Demand for oil will fall by largest margin in 25 years
* Tim Webb, industrial editor
* The Observer, Sunday 28 December 2008
* Article history
Gloibal demand for oil in 2009 will fall by the largest amount for 25 years, according to the chief energy economist of Deutsche Bank.
Adam Sieminski said oil prices could hit a low of $30 a barrel next year, a fall of a quarter from today's price, because of the sickly global economy. He forecast an average price of $47.5 for the whole year for oil traded in New York. Deutsche Bank predicts global demand will contract by 1 per cent, or 1 million barrels a day, three times the fall seen this year and the biggest since 1983.
Sieminski is predicting much lower prices than most other analysts and even Opec or the International Energy Agency (IEA). He said that other forecasts underestimate how much the global downturn would reduce demand for oil. The IEA forecasts that global demand for oil will rise by 400,000 barrels per day next year, but is expected to slash its numbers next month after the IMF revises down its economic growth projections for 2009.
Citigroup is forecasting an average of $65 per barrel next year. Barclays Capital is predicting $76, although it said there was a greater risk that prices would undershoot rather than exceed this figure. Dresdner Kleinwort forecasts $84.50. Oil prices averaged just under $100 in 2008 as soaring prices in the first half - they hit a record $147 in July - countered the recent slump.
If Sieminski is right about lower prices next year, it is good news for motorists in particular. Households should also see lower utility bills as gas prices are index-linked to the cost of oil. A continued slump in oil and gas prices, however, could make the cost of using alternatives to fossil fuels to generate electricity, such as wind farms or nuclear power, uneconomic. This will make meeting Britain's climate change targets even harder.
Monday, December 29, 2008
Wednesday, December 17, 2008
NPR Report on OIl Prices
OPEC Announces Record Production Cut
OPEC agreed Wednesday to slash production by 2.2 million barrels per day -- one of its biggest production cuts ever -- in an effort to offset the falling price of oil.
The cut, which goes into effect Jan. 1, comes on top of existing reductions of 2 million barrels per day (bpd) agreed to by the 12-member Organization of the Petroleum Exporting Countries at its last two meetings. It lowers the group's supply target to 24.845 million bpd.
News of the cuts in crude production failed to boost oil prices Wednesday. Light, sweet crude for January delivery fell nearly 5 percent, or $2.07, $41.53 on the New York Mercantile Exchange.
Crude oil prices have plummeted more than 70 percent from summer highs of nearly $147 per barrel.
OPEC agreed Wednesday to slash production by 2.2 million barrels per day -- one of its biggest production cuts ever -- in an effort to offset the falling price of oil.
The cut, which goes into effect Jan. 1, comes on top of existing reductions of 2 million barrels per day (bpd) agreed to by the 12-member Organization of the Petroleum Exporting Countries at its last two meetings. It lowers the group's supply target to 24.845 million bpd.
News of the cuts in crude production failed to boost oil prices Wednesday. Light, sweet crude for January delivery fell nearly 5 percent, or $2.07, $41.53 on the New York Mercantile Exchange.
Crude oil prices have plummeted more than 70 percent from summer highs of nearly $147 per barrel.
Wednesday, December 3, 2008
Watch for inflation
Those of you who missed the Jimmy Carter years of inflation should prepare yourselves for the reality of inflation. There is no way the government (us, as taxpayers) can repay the money borrowed for the bailouts. The only way is for the treasury department to print more money. That will lead to a lower value for our money. We will have more money in our bank accounts, items will cost more, but we will not have as much worth or value.
Watch for this key indicator: The price you pay for a Coke from a machine. Right now a 20 ounce Coke is about $1.25. Watch for prices to rise as the value of your money decreases.
Encourage our lawmakers to stop preventing business failures. It does not work.
NPR reported this morning that the Democrats will ignore budget deficits in order to pump up the economy. A pumped up economy is one with high inflation. Watch out.
Watch for this key indicator: The price you pay for a Coke from a machine. Right now a 20 ounce Coke is about $1.25. Watch for prices to rise as the value of your money decreases.
Encourage our lawmakers to stop preventing business failures. It does not work.
NPR reported this morning that the Democrats will ignore budget deficits in order to pump up the economy. A pumped up economy is one with high inflation. Watch out.
