As long as the American consumer stays mad, oil will go down. If the consumer starts to get complacent again, the price of oil will start to go up again. The people, institutions, companies, and governments that control large amounts of wealth have tried to corner the housing/mortgage market and make greedy profits. That ended up destroying the financial markets. The same or similar people then greedily tried to corner the energy market primarily in oil to make obscene profits and that destroyed the US auto industry and tilted the world economy toward recession. The US congress has done nothing to try to identify and control the abusers of the normal market processes. That left it up the US consumer to lead the way and get mad by trying to reduce consumption of unrealistically priced products and resources. This has been aided by the world consumer following the lead of the US consumer.
Oil will continue to feel downward pressure from lagging economic performance in the US. Unfortunately, as oil drops, the dollar will be pressed higher, making our exports more expensive again, and slamming the one sector of the economy that was seeing strong expansion.
Additionally, as oil drops, Americans (both individuals and businesses) will return to their old habits of high consumption. Our economy needs more oil input to produce a dollar of GDP than any rich country competitor. The habits, institutions, distorting subsidies, and institutionalized bias that drive this fact are not broken yet. Merely shaken. Cheap oil will simply allow this broken system to ramp back up, la-dee-da, like nothing ever happened. Demand will rebound strongly, and the price will move up again.
About 5 years ago, give or take a few months, Forbes and/or Fortune magazine was talking about this time: that this ‘recession’ would be a ‘depression’ and would rival The Great Depression of the 1930s. Although it’s not that bad yet, we’re getting there. People are losing their homes; older people can’t afford their medications and/or treatment; younger people have to choose between gas for the car to get to work and feeding their children; people are losing their jobs. States — look at California — are having a horrible time with their budgets. Don’t tell me we’re not in trouble and won’t be for a long time to come. We have a very expensive war we have to pay for, for generations to come. We are in deep trouble, and people need to know this. No more talk about a ‘recovery’ in the future. I’m 60 years old, and I have NO doubts that I will never see a ‘recovery’, even if I live to be 90. I’m sick and tired of our government trying to BS us. When I want to know what is going on with The USA economically, I go to the BBC.
As someone who actually participated in the futures market for natural gas and diesel 2 (heating oil but also a substitute for diesel in trucks), I would like to clear one thing. Most hedges are cash hedges. Most companies are locking in prices in the future for one of two reasons: 1, speculating the price will go up, and 2, Budgetary. Either way, when the speculator/user buys a future contract for 100 in July to settle in September, when the contract settles in September, the calculations are made. If the September contract closes at 80, they owe the market 20. If the September contact closes at 120, the market owes those 20. Either way, a lot of companies hedge just to take the guess out of future cost. THEY ARE NOT HIDING OIL!!! There is a cash settlement. To be considered a hedge, the company must use the amount of product they are hedging. If you check financials, you can see that companies will have hedges and they may have investments (they would be speculating or they did not use the full amount of what was hedged). I am sick of people blaming speculators!!! In most cases, there are margin calls that have to be maintained daily and some kind of collateral (usually treasuries).
By the way, OIL CONSUMPTION REDUCED the most since the 70’s when the last crises hit. For all of you that think that has nothing to do with the current downturn of oil prices, you need get real. Quit blaming everyone that makes a profit and blame yourself. Oil prices will go up once people and corporations get lazy again because the price has subsided for the end user. If you want oil prices to go lower, use less! Thus you won’t cry when they go up. Even though I live in a rural area and need to drive 60 miles to work everyday, at the peak of the prices I spent $50 a week. Sure it is higher than the $30 a week I used to spend, but IT DIDN’T HURT. I drive a small car. I hate being small in a world of SUV’s and Minivans, but it suits my needs. I can fit the car seat, the dog (85 lbs mind you) and my husband in car with a trunk full of groceries for the month. Don’t fool yourselves, OIL PRICES WILL DROP for a while (they usually do after summer), BUT, THEY WILL GO HIGHER THAN THIS YEARS HIGH NEXT YEAR, unless demand significantly drops. Your government can only help if they increase supply. By the way, if drilling does occur and it is sold to other countries, it still helps the GDP (reducing deficit) and creates jobs!
