The great oil bubble has burst.....really?

[BraggSurvivor]

What coincidence is it that oil started to fall, almost the same time when the Feds said they were going to crack down on oil commodities speculation? I guess the big money decided that the jig was up and time to get back to running up the DOW.


"The great oil bubble has burst

Bad news from the Baku-Tbilisi-Ceyhan pipeline - an installation that may not normally draw much of your attention, but which is a throbbing artery of global energy supply, carrying vital oil supplies from Central Asia towards a tanker terminal on the Turkish coast. On some remote, sun-baked plain of Anatolia, an explosion sparked a fire earlier this week, temporarily cutting the flow through the pipeline.

But guess what? Here's the good news: the oil price did not zoom upwards in response, not a blip, barely a flicker. Actually the price of a barrel of crude has been falling: from a peak of $145 in early July, it came down to $117 and was trading yesterday at $120. That's almost a 20 per cent drop in little more than three weeks.

Just possibly, it means that what investors refer to in shorthand as the great "oil up" story has finally revealed itself not as the fundamental reflection of scarce supply that its adherents liked to claim, but as a simple, speculative bubble that was always going to burst.

The market's conviction that oil prices were set on an unstoppable upswing was underpinned by a set of mantras to be chanted daily before breakfast by anyone hoping to make money by following the crowd: insatiable demand from China; indolent Opec sheikhs unwilling to open the supply taps; that nasty Vladimir Putin playing political hardball with Russia's oil and gas resources; those mad Iranian mullahs hell-bent on nuclear conflict; and beyond all these, the looming threat of "peak oil", the inevitable moment when Mother Earth's carbon-fuel gauge starts pointing towards empty.

One way or another, said the fundamentalists, the only destination for oil prices in the medium term was somewhere north of $200 a barrel. And hooray to that, chorused the green lobby, because it may be the only thing that will ever make us wake up to the need to stop cooking the planet with carbon emissions.

Reading these tea leaves, if you are a hedge-fund manager who has spent the past year smugly amassing "oil up" positions in sophisticated financial instruments, you will certainly be trying to get out of them now: hence the sheer speed of the recent falls."

Or...

I have been reading/following the oil market since oil went over $35. It falls to $115 and people are jumping up and down calling for a collapse. Good luck. You better hope that the world economy collapses and that you get a warm winter.

What will matter will be the physical supply, not the futures market. Unless you can start to produce more oil you better have a lot of demand destruction or prices will explode.

[tacmedic]

So is this the anti-gloom and doom thread?

[ryaninmichigan]

No such think as peak oil.

[LostOutrider]

Really? Explain, please.

[RobertRogers]

Of course, gas and oil will soon be cheap once again. I predict about $1 a gallon.

And I have a bridge in New York City to sell you too.

[Sam Reeves]

There's a endless suppy of oil out there. That's why America capped off so many of our oil feilds and are willing to go to war with half of the planet to get at somebody else's oil.

[LostOutrider]

Well, no. That isn't exactly what peak oil means. It doesn't mean we're going to run out - it means that there is a point where refining/processing it is no longer worth the cost of extracting it. To simplify, if it costs more than a barrel of oil's worth of energy to extract/refine a barrel of oil . . . . then nobody is going to do it. All of the easily obtainable, cheaply refined oil is pretty much capped, tapped, and owned. Add that to the rapidly rising global middle class that demands the same inefficient standard of living that we've enjoyed for the last fifty+ years and you have peak oil a'comin'.

Don't think for a moment that good ol' American companies won't sell your last drop of homegrown oil to China while your F-1500 dries up in the garage and your son asks for a moped instead of a Mustang when he hits 16. I think that is why, like Sam said, that the gov is sitting on so much oil.

Then again, Uncle Sam could just be saving it for me to use on a rainy day.

[edited to add] American oil production hit peak around 1970-71. Look at the energy crisis that came after that and then examine the major military conflicts we've been in since then.

