[jaws]

$this->bbcode_second_pass_quote('seldom_seen', 'I') think what is unsettling about oil depletion is not the lack of oil but the lack of an economy. There will be lots of people standing on the street corner saying WTF? If you could grow the economy without energy, PO would certainly be a less daunting problem.

[falser]

They will buy whatever oil the US doesn't. I don't see oil dropping much, if at all, due to a US recession. That will make the recession particularly tough on a lot of people and the US as a whole. But that's just my uneducated guess, I don't think anyone really knows.

[oilluber]

i think it is safe to assume 3-10yrs out, oil will remain high.
I am thinking about a 1-2 yr drop in oil prices as the US
slides into recession.
Any other ideas ??

[CARVER]

First I have to say that I'm no economist or financial expert, but this is how I see it:

I'm not sure what the price of oil will do in the near future, it could go way up, or way down, but I think in all cases it will become very 'expensive' for most people (unless we would not have any use for it, which is very unlikely and it would probably be a very bad situation for a lot of people).

What is $300 a barrel when you make $30.000 a year? Very expensive?
What is $30 a barrel when you lose your job and thus have no income (and maybe no savings)? Very expensive? (I think this will be the result of a recession for a lot of people).

But if you want to invest in oil (futures and options) you also need to know what we'll be getting: (hyper) inflation or deflation. Maybe deflation and the higher value of oil will cancel eachother out so that the price of oil stays the same.

[gary_malcolm]

$this->bbcode_second_pass_quote('linlithgowoil', '')$this->bbcode_second_pass_quote('', 'j')aws wrote:
It doesn't take energy to grow the economy.

You're joking right?

[oilluber]

$this->bbcode_second_pass_quote('CARVER', 'F')irst I have to say that I'm no economist or financial expert, but this is how I see it:

I'm not sure what the price of oil will do in the near future, it could go way up, or way down, but I think in all cases it will become very 'expensive' for most people (unless we would not have any use for it, which is very unlikely and it would probably be a very bad situation for a lot of people).

What is $300 a barrel when you make $30.000 a year? Very expensive?
What is $30 a barrel when you lose your job and thus have no income (and maybe no savings)? Very expensive? (I think this will be the result of a recession for a lot of people).

But if you want to invest in oil (futures and options) you also need to know what we'll be getting: (hyper) inflation or deflation. Maybe deflation and the higher value of oil will cancel eachother out so that the price of oil stays the same.

[oilluber]

$this->bbcode_second_pass_quote('gary_malcolm', '')$this->bbcode_second_pass_quote('linlithgowoil', '')$this->bbcode_second_pass_quote('', 'j')aws wrote:
It doesn't take energy to grow the economy.

You're joking right?

[threadbear]

$this->bbcode_second_pass_quote('drattom', 'I') have an economic degree but I don't work in economics. I never got the marks to begin a master. Take your guest, I'm more idiot than average economist or I wasn't good in class because I wasn't able to understand stuff like economic growth. I always prefered Malthus and Kondratieff to Friedman and Keynes. This is not exactly what economic teachers like.

The house bubble will not crash fast by itself, without an external event, this is a slow decline. You will not sell at any price after one month, you can lower the price but, it take sometimes to realize that there is no buyer at all.
I think the gas shortages in the US or Europe will be the external event.

Because of the debt level in the US, you can see a panic by foreign investors to get their money out of the US. The US governement will default or more likely print money like crazy. The dollar will lose a lot of value if not collapse.

The recession will reduce world demand of oil but, for the price I think there is 2 possibilities.

1)the price can be lower in actual dollar but the drop in the dollar will make a price higher. Something like 400$ but it's worth 40$ in actual value.

2) The actual price don't take into account that it's not renewable, traders think how they can make money next week not in 5 years. Maybe they will finally wake up and in that case, the price will be higher.
If that happen, I think you can see something like Gold=Crude=Dow.

Don't forget that I only follow this as an hobby, this is only my guest in this and I can be more idiot than a professional economist. At least, you will never see me on tv trying to encourage people selling some stocks so I can cover my short positions.

[oilluber]

hi threadbear, I do agree, eventually
oil will go up regardles, due to depreciation of
the USD. There is no doubt.
The only dilemma I have here is will oil drop initially
as futures traders realize that there is a recession
on the way and subsequent decline in demand ??
This is assuming the future traders do not factor in
inflation, also assuming that the USD is stable at
the early stages of the recession.
Oil futures can move quite violently in a few months,
we have yet to see that in the USD yet(contradicting
normal logic...... as the USD is supported by the
JApan and China)

[threadbear]

Wow, Good question Oilluber. I can't answer it very well, but maybe members can over at http://indexcalls.com/forums/index.php

Brian 4 and the other members labour at this stuff day in and day out and are extremely generous in imparting their combined centuries of wisdom with any who ask questions.

