Oil: Bear or Bull?

It is cloud cuckoo land to think that we are not at a resource constraint position. Production of many key commodities is flat or down and demand is rising. There are some strong speculative effects in the market, but I think a stronger factor is the amount of hedging against higher prices in the future. The market is probably slightly inflated because of speculative activity, it is no coincidence that there has been a price jump in commodities when other investments have been performing so badly, and there will, probably be a small correction when some of that money leaves the market. However, don't be deluded into thinking that is the end of high resource prices. The trend is up and people living unsustainable lifestyles will suffer.

How much hurt will it take before the suburbs start emptying or revolting?

It's a bit of both. Not to sit on the fence, but while high oil prices are here to stay you just can't inflate the price $10 a barrel every week shouting "IRAN MIGHT NUKE ISRAEL" without some sort of correction occurring in the future.

In any case, them electric cars can't come soon enough.

Especially when they look like this:

http://oneworldnews.files.wordpress.com/2007/10/aptera1.jpg
http://www.ecogeek.org/images/image/carPOST.jpg

anyone else?

I think some of both. Price has gone up too fast for supply/demand to be the sole factor, but obviously supply/demand is a big factor.

And I think there's probably room for it to climb more before a correction.

I don't feel comfortable enough either way to play any investor games with it.

This poll came from seeing a number of posts here - and articles elsewhere - positing idea that oil is in bubble driven up by speculation. I don't understand that idea and wonder how common it is. Also for someone who believes its speculation to explain how much of it is speculation - and where they think prices are headed. And I guess those that think its going to continue up - how far. Gazprom are talking $250 a barrel (but then...they would). As much as the west is feeling it - we're not in lifestyle change territory yet. How far away are we?

Isn't it more likely that it would be bonds that would be the bubble - rather than oil?

That sounds like absolute horseshit to me. With oil at its current price, demand increase is already beginning to slow. Meanwhile the ceiling keeps getting higher for ridiculous price peak claims.

speculation has certainly taken its toll this summer but if we're not at peak oil I guess you can just call me when berkshire hathaway starts buying puts on crude

or I should say if we didn't hit peak oil LAST summer

Right! so thats what I'm trying to get at, when do we reach the point where demand destruction kicks in and prices drop? What happens about the countries that subsidize oil prices and shield populace from market? How much of rising prices are actually falling dollars? How will China and India manage demand (is their demand large enough to matter yet? if not, when will it matter?)

Crapshoot. Assuming demand in the United States will meet the ballyhooed IEA estimates of a 2.5% reduction and we cut subsidies in emerging nations while holding tight on taxes in the developed world, option one would seem the most likely, but honestly, who knows?

Oil demand is not that elastic, there seems to be a lot of drag on prices feeding back into demand falloff.

Incidentally, TOMBOT and I were talking about an ILEcon board for economics and finance discussion, anyone interested?

i think that there's been over-speculation/bubbling in CERTAIN commodities (e.g., precious metals and grains) -- the blame for which i place on current fears of inflation as well as certain dunderheaded governmental policies, not to mention as a "refuge" for big/dumb money after the subprime collapse.

as for oil, however -- i agree more w/ ed, and blame increasing prices on resources constraint/peak oil/whatever.

ed: i would be MOST interested in such a board!

I Love Money -- oh wait

Subquestion: Is the US going to get priced out of Oil?

If oil prices keep rising the way they have been, demand is going to become a lot more elastic than we're used to thinking it is.

Eisbaer: Can you explain fully how bubbles occur in stuff that is clearing. How much are people stockpiling oil and food? Should they be!

Are we maybe seeing food prices rise to proper from the suppressed levels of the last few decades?

No, but some people's lifestyles are alreadfy becoming unsustainable, it will hurt most in the US as they have the most unsustainable lifestyles.

http://www.nytimes.com/interactive/2008/06/09/business/20080609_GAS_GRAPHIC.html
http://www.nytimes.com/2008/06/09/business/09gas.html?scp=1&sq=holmes+county+Gas+Prices&st=nyt

A 30 mile commute to a median income job in the south is no longer sustainable.