Fall in oil will last 18 months
Oil Will Fall Further Without OPEC Action, Says BP
By Eduard Gismatullin
Dec. 2 (Bloomberg) -- Oil prices will continue to fall during the next 12 to 18 months if OPEC fails to implement “sufficient cuts” and supply stays at current levels, according to Christof Ruehl, the chief economist of BP Plc.
The world economy will stage a recovery from recession in 18 to 24 months, followed by “possible spikes” in oil prices, Ruehl told a conference in London today.
“Demand is now plunging like a rock,” he said. OPEC, the supplier of about 40 percent of the world’s oil, may cut output once or twice more in an attempt to reverse crude’s 66 percent retreat from July’s record, he said.
The Organization of Petroleum Exporting Countries will reduce crude production when it meets later this month in Algeria, the group’s Secretary General Abdalla el-Badri said yesterday. Concerns that a slowing world economy will hurt demand for fuel has pushed oil prices down to a three-year low.
Crude oil for January delivery fell $1.12, or 2.3 percent, to $48.16 a barrel at 11:43 a.m. on the New York Mercantile Exchange. Futures touched $47.36, the lowest since May 20, 2005.
BP, Europe’s second-largest oil company, has so far stuck to its planned capital expenditure program, Ruehl said. The oil producer may scale back investment in future to maintain its dividend, which “is a priority,” he said.
On Oct. 28, BP reiterated capital spending at around $21 billion to $22 billion for the year.
‘Fair’ Price
Saudi Arabia’s King Abdullah and oil ministers from OPEC members Venezuela, Algeria, Nigeria and Iraq said last week an oil price of $75 a barrel would be a “fair” level that supports investment in new capacity.
BP’s Ruehl disagreed with their views, saying: “There is no fair price. There is a price, which balances demand and supply.”
Most OPEC nations’ economies can sustain current oil prices, apart from three or four nations, Ruehl said. Countries that restricting access to their reserves should allow international oil companies to invest in production projects to meet demand for energy, Ruehl said.
“Most investment could take place in areas, which currently locked for private companies,” Ruehl said. “If the purpose of the fair oil price is to allow investment there are easier ways of doing it, you just open up.”
Oil and gas industry costs are falling because of the drop in commodity prices, Ruehl said. Service and equipment costs are bucking the trend because of contractual obligations.
“We will see costs diminishing as the commodity price cycle is turning,” Ruehl said.
By Eduard Gismatullin
Dec. 2 (Bloomberg) -- Oil prices will continue to fall during the next 12 to 18 months if OPEC fails to implement “sufficient cuts” and supply stays at current levels, according to Christof Ruehl, the chief economist of BP Plc.
The world economy will stage a recovery from recession in 18 to 24 months, followed by “possible spikes” in oil prices, Ruehl told a conference in London today.
“Demand is now plunging like a rock,” he said. OPEC, the supplier of about 40 percent of the world’s oil, may cut output once or twice more in an attempt to reverse crude’s 66 percent retreat from July’s record, he said.
The Organization of Petroleum Exporting Countries will reduce crude production when it meets later this month in Algeria, the group’s Secretary General Abdalla el-Badri said yesterday. Concerns that a slowing world economy will hurt demand for fuel has pushed oil prices down to a three-year low.
Crude oil for January delivery fell $1.12, or 2.3 percent, to $48.16 a barrel at 11:43 a.m. on the New York Mercantile Exchange. Futures touched $47.36, the lowest since May 20, 2005.
BP, Europe’s second-largest oil company, has so far stuck to its planned capital expenditure program, Ruehl said. The oil producer may scale back investment in future to maintain its dividend, which “is a priority,” he said.
On Oct. 28, BP reiterated capital spending at around $21 billion to $22 billion for the year.
‘Fair’ Price
Saudi Arabia’s King Abdullah and oil ministers from OPEC members Venezuela, Algeria, Nigeria and Iraq said last week an oil price of $75 a barrel would be a “fair” level that supports investment in new capacity.
BP’s Ruehl disagreed with their views, saying: “There is no fair price. There is a price, which balances demand and supply.”
