pretty interesting stuff.... breaking news on cnbc about a pretty big multi strategy hedge ($8 billion)fund, Amaranth, getting crushed long in natural gas. they pretty much just got stopped out of their entire position from a margin call. the fund was +22% for the year going into september and after they announced this they are now -35% for the year. so basically that position was fking massive and they got burned bad. usually stuff like that is a pretty good contrarian indicator of a bottom. we will see what the future holds.
I'm down with cheaper gasoline prices...The real issue is how we avoid a market collapse due to the oil prices nosediving like they are...The prices at $70 were overly inflated, but this affects capital spending programs and hiring...
a market collapse of what? oil prices? we don't do anything. opec will tighten supplies. simple as that. further when prices begin to drop you will see demand start to increase again.
EVENTUALLY. but it's not like the cycle hasn't played out to see serious deflation of oil prices, before. particularly here in houston, that's proved to be pretty painful.
yes there was. i need to get you the links but demand erodes when oil starts to go above 50+. with oil at those prices other sources of energy become more viable. further consumers in america were also switching from gas guzzlers to more efficient cars.
again we still haven't seen opec start to cut production. they were putting a lot of oil on the market when the price was spiking and now the glut of oil is starting to effect the prices after people stopped freaking out. they will set a floor. this will happen unless they decide to go back on what they have been saying, which i doubt will happen. the bottom line is the world needs a lot more oil than it is producing. i think production is only expected to grow by 1 million bpd while demand is expected to grow by 4 million bpd in the next 2 years. not good.
i assumed you were right but i recall vividly reading/hearing somewhere that demand didn't decrease. i dont know the accuracy of that though and i have no citation.
Demand is decreasing from high prices. A major factor keeping inflation in check in America is cheap exports from developing nations like China and India. If the Western economies are hurting from high gas prices, then they'll spend less on developing countries' exports (and in general). Then developing nations will cut back on overall oil consumption as well. A regional depression or crisis would land us back to super cheap gas prices we had during the early 90s. OPEC has partial responsibility by not keeping back too much supply or holding an unsustainable market value.
OPEC surfs the waves of the world's economic strength, constantly fine tuning it's price and output against sustainable demand and political stability to yield a maximum return and ensure their continued peace.
Sorry I am replying so late to this thread. I don't follow this forum very often. To me, this is just deserts. The futures market is r****ded. It was created because farmers were seasonal, and they were like Popeye's Wimpy: They would take a guaranteed dollar today for their harvest rather than risk it due to weather. Unfortunately, too many other products got stuck on that exchange. And it wasn't good. To me, the futures market needs to go away. It isn't necessary anymore, and it is too easily manipulated.
here is the first link that came up when i typed 'demand erosion of oil' http://www.redorbit.com/news/scienc...n_worries_markets/index.html?source=r_science
I am actually seeing 1.99 in one gas station here in my area, I hope it continues for a while and the winter gas bill stays low this year.
the problem is...their forecasts for demand aren't being met. it seems like every year i read that demand isn't growing as fast as the "experts" anticipated it would.
that's how i see it, too. that's the reality everyone is waking up to. that's the reality that people woke up to in the oil bust that hurt houston so badly in the past. you inflate it on fear...irrational fear. the basis of which never "pans out." and then when it doesn't, it's like pulling the rug out from under the whole market. there's no basis to support oil at $74 right now. the only way they could get there was to convince themselves we were headed to war with Iran at the same time killer storms would wreck the Gulf of Mexico and more hostages would be taken in Nigeria. and just like they told us in the 70's that prices would have to stay inflated because we would be out of oil by 2000....we're hearing the same call today about what will happen in 2030.
http://en.wikipedia.org/wiki/Jawboning Jawboning From Wikipedia, the free encyclopedia Jump to: navigation, search During the mid- to late 1960s, the Lyndon B. Johnson Administration tried to deal with the mounting inflationary pressures by direct government influence. Wage-price guideposts were set up, and the power of the presidency was used to coerce big businesses and labor into going along with these guideposts. This general approach came to be known as "jawboning" -- an unofficial but usually quite effective technique of arm-twisting to prevent labor and businesses from getting big wage or price increases. The phrase also refers to Herbert Hoover's efforts to convince employers to keep wages high as prices fell during the Great Depression. While Hoover was successful in obtaining such agreements, they did little to alleviate mushrooming unemployment. The term has been used more recently in other contexts. During the 2000 U.S. Presidential Election, George W. Bush criticized outgoing president Bill Clinton for not attempting to lower oil prices by "jawboning OPEC" to increase supply. In a threatening election year the president will use whatever powers of pesuasion he can to insure that the economy is rosey enough to get his party elected. Being that the CEO's of Big Oil, The Saudi Royal Family and the Government of Kuwait and the U.A.E are his political allies anyway why would you have to be a conspiricist to understand why the price of gasoline in the USA is dropping? True we have been lucky in the gulf this summer after the experts predicted an active hurricane season (who pays those experts anyway? Were there no signs of El Nino prior to the last two weeks?) and the US economy is cooling. But China's isn't and India's isn't. It is in OPEC's long term interest to engineer a soft landing for the US anyway. A recession hits their long term market. It is China's long term interest to engineer a soft landing in the US by artificially restaining their consumption. We are there #1 source of currency and they hold massive amounts of US debt instruments. After the election energy prices will creep right back up and the people that control the markets will make their profits up over the next two years. Then we have another election.
