[nth]

In short, we have two groups with common view- we have PO and we have supply restraint believers- SR.

PO is us who think oil is about to peak or already has, so prices will rise.

SR are people who think that there may or may not be PO. It doesn't matter. There is not enough oil coming online in the next 7 years. The industry announcements on future oil production coming online doesn't match projected demands. Since it takes a few years to get oil production online- they see price rise as inevitable. This scenario won't change until oil production increases. They don't think demand will drop significantly anytime soon.

[threadbear]

Nth, Peak oil and supply restraint could happen at the same time. This is another possibility.

Goldmund, The commercial positions are still beholden to estimates of capacity that can be manipulated, by a very few individuals, but they're in the best position to guess how much manipulation is going on. In that way, they have an edge for their hedge.

Regardless of whether supplies are actually falling, people have to operate under the assumption that as long as the resource pirates have taken over, cheap oil has peaked, as well as cheap water, and other resources we've taken for granted.

[nth]

$this->bbcode_second_pass_quote('threadbear', 'N')th, Peak oil and supply restraint could happen at the same time. This is another possibility.

[threadbear]

Nth, Should have said, peak oil and artificial supply restraint.

[nth]

$this->bbcode_second_pass_quote('threadbear', 'N')th, Should have said, peak oil and artificial supply restraint.

[Nano]

What about the fact that we are in a traditionally relatively low oil demand part of the year? Oil stockpiles are very large round the world now, correct? Then the price must nudge toward the 'real' price, from the current level, which was created by nerves and speculation, correct?

This means I can safely expose my entire fortune on a bet on further reduction in price next week, correct?

I'm going for it!

Unless I get some pretty solid reasons why there may be serious risk in doing that.

[nth]

Yes, we are entering a traditional slowdown, but that doesn't mean anything to the market.

Long term contracts are more expensive than short term. That means people will buy short term to resell in the future. Traditionally, long term prices should be lower. If that doesn't persuade you, look up Morgan Stanley, Merril Lynch, Goldman Sachs and their oil holdings. I am not talking about paper holdings, but these firms have invested in real oil holdings this year and last year. They leased warehouses and taking delivery of real oil. If they and oil firms decided to fill up their warehouses and storage facilities, I don't think you will see a big drop in oil demands during this second quarter. Remember China just expanded its strategic oil reserves also.

If you are looking for a drop to low 50's, then go ahead and play the market. If you think it will drop to mid 40's, then I say you will lose.

[Nano]

nth, thanks for your analysis. I'm not satisfied yet with the oil market. It seems investors are holding up the price. Are people still buying into this thing, as others are reducing their position, keeping prices aloft? Or is there still a physical reason for prices being so high? Traditionally, when does demand start to pick up again? end of may, beginning of june right?

I read also that refinery capacity is the bottleneck now, not oil supply. What will that do to oil prices? It seems that the oil price should tumble right about now (albeit for a short time).

Hm, I thought I understood this market well enough by now, but I'm still confused.

[nth]

Nano, refinery bottleneck and environmental regulations go into effect this year will mean higher oil prices because the price on the nymex is sweet crude, so this product is not increasing and maybe decreasing. Demand for these will increase as China and India have refineries who are processing sour crude and will need to switch to sweet crude to meet regulations.

In January, we saw a big drop in China's stock. You should keep your eyes on how much stock build China is able to get. Also OPEC's announce increase has not happened. Last report shows a 250kbpd increase. Saudi Arabia seems to have trouble ramping up. They are putting more manpower in increasing capacity towards Q3 and Q4, so sacrificing Q2 is one theory, I heard.

End of May is the typical time frame for increasing oil consumption. Memorial Day weekend to be exact. This season as everyone anticipates great demand and supply tightness- there is reason to believe refineries will request oil deliveries earlier than before.

The current price drop is probably because EU and Japan are reporting economic slowdown. There is also additional supplies from Russia that is supposed to come online, since Spring is here. They maybe very aggressive to sell their oil as prices are record high. Also, Gulf of Mexico supplies are returning to production from hurrican damage. Don't know how much oil is actually coming on to market. These are all factors.

[MonteQuest]

Oil: Geologists vs. Economists
$this->bbcode_second_pass_quote('', 'B')roadly speaking, the camps divide into two: on the one side are those who subscribe to the so-called “Peak Oil” hypothesis, which holds that the supply of oil is finite, and that we are in the midst of draining the more than trillion barrels of proven reserves said to be left in the ground. The most prominent spokesmen for this viewpoint are Matthew Simmons and Kenneth Deffeye, both of whom have forecast that global crude oil production is on the verge of a precipitous decline.