Most OPEC nations’ economies can sustain current oil prices, apart from three or four nations, Ruehl said. Countries that restricting access to their reserves should allow international oil companies to invest in production projects to meet demand for energy, Ruehl said.
“Most investment could take place in areas, which currently locked for private companies,” Ruehl said. “If the purpose of the fair oil price is to allow investment there are easier ways of doing it, you just open up.”
Oil and gas industry costs are falling because of the drop in commodity prices, Ruehl said. Service and equipment costs are bucking the trend because of contractual obligations.
“We will see costs diminishing as the commodity price cycle is turning,” Ruehl said.
Monday, October 27, 2008
Lemon law, guest blog
Car Lemon Law Tips
Sergei Lemberg is an attorney who specializes in lemon law [link: www.LemonJustice.com]. His site www.lemonjustice.com offers detailed information about state lemon laws, as well as an interactive Lemon Meter [link: http://www.lemonjustice.com/lemonmeter.php] for consumers who want to see if their vehicle qualifies as a lemon.
If you’ve ever bought a new car, you know what a rush it is. There’s the new car smell, the feeling of power as you hit the accelerator, and the peace of mind knowing that you’ll have a reliable ride for a long, long time.
With all of the cars, SUVs, trucks, motorcycles, and RVs being manufactured in the U.S. and abroad, it’s reasonable to expect that some will have defects. After all, vehicles are incredibly complex pieces of machinery and a lot of things can go wrong. In the best-case scenario, any defects that weren’t caught by quality assurance are quickly repaired by the dealer. In the worst-case scenario, you have a vehicle with pronounced defects that make it run poorly, that constitute a safety hazard, or that reduces its value – and the dealer or manufacturer refuse to buy back or replace it.
Know Your Rights.
Lemon Laws are meant to protect consumers, but it's easy to get lost in the legal mumbo-jumbo and wind up more confused than ever. One of the best places to find out whether or not your vehicle is a lemon is to consult the Lemon Meter You can also consult your state Attorney General's website or LemonJustice's guide to state laws. Your best bet, though, is to consult a lemon law lawyer. A consultation usually doesn't cost anything and can help you understand your options.
Keep Records.
Lemon Law cases are often lost on "he said-she said" arguments. It pays to thoroughly document every conversation you have with your repair shop, and to keep all repair records and copies of correspondence. The more written evidence you have, the stronger your case will be.
Jump through the Hoops.
Yes, Lemon Laws theoretically put the little guy on equal footing with the big automakers, but in reality there are a series of steps you must take to preserve your Lemon Law rights. For example, you may have to send a demand letter to the manufacturer via Certified Mail within a certain timeframe, or you might need to take your vehicle in for repair a third time before the odometer hits 18,000 miles. It's important not to skip any of the steps, because doing so may compromise your case.
Expect to Settle.
Most car manufacturers don't want to go to court because a prolonged legal proceeding is very expensive. The chances are good that you'll be offered a settlement, that is if you claim has merit. Listen to the advice of your attorney, and if the settlement seems fair, accept it. Legal actions may not result in a favorable ruling for you - especially if you haven't jumped through every hoop - so it's often better to accept a decent settlement than to risk losing in court.
Don't Throw in the Towel.
Even if your vehicle doesn't meet every single criterion for a lemon, you still may be able to achieve a settlement. With a Lemon Law attorney at your side, you can often be compensated for the hassle and the repair costs - even if the vehicle was eventually repaired.
It has also been my experience that going to court isn’t necessarily the only – or best – option. In fact, most lemon law cases settle through negotiation or mediation. When a vehicle has a serious defect and the manufacturer refuses to do a buyback or replacement, it sometimes only takes the threat of a lawsuit for the manufacturer to do the right thing. Mostly, this is because losing in court usually means that the manufacturer could face the prospect of paying punitive damages or a doubling or tripling of the consumer’s attorney fees. A reasonable settlement is a winning proposition for both sides – the manufacturer doesn’t have to go through a lengthy court battle that it would most likely lose, and the consumer can get relief without dragging out the process.
Sergei Lemberg is an attorney who specializes in lemon law [link: www.LemonJustice.com]. His site www.lemonjustice.com offers detailed information about state lemon laws, as well as an interactive Lemon Meter [link: http://www.lemonjustice.com/lemonmeter.php] for consumers who want to see if their vehicle qualifies as a lemon.
