[frankthetank]

CNN

Foreign leaders, oil is going to go down...keep buying safe American Debt... LOTS OF SARCASM
$this->bbcode_second_pass_quote('', 'B')ut the real oil shock could be a pleasant one -- a surprise drop in prices sometime before next spring. Traders and some analysts expect the price of oil to run up to $60 or even $70 a barrel in the next month or two. That may well happen. Momentum is intense, and it's notoriously hard to pick the top for a commodity in the midst of a runup.

But some of the smartest observers think that though prices could move higher in the very near term, an oil price above $50 a barrel is ultimately unsustainable. The reasons for the past year's runup all have to do with transient factors. The war in Iraq not only destroyed some oil wells, but also raised fears of more damage to production facilities. Most analysts figure that the price of oil now includes a so-called terror premium that ranges from $9 to $15.

But that's not all. Strong worldwide growth, particularly in China, has contributed to global demand. In addition, hurricanes in the Gulf of Mexico temporarily disrupted both local production and, even more important, refining.

With some refinery capacity sidelined, supplies of distilled products, such as gasoline, diesel fuel and heating oil have declined even though inventories of crude oil actually rose in the most recent week. Demand for distillates is running 4 percent above year-ago levels. And analysts point out that oil prices rarely top out before mid-winter, because of the jump in demand for heating oil in November and December.

Think long term
The picture looks entirely different, however, if you look out beyond the current squeeze.

A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons.

There are always risks in the oil business, given the political volatility of many of the countries involved. But current production is adequate to cover current demand. More important, production is expected to rise substantially both this year and next. In addition, there are signs that the Chinese economy may be starting to slow.

Once the supply/demand balance begins to tip the other way -- which could happen within four or five months -- oil prices could start to slide. And some analysts believe that they could fall as low as $35.
...

[chris-h]

$this->bbcode_second_pass_quote('', 'B')ut the real oil shock could be a pleasant one -- a surprise drop in prices sometime before next spring of 2007.

Traders and some analysts expect the price of oil to run up to $300 or even $350 a barrel in the next month or two. That may well happen. Momentum is intense, and it's notoriously hard to pick the top for a commodity in the midst of a runup.

But some of the smartest observers think that though prices could move higher in the very near term, an oil price above $150 a barrel is ultimately unsustainable.

The reasons for the past year's runup all have to do with transient factors. The war in Iraq ,Inan Venezuela and Saoudi Arabia not only destroyed some oil wells, but also raised fears of more damage to production facilities. Most analysts figure that the price of oil now includes a so-called ultra -terror premium that ranges from $150 to $200.

But that's not all. Strong worldwide growth, particularly in China, has contributed to global demand. In addition, hurricanes in the Gulf of Mexico temporarily disrupted both local production and, even more important, refining.

With some refinery capacity sidelined, supplies of distilled products, such as gasoline, diesel fuel and heating oil have declined even though inventories of crude oil actually rose in the most recent week. Demand for distillates is running 9 percent above year-ago levels. And analysts point out that oil prices rarely top out before mid-winter, because of the jump in demand for heating oil in November and December.

Think long term
The picture looks entirely different, however, if you look out beyond the current squeeze.


A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons.


There are always risks in the oil business, given the political volatility of many of the countries involved. But current production is adequate to cover current demand.

More important, production is expected to rise substantially both this year and next. In addition, there are signs that the Chinese economy may be starting to slow.

Once the supply/demand balance begins to tip the other way -- which could happen within four or five months -- oil prices could start to slide. And some analysts believe that they could fall as low as $120.
...

[frankthetank]

Sounds more accurate...

[tmazanec1]

Actually, if it does temporarily drop, it might take $1000 a barrel to convince people of Peak Oil.

[Aaron]

$this->bbcode_second_pass_quote('', 'M')ore important, production is expected to rise substantially both this year and next. In addition, there are signs that the Chinese economy may be starting to slow.

[smiley]

$this->bbcode_second_pass_quote('', 'C')hina is cooling off?

What signs? The Chinese are desperately attempting to slow their economic growth with little or no success right now.

[lowem]

Doh, "unsustainable" ?

All it takes are willing buyers, and there are plenty of them out there, as I understand it.

[lotrfan55345]

$this->bbcode_second_pass_quote('Aaron', '')$this->bbcode_second_pass_quote('', '
')What signs? The Chinese are desperately attempting to slow their economic growth with little or no success right now.

[Rod_Cloutier]

Is $110 dollars a barrel is the new unsustainable number?

Gail Tverberg says this price is too low for producers and too high for consumers:

$this->bbcode_second_pass_quote('', 'I')t is hard to see a way out of our current predicament. The ability of consumers to pay higher prices for goods and services under normal circumstances requires higher wages. But if higher wages are not available, higher debt plus very low interest rates can “sort of” substitute. This cannot be a permanent solution, because there are too many things that will disturb this equilibrium.