In the near term we may well see $75-80 a barrel, although it’s likely OPEC will have something to say once oil starts going below $100, whether there’s a surplus or shortage…once they start talking about cutting production, the drop in prices may slow down or reverse course. Also, oil from the tar sands costs somewhere around $65-70 PB to produce, so if oil drops to this level, it may affect or remove a very large amount of oil production from the market. ie $80 short term possible, longer term likely to rise slowly. Much depends on how much support the solar and nuclear industries get, and as a previous poster noted…if it drops too much people will just jump back in their land yachts and “drive” the price of oil up more quickly.
OF COURSE OIL IS COMING BACK DOWN AND WILL CONTINUE BACK DOWN TO ITS “NORM” OF $50 TO $70, OR PERHAPS EVEN LOWER FOR AWHILE, TILL THE MARKET STABALIZES AGAIN.IT IS THE CLASSIC BUBBLE. WHY IS IT SUCH A SURPRISE TO ALL THESE MARKET EXPERTS THAT TRIPLING THE PRICE OF OIL WOULD CUT INTO DEMAND? DID THEY SLEEP THROUGH ECONOMICS 101? THIS OIL SHOCK WILL NOT SOON BE FORGOTTEN AND FUTURE DEMAND WILL BE TEMPERED BY IT AS MANY HAVE ALREADY SWITCHED TO MORE EFFICIENT VEHICLES AND CONSERVING IN OTHER WAYS. NOW IT BECOMES APPARENT THAT SPECULATORS WERE DRIVING UP THE PRICES AS THEY MOURN THE LOSS OF PENSION FUNDS AS THE BUBBLE BURSTS. THESE TRADERS (TRAITORS MORE LIKE IT) USED OUR OWN MONEY TO DRIVE UP PRICES AND GOUGE US AT THE PUMP THEN LOST THAT MONEY AS THE BUBBLE BURSTS AND SIMPLY SAY SORRY…MARKET FLUCTUATIONS TO BLAME. WHO IS ACCOUNTABLE? …NO ONE. AT THE END OF THE DAY THEY MADE THEIR MONEY AND THE CONSUMER AND PENSIONS ALL LOST. YOUR MONEY WOULD BE BETTER OFF UNDER YOUR MATTRESS.
SOME ARE STILL TRYING TO DRIVE PRICES BACK UP BUT SOONER OR LATER MARKET FUNDAMENTALS PREVAIL, SOMETHING IGNORED IN THIS RECENT FRENZY.THE DAMAGE DONE HAS CAUSED INFLATION A WORLDWIDE SLOWDOWN AND OTHER IMBALANCES THAT WILL TAKE TIME TO CORRECT. ONE MESSAGE TO ALL THOSE SO CALLED EXPERTS…FUNDAMENTALS…SUPPLY IS UP AND DEMAND IS DOWN, YOU CAN’T FOOL THE MARKET IT WILL ALWAYS CORRECT ITSELF NO MATTER HOW MANIPULATION IS ATTEMPTED BY THE IGNORANT AND GREEDY, ASK THE HUNT BROTHERS.
Dwight Z., Arlington, VA “If Obama wins, Oil will go below $100. If McCain wins, Oil will go back to $150.”
How does the Pres of the U.S. help control the world opil prices? How does a Exxon/Mobil control the global oil prices? Remember, this $108/bl price is a global price, not just U.S. price. In additon no U.S. oil company (even combining the top 5 U.S. oil companies) represent a pimple on the butt of Saudi or many other OPEC individual country’s production, and many of the OPEC participating countries do not like Bush.
If Obama is elected and implements a excess profit tax and not allow additional domestic production how that will possibly help global oil prices within the next 10 years?
I am not sure what amazes me more, the idea that Josh thinks anyone will actually buy that 900Billion pysical barrels of oil are sitting around stashed for 10 years, or that he actually buys that idea.
The world uses something near 100million bl/day. So 900billion bl is 9 thousand days of total oil consumption. If they had that oil sitting around, they can’t EVER put it on the market. It would drop the price so low that it wouldn’t pay for the cost of storing the stuff for (givemeabreak) 10 years.