I think that there is a lot of speculative hype about peak oil at the present time,and that's mixed with genuine diminishing supply issues, so there will be some volatility, with the price perhaps taking fairly steep drops and then rocketing back up, relative to the dropping value of the dollar.

It ain't going to be purdy.

[AirlinePilot]

$this->bbcode_second_pass_quote('oilluber', 'T')he only dilemma I have here is will oil drop initially
as futures traders realize that there is a recession
on the way and subsequent decline in demand ??
This is assuming the future traders do not factor in
inflation, also assuming that the USD is stable at
the early stages of the recession.
Oil futures can move quite violently in a few months,
we have yet to see that in the USD yet(contradicting
normal logic...... as the USD is supported by the
JApan and China)

[shady28]

$this->bbcode_second_pass_quote('jaws', 'T')hings actually are different now. This is what the whole peak oil thing is about, remember? Things changing? The oil industry is at the highest level of strain it ever experienced. That will prevent a glut of oil in case of a worldwide recession.

[drattom]

$this->bbcode_second_pass_quote('', 'T')hat's an excellent analysis. Don't be so humble

[marko]

$this->bbcode_second_pass_quote('shady28', 'I') have seen nothing to indicate that we are at the peak right now. There is no shortage of oil, if anything there is only a shortage of refinery capacity.

I find it much more likely that oil is just another bubble. A shortage of gasoline refining capacity does not explain a rise in oil prices. It's clear that a lot of people are speculating on oil right now. That speculation, just as with stocks and housing, drove prices up.

Note I use the past tense there.

[threadbear]

Marko, Why will joblessness cause prices to drop? This is traditional economic theory, but will it be valid this time around?

[drattom]

Marko,

You can add to the equation the Beijing olympic games in summer 2008. Chinese will probably try to maintain the economy before the olympics. At this point, US will already be in electoral campaign. 2009 is a very good possibility for hyperinflation.

[shady28]

$this->bbcode_second_pass_quote('marko', 'I') assume that you are referring to the financial crash? I actually don't see this coming for another couple of years. That is, unless the Fed is determined to bring it on (which they just might be). In which case, if they continue with 0.25% rate hikes at each meeting, we might see the collapse begin in spring of 2006, just in time to avert another oil price spike.

When the crash does come, I think that we will see an initial period of deflation, in which prices drop, because the supply of money dries up due to mass joblessness and bankruptcy (including bank failures).
...
Once bankruptcy and deflation have allowed the rich to take possession of a large chunk of the real estate and productive assets in the US, I think that we will see hyperinflation, as Asian money creation spins out of control.

[marko]

$this->bbcode_second_pass_quote('threadbear', 'W')hy will joblessness cause prices to drop? This is traditional economic theory, but will it be valid this time around?

[shady28]

$this->bbcode_second_pass_quote('marko', 'F')or all of these reasons, I think that a collapse is unlikely before 2007 and perhaps before 2009. However, 2009 looks bad. VERY bad.

[threadbear]

Marko, Put yourself in the position of a retailer. If 40% of the population is underemployed or unemployed, homeless--no longer a strong consumer, why would prices drop down to accomodate them?

Pricing margins are razor thin for retailers marketing to the lower and lower middle classes anyway--in a supposedly 'strong' economy. Regardless what the price of oil is, why wouldn't a retailer, like Target, for example, just delete this type of customer right out of his marketing plans?

The 20% who are able to purchase aren't just middle class, they have large incomes and assets to draw from. Why not hike prices sky high (even relative to inflation) for the few who are functioning members of a consumer society?

When Argentina devalued it's peso, after depegging from the American dollar, many lost their jobs, in the ensuing depression. As the peso plunged and Argentian's situation grew more dire, retailers responded by hiking prices. The rising prices did more than compensate for inflation of the peso, they illustrated that standard marketing theory was tossed out the window.

Deflationary theory is based on North American model of the depression of the thirties. It ain't going to happen here--not even temporarily

An interesting side note. While everything else went up in price in Argentina, , real estate fell in price. I consider Argentina the working model of what the US and likely Canada to a much more limited extent, can expect in the very near future.

Argentina has partially pulled out of it, after tremendous suffering. Hopefully the US will reach some kind of homeostasis, after a currency collapse, but it seems that a true 'recovery' is unlikely.