[catfish10101]

1. The price of oil is pretty much what "Big Oil" decides to pay to import it.
2. The price was purposfully driven up to increase profits by driving up the price of the refined profits. This is proven by the Big oil companies' record profits the last few years.
3. The price is now on the downslope because we are no longer buying gasoline and burning gasoline as much as we used to. This has cut into their profits and this past quarter, they did not meet their estimated profits. They have found that breaking point between jacking up prices for profit and driving down demand for the product. Now they will back off that point just a bit, and wait for another excuse to drive it up again, pushing that breaking point a little higher each time.
4. The government knows just exactly what is going on. The "investigation" is just to appease the ticked off people. The government has taken notice and is even using the same technique to give themselves a raise. (The Louisiana ligislature voted themselves a HUGE raise that made the people angry, the governer vetoed the raise to make the people happy, next, they will vote themselves a smaller, but still big, raise and the people will not be as mad.
5. The price of gasoline will never be $1.00 a gallon again in this country, the oil companies, with the help of the government, will not let that happen.

[Beo]

The New York Times and our local paper as well as the news said that this fall or next fall oil will go back up and so will the price of gas, that this is only a temporary thing.
Gas here is at $3.49 a gallon for now.

[RobertRogers]

Many people do no realize what we have done is exported much of our manufacturing base to asia - who now have a "higher standard of living" ie buying cars, heating homes enough so that they can wear t-shirts indoors in winter, etc:

The result is an increased draw on the worlds fuel supply, driving up prices.

If we think we can drill our way out this, think again.

[Beo]

New York Times: Aug 5th 2008
Oil prices are falling sharply, and that's good news. But not nearly as good as you might think.
No doubt the drop, down to $120 by mid-day Monday, gives strapped consumers relief at the gas pump. Prices have dropped below $4 a gallon and could be headed toward $3.50, going by trading in wholesale futures markets. Any decline will be welcomed by Americans struggling under the burden of falling house prices, rising layoffs and stagnant wages.
But falling oil prices also suggest that the recession the U.S. has so far avoided is well on its way, as consumers pull back from the spending spree that drove economic growth earlier this decade. A weakening economy will mean more layoffs, further pressuring already reduced spending.
"There is no doubt that with gasoline prices dipping below $3.90 a gallon we have a bit of a reprieve on the energy front," Merrill Lynch economist David Rosenberg wrote in a report Monday, "but the reality is that this is a chicken and egg game because the decline is reflecting the consumer recession."
Energy use down
Perhaps the biggest factor behind the recent 18% drop in the price of a barrel of crude is sinking North American demand. Federal Highway Administration data show the number of miles driven in the U.S. dropped from year-ago levels for the seventh straight month in May.
May's decline was the third-largest monthly drop on record since 1942, says Stephen Schork, editor of the Schork Report energy and shipping newsletter in Villanova, Pa.
Americans are driving 4% less now than they were a year ago, Rosenberg writes, while energy use in inflation-adjusted terms has dropped 2% - an event he calls "extremely rare."
The pullback comes after the recent crude-price surge - the cost of a barrel doubled between Labor Day of 2007 and July 11 - seriously damaged the industrial economy, which despite its long decline remains a crucial source of better-paying jobs.
General Motors (GM, Fortune 500) on Friday posted a $15.5 billion second-quarter loss, as sales plunged 18% from a year ago. The company and rival Ford (F, Fortune 500) have slashed truck production, laid off thousands of workers and refocused on smaller cars as buyers flee the light trucks that had made the companies so much money.
Americans' decision to drive less comes at a time of rising stress. The economy has been hemorrhaging jobs and real wages, adjusted for inflation, have been flat to lower for a decade. Americans have enjoyed a rising standard of living in the meantime by borrowing - but with banks choking on subprime mortgages gone bad, the loan window is closing. Rosenberg calls a recent rise in the savings rate "a vivid sign that frugality is now replacing frivolity."
Meanwhile, the weak economy is spurring more companies to cut back. Outplacement firm Challenger Gray & Christmas said Monday that layoff announcements jumped 26% from a month ago in July. The unemployment rate recently hit a four-year high at 5.7%.
How low can it go?
One unhappy fact is that a drop in the price of oil won't bring back many of the jobs lost over the past year to the energy-cost surge. Even were gas to fall to $3 a gallon - a move that is by no means assured - no one is going to beat a path to the dealership to buy pick-ups and SUVs that are now, in many cases, being phased out. GM recently announced plans to shut four SUV plants.
On a happier note, there is hope that the decline in oil prices has just begun. While Schork says it's anyone's guess where crude will trade - "By the end of the third quarter, there's a good chance oil could be below $100 a barrel, and a good chance it could be above $150," he says - others see a chance that the commodity, having enjoyed a head-spinning runup, could also drop more than anyone expects. Economist Jim Griffin notes at the ING Investment Weekly that crude's rally earlier this year became "nearly parabolic" - a sign that the decline could be steep.
Now a return to double-digit oil may not rescue the Hummer. But as the government's fiscal stimulus program did earlier this year, it could give consumers a little more change in their pockets, either to spend, salt away - or pay down their debts.