By contrast, groups such as Daniel Yergin’s Cambridge Energy Associates (CERA) adhere to a more optimistic view regarding future oil supplies. CERA recently released studies projecting an 18m barrel per day increase in capacity from 2004-2010. The Cambridge view was also echoed in a recent US Department of Energy forecast, which held out the prospect of a 50 per cent increase in world oil production by 2030, largely supported by the major oil companies and others. CERA has made the point that each time forecasts of oil running out have hit the headlines of the major newspapers, these have invariably proved premature. Daniel Yergin himself has made the case that new technologies have consistently facilitated the exploration and exploitation of new sources of oil as prices have gone higher.

In simple terms, “It’s the geologists on one side and the economists on the other,” noted Seth Kleinman of PFC Energy, quoted in a recent article in the New York Times (“On Topic of Oil Supply, Opinions Aren’t Scarce”, Joseph Nocera, NY Times, 10/09/05). There is much to be said for characterizing the debate in these terms.

[CrudeAwakening]

What amazes me is that the opinion of economists regarding future oil production is given any credibility whatsoever. If I have a disease, I don't consult an economist for a cure, I find a doctor. If I want to know about prospects for future oil production, I'll ask a geologist thanks.

And yet these absurdly revered icons of supposed wisdom are sought for their opinions on matters they know nothing about.

[Graeme]

MQ, I found a similar article in Rigzone:

$this->bbcode_second_pass_quote('', 'D')oes it surprise you to learn that when it comes to one of most vital resources known to man, there could be such an incredible divergence of opinion? It sure surprised me. I was especially surprised to realize that even some of the oil majors are on opposites sides, with Chevron taking the peakist view and Exxon Mobil more aligned with the Yergin camp.

There are three reasons for this lack of consensus. First, because oil is buried underground, it is hard to measure. So basic "facts" such as how much oil remains, and how much can be ultimately extracted are as much the product of guesswork as science. Second, the world of oil can be shrouded in secrecy. As was recently pointed out in that New York Times Magazine article, Saudi Arabia, the biggest producer of them all, won't even allow its reserve and production data to be audited.

[Wildwell]

While I have tried to defend economists from some of the pasting they get it is worth noting that they base their theories on pure faith

1. Faith in human nature
2. And worse still a faith in technology

They believe that technological advance will continue and it can be rolled out to continue our consumerism society.

Apart from human nature is erratic and impossible to predict, very often things are not a matter of supply and demand. For example, if a society is built around a resource (EG oil) then demand will be inelastic (IE not very price sensitive) because people NEED it.

The faith in technology is akin to religion. There is no guarantee that the human race may continue to advance. Indeed history shows, civilizations tend to rise and fall.

[drattom]

$this->bbcode_second_pass_quote('', 'T')he faith in technology is akin to religion. There is no guarantee that the human race may continue to advance. Indeed history shows, civilizations tend to rise and fall.

[rockdoc123]

Just so the "dismal science" doesn't get too much of the piss taken out of it. Realize that one group of geologists USGS would probably agree with CERA figures in terms of potential. The USGS yet to find numbers for various places in the world are quite large (certainly larger than most of us working in these areas believe). I suspect if you blindly took their numbers you would end up with a peak that is out past 2030 (that being said I haven't bothered to do that since I know they are overly optimistic). On the other side of the coin Campbell is what I would view as the perennial pessimist. Another example of over the top views from a group of geologists is the Geologic Survey of Canada's analysis of the intermontagne basins in British Colombia. They suggest immense oil reserves yet to be found.....this in areas where the oil companies have all done their homework, drilled a few wells, done the field work and said....Uh, I don't think so.
Point being you have stupid economists and stupid geologists.....I think in large part what individuals say is based on what their motives are. Simmons has done a good job of becoming famous and likely fairly well off through his viewpoints (with virtually no science to back up his statements) and the USGS has probably garnered good political favors through their viewpoints. Need to read everything critically, don't accept someones views just because they have such and such background....give me the facts mame, just the facts.

[shakespear1]

$this->bbcode_second_pass_quote('', 'g')ive me the facts mame, just the facts.

[MrBill]

Neither the geologists nor the economists were saying that oil was cheap at $14 a barrel or ramping up refining capacity back in 1999, so the best forecasts are just that.

[khebab]

Economists have never considered Energy as a significant factor in their analysis compared for example to labor and capital. Probably because energy was so cheap for so long. But recently, some of them, such as Ayres and Warr are looking at the impact of energy into economic growth (Dematerialization vs. Growth: is it possible to have our cake and eat it?). Aside from that, there is a clear belief among economists that ingenuity and more capital will control the demand-supply equation. Geologists believe depletion will ultimately control supplies.

[Bedevere]

$this->bbcode_second_pass_quote('CrudeAwakening', 'W')hat amazes me is that the opinion of economists regarding future oil production is given any credibility whatsoever. If I have a disease, I don't consult an economist for a cure, I find a doctor. If I want to know about prospects for future oil production, I'll ask a geologist thanks.

And yet these absurdly revered icons of supposed wisdom are sought for their opinions on matters they know nothing about.

[kmann]

$this->bbcode_second_pass_quote('rockdoc123', '.')...give me the facts mame, just the facts.