“Since the late 90’s speculators have taken more than 900 billion barrels of oil OFF the market. Off. As in, gone. Sitting in a barge or tanker somewhere. Speculators have created the demand and the world is paying for it.”
Maybe my understanding of this is flawed, but I thought that “speculators” mostly bought and sold futures contracts.
With a futures contract, you’re basically making a bet that the price of will go up or down at some point in the future — say, you might sign a contract saying that you agree to sell someone 100 barrels of oil for $100 each three months from now, no matter what the market price is at that time. In this case, you’re betting that oil will cost less than $100 a barrel in December, and they’re betting it will cost more than $100 a barrel.
“Speculators” don’t really want to buy the oil; they’re just trying to profit by betting how its price will move. The contracts just get settled with cash. Even for a company like Southwest, that DOES actually want the oil it hedges against, I suspect the contracts are just settled with cash and they simply buy oil on the open market as needed.
AFAIK, few (if any) “speculators” are actually buying barrels of oil and putting them “in a barge or tanker somewhere”. Where would you even PUT 900,000,000,000 barrels of oil? That’s more than a thousand times more oil than is in the Strategic Petroleum Reserve!
It will probably go below 100 long enough for dumb American consumers to forget about alternative fuels and load up on oversized pickups and SUVs, and then it will skyrocket to squeeze us once again.
Supply and Demand is a lie. Peak Oil Theory is a lie.
Since the late 90’s speculators have taken more than 900 billion barrels of oil OFF the market. Off. As in, gone. Sitting in a barge or tanker somewhere. Speculators have created the demand and the world is paying for it.
Oil costs about $40-50 to produce, so at $60 a barrel ($10 a barrel is plenty of profit) and with increased refining capacity (the real culprit), gas should be closer to $1.50-2.00 within the next 2 years.
Remember, the rise and fall of gas is cyclical, just like the economy; we’re at a peak now, we’ll head into a valley soon enough.
OPEC considers $100 a minimum fair price. They need oil money for their government budgets, some of which includes food for low income citizens. Look for OPEC to cut production this week, even the opinion of the Saudis can’t hold of the will of the majority.
The problem as I see it is related to the issue of American oil production. Take a look at the point which domestic production was surpassed by imported oil and compare the prices of oil at the time versus what they are right now. Anyone with any common sense would put a shirt back in the closet that they just paid $2.00 for if they knew that they could get $200.00 for it in 25 years! That’s one heck of a return don’t you think? We’re not dealing with a bunch of idiots in the Texas oil fields, hell, one of them even made it to President.
If Obama wins, Oil will go below $100. If McCain wins, Oil will go back to $150. It’s really quite that simple. However, the price of gasoline (which most of us really care about) will not change much for several years even if Obama wins because it will take several years to pass and enforce the laws Obama has promised to end their price gouging.
I can’t wait until those “genuises” from the University of Michigan report their consumer confidence report and it shows an INCREASE attributed to lower energy prices. Right before the election? Who would’ve guessed? Oil is going down until November, and then once it gets cold-WATCH OUT!!
Oh, wait to lose your first game Wolverines. Hahahah! It won’t be the first nor last.
OHiO State Buckeyes #1 National Champs!
Once all the temporary speculators get out of the market the price will drop just like gold is doing now. A declining US economy will also slow the demand for oil in China and India. After all, who pulls their economic trains ?
Not to claim I am some sort of financial genius, but I have been telling my friends that I believe Oil would come down to $80 by December ‘08 or perhaps February ‘09 since around March of this year.
Oil production has peaked for those oil resources priced for general energy use. I think oil prices will bounce wildly until we’ve switched to alternative energy sources. Oil will become cheap, everyone will forget the shock and start driving SUVs again, then it will go back to ridiculous levels when the supply hit the ever-lowering ceiling again, and the cycle will repeat itself.
I think companies need to take a serious look at the risk cost of using oil, and, energy in general. Energy cost is a wildly fluctuating variable cost to a business. When businesses calculate the real cost of energy, they need to include the volatility risk cost into the energy source’s price. A lot of businesses don’t seem to be including that volatility risk cost.
