks are "revenue starved". How are they filling the coffers? They're either neck-deep in interest rate swaps, derivatives trading, or gaming the futures market. Which is it?

Of course, there is one other possibility, but if that possibility turned out to be right than it would cast doubt on the legitimacy of the entire financial system. In fact, it would prove that the system is being rigged from the top-down by our friends at the Banking Politburo, the Federal Reserve. Here goes:

What if the investment banks are trading their worthless MBS and CDOs at the Fed's auction facilities and using the money ($400 billion) to drive up the price of raw materials like rice, corn, wheat, and oil?

Could it be? Could the Fed really be looking the other way so it can bail out its banking buddies while they drive prices skyward?

If it is true; (and I suspect it is) it hasn't done much good. As the Associated Press reported yesterday:

“The Federal Reserve announced Thursday that it will make a fresh batch of short-term cash loans available to squeezed banks as part of an ongoing effort to ease stressed credit markets. The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.”

Another $225 billion for the bankers and not a dime for the struggling homeowner! The Fed is bankrupting the country with their permanent rotating loans to keep reckless speculators from going under. So much for moral hazard.

As far as speculation, there is ample evidence that the system is being manipulated. According to MarketWatch:

“Speculative activity in commodity markets has grown "enormously" over the past several years, the Homeland Security and Governmental Affairs Committee said in a news release. It pointed out that in five years, from 2003 to 2008, investment in the index funds tied to commodities has grown by 20-fold -- to $260 billion from $13 billion.”

And here's a revealing clip from the testimony of Michael W. Masters of Masters Capital Management, LLC, who addressed the issue of “Commodities Speculation” before the Committee on Homeland Security and Governmental Affairs this week:

“Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase. ...In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels.8 Over the same five-year period, Index Speculatorsʼ demand for petroleum futures has increased by 848 million barrels.

THE INCREASE IN DEMAND FROM INDEX SPECULATORS IS ALMOST EQUAL TO THE INCREASE IN DEMAND FROM CHINA.

Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.

Today, in many commodities futures markets, they are the single largest force.15 The huge growth in their demand has gone virtually undetected by classically-trained economists who almost never analyze demand in futures markets.

As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. The CFTC has taken deliberate steps to allow CERTAIN SPECULATORS VIRTUALLY UNLIMITED ACCESS TO THE COMMODITIES FUTURES MARKETS. The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over-the-counter swaps transactions. This has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity index swaps, which 85-90% of them do, they face no speculative position limits.... The result is a gross distortion in data that effectively hides the full impact of Index Speculation.” (Thanks to Mish's Global Economic Trend Analysis; the one “indispensable” financial blog on the Internet)

Masters adds that the CFTC is pressing to make “Index Speculators exempt from all position limits” so they can make “unlimited” bets on the futures which are wreaking havoc on the global economy and pushing millions towards starvation. Of course, these things pale in comparison to the higher priority of fatting the bottom line of the parasitic investor class.

Brimming oil tankers are presently sitting off the coasts of Iran and Louisiana. The Strategic Petroleum Reserve has been filled. Demand is flat. The world's biggest consumer of energy (guess who?) is cutting back . As CNN reports:

“At a time when gas prices are at an all-time high, Americans have curtailed their driving at a historic rate. The Department of Transportation said figures from March show the steepest decrease in driving ever recorded. Compared with March a year earlier, Americans drove an estimated 4.3 percent less -- that's 11 billion fewer miles, the DOT's Federal Highway Administration said Monday, calling it "the sharpest yearly drop for any month in FHWA history." (CNN)

The great oil crunch is another fabricated crisis; another "smoke and mirrors" fiasco; another Enron-type shell-game engineered by banksters and hedge fund managers. Once again, the bloody footprints can be traced right back to the front door of the Federal Reserve. Don't expect help from the regulators either; they've all been replaced with business reps like Harvey Pitt or Hank Paulson. The only time anyone in the Bush administration finds their conscience is when they're offered a multi-million dollar “tell all” book deal.

reply to post by marg6043
I couldn't agree more, except that it is not just Bush and Co. The Democrats have done their own part as well, selling assets to China and other nations, further devaluing our dollar. After all, credit is worth more if there is some sort of collateral to back it up. In America, we have precious little that is actually owned by America anymore.

Democrat and Republican. Two heads of the same snake.

TheRedneck

Watch the following video very carefully.

Lindsey tells the iranians, on an undisclosed date, are going to dump cheap oil on the world market trading in euros to destabilize the dollar and cause a crash.

It appears with bushwacks latest move to open drilling on the waters, he maybe getting ready for a counter attack if not a full frontal attack on the 3rd riches oil producing nation in the world. Iraq was taken down because saddam traded oil for euros and iran is next on the take over list.

Google Video Link

Deny ignorance. Do your own research:

www.theoildrum.com...
www.livecharts.co.uk...

Originally posted by TheRedneck
reply to post by Karlhungis

Service industries which have fuel costs as well have to increase their prices, so people use less services.

TheRedneck

I appreciate your analysis, but would warn readers to take it only as opinion.
The portion of your post I quoted was the first thing I noticed. Instead of looking at it this way, look at it from the standpoint that (as you noted) people have less money due to losing jobs and/or rising costs. So instead of buying new, they get the old one fixed--SERVICED. Nowadays you wouldn't buy a new Air Conditioning system; you'd have the old one fixed. The repair will cost more due to fuel, of course, but goods and services can have a 'degree of mutual exclusivity'.

This is the problem a lot of people have with economics--they feel it's all common sense--one thing leads to another--so you take a stab at it and before you know it, you think you've figured out the path America is going to take the next 10 years.

Just sayin'

Originally posted by Illusionsaregrander
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.

I have to agree, though I think oil will drop to the $80-90 level within the next 8 months. I think water is the next oil, in the sense that it is much much more important to our lives than Oil, and we can't seem to find any that is clean and doesn't contain salt. If I were to bet, I would be betting on companies that make desalination equipment etc...because I believe there will be a massive outage of water, mainly in the eastern world. I have bought call options on the airline CAL in a bet that oil will plummet in the coming month. Hoping I will make a massive return to make up for all the ridiculous expense of driving. $200 a barrel of oil in the next 2 years is inevitable...but as it stands right now, the market can not support this level. Gasoline consumption dropped 2-3% in the past week according to Mastercard. It doesn't matter what the supply/demand issue is if the demand drops off because they actual market (as in the average joe, not some NYMEX trader in NYC) can't handle it.

www.bloomberg.com...