[jrock24]

Does anyone think that the dropping pirce of oil may-be because of what Obama was proposing.

Another stimulus check for families, making the big oil companies pay out of there gross profits?

It kind of makes sence to me, they are now lowering the price to lower gross profits to not have to pay out of there pockets.

[crashdive123]

Does anyone think that the dropping pirce of oil may-be because of what Obama was proposing.

Another stimulus check for families, making the big oil companies pay out of there gross profits?

It kind of makes sence to me, they are now lowering the price to lower gross profits to not have to pay out of there pockets.

Absolutely NOT. This proposal, taking the profits of publicly traded companies to redistribute to individuals that did nothing to earn it, will IMO cause the price of oil to rise. This plan is just another plan to buy votes in an election year.

[jrock24]

I agree with you Crash, eventually the money the oil company pays will be taken back with some extra.
I just find it a big coincidence that after he announced that idea/plan the price has went down.

[crashdive123]

Actually, if you look at the time line for the falling price of gasoline, you will find that the announcement you are referring to had nothing to do with it. There are a few factors IMO that caused the price of gasoline to start falling. First, demand is down. It seems the tipping point for many Americans is $4 per gallon. With a decrease in demand, there is an increase in the supply, which will naturally cause the price to fall. Second, when the President of the US recinded the executive order for drilling off shore the price of oil fell immediately. Third, there is increasing pressure on the US Congress to tap into the known oil reserves that are available to the US but currently off limits.

[ryaninmichigan]

Really? Explain, please.

Google "THERE IS NO SUCH THING AS PEAK OIL."

[Sam Reeves]

Google "THERE IS NO SUCH THING AS PEAK OIL."

Come on, man. Saying that there is no limit on the world's supply of oil is like saying there is no supply on the world's silver or the world's lobster, etc.

[BraggSurvivor]

crash, crash, crash......


The oil price has been entirely manipulated for decades. Now they are bringing down the price to save their banking system, give the stock market and dollar a pre-election rally and weaken the OPEC countries, especially Iran. The hedge funds are almost all the wrong way round and have got much more to sell yet.

A few things to ponder on!

The Olduvai Theory states that the life expectancy of industrial civilization is approximately 100 years: circa 1930-2030. Ackerman*s Law defines it:
e = Energy/Population.
Four postulates follow:
1. The exponential growth of world energy production ended in 1970.
2. Average e will show no growth from 1979 to circa 2008.
3. The rate of change of e will go steeply negative circa 2008.
4. World population will decline proximate with e.

Google link for Olduvai Theory follows -
http://www.google.com.au/search?hl=en&q=Olduvai+Th eory&meta=

[ryaninmichigan]

Come on, man. Saying that there is no limit on the world's supply of oil is like saying there is no supply on the world's silver or the world's lobster, etc.

Hydro carbons (oil) has been proven to be a naturaly occuring substance in the know universe. They have found it in other planets. Peak oil, global warming. All BS

[Rick]

No offense, but you need to take a Chemistry 101 class. Hydrocarbons do not equate to oil. Oil is composed of hydrocarbons but not all hydrocarbons are oil. BIG difference. It depends on the bonds, whether they are saturated or unsaturated, etc.

Heavy crude is a finite item. You can branch out to other forms such as methane clathrate, which appears to be super abundant but super hard to harvest, but our technology is geared around heavy crude. Believe what you want on it's abundance.

And yes, places like Titan appear to have massive lakes of methane but that does me little good when my grill is out of gas or my truck gauge is near empty.