If you do something simple like changing your incandescent light bulbs to compact florescent lights or LED based lights. You are trading a wildly volatile variable cost, energy, for a fixed cost. If the variable cost item is very volatile, trading it for a fixed cost makes good business sense, especially if your organization has a long term facility plan.
As long as we can poke a hole in the ground and get oil out oil production costs will remain cheap. So the price we pay is totally dependent on how much the Arabs want to squeeze us for. However we are fast running out of oil and it is going to go through the roof soon perhaps not this year or next but within the next ten years as that is about the number of years we have supply for. After the supply runs dry the price will be sky high.
A report this morning from CNN money suggests that part of the drop in oil prices is Ospraie selling assets like crazy and dumping all of their commodities contracts.
That would suggest, for one, that maybe the huge hedge funds dabbling in the oil markets actually DID have an effect on prices, AND it suggests that when they get done dumping contracts, oil will go back up.
I am so thrilled they lost their shorts doing that. Stupid greedy people.
I think it’ll touch under $100 before it goes through the roof again. There have been some major changes in the mindset of some consumers. Most here (in the US) finally realize OPEC and the oil companies are monsters ready to devour your last cent for oil and therefore have made conscious changes in lifestyles (buying smaller vehicles, driving less, carpooling, setting thermostats down, etc.). That segment will increase. The amount saved now is a nominal 2% until compared to what those changes will mean in another five years. Add to that the increasing number of people unemployed, and the number of people that are literally learning to live on ONE or NO vehicles vs. TWO, and you have a BIG directional change in spending patterns.
After the economic downturn continues a bit more, with more bank failures and the final depletion of the Fed and FDIC’s use of “dollar dust” by the magic fairy, the falling worth of the dollar will eventually bring back the price of oil to what it was last July 11th. Hold on to your hats, folks, it’ll be a once-in-a-lifetime ride.
Oil will drop to the 80-90 dollar range and in the long run excluding inflation probably stay there indefinitely but have short run prices that reach up towards 150-200 or down towards 50-60 dollars a barrel. This price reflects how much actual demand exists and much more importantly for the price what the cost of substitution is. If oil were to remain significantly higher than 80-90 dollars a barrel other alternatives and other ways of producing oil would be used more extensivily.
The world is in a recession, including China and Europe. Demand is down, prices are down, no surprise here. Unfortunately this will stall the quest for alternatives and conservation. Eventually declining supply will catch up with lower demand and prices will start increasing again. Once this recession is over we will go straight into the next recession if we don’t have the oil/energy to run our business as usual.
“If you see prices at the $80 level, you could see more rapid global economic growth than currently expected,” Gonzalez said.
Apparently, we the consumers, have more control over this than THEY tell us! One minute they say there are high demand issues causing the problem to which I have YET to see a single line to purchase gas, and then the next minute they say we won’t start buying again until it goes below $90 or $80 in order to psychologically manipulate the masses in order to ACCEPT $80 oil as a good price.
In the mean time, the “real” oil people over in the darn desert trade it with the expectation of $40 per barrel oil in order to keep their books realistic and quite large at that.
People, don’t buy the speculator BS…THEY ARE TRYING TO MAKE MONEY!!! The law of supply and demand are still the “law” and we DO NOT have a supply issue and the Saudi’s state that there is plenty of oil there for the next 100 years based upon growth and consumption projections. They are freaking out over the drop in demand because they put there money in oil to keep it safe. If WE THE PEOPLE can crush the speculators’ over-manipulation of the market, we can get back to “acceptable” prices for oil…and $80 ISN’T IT!!!
People are always talking about peak oil and higher demand which will create higher prices. What people forget is that with oil prices over $100 OPEC realizes the threat of alternative energy. No one wants prices over $100. It just does not make sense. Keep them high though! Lets rid our dependence on foregin oil. Keep the money at home with more drilling and a push towards alternative energy. $150 oil was like saying the housing market was not in a bubble. One lesson from this is the experts dont know any more then you!
Oil will go back below $100 first; eventually, it will hit $150 for the first time ever, due to simple inflation and the running out of reserves.
