[threadbear]

$this->bbcode_second_pass_quote('Revi', 'I') think that oil will rebound a little quicker than that. I think it will hit around $100 a barrel by the end of 2010. A nasty winter could burn off a lot of it this winter. Next winter we go into the season with less cushion. Demand destruction can only go so far. We will still need to move things around and grow crops.

This depression is a great way to cool the demand for everything, but there is a point at which oil is a bargain. $55 might be it.

[threadbear]

$this->bbcode_second_pass_quote('Revi', 'I')mpossible to tell what will happen. Deflation or inflation? I feel like a soccer goalie at a penalty kick. Will the ball go left or right? Will we have deflation or inflation? I keep looking at the shooter for an indication of which way it will be. Last week I was convinced that it was inflation, but this week I'm back to deflation.

I think I'll just stay right here in the middle until we know.

[eastbay]

$this->bbcode_second_pass_quote('TommyJefferson', 'I')'m in the market for a fuel efficient small SUV/station wagon type thing. These lower gasoline prices are helping me by reducing demand for such vehicles.

[eastbay]

$this->bbcode_second_pass_quote('Revi', 'I') think that oil will rebound a little quicker than that. I think it will hit around $100 a barrel by the [s]end of[/s] [s]2010[/s] middle of 2009.

[Gerben]

I think 5 years is a fair guestimate. This crisis is not going to be over soon. The real thing hasn't even started yet. It will take some time (from a few weeks to perhaps even a year) before we really see the bottom. It will take some time after that for demand to pick up again where it left. In the mean time, we might see some smaller price peaks, but nothing like we saw earlier this year.

[sjn]

$this->bbcode_second_pass_quote('Gerben', 'I') think 5 years is a fair guestimate. This crisis is not going to be over soon. The real thing hasn't even started yet. It will take some time (from a few weeks to perhaps even a year) before we really see the bottom. It will take some time after that for demand to pick up again where it left. In the mean time, we might see some smaller price peaks, but nothing like we saw earlier this year.

[shortonoil]

sjn said:

$this->bbcode_second_pass_quote('', 'I') disagree with shortonoil on this point. I think in the the race between economic distruction and supply decline, the components will chase each other down chaotically, there will be periods where energy prices become low as they are now, and everybody forgets about supply (and can blame other factors as causal, like the "Credit Crunch") and periods like this summer where prices increase exponentially until the next demand collapse kicks in.

[barncat]

Let's play with some math.

65% of oil consumption in the US comes from transportation. Normalized US car sales are about 16m vehicles per year, (but running only 12m/year this quarter). However, BRIC country sales will exceed 14m/year and likely surpass the US in 2009. Brazil alone is growing 30% per annum. Average car ownership/ capita in BRIC countries is still just 6% of the US. World car sales in 2008 will likely reach an all time record. BRIC car sales just 5 years ago ran at 4mm vehicles/year. And...a much higher proportion of vehicle sales are new owners (ie incremental consumption), not replacement vehicles (no new consumption).

So, adding that kind of burden to oil demand over just 12-24 months, would seem to lead to a pretty rapid tipping of the supply curve, in addition to the asphalt for roads, additional power production, plastic usage, and other demands on oil from rapidly industrializing nations.

I'm not so sure about that 5 years....

[thuja]

5 years? Bah. I am betting on 10 years. I think demand collapse will be long and sustained. This recession will grow into a massive long term global collapse that will take quite a long to dig out of. We are just seeing the tip of the iceberg. China will collapse. India, the developed world. Manufacturing will collapse. This is massive and sustained.

Oil will become an issue again someday...but it will be at least 5 if not 10 years.

[barncat]

Perhaps...but you might keep an eye on the demand figures posted on the "US Demand" thread. Demand destruction seems to have peaked 2nd week of October, and consumption improved steadily every week since then, presumably due to cheaper prices.

[thuja]

$this->bbcode_second_pass_quote('barncat', 'P')erhaps...but you might keep an eye on the demand figures posted on the "US Demand" thread. Demand destruction seems to have peaked 2nd week of October, and consumption improved steadily every week since then, presumably due to cheaper prices.

[ki11ercane]

$this->bbcode_second_pass_quote('DaleFromCalgary', 'A')lso from that article: "OPEC capacity has indeed risen in the face of falling demand. In fact, OPEC capacity will have risen by roughly one million barrels per day in 2008, and OPEC appears to have boosted capacity by over one million barrels per day on average in each of the past three years. Thus spare capacity will likely recover to over five million bpd by the end of 2008 (capacity fell to below two million bpd in 2005)."