If you’ve ever bought a new car, you know what a rush it is. There’s the new car smell, the feeling of power as you hit the accelerator, and the peace of mind knowing that you’ll have a reliable ride for a long, long time.
With all of the cars, SUVs, trucks, motorcycles, and RVs being manufactured in the U.S. and abroad, it’s reasonable to expect that some will have defects. After all, vehicles are incredibly complex pieces of machinery and a lot of things can go wrong. In the best-case scenario, any defects that weren’t caught by quality assurance are quickly repaired by the dealer. In the worst-case scenario, you have a vehicle with pronounced defects that make it run poorly, that constitute a safety hazard, or that reduces its value – and the dealer or manufacturer refuse to buy back or replace it.
Know Your Rights.
Lemon Laws are meant to protect consumers, but it's easy to get lost in the legal mumbo-jumbo and wind up more confused than ever. One of the best places to find out whether or not your vehicle is a lemon is to consult the Lemon Meter You can also consult your state Attorney General's website or LemonJustice's guide to state laws. Your best bet, though, is to consult a lemon law lawyer. A consultation usually doesn't cost anything and can help you understand your options.
Keep Records.
Lemon Law cases are often lost on "he said-she said" arguments. It pays to thoroughly document every conversation you have with your repair shop, and to keep all repair records and copies of correspondence. The more written evidence you have, the stronger your case will be.
Jump through the Hoops.
Yes, Lemon Laws theoretically put the little guy on equal footing with the big automakers, but in reality there are a series of steps you must take to preserve your Lemon Law rights. For example, you may have to send a demand letter to the manufacturer via Certified Mail within a certain timeframe, or you might need to take your vehicle in for repair a third time before the odometer hits 18,000 miles. It's important not to skip any of the steps, because doing so may compromise your case.
Expect to Settle.
Most car manufacturers don't want to go to court because a prolonged legal proceeding is very expensive. The chances are good that you'll be offered a settlement, that is if you claim has merit. Listen to the advice of your attorney, and if the settlement seems fair, accept it. Legal actions may not result in a favorable ruling for you - especially if you haven't jumped through every hoop - so it's often better to accept a decent settlement than to risk losing in court.
Don't Throw in the Towel.
Even if your vehicle doesn't meet every single criterion for a lemon, you still may be able to achieve a settlement. With a Lemon Law attorney at your side, you can often be compensated for the hassle and the repair costs - even if the vehicle was eventually repaired.
It has also been my experience that going to court isn’t necessarily the only – or best – option. In fact, most lemon law cases settle through negotiation or mediation. When a vehicle has a serious defect and the manufacturer refuses to do a buyback or replacement, it sometimes only takes the threat of a lawsuit for the manufacturer to do the right thing. Mostly, this is because losing in court usually means that the manufacturer could face the prospect of paying punitive damages or a doubling or tripling of the consumer’s attorney fees. A reasonable settlement is a winning proposition for both sides – the manufacturer doesn’t have to go through a lengthy court battle that it would most likely lose, and the consumer can get relief without dragging out the process.
Friday, October 24, 2008
Oil Prices Collapse
The Organization of Petroleum Exporting Countries agreed to cut oil production for the first time in almost two years to stem a collapse in prices.
Oil ministers of the 13 OPEC nations decided to reduce supply by 1.5 million barrels a day from November, ministers said today as they left a meeting at the group's Vienna's headquarters.
The decision was ``quick,'' Saudi Arabian Oil Minister Ali al-Naimi said in an interview after the meeting. The cut will be from the existing quota for 11 members of 28.8 million barrels a day, Kuwait's oil minister said...
Another cut in December is ``possible,'' depending on how the oil market reacts, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said in an interview after the decision.
At a meeting last month, OPEC urged greater compliance with existing quotas, saying that would reduce supply by about 500,000 barrels a day. OPEC members excluding Iraq and Indonesia last month pumped 390,000 barrels a day more than their combined quota of 28.8 million barrels a day, according to Bloomberg estimates.
