[donshan]

I see today that Oil prices have dropped below $60/ bbl , and gasoline contracts are now below $1.60/ gal; down considerably from recent peaks well over $2.00.

I would appreciate any thoughts from the experts here ( I am not one) on what is going on. I see two broad possibilities, but there are probably others. Also, if one knew for certain what is going on here they could become a millionaire!

Possible reason 1) Governments world-wide and the major oil companies realize that the drop in consumer sentiment as a result of high oil and gas prices could produce a world-wide recession. The release of large volumes of oil and gasoline/diesel from strategic reserves and Big Oil have temporarily flooded the market with supply in order to squash predictions of $100/bbl oil, and restore confidence. This would be similar to Monetary interventions to temoraritly move markets opposite to the speculators position and try to wipe them out. If this is the case, then in a short while the interventions in oil pricing will end, and the trend of oil prices upwards will resume. But that will be next year.

Possible reason 2) The high price of oil and gasoline/diesel has curtailed demand and increased world production to completely offset the effects of Katrina/Rita on supply. The market is now coming back into balance, there no longer is a shortage of oil for the near future and oil is heading back below $50. This would prove the economists right, and validate the view of EIA that oil will still be under $50 ten and even twenty years from now. In other words, increased price can keep oil supply going for decades to come.

Obviously it makes a world of difference of where oil will be next year and whether PO has already occurred or not, depending on which view ( or others) is correct.

Any enlightenment would be appreciated.

[WisJim]

It seems that around here gasoline is down and diesel is up. I think that the maximum amount of gasoline is being produced (which is reducing the amount of diesel produced) in order to make people think that the problem is less severe than it really is.

Maybe folks will start to be concerned if heating costs go up a lot.

[jmacdaddio]

Part of it is a reduction in demand. I think a lot of US drivers are cutting back unnecessary trips and consolidating errands. Cocktail party chats about gas prices point to a general acceptance that gas will not go back to $1 or even $1.50 per gallon, and that prices will trend up from here on out (even though prices are going down now).

[Heineken]

Don't worry, the faster prices drop the sooner demand will pick back up again.

The pattern has been, and will continue to be, two steps forward, one step back.

I think the idea that U.S. drivers are "cutting back" is largely a myth. Most trips are necessary, or at least that's the way drivers view them. Anecdotally, I haven't noticed the slightest difference in congestion on those occasions when I've driven to urbanized areas.

[pip]

Demand per the DOE has been down around 2% for most of the month of Oct compared to last year. The price has been dropping since those numbers started coming out. Just MHO.

[JoeW]

I don't think there's any big conspiracy to push prices down. There are two issues:

1) Loss of refinery capacity has reduced demand (and prices!) for crude.
2) The resultant high prices of refined products caused by #1 has been mitigated in the US by increased imports of refined products and by demand falling short of expectations.

The focus on manufacturing gasoline rather than heating oil is probably profit-motivated at this point.

[Monk]

cuz its a tradeable market.... and in bull markets.... they take 2 steps forward and 1 step back..... nothing goes straight up.

[aahala]

How about an unenlightened opinion?

I would like to believe US demand has dropped more than 2%, but I have found little evidence of that, certainly not enough to cause my local gasoline prices to fall as far and as rapidly as they have.

IMO, there has been a moderately large percentage drop in oil demand in
third world countries. These official world consumption figures are probably pretty "fluffy" -- they are back of envelope estimates. Countries
like the US, many can just open their billfolds and pay 50% more, using
the same, but people in the third world can't do that.

[Clouseau2]

$this->bbcode_second_pass_quote('aahala', 'C')ountries
like the US, many can just open their billfolds and pay 50% more, using
the same, but people in the third world can't do that.

[gt1370a]

Traders try to anticipate the future. News to us is old news to them (example, when the report came out on Friday that the economy was growing 3.8%, an oil trader was quoted as saying "This is old news."). The reason the price is going down is because they expect lower demand in the future.

[donshan]

$this->bbcode_second_pass_quote('Monk', 'c')uz its a tradeable market.... and in bull markets.... they take 2 steps forward and 1 step back..... nothing goes straight up.

[Sleepybag]

.
Demand is actually reduced in several third world countries. Indonesia had to stop their fixed-price policy, since it was costing them too much of the budget. Several similar reports came from other countries. Increased prices have reduced demand, but not much in the Western World.

Secondly, crude oil availability is not the only critical chain in the supply of petrol. Worldwide, refineries are working at maximum capacity right now. This, on its turn, is due to refineries still offline in Louisiana and the fact that crude oil is getting heavier. (Heavy Sour was the only spare oil the Saudis had on the shelf). Refineries are finaly making a profit on their activities.

