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Is the oil bubble about to burst? Oil prices have fallen below $100/barrel and my dad, who is an oil engineer for Occidental Petroleum, has said prices will probably level off again in the $65/barrel neighborhood. That's where the big oil companies are predicting prices will go during the next six months to a year, too. Whoever predicts when the big fall will happen can make a lot of money playing the market. Demand and supply have been stable for about 6 months. That means oil is trading on speculation only and when they run out of suckers to buy expensive oil, the price will drop to more reasonable levels.
14 Comments on “Oil Prices are Falling. Really!...”
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Demand and supply are even now, with crude at $100 per barrel and gas at $3.25 a gallon. Any price drop will be short lived. If either price goes down substantially, then demand will rise, which will put prices back to where they are now.
No! Keep them high! How else will the peak oil sky-is-falling crowd justify their arguments?
Quasi – at some point peak oil will become a reality – there’s only so much of the stuff on the planet. It’s anyone’s guess right now if we’ll see it in our generation or sometime in the next 4 or 5.
Cheney says high oil price reflects market reality
BAGHDAD (Reuters) – Crude oil prices in excess of $100 a barrel reflect the reality in the market place, U.S. Vice President Dick Cheney said on Monday.
Cheney, on a trip to the Middle East that started in Iraq, said he did not see a lot of excess production capacity worldwide.
Cheney this week will visit Saudi Arabia, where President George W. Bush in January called on OPEC to increase production. (they refused – DF)
Asked about the prospects for increased oil production in the region, Cheney told reporters in Baghdad traveling with him: “One of the problems we’ve got now obviously is that there is not a lot of excess capacity worldwide.”
He said statistics from a Washington energy consulting group had shown that “there’s just not a lot out there, and some of that excess capacity represents high sulfur crude for example, it’s not very attractive and not easily marketed.”
Cheney said there had also been a “dramatic increase” in demand from countries like China and India, and also a lot of countries that used to produce oil primarily for export were now consuming a larger part of what they produce as their economies develop like some of the Gulf states.
“You look at all of that and you look at the much closer balance if you will between supply and demand, as well as the declining value of the dollar, you’ve got a situation in which we’ve seen the price of oil rise fairly dramatically in recent months,” Cheney said.
“But it reflects primarily the realities in the marketplace,” Cheney said.
http://www.reuters.com/article/politicsNews/idUSLAW00006020080317
Oil goes up and down, but the general trend is up. If a lot of us lose our jobs and have no money for gas anyway, it might start trending down, but I don’t think that will be good news.
I heard that due to the falling value of the dollar that the cost of a barrel of crude is @ $30 higher – i.e. if the dollar had not fallen it would be about $70 a barrel.
Also does the lack of refinery capacity show up in the final proce at the pump or that only when a disruption occurs (like Katrina)?
@ thalter,
Demand has been dropping recently, so we will see how long and deep the drop will be. Whoever guesses right will make a lot (A LOT!) of money. All the oil engineers are predicting a moderate, and long lasting drop in prices. They know more than me, and I trust them, as they predicted the price rise as well.
Oil falls ahead of supplies report
Crude prices decline after Federal Reserve slashes rates; government expected to report a rise in inventories.
VIENNA, Austria (AP) — Oil prices dropped almost $2 a barrel Wednesday after jumping higher in the previous session following a cut in a key U.S. interest rate and ahead of a fresh U.S. energy inventory report.
…
On Monday, oil hit a record trading high for a front-month futures contract at $111.80.
The U.S. Federal Reserve board said Tuesday it was lowering its key federal funds rate by three-quarters of a percentage point to 2.25 percent as it tries to stave off a severe economic crisis. Many investors expected a full point cut, but the Fed indicated it was concerned about higher inflation even as it was trying to shore up the economy.
“With [Tuesday’s] 75-basis-point reduction in key short-term interest rates, the Fed continues its eight-month trend of loosening credit which will, in turn, continue the downtrend in the value of the dollar,” Platts Chief Economist Larry G. Chorn wrote in a research note.
Oil could go to $115 In the past several months, rate cuts have fed oil price rallies as investors have bought crude futures to hedge against inflation and the declining dollar. Also, oil futures are priced in dollars, which makes them cheaper for foreign investors as the dollar falls.
The rate reduction by the Fed “could result in oil prices rising to the $112 to $115 [a barrel] range over the course of the next weeks, assuming the other [Group of 10 industrial nations’] central banks hold their rates constant,” Chorn wrote.
http://money.cnn.com/2008/03/19/markets/oil.ap/index.htm?section=money_latest
I’m sure that Iran and Saudi Arabia can literally ignite some more chaos in the Middle East in order to keep the stress on the oil market.
They can also continue to send personnel and resources to Iraq in order to prevent Iraq’s oil production industry from getting back on its feet. After all, nothing helps business like blowing up your competitor’s pipelines and other infrastructure.
Religious nutters aside… I can’t help but get the feeling that a lot of the ongoing violence in Iraq is being funded by Iraq’s competitors for the purpose of keeping them out of the market.
@ yankinwaoz
Having recently returned from that theatre of warfare, I can tell you, for absolute certain…
-I don’t trust the Saudis… AT ALL
-Dubai/Abu Dhabi are our best hope for stability over there
-The situation over there is so complex, I couldn’t hope to explain it here, and have people understand. I don’t fully understand it myself!
A petroleum geology prof of mine in school said it very well, “We’re not running out of oil. We’re running out of cheap oil.”
There will always be oil in the ground as long as humans are around. There is plenty that will simply always be uneconomic to produce.
By the way, that was about the only thing she said well. Otherwise that lady was a nut-job who loved engineering students far more than the geology students in her own department and was a lush at social functions, but I digress.
“at some point peak oil will become a reality”
And at some point we will all be dead. The real issue is, as in everything, timing.
Well stated, Mr. Schwartz.
There seems to be quite a bit of the sour stuff available, but I think Peak Light, Sweet Crude Oil is already a reality. What seems clear is that we’re in an age of energy and climate uncertainty. And the uncertainty, while a boon for traders, is a real problem for the rest of us.
There will always be oil in the ground as long as humans are around. There is plenty that will simply always be uneconomic to produce.
Yup. And those with the expertise to get it will be rewarded.
I think Mike’s piece is a little optimistic about the price, unless we enter a prolonged recession. On the other hand, current fed inflationary monetary policy may mean oil priced in dollars will be pricier.