Note that the last paragraph illustrates the flaw with the production cuts. As reader Michael pointed out, this is a classic prisoner's dilemma. If everyone complies, all are a wee bit better off. If most comply and a few cheat, the cheaters are much better off and the obedient suffer a bit. But if most cheat, everyone is a lot worse off. And per the Bloomberg observation, members are cheating even when oil prices were higher. The lower they go, the more pressure to pump more to try to maintain national budgets.
Oil ministers of the 13 OPEC nations decided to reduce supply by 1.5 million barrels a day from November, ministers said today as they left a meeting at the group's Vienna's headquarters.
The decision was ``quick,'' Saudi Arabian Oil Minister Ali al-Naimi said in an interview after the meeting. The cut will be from the existing quota for 11 members of 28.8 million barrels a day, Kuwait's oil minister said...
Another cut in December is ``possible,'' depending on how the oil market reacts, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said in an interview after the decision.
At a meeting last month, OPEC urged greater compliance with existing quotas, saying that would reduce supply by about 500,000 barrels a day. OPEC members excluding Iraq and Indonesia last month pumped 390,000 barrels a day more than their combined quota of 28.8 million barrels a day, according to Bloomberg estimates.
Note that the last paragraph illustrates the flaw with the production cuts. As reader Michael pointed out, this is a classic prisoner's dilemma. If everyone complies, all are a wee bit better off. If most comply and a few cheat, the cheaters are much better off and the obedient suffer a bit. But if most cheat, everyone is a lot worse off. And per the Bloomberg observation, members are cheating even when oil prices were higher. The lower they go, the more pressure to pump more to try to maintain national budgets.
Tuesday, October 21, 2008
From Naked Capitalism
What a difference six months makes. When we questioned the thesis that the oil price runup earlier in the year was due solely to supply and demand, we got a fair number of hostile comments (see here and here for some of many examples). And now the view that oil will keep falling has also developed a life of its own. Options contract prices indicate that a significant minority of traders are betting on $50 a barrel oil by December.
Even though OPEC moved its scheduled meeting up nearly a month, signaling eagerness to take action to combat plummeting oil prices, some traders remain convinced that oil prices have further to fall. Given that some expect OPEC production cuts of one to two million barrels a day, when demand for oil fell peak to trough by roughly eight times that much in the 1970s oil crisis, it is quite possible that OPEC's move may be inadequate in the light of declining consumption.
A perennial problem is diverging interests among OPEC members. iran and Venezuela need high oil prices to make their sulfurous, heavy crude economically viable and are calling for cuts deep enough to keep oil prices above $80 a barrel; Saudi Arabia, which has far and away the most clout by virtue of the size of its reserves, also has far and away the lowest production costs and thus is less affected than other producers by price declines.
Even though OPEC moved its scheduled meeting up nearly a month, signaling eagerness to take action to combat plummeting oil prices, some traders remain convinced that oil prices have further to fall. Given that some expect OPEC production cuts of one to two million barrels a day, when demand for oil fell peak to trough by roughly eight times that much in the 1970s oil crisis, it is quite possible that OPEC's move may be inadequate in the light of declining consumption.
A perennial problem is diverging interests among OPEC members. iran and Venezuela need high oil prices to make their sulfurous, heavy crude economically viable and are calling for cuts deep enough to keep oil prices above $80 a barrel; Saudi Arabia, which has far and away the most clout by virtue of the size of its reserves, also has far and away the lowest production costs and thus is less affected than other producers by price declines.
Friday, October 10, 2008
Mission Accomplished
Energy companies fell sharply as crude oil dropped below $80 a barrel on recession fears
Friday, October 3, 2008
Confirmation from experts
Houston Chronicle, October 3, 2008: Front page, City & State section, Rick Casey quoted Henry Groppe, the dean of Houston forecasters of oil and gas prices, who stated, "We've been telling our clients all year that oil prices would inevitably go down to $70.00 by the end of this year."
There you have it.
There you have it.
Tuesday, September 30, 2008
Plunge in oil prices
Oil plunged yesterday following DOW's 770 point decrease. Russian stock trading suspended 10 minutes into the session. Why? Fears that oil prices will fall further due to perceived threat of recession in US. Why is that a problem? Oil taxes fund 50% of Russian government. Any decrease in demand for oil will bring less money into government treasury.