I don't doubt demand will become more elastic (a good thing in my book) but the lag is still quite large. It takes time and money for people to get more efficient in their consumption, yes discretionary driving will drop but people still have to commute, can't move into the city that easily and can't replace their 30 year old furnace. The drop will come from industrial demand, at first, but even there it takes time to contract.

I'd imagine business can change pretty quickly. How hard can it be to start switching cargo from trucks to rail/ships and to start buying more goods from nearer sources?

The suburbs and transit threads address such issues but the US is not at the point of lifestyle change and the suburbanization of China means that despite some better efforts at planned cities car-reliant outerlying suburbs are spreading rapidly there too.

High density suburbs - comprehensive transit links - cycle paths and bicycle usage for commutes are all a long way off.

I'd imagine business can change pretty quickly. How hard can it be to start switching cargo from trucks to rail/ships and to start buying more goods from nearer sources?

-- Hurting 2, Wednesday, June 11, 2008 4:34 PM (1 minute ago) Bookmark Link

This is harder than you might think; in both the US and europe the railways are at or near capacity near the big markets. Add to this that we have destroyed the distribution networks that allowed us to supply and be supplied locally. everything is now centered on national or regional distribution hubs. Take any product you like and we have practically destroyed any chance of it being supplied on a local level.

Japan follows a model based more on rail than trucks I think (more tolls for road usage also?)

As for the US what about cities that thrived before cheap oil (...Detroit!)

And destruction of currency (and therefore wages in global terms) plus rising transport costs - at what point does it become cheaper to can fish at home instead of flying it to the Phillippines

Getting people to switch to a more sustainable way of living will be great fun. Well, fun for me because I live in an inner city area. Recently, the state government where I live released a plan of creating higher density suburbs along public transport lines (as one government minister pointed out, "families won't be owning two cars in ten years time") which unleashed an almighty torrent of fury from 40-something outer suburbanities with comments like "trying to force us to live in ghettos...replacing our lovely wide green yards for Soviet-style concrete blocks...instead of putting money into build tram lines, they should build more freeways for the outer suburbs" and so on like a bunch of fucking maroons.

IEA stays demand growth to slow but still to outpace growth in supplies:

http://www.nytimes.com/2008/06/11/business/worldbusiness/11oil.html?ref=business

As for the US what about cities that thrived before cheap oil (...Detroit!)

Pittsburgh FTW.

Getting people to switch to a more sustainable way of living will be great fun. Well, fun for me because I live in an inner city area.

Costa Mesa ain't inner city by any definition but I hear you. (Living next to a 24-hour bus connection = handy.)

the US is not at the point of lifestyle change

yes we are, see the link Ed posted to NYT graph

High density suburbs - comprehensive transit links - cycle paths and bicycle usage for commutes are all a long way off.

no they aren't

in the next five years we are going to see little tiny electric things show up all over the roads, battery technology come out from the fucking cave they buried it in back in 2000, and mad uptake of bikes for transit (to include motorcycles). in the next ten we are going to see public transit usage double or even triple in some areas to the point where our president is likely going to announce a big federal pu$h for mass transit all over the country, taking those homeland security dollars-for-cctv grants and giving them to light rail programs

after about a decade the demand for oil is going to be largely coming from trains, planes, trucks and ships, and all of those are going to continue to become more and more efficient than they are now.

in fifty years the biggest consumers of oil in the world will be military, and dubai will be a ghost town. As it should be.

it doesn't take long for shit to change. Tipping points, blah blah blah

What would happen to oil prices if China dropped dollar peg? In, say...2013?

remember twenty years ago when people used typewriters and telephones with big curly cords?

remember ten years ago when a mobile phone was unreliable and too big to fit in your pocket anyway?

remember five years ago when most ILX posters used MODEMs?

I hope so El Tomboto but how is that going to work in a city like Houston?

did i tell you guys about the kid my uncle's new wife knows, a hillbilly kid who goes to school way up in the smoky mountains, near chilhowee lake? his whole family's always kept horses and he's started riding a horse to school (appprox. 3 miles away). the school has put in a makeshift stable in the back (hitching post, straw, water) - so awesome

By moving to detroit

xpost

that tipping point is an easier conversion for the U.S. and Europe then say India, China, places where the industrial revolution is nowish.