It isn't that Peak Oil is wrong, it is just that demand destruction is faster than supply decline and will be for quite some time. The increase in capacity is for OPEC countries, not for non-OPEC producers who are still rapidly declining.

Given that the recession seems likely to linger until at least 2010, I expect that oil will stay low and probably go lower yet. The Americans still have to deflate their economy by trillions to clean out the housing overbuild and mortgage fraud.

[JohnDenver]

A few people have been wondering about this lately, e.g.:

$this->bbcode_second_pass_quote('rockdoc123', 'S')o again I come to the idea this is as much speculation on the decreased demand side of things as it was speculation on the decreased supply side of things a few months ago.

[copious.abundance]

US crude oil inventories have also been very high lately.


LINK

If I'm not mistaken, I believe the correct way to interpret this is, when prices are high, producers don't want to store much in inventory because the high price is reducing demand, and the high price creates a high carrying cost. As an analogy, you don't see Nordstrom carrying large inventories of (very expensive) Gucci bags in their back shelves, because they are too expensive to let them just sit there in large numbers awaiting customers to buy them, and their high price ensures that buyers will be few in number. On the other hand, you'll see Nordstrom holding much larger inventories of (mid-priced) Coach bags because they're less expensive, and thus don't have high carrying costs, and have more buyers and thus you need to hold larger stocks.

On the other hand, when the price of something goes way down, that creates an incentive for producers to hoard the product and store it in large quantities, to take advantage of the low price and hold it for the inevitable uptick in demand and price. If the price of Gucci bags crashed by 70%, you'd probably see Nordstrom hoarding them in the hope that demand (and the price) will pick up later, and they can then sell the ones they hoarded at a much greater markup than they bought them for.

[mefistofeles]

$this->bbcode_second_pass_quote('', 'O')n the other hand, when the price of something goes way down, that creates an incentive for producers to hoard the product and store it in large quantities, to take advantage of the low price and hold it for the inevitable uptick in demand and price.

[rockdoc123]

Ok the perspective from someone who has been through several nasty price crashes.
The traders are guessing that demand will be disasterously lower..they bet on $30/bbl oil. Since noone knows what will actually happen to the economy...how low can it go?.. any bad news is immediately interpreted as further demand destruction. So although $30/bbl has already built in a bunch of "anticipated" demand destruction traders bet on $25/bbl because they are willing to take a bet that there will be even greater demand destruction. If you look at the absolutely worst prediction on demand it still looks like the 2006 demand numbers and oil was not trading at $25/bbl back then as I remember.
What I believe is an artificially low price has also resulted in full blown contango. There is now a $5/bbl differential between the January and February contract...this is a record I think. This says that even the really bearish traders don't actually believe oil should be trading this low and are betting that it is going to be higher. The problem becomes that oil companies now want to take advantage of that contango and buy up all they can at the low price, store it offshore in tankers and then sell at a higher price in a few months. The result is more and more oil in storage....traders read this as further decreases in demand and the downward spiral begins.
At $35 where we were today we are almost surely at the lifting cost for almost all of the heavy oil plays with the exception of mineable tar sands (I suspect that is closer to $25/bbl but don't know for sure). The heavy oil in Venezuela long ago became uneconomic (about $50/bbl I think). I would be very surprised if it is economic to bring on addtional reserves in Kurdistan or many of the other areas that we count for "the forward wedge". One of the companies that uses upgraders to produce bitumen shutin production yesterday....canary in the coal mine I think.
The analysis provide above where lower prices should mean lower storage ignores the time factor. OPEC was continually chided for not providing enough supply when prices were artificially rising even though they continually said there was no shortage. Now that extra oil has come home to roost, especially so with decreased demand. That took time to hit the market as will the lower prices. It makes it even more difficult to see the trends given the poor economic data coming in. C

[lawnchair]

$this->bbcode_second_pass_quote('mefistofeles', '
')Another affect would be higher energy consumption. With prices so low at some point the consumer's going to look at a Chevy Camaro and think, wow I can afford to fill this thing up.

[JohnDenver]

$this->bbcode_second_pass_quote('mefistofeles', 'F')rom a long term view I think the energy producers would rather hold onto their supplies than sell oil at these prices.

[JohnDenver]

$this->bbcode_second_pass_quote('rockdoc123', 'T')he heavy oil in Venezuela long ago became uneconomic (about $50/bbl I think).

[nero]

$this->bbcode_second_pass_quote('JD', 'W')hy did production rise from Sept to Nov if all this oil is going off line? Something isn't adding up here.