Oil is heading lower. Look back to earlier posts.
Oil is heading lower. Look back to earlier posts.
Tuesday, September 23, 2008
OIl price confirms inflation prediction
Oops. Maybe oil won't be dropping to $90 per barrel. Someone told me that yesterday's remarkable spike in price was due to short sellers covering their positions. Another explanation is that the markets realize that the US government will be required to deflate the currency in order to pay for the huge financial industry bail-outs, and that that future inflation is reflected in today's oil price.
In any event, oil could still reach $90 a barrel.
This prediction is based on a completely different criteria. I heard last Friday that the Texas Railroad Commission is seeking new workers to process the large backlog of drilling permits that it has. This to me is a sure sign that the oil drilling boom in Texas at least has peaked.
Remember when every person you knew was going to be a mortgage broker because fortunes were being made in the housing industry? This was a clear indication that the housing bubble was at the top.
Same thing here. When everyone and his dog wants to be a wildcatter, we know the market has topped. Another way to check this production is to see how many petroleum engineers are graduating. If it is at an all time high, the top has come and gone. Look for another short term collapse in oil prices.
In any event, oil could still reach $90 a barrel.
This prediction is based on a completely different criteria. I heard last Friday that the Texas Railroad Commission is seeking new workers to process the large backlog of drilling permits that it has. This to me is a sure sign that the oil drilling boom in Texas at least has peaked.
Remember when every person you knew was going to be a mortgage broker because fortunes were being made in the housing industry? This was a clear indication that the housing bubble was at the top.
Same thing here. When everyone and his dog wants to be a wildcatter, we know the market has topped. Another way to check this production is to see how many petroleum engineers are graduating. If it is at an all time high, the top has come and gone. Look for another short term collapse in oil prices.
Friday, September 19, 2008
Inflation
Remember this word...inflation.
Our currency will be devalued at a very high rate to pay for the bailouts so generously offered by the Bush people. IF the government can pay these debts back with cheaper money, it can work.
We will need to learn how to handle inflation all over again.
Investors, remember that as inflation rises, the relative attractiveness of the stock market will decrease, lowering prices and returns.
Our currency will be devalued at a very high rate to pay for the bailouts so generously offered by the Bush people. IF the government can pay these debts back with cheaper money, it can work.
We will need to learn how to handle inflation all over again.
Investors, remember that as inflation rises, the relative attractiveness of the stock market will decrease, lowering prices and returns.
Wednesday, September 17, 2008
Tuesday, September 16, 2008
Yesterday
Yesterday's financial news is the best news stock market investors have had in months.
There have to be consequences for stupid investment decisions.
Financial firms contribute nothing "real" to people.
Look for companies that produce products that have tangible use and value. Make sure those companies do so at a profit on each unit they produce. Financial firms cannot do this function.
The value of today's news is that all stocks will sag in price. Those companies with profitable activities will rebound more quickly.
Ignore Monday. Blip.
There have to be consequences for stupid investment decisions.
Financial firms contribute nothing "real" to people.
Look for companies that produce products that have tangible use and value. Make sure those companies do so at a profit on each unit they produce. Financial firms cannot do this function.
The value of today's news is that all stocks will sag in price. Those companies with profitable activities will rebound more quickly.
Ignore Monday. Blip.
Monday, September 15, 2008
OIl Price Plummets
Watch to see how low it goes. Fell below $100 today in the stock market downdraft.
Friday, September 12, 2008
Not disabled enough
Kurt Vonnegut wrote about non-disabled ballet dancer being shot while in mid-air by the discrimination police. Now, in the disabled olympics, a man with cerebral palsy was declared too fit to compete. Wow. That's breathtaking.
Tuesday, September 2, 2008
$65 oil forecast!
Oil will likely drop further in the next three to six months, according to investor Marc Faber, who reiterated his forecast that the second half of 2008 won't be ``favorable'' for commodities.
The decline in crude, which today slid to a five-month low, is a ``symptom'' of economic slowdowns in the U.S. and Europe, Faber, who forecast the so-called Black Monday crash in 1987....
The decline in crude, which today slid to a five-month low, is a ``symptom'' of economic slowdowns in the U.S. and Europe, Faber, who forecast the so-called Black Monday crash in 1987....