As we have seen, rising interest rates will bring an end to our current equilibrium, by raising costs in many ways, without raising salaries. It will also reduce equity values and bond prices. A rise in the cost of extraction of oil, if it isn’t accompanied by high oil prices, will also put an end to our equilibrium, because oil producers will stop drilling the number of wells needed to keep production up. If oil prices rise (regardless of reason), this will tend to put the economy into recession, leading to job loss and debt defaults.

[Pops]

Wow, 586 comments! Bravo Gail

The OP goes to show that short term forecasts are awfully hard to nail - especially when you only look at short term indicators. But isn't that the nature of the punditry biz? Every single day on the nightly news there is a head pontificating authoritatively on the definitive explanation of why this market or that price moved this way or that .00001% today.

And usually they get paid, somehow or other, by the folks who profit from the angle they are pitching.

Says me, who gets paid very little by anoyone, LOL

[Subjectivist]

Gail Tverberg was on TheBlaze TV tonight, interviewed at 5:20 pm EST. She did a fair job of explaining to Mr. Beck that at these prices most banks in America are at risk because of all the oil field based derivatives that have been sold into the financial markets.

If you have TheBlaze I recommend you watch the interview for yourself, if it shows up on YouTube highlights over the next week or so I will post the link.

[Subjectivist]

The highlights of Gail's interview are now up on YouTube
http://youtu.be/_-sPE79pYak

[Pops]

Synthoil?
The Saudis collapsed prices in the '80s because "we were going to produce synthoil"?
LOL, wtf

Gail said the downturn in oil prices make producers quit and go home and production falls permanently.

LOL, I love Gail but I call BS. If there is oil to pump and people to pay the price, the downturn in production is as temporary as any other period of overproduction just as soon as the surplus clears, no sooner and no later.

The difference between the housing boom and the "oil price boom" was that everyone, all across the country, from top to bottom of the ladder benefited from the RE boom. From landscapers to furniture salesmen, car manufacturers to travel agents and of course, construction and real estate, all benefited from the housing boom - all sectors overbuilt capacity, borrowed more than was justified by history and got their tits caught in the wringer in the downturn. Not so the Oil Price Boom.

How silly is that? I really can't believe she is saying it, like I said elsewhere she has pretty well pulled a Matt Simmons and jumped the shark. The price run up gave us one of the slowest growth periods in history - because it took money out of everyone's pocket - just the very exact opposite of the RE boom.

This time some bars in north Dakota and a few gentlemen's clubs in Huston will feel the pinch. Not at all comparable
.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'H')ow silly is that? I really can't believe she is saying it, like I said elsewhere she has pretty well pulled a Matt Simmons and jumped the shark. The price run up gave us one of the slowest growth periods in history - because it took money out of everyone's pocket - just the very exact opposite of the RE boom.

[Pops]

$40k + a year sounds like a lot. But more than a third is housing, food is $6-7k, insurance is $5k - then add another #3k to actually pay for your medical, mabe a new pair of underwear now and again.

It adds up.

In 2011 doc the Average American paid $368 a month on gas, at just under $4/gal.
Today @ $2/gal average that would be about half so $175 savings a month - $2,000 savings a year

That's close to the same amount the average Joe spends on eating out, or entertainment and more than all their clothing for the year. I think that is pretty substantial, maybe not if you earn $100 or $200k a year but it is if you are average, and tough luck if you are not.

https://www.census.gov/compendia/statab ... 2s0684.pdf
http://money.cnn.com/2011/05/05/news/ec ... _spending/

[Subjectivist]

I dunno Pops, if Gail is right about so many banks being deeply involved in financing of the Frackers it could come around to bite us all where the sun don't shine.

[Pops]

Obviously I have no inside knowledge.
Lots of financing came from junk bonds, over $300 billion according to this article. People in those should know what they're getting into in that market.

Then there are the publicly traded who will only shaft the stock holders.

But I'd guess there will be the usual mergers and takeovers round before too many go upside down completely. But you never know, maybe the big companies with deep pockets will be too shy (or too smart) to go rushing in.

My thought though is more about the oil boom being much less pervasive in the economy than the real estate bubble. Like I blathered about above, it hasn't affected the regular guy across the spectrum, say, the landscaper who ran out and bought 3 new trucks because everyone was taking out 2nds and putting in new lawns - not to mention the people who took out the loan and went under. I'm pretty sure that is what hurt the real economy more than the stock market fall or credit crunch or bank failures.

[sjn]

Pops, what you're saying doesn't jive with the other information we have about where the US economy has grown since the last bubble popped. All the growth has been in regions affected by the fracking boom, almost without exception. That of course include indirect auxiliary services and infrastructure in addition to the growth in the oil patch itself.

Do you really think next time the oil price rises up towards the "maximum affordability ceiling", the financing is going to be as cheap and readily available to shale producers as it was in this last bubble cycle?

[Pops]

That is exactly my point! Money transfer from everyone who buys energy to a few in Houston and N Dakota.

[Pops]

As far as financing, no I don't think it will be as easy once investors realize it ain't all it's fracked up to be.

But that was bound to happen anyway when LTO peaked.