[PenultimateManStanding]

$this->bbcode_second_pass_quote('o2ny', 'M')aybe it's time for a point-by-point dissection of the falling oil price to see if we can come to a rational conclusion:

Seasonal:

- Hurricane season a bust
- Summer driving season over
- Winter heating oil not yet in demand

Geo-political

- Iran calming down*
- No major pipeline bombings/supply disruptions

Supply/demand:

- Chevron's "big" discovery in the gulf
- Economy looking sluggish
- Recession may be coming thanks to housing deflation

I'm sure more can be added to this list, but in my mind these are the major price drivers right now.

In regards to Iran- I'm thinking the White House may have toned down the rhetoric lately in order to precipitate a drop in the oil price before mid-terms. The 'tough talk' is likely to begin again in mid-November.

Personally I'm thinking oil may be oversold (or at least is close). This decline has been the longest period it seems where we've only had *good news* - the gulf discovery, Prudhoe bay coming back, rising inventories, Iran tensions easing... it seemed like all spring/summer we were hearing once a week about pipelines exploding, Nigeria in chaos, Iran making threats, fields declining, China's voracious demand, etc. It's a winning streak that can't continue much longer... the geo-political fundamentals haven't changed, nor have the geological fundamentals. I'm really getting more and more suspicious about this drop being tied to mid-terms.

Also- from a sheer psychological perpsective- when everyone goes into 'doom & gloom' mode that's usually a good time to buy. Seems like most of the analysts are getting very bearish right now...

[rwwff]

o2ny left out that additions to the SPR were halted a few months ago; makes you wonder how those contracts are bought, if they were buying three month maturing future contracts, and ordered the halt at the end of May; that portion of demand would have just recently disappaited. I don't know the actual timing, but even if the oil was bought on spot, that means there was an extra, artificial demand earlier in the year that is no longer there, and a quite full SPR at the moment that could act very quickly to prevent market disruptions.

Clinton used the SPR to diddle price. No reason Bush shouldn't.

[PenultimateManStanding]

$this->bbcode_second_pass_quote('rwwff', 'o')2ny left out that additions to the SPR were halted a few months ago; makes you wonder how those contracts are bought, if they were buying three month maturing future contracts, and ordered the halt at the end of May; that portion of demand would have just recently disappaited. I don't know the actual timing, but even if the oil was bought on spot, that means there was an extra, artificial demand earlier in the year that is no longer there, and a quite full SPR at the moment that could act very quickly to prevent market disruptions.

Clinton used the SPR to diddle price. No reason Bush shouldn't.

[rwwff]

I think I've already mentioned that I think we've gotten a small amount of individual demand destruction pumped in with the tilt in automobile buying patterns now moving towards more efficient cars.

This looks to me like lots of small to moderate factors all nicely aligning to hack the legs off the price of oil at least temporarily. Remember though; long term, Bush and Co are better off personally with high oil prices, so expect them to go back up once winter really gets cooking.

[Ayame]

Wow oil prices look like they are in free fall.

China must be happy, now it can get a good deal on filling up its strategic reserves.

[basil_hayden]

The big guys have finally got around to screwing all you little guys investing short, as expected, with the upcoming election bonus and a nearly full SPR.

I knew this was coming the moment I saw this years residential heating oil contract - for $2.80 per gallon. I could feel the hose being turned on and decided to forego the contract this year.

HawkMan can go diddle himself.

[Novus]

Yes, what is going on. That is quite a question that got me thinking.

In economics of supply and demand what happens to production when price incentive drops?

Answer: production will drop as well. Many months of $70+ oil was huge incentive to keep everything going and steady at 84 mbpd. If oil stays below $65 then incentive won't be their keep production as high as it was.

[Concerned]

$this->bbcode_second_pass_quote('Novus', 'Y')es, what is going on. That is quite a question that got me thinking.

In economics of supply and demand what happens to production when price incentive drops?

Answer: production will drop as well. Many months of $70+ oil was huge incentive to keep everything going and steady at 84 mbpd. If oil stays below $65 then incentive won't be their keep production as high as it was.

[Vexed]

$this->bbcode_second_pass_quote('Laughs_Last', '')$this->bbcode_second_pass_quote('Vexed', '')$this->bbcode_second_pass_quote('Laughs_Last', 'H')ave you seen the military's new Diesel-Electric Hybrid Humvee? It gets a whopping 18 MPG, twice the base model's 9. It has better acceleration, higher top speed, and an all-electric stealth mode. I want one so bad.