Friday, August 22, 2008
Tuesday, August 19, 2008
$65 barrel oil, expert says
$65 oil is coming (maybe)
A top analyst expects crude prices to start plummeting. If you don't believe it, you're not the only one, and a few stocks look good if you're in the skeptics' camp.
Jon Markham
If you're frustrated over the high cost of gasoline at the pump, don't trade in your Hummer for a Vespa just yet: A leading energy analyst is telling clients these days to prepare for crude oil to retreat back below $65 per barrel over the next three years.
How could it happen? He says conservation, new drilling, efficient new vehicles, alternative energy sources, a rising dollar and a global recession will combine to blast prices back to the Stone Age -- or at least to last year's levels.
"The match has struck, the fuse has been lit, and four or five years from now OPEC producers are going to be drinking their own oil and choking on it," says Tony Kolton, the founder and president of Logical Information Machines, a provider of research to most of the world's major energy-trading companies for two decades.
Plenty of smart analysts disagree with this point of view, figuring that emerging-market demand will pump up fossil-fuel prices and that Americans will blithely forget all about conservation if gasoline prices trend lower. But since Kolton's view is deeply out of consensus and at least minimally plausible, it does deserve our attention.
Speculators unmasked
Kolton, a specialist in the history, composition and psychology of the energy market, believes that speculators were without question behind the run-up of prices to $147 per barrel in July and that government threats to expose and punish their behavior spooked them out of their positions in a hurry.
He says his data on open interest of noncommercial positions in crude trading, as well as conversations with professional traders at big oil companies, clearly show that speculators, and not rising demand from Asia, pushed the market to extremes.In contrast to people who say the oil market is too big to be pushed around by hedge funds, Kolton counters that in fact it is much smaller than the bond, currency or equity markets. The oil market "can be easily manipulated," he says.
The reason for the misconception is that while the market is large in dollar terms, most of the oil companies' hedging positions are pointed the same direction and set for months at a time. So marginal new positions that point the opposite way can have an outsize impact, much like a 5-foot rudder can change the direction of a 500-foot ship.
"I would ask all the fundamental guys why oil was $147 a month ago and $114 today," Kolton says. "Their opinion that crude moves purely on real demand is BS. When the fast money comes out, there's a giant sucking sound."
The swift exit of the fast-money crowd has pushed oil back down to its March level, around $110. Kolton's research on seasonality and demand suggests oil prices will rebound back to the $125 area and then resume their crash. The $100 level will be hard to crack, but he expects energy bears to prevail over bulls within six months and launch crude on a journey below $65.
"You had a perfect storm of pre-Olympics demand in China, a plunging dollar, speculation, cold weather and fear of supply disruptions in Nigeria and Iran pushing it up, and now they've all swung around on a dime," Kolton says, observing that recession and conservation are gutting demand, Iran is at the negotiating table, the dollar is soaring against the euro in reaction to the worsening European economy, and the summer has proved milder than normal, sapping the use of air conditioning nationwide.
"People who don't trade the futures markets don't realize that this is typical for commodities, which always trade on emotion. Look at silver in the late 1970s, which went from $4 to $50 and back to $4 in two years," Kolton says.
Diminished demand
What about all that talk of how supply is running out? Well, it's funny: The spike to $147 seems to have really got people thinking about scarcity, and they've started making plans that could be very long-lasting.
It's sort of like the day a person realizes it's time to stop smoking -- a light-bulb moment of alertness to a long-simmering crisis. Oil bears now think the $147 level was a slap in the face that made major corporate users consider changing their behavior in persistent and fundamental ways.
Auto companies became focused on creating smaller hybrid cars; individuals are discovering the joys of public transportation, car pools and bicycles; churches are lecturing on the need to turn out the lights in vacant rooms; and presidential candidates are debating the merits of inflating tires. And perhaps most importantly, going green appears to have emerged from fad to lifestyle as the cool dads now drive Mini Coopers instead of gas-guzzling Suburbans to their kids' soccer practices.