Above $70 per barrel, there are a lot of replacements for oil. The 16% of chemical feedstock can be replaced by coal (domestic and much cheaper). The 40% of petrodiesel can be directly replaced by biodiesel (renewable, domestic, and cheaper). The 35% and declining of gasoline can be replaced by ethanol (renewable, domestic, and cheaper) and conservation; remember that >1% of the US vehicle stock is replaced each month, and the smaller engines and lighter vehicles are now winning, leading gasoline consumption down. Replacing the remaining 9% and declining, which is mostly jet fuel and heating oil, is similar to the petrodiesel-to-biodiesel switch.
Worldwide oil production peaked in 2005, and it is going one way: down. No one really knows how long the remaining reserves will last, but we are going through them at the rate of 30 billion barrels per year, which would be 1 trillion barrels in 33 years, the total amount of oil that has been consumed in all history. We are much closer to the end of oil than the beginning, and we must switch to renewables, quickly. Let’s all do our part.
There’s a great article on oil at:
It may head back down temporarily, perhaps to $80 or so. But remember that in 2003 prices were in the $30 range, and we thought that was expensive. Short term, lower prices, but long term I see nowhere for the price to go but up. Let’s face it, diminishing reserves, falling production and increased demand worldwide is an economic recipe for high prices. PS: We are still paying over $5 per gallon in Canada for gas!!
After all, at about $108 a barrel, the price of oil is around 50% higher than it was a year ago. Gasoline is higher by a third at $3.68 a gallon.
Let’s do the math 38 gallons of gas out of a barrel of oil that means the cost is $2.84 plus production and refining costs plus at least in my state 38 cents in tax. So gas should be going for $3.22 a gallon and it is running at $3.38 a gallon in my area. So that means the gas station, wholesaler, refiner are making just 16 cents off a gallon.
Where the rip off is in the fact that the major oil companies are pulling the oil out of the ground at a cost of $20 a barrel in the Gulf of Mexico and buying oil from Saudia Arabia for $80 a barrel and reselling that to the refiners for $108 dollars a barrel. At 1/3 local production and 2/3 Arab oil their cost of crude is like $60 a barrel and $108 means a whopping $48 or 44 percent profit. They can drop the price down to $2.40 and still make money.
We are getting ripped.
Oil prices will drop to $80 and stay between $80-$100 until the Angry Left and the Liberal media stops infesting their negative attitudes on the American people. By listening to the Angry Left, you would think we’re in The Great Depression?!! Nonsense. Once people WAKE UP and realize the slowdown is MENTAL, the economy will roar on cheap credit and all will be well. Then oil will rise to $200/brl.
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Keep in mind that the oil market is not a ‘free market’ of willing buyers and sellers. On the buyer side, a lot of the consumption is structurally baked in by the type of liquid fuel your engine can use after the great expense to buy the vehicle (trucks, ships, planes, trains, and automobiles). On the supplier side, OPEC controls the price by controlling the supply; it’s not a monopoly, but they control close to 50% of supply and >50% of proven reserves. The markets for natural gas and coal are quite a bit more free, and electricity markets are mostly regulated to prevent another Enron-style takeover. Also, there is a very large speculative component in the price of oil, per the recent Garrett Hayes article in Time:
http://www.time.com/time/business/article/0,8599,1834888-1,00.html
Oil spikes of as high as $100 in current dollars occurred as far back as 1864 (yes, 1864); it’s part of the game. Congress recently scared a lot of the speculators out of the market by taking steps to investigate, causing a rapid drop in oil spot prices of more than 27% since mid-July. We should all keep writing our congresspeople to insure that these investigations are successfully concluded.
We can’t do much to quickly affect the supply; drilling is very expensive, inconsistent, and risky. It takes a long time, and there are no rigs available for years; they’re all booked. People I know in the oil industry are working very hard just to keep production from falling; increasing output is not likely from here to depletion.
On the other hand, we can do a lot on the consumption side: drive less, use smaller engines and lighter vehicles, fly less, use less chemicals, insulate your home before winter strikes, substitute cheaper fuels for oil, etc. By the way, these things are also very good for our health, environment, and economy.
We need to think about and personally take actions that permanently lower our oil consumption before it runs out, not afterwards.