The Price of Oil

boedicca · 08-15-2008, 04:12 PM

I confess to having becoming addicted to following the price of oil - despite having weaned myself of a great deal of petrol consumption with my conversion to public transit a few years ago.

Energy, Oil & Gas

It's not quite as dramatic as following the dotcom carnage of 2000-2003, but it is still fascinating.

I'm betting that oil drops below $100 and stays there through the election.

Duke · 08-15-2008, 04:24 PM

Gah I sure hope so. I actually had to purchase another car just the other day so I can afford to drive. It looks like I'll have to sell the big V8 for less than $1000 just to get rid of it fast.

DngrMse · 08-16-2008, 08:28 AM

I think it could, Boe. But worldwide demand for oil is still going up, while production lags. The U.S. could help itself tremendously if it's own in ground resources were not off limits, (added benefit there is if we could alleviate some of our thirst for foreign oil, it takes the edge off worldwide demand, and can keep prices lower).

boedicca · 08-17-2008, 03:16 AM

The Russian-Georgia situation is probably the biggest risk to prices now (short term) if it isn't contained quickly.

I agree that global demand is going to keep prices elevated - but the real question is how much of the recent run up was speculation vs. real demand. Prior to the bubble, the conventional wisdom was that specs were adding $10-$15 per barrel. I'm guessing that the bubble impact was more like $50. Well, maybe a bit of that is hope.

Vautrin · 08-17-2008, 09:00 AM

Don't forget that the dollar has lost a lot of value in the recent years, which adds to the US$ oil price.

Duke · 08-17-2008, 03:13 PM

Quote:

Originally Posted by Vautrin

Don't forget that the dollar has lost a lot of value in the recent years, which adds to the US$ oil price.

So why are we feeling the bite so heavily in Canada then as well?

Vautrin · 08-17-2008, 03:53 PM

It is not only the demand issues, but also the people selling getting less real US$ now than say 5 or 6 years ago. Not a big issue if the oil-producing nations' imports are mainly from the US, but these days, that is not the case.

E. g. 6 years ago the US$ to Euro conversion was roughly 1:1. So if you sold a barrel of oil for US$50, you sold it for 50 Euro. Now, when the conversion is roughly 1:1.5, you only get 33.33 Euros for the same barrel (assuming price and demand is the same).

boedicca · 08-18-2008, 11:02 AM

I'm becoming more convinced that the U.S. will act to strengthen the dollar in order to cut Russia's oil revenue in retaliation for the Georgia invasion.

Vautrin · 08-18-2008, 11:09 AM

How would they do that?

boedicca · 08-18-2008, 11:14 AM

Just collating various commentary in the business press. There is a lot of chatter about how high oil prices are funding Russia's military build up and that it makes no sense to drain wealth from the U.S. to support this.

Call it a hunch.

Vautrin · 08-18-2008, 11:21 AM

It is one thing to say that the US$ should strengthen, but a wholly different thing to actually achieve that. Sure the US does not want to pay for Russia's exploits, but that does not strengthen the US$ on its own.

boedicca · 08-18-2008, 11:34 AM

No, the U.S. doesn't. But here are some other things to consider:

Europe is on the brink of a recession. The U.S. economy, despite a slow down, is still growing. In calendar Q2, many Western European economies actually contracted.

I read an article which had crowed about Germany's 1.5% growth rate in an earlier quarter as blazing, while at the same time describing the U.S. as being in a recession. U.S. growth for the equivalent period was 2.5%. Again, just an opinion, but the run up of the Euro vs. Dollar has a bubble aspect to it, which I believe is going to correct over the next few months. We'll just have to see how this works out over time.

PepsiChic · 08-22-2008, 09:44 AM

i dont think the $ will ever be on par with the £ its dropped a LOT, for ages it was 1.90-2$ to £1. now its dropped to 1.80$ to £1

however i dont think its going to continue to drop and meet par with the GBP, our currency in britain is too strong hence the not using Euros thing. its interesting how its dropped and is pretty much par to the canadian dollar now tho.

boedicca · 08-22-2008, 09:57 AM

I don't think the dollar will ever be 1-1 with the pound either. I don't see it getting below $1.50:£1.

More wrinkles in the oil markets:

- Goldman Sachs has predicted oil prices to will rise to $149 (well, they probably will SOME DAY). This causes me to ponder the increasing roll of speculators/traders in oil. Investment banking is hurting, and the Big Banks are going to seek ways to gap fill their earnings. Why not oil speculation? Watch out for more market manipulation.

- Russia is being a Bad Bear.

- Hurricane Fay is causing short term uncertainty.

- Fannie Mae and Freddie Mac are basically insolvent (yet more proof that government interference in the economy does more harm than good). It's quite likely that the common share holders will end up losing their investments - while Asian bondholders are paid off. Yet more transfer of wealth out of the U.S. is not going to help the dollar or oil prices.

The logical countermove to all of this to to allow offshore and ANWAR drilling, but Congress is still on vacation while Pelosi does her book tour and Nobama prepares for his coronation rehearsal.

Sti