[TreebeardsUncle]

Read in the San Francisco Chronicle or the Sacramento Bee a few days ago that Jack could be pumped profitably with oil prices as low as $30/barrel, which is considered a "normal" and expected return price by tptb.
I know you guys are thinking too short term on this (peak oil ramifications). It is going to play out over a period of decades.
Still, it obviously won't take as long to deplete the remaining reserves as it did (about 150 years) to get this far. While conventional oil production has peaked, it will take a few years to work through the majority of the deep water oil, tar sands, kerogen shale possibly etc. The suburban sprawl lifestyle of ever more obese people driving ever larger vehicles (This is changing a little.) ever longer distances ever more often at ever higher speeds to acquire cheap disposable crap to fill up their overleveraged houses and then garbage dumps will continue for a couple decades more.

[NEOPO]

hey!! an optomist!!!

[Gazzatrone]

$this->bbcode_second_pass_quote('NEOPO', 'h')ey!! an optomist!!!

[TreebeardsUncle]

Well, I thought I was being more ironic/satirical and cautious than outright optimistic. I said that the paper had reported that Jack could be pumped profitably as low as $30/barrel, but I did not say that I believed that. Also, I stated that $30/barrel is the "normal" price that the powers that be expect oil to return to. As it has in fact been stated in this forum, decisions on whether or not to proceed with oil field production are predicated on prices of about $30 a barrel. There was another article in the Bee or Chronicle that speculated on what prices would be in a few years.
They thought that prices could spike as high as $100, but were unlikely to fall as low as $15 or $20, but that $30 or $35 was a realistic normal price. A LOT of people are expecting oil to fall back to that price with gas prices running around $2/gallon or so and will be very surpised if it doesn't. There is a possibility that production from the Gulf, Brazil, off the west African coast, central Asia etc will produce a mini-glut offsetting depletion and increasing demand enough to bring down prices significantly around 2010.
However, I expect that after that in the middle of the next decade prices will begin their inexorably climb as the all-liquids and tar production peak is approached. I expect that peak oil will be as formative a change in the 21st century as WW1 was in the twentieth century and will lead to the car gradually going out (to some degree) the same way WW1 and the industrial growth that followed it led to it coming in. However, I expect it will take another generation (about 30 years, approximately equal to the time between WW1 and WW2) before the shock of declining oil availability becomes severe enough to really do in modern car- based suburbia. Thus, I conclude that the drive-through lifestyle of easy motoring and adulation of disposable trinkets to continue unabated for at least 20 years as the deluded masses incessessantly cruise about in a television-induced stupor of mindless numb consumption.
So, why do some folks here expect things to take place more quickly and when do they expect those changes to occur? It looks like this will be a gradual process that will take several decades to play out. I do not consider myself to be that optimistic. At least I was not called a cornucopian, which is quite the slur. I think the first appellation of optimism was expressed ironically though, thankfully. My approach is a little more subtle. I just don't expect to see big changes, as far as setbacks of the pavathon of American suburban growth, to be apparent for quite a few more years.

[Revi]

It seems like most things happen somewhere between your worst fears and fondest imaginings. The American car culture will slowly fade as the alternative economy takes over and demand destruction hits the marginal. It will be business as usual, but the reality will be that people in trailers can't pay for heating and cooling. I've begun to notice lots of poor people on bicycles lately. It's begun. It's not so bad after all!

[rwwff]

$this->bbcode_second_pass_quote('Revi', 'I')'ve begun to notice lots of poor people on bicycles lately. It's begun. It's not so bad after all!

[Gazzatrone]

$this->bbcode_second_pass_quote('rwwff', 'D')oesn't take a genius to figure out he can buy groceries tomorrow for the kids because he ditched the car.

[rwwff]

$this->bbcode_second_pass_quote('Gazzatrone', '')$this->bbcode_second_pass_quote('rwwff', 'D')oesn't take a genius to figure out he can buy groceries tomorrow for the kids because he ditched the car.

[Revi]

It does seem like most people will soon have to make a choice. Feed the car or feed the kids. Easy choice. Houses closer to work are going to start to go up in price. Those McMansions 40 miles out are going to turn to the housing of the poor soon. The repugnicans are going to keep gas down there until the fools vote them in again, then some time next winter the price of oil will creep back up again. Everyone who drove until they qualified will have to sweat the mortgage and pay the gas to get there.

[Revi]

It does seem like most people will soon have to make a choice. Feed the car or feed the kids. Easy choice. Houses closer to work are going to start to go up in price. Those McMansions 40 miles out are going to turn to the housing of the poor soon. The repugnicans are going to keep gas down there until the fools vote them in again, then some time next winter the price of oil will creep back up again. Everyone who drove until they qualified will have to sweat the mortgage and pay the gas to get there.

[mjdlight]

$this->bbcode_second_pass_quote('Revi', 'I')t does seem like most people will soon have to make a choice. Feed the car or feed the kids. Easy choice. Houses closer to work are going to start to go up in price. Those McMansions 40 miles out are going to turn to the housing of the poor soon. The repugnicans are going to keep gas down there until the fools vote them in again, then some time next winter the price of oil will creep back up again. Everyone who drove until they qualified will have to sweat the mortgage and pay the gas to get there.