But Dubious, this is a world wide petroleum market. It's not just the US. Gas prices typically fall this time of year, anyway...as summer vacation closes off. we had supply diminish due to katrina and rita. most of those concerns are gone now. The price of oil was completely inflated around fears...fears of hurricanes. fears regarding iran and nigeria. none of them turned out that way. this was the shaky ground these numbers were based on...and it all collapsed. particularly at the close of a very modest hurricane season. oil went down over $2 today.
None of this is groundbreaking. This is the same cycle we've seen before. http://articles.moneycentral.msn.com/Investing/CNBC/Dispatch/LowGasolineMaybe.aspx?GT1=8579 Why $1.15 gas isn’t a fantasy Sure, it sounds far-fetched, but the pieces are starting to fall into place for what could be a dramatic drop in oil prices over the next few years. Remember when you paid $1.15 a gallon for gasoline? You could be paying it again. Maybe not this year, but perhaps in the next few years. Sure, oil experts say there's little excess refining capacity. Oil reserves are stretched. Oil consumption is soaring in China and India. But things are starting to change. Drivers are changing their habits. Global tensions are easing, and more supply is on its way. Crude oil zoomed to nearly $80 a barrel this summer as traders fretted about waning supplies and two big potential problems: tensions over Iran's nuclear research program and Katrina-style hurricanes threatening oil production in the Gulf of Mexico. To keep prices moving ever higher, traders needed -- and frequently got -- a steady stream of bad news. "It was like you needed a fifth of booze a day to keep the buzz going," says Peter Beutel of Cameron Hanover, a Connecticut energy consulting firm. But prices began falling a month ago when it became clear hurricane season wouldn't be anything like last year. Oil traders have come to sense, too, that all the saber rattling over Iran was dissipating. "We got everyone leaning the wrong way," Beutel said. (In fact, a big hedge fund was forced to tell its investors this week that it would be taking a huge loss because it bet the wrong way on natural gas.) Result: The spot price of crude oil closed at $63.23 a barrel in New York on Thursday, down nearly 18% from a peak of $77.03 a barrel on July 14. Crude rallied slightly on Friday and Monday. AAA says the national average price of gasoline is $2.495 a gallon, down nearly 17% from peaks in August, and there are some communities in Missouri where it has fallen under $2 a gallon. Prices should moderate further in the coming weeks because the summer driving season is over. The oil price break has forced everyone in the energy business to take a hard look at how much lower prices could fall. A lot lower, says Philip Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Indeed, he told McClatchy Newspapers last week, "All the hurricane flags are flying" in oil markets. If everything falls into place, crude could drop perhaps even to $15 a barrel, Verleger says. And then, he says, you would see gasoline at $1.15. Here's how that could occur. Oil and gasoline inventories continue to grow. They've been building up all over the world as users and refiners have scrambled to ensure enough supply in case, say, the Strait of Hormuz in the Persian Gulf is shut down. Tankers from Iran, Saudi Arabia, Kuwait, Iraq and other Gulf oil producing countries must pass through the strait to bring crude oil to the rest of the world. The weather cooperates. On top of a hurricane with few threats to the oil and gas fields in the Gulf of Mexico, weather cooperation means a warm winter like the winter of 2005-2006. That would drop demand for heating oil, a key heating source especially on the East Coast and in Europe. And that would create excess supplies of crude that refiners could use to make gasoline. Tensions in the Middle East continue to ease. This assumes conflicts between Israel and Hezbollah in Lebanon tail off and that Iran and the rest of the world come to an agreement over Iran's nuclear program. (Admittedly, the latter is a reason why the scenario could fall apart.) Drivers take the bus. There is anecdotal evidence that U.S. drivers are finding other ways to get around with gas prices above $3. The big question is if they will climb back behind the wheel as prices drop. Those four pieces are just the start. Beutel thinks two more catalysts are starting to emerge. 1. At current prices, Beutel says, "you can drill a lot of dry holes before you give up on a field." And so, drawn by the potentially huge profits, energy companies are finally starting to make plans to drill for more oil. Example: the Jack 2 field in the Gulf of Mexico now being developed by Chevron (CVX, news, msgs), Devon Energy (DVN, news, msgs) and Norway's Statoil (STO, news, msgs). While the field is 7,000 feet under water and another 20,000 feet under the ocean floor, it's also huge. One report suggested it could boost current U.S. reserves by 50%. Cambridge Energy Research Associates says some 360 additional drilling projects are now under way and global supplies could grow by some 25% by 2015. 2. Beutel thinks buyers are already demanding more fuel-efficient vehicles. "They're not buying SUVs," he says. Not now anyway. But don’t write the Hummer’s obituary just yet. Beutel thinks that, at some point, prices will drop so low that Americans will get complacent and start driving big gas-guzzlers again. And the cycle will turn. -- Charley Blaine