Big private-equity and venture-capital funds, and industrial titans such as General Electric, are throwing billions of dollars into creating better batteries, advanced materials and vehicles that run on plug-in electric power and plentiful
All of this is coming at a time when a credit drought has seriously impaired economic growth and blunted employment levels in developed nations in Europe and the
Bad news and other views
Of course, we should probably be careful about what we wish for. While stock prices have risen smartly as energy prices have cracked in the past month, stocks are likely to fall steeply along with oil prices if a global recession is the major driver behind demand destruction. Just in case you're wondering, Kolton's historical and economic research and his gut instincts as a veteran trader lead him to think that the Dow Jones Industrial Average will sink to the 9,500 level next year -- retracing the 2003-07 bull market -- before the bear has had its fill.
Opposing point of view? Yeah, I've got that. David Anderson, an energy portfolio manager at Palo Alto Investors, who has been my go-to guy for years on the subject, thinks the idea of crude oil falling below $65 per barrel is ludicrous. And, frankly, he says he doesn't even care when it comes to his energy-industry positions."We never base our view on energy-industry stocks on the direction of oil prices," he says. "We are buying growth companies in a growth industry and always have at least a five-year horizon. The fundamentals of the business -- increasing demand and decreasing supply over the long term -- favor higher stock values over time."
Sunday, August 10, 2008
Oil at $115 a barrel
NEW YORK (CNNMoney.com) -- Oil prices tumbled a 3-month low near $115 a barrel Friday as the dollar rallied strongly against slumping foreign currencies and concerns about a Turkish supply disruption were eased.
Light, sweet crude for September delivery settled down $4.82 to $115.20 on the New York Mercantile Exchange. It was the lowest close since May 1, when oil finished at $112.52.
Crude reversed course after settling higher Thursday, as the dollar hit a 5-month high against the euro.
The 15-nation euro bought $1.5017, down 2% from Thursday's levels. The British pound fell 1.4% to a 17-month low of $1.9164, and the dollar rose 0.8% against the Japanese currency to ¥110.275.
Oil is traded in dollars, and investors had been using it and other commodities to hedge against inflation. But as the dollar began to rebound, investors shifted their money to other investments such as stocks and bonds.
Please watch the price fall quickly. It is over-valued.
Monday, August 4, 2008
I filled up at $3.60 a gallon
Gas is going down! Watch out for the benchmark $90 barrel oil before January 1, 2009.
Friday, August 1, 2008
Wednesday, July 30, 2008
OIl will not drive stock market forever
Look for a disconnect between the price of oil and the Dow Jones very shortly. Every drop in oil price brings gain the Dow. Every gain in the price of oil brings a drop in the Dow. Inflation is here. Soon, more normal cycles will prevail. As interest rates increase in response to deflation of the dollar, investors will move away from stock and into interest bearing accounts. This will be more powerful effect than the price of oil.
Monday, July 28, 2008
Can Anyone Spell "Tulip?"
Commodity busts all rhyme with "tulip." Oil is at record highs, but has slipped lately. Anything could trigger an avalanche of selling with no buyers, with a tumble in price to my predicted price of $90 per barrel by January 1, 2009.
Friday, July 25, 2008
$90 oil on the way
What do you know? The world didn't come to an end.
Check out Obama. Is the Messiah, or just self-centered?
Oil fell again. Watch for $90 per barrel.
Check out Obama. Is the Messiah, or just self-centered?
Oil fell again. Watch for $90 per barrel.
Wednesday, July 23, 2008
California Uses More Oil Than China
California uses more oil than any other nation on the earth. That includes China. This means that China's impact on oil demand is exaggerated. California use has more impact than China.
$90 per barrel oil in inevitable. Demand will slacken. Some huge earth event will dampen it out. $90 oil is going to happen before January 1, 2009.
$90 per barrel oil in inevitable. Demand will slacken. Some huge earth event will dampen it out. $90 oil is going to happen before January 1, 2009.
Crude Oil Pricing Diving in Accord with David Moody Prediction
Crude oil is going straight to $90 per barrel, exactly as David Moody predicted in the summer of 2008. History teaches that what goes up must come back down.
David Moody In The Know
David Moody In The Know
Crude Oil $90 per barrel by January 1, 2009
Oil will be $90 per barrel on January 1, 2009.
David Moody in the know!
David Moody in the know!
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