In the week to come, the Shell Rotterdam refinery (the biggest in Europe, 400,000 b/d capacity) will go offline, because of a strike. So, in my theory, reduced refining capacity = higher refinery margins. Let's wait, but I think that oil prices will remain stable, but prices at the pump will rise.
.

[Monk]

$this->bbcode_second_pass_quote('donshan', 'H')owever, what I "think" I just saw is called "breaking support" at 60-- a bearish signal.

[donshan]

$this->bbcode_second_pass_quote('Monk', '')$this->bbcode_second_pass_quote('donshan', 'H')owever, what I "think" I just saw is called "breaking support" at 60-- a bearish signal.

[Cool Hand Linc]

Simmons and ASPO look at data that shows how much oil has been produced. Then subtract the amount of production from the claimed reserves. Giving as close a number as we can get currently. OPEC countries began giving ultimate recoverable reserve numbers back about 78 or 79. They have been reporting nearly the same amount ever since. Simmons also looks at things like water cut from wells to help determine the health or age of these wells. Again OPEC countries are not sharing so Simmons and others interview engineers who were in these countries working for these countries oil companies and get data that way.

Side note: The USGS began adding in Canada’s tar sands in their recoverable reserves data.

When looking at all the oil related data. It is important to separate the different kinds of oil to ensure correct data.

Simmons and ASPO and most who have read a lot and keep up to data the data understand that price spikes and then drops in between will reoccur over time.

[perplexd]

Here's my take:

The U.S. agreed to release 60 million barrels from the SPR, and we've JUST NOW gone over about 72 million lost from the hurricanes. So, for all the expected shortages, we haven't seen them, but if they limit the SPR drains to 60, and we continue to lose more than 1 million barrels / day and can't get more imports, then we're going to start seeing real shortages soon, and the price will rocket back up as soon (probably as people start calling for $40 or $50 oil again).

Also, we are in between the driving and heating seasons, so it is a normal slack and build-inventory time for producers. Can't be sure what it will look like for awhile, methinks. Depends on how cold in the north.

It's the gas thats going to kill us this winter though, not the oil. Can't import the nat gas until they build all the LNG tankers and terminals (that will be built whenever and wherever, at federal whim).

[MrBill]

Posted this this morning in Trader's Corner

$this->bbcode_second_pass_quote('', 'B')ut for the time being we are grinding lower and lower. The front month is already comfortably below $60 and broke weekly support for the first time in 2005. A 0.618 retracement from $49 to $71 would see a re-test of the $57-58 area which looks likely this week. If the basket price that OPEC receives is approx. $6 under spot that translates into $51-52 for ME crude. Not far from $45 and certainly in the $45-55 range. I can easily see NYMEX crude ending the year at or below $50. The technical objective for unleaded gasoline is the $1.3750 area which is $57.75 a barrel. Crack spreads have been in the area of $7.75 recently and have shown no signs of strengthening either. Unless we see some cold weather on the immediate horizon then heating oil and likely nat gas will be dragged lower too. We have seen a substantial breakdown in price support for nat gas from the highs and $10-11 now looks highly likely. Below $12.30 the next support is $11.40. The bulls better come out soon before the bears start to own this market sliding into year-end.

[donshan]

In the upper left corner of this page Dale Allen Pfeiffer has an editorial "Oil Peak in 2005?". What I am thinking about here is the price behavior of oil, as it approaches the long term up trend line, will provide insight into whether 2005 was the year of PO or not.

Since many traders in all markets, including oil, use technical analysis, I have observed it often becomes a self fulfilling prophecy. Buying of oil contracts should increase as the price nears the long term up trend line. This causes a short term balance between buyers and sellers, almost independent of the long term supply of oil, and consumption rates.

I see what happens next as a test of my two scenarios. If that up trend line is significantly broken( the technical analysts that just bought are wrong) and oil goes below 50 with a new down trend line to lower prices, it would indicate that any significant reduction in total world oil production rates has not occurred in 2005. However if after all the short term sloppiness runs it's course, oil prices start back up to new all time high prices, it sort of validates we are now at or past world production limits, and 2005 PO is still a very real possiblity.

Obviously, this is oversimplified, but I think charts are pictures of of the world oil market in action, and "pictures are worth a thousand words", and are the best leading indicator around to show when PO occurs.

[Heineken]

Election day is coming up. Here in Virginia there's a close race for the governor's chair. Funny how the gas price has fallen just in time to help the GOP (Gut-Our-Planet) bunch.

[MrBill]

$this->bbcode_second_pass_quote('Heineken', 'E')lection day is coming up. Here in Virginia there's a close race for the governor's chair. Funny how the gas price has fallen just in time to help the GOP (Gut-Our-Planet) bunch.