I'm going to say exactly what I said during the housing bubble: no matter how many factors and stats and arguments you can cite, there comes a point where people just can't afford something anymore. I'm not going to claim to know where that point is, but I call bullshit on $250/barrel next year.

Its fine for an individual person to move out of low density suburbs while thats still easy to do but how much of new housing is being built as well connected high density neighborhoods? Was curious about this on the Death of the suburbs? thread - with the video about Kentlands, MD

bnw: I think its an easier conversion for Europe than US but some of the east and southeast Asian countries have been putting more resources towards sustainable and planned cities than the US has (chinas haphazard suburbanization notwithstanding). Also once their currencies are allowed to rise they may not see the same kinds of rises as we will in the west

good place as any Gas hoarding eyed as cause of Dartmouth apartment fire

no matter how many factors and stats and arguments you can cite, there comes a point where people just can't afford something anymore

While this is true - without strengthening of the dollar, could you replace the word people with the word Americans?

Is the percentage of wage spent on food and fuel in the US below average? Is there any reason it shouldn't rise to that of other countries (going to go check this - and also against historical averages)

Also fuel efficiency in cars, changing to fuel efficient cars could halve gasoline costs I think - didn't this happen in the 1970s? And reversed again during the 1980s?

Eisbaer: Can you explain fully how bubbles occur in stuff that is clearing. How much are people stockpiling oil and food? Should they be!

just intuition on my part, based on the past (e.g., the silver/gold bubble during the late 70s/early 80s after that inflationary period) and my own thoughts as to where folks with access to cheap $$$ are stashing funds (that is, the funds that they aren't using to stuff up the massive black holes in their balance sheets).

FWIW, i think that bulk-purchasing of household goods is a good idea even during good times -- yay costco!

Also fuel efficiency in cars, changing to fuel efficient cars could halve gasoline costs I think - didn't this happen in the 1970s? And reversed again during the 1980s?

CAFE standards were implemented in the aftermath of the 1973 oil embargo, I think in 74 or 75. They weren't reversed during the 1980s - but they also weren't increased at all, either. The recently passed 2007 Energy Act FINALLY raised the standards, but only marginally. By 2020, when the fuel efficiency requirements are fully ramped up, we'll only be at the level that Europe and Japan are at NOW. The total lack of ambition of the bill is ridiculous, but I guess what's politically feasible is often a complete disappointment to anyone paying attention to the issue.

By the way, I'm firmly with poll option #2. Demand for oil has roughly leveled off - finally - over the past year for the United States, but it continues to rise elsewhere, particularly developing countries. Whoever asked upthread if China and India were significant consumers of oil - yes, and that is a huge understatement. The overall amount of oil used by China compared to the United States is still lower, relatively, but when you have a multiplier of 1.3 billion people, and the greatest mass movement of people out of poverty and into more energy-intensive lifestyles in history, that is changing very quickly. China and India are increasing their rates of oil consumption (and steel, and coal, and water, etc etc) faster than anywhere else, enough to ensure that worldwide demand will continue to rise.

I don't think $250 by next year is bullshit. Oil prices are notoriously difficult to predict (in 1999, The Economist predicted that oil, which was then around $10, would soon drop to $3), but I would suggest that $100 is the new floor. I wouldn't be surprised at all to see $200 in mid-August of this year, and considering the precipitous drops in production in some of the biggest giant oil fields on the planet, along with the poorer quality of the remaining reserves (meaning, heavy "sour" crude oil, which is more difficult and expensive to refine), $250 is certainly not out of the question for next year.

Not to sit on the fence, but while high oil prices are here to stay you just can't inflate the price $10 a barrel every week shouting "IRAN MIGHT NUKE ISRAEL" without some sort of correction occurring in the future.

Speculation is without a doubt playing a role in inflating prices, but it's for a reason. Something like 30% of the oil in the world is shipped through the Strait of Hormuz. If shit hits the fan there, that is a major problem. I'm just parroting Michael Klare's books (check out Blood for Oil and Rising Powers, Shrinking Planet), but given that the bulk of the world's remaining exportable oil reserves are in some of the world's most dangerous and politically unstable countries, I'm surprised speculators haven't driven the price up even more they already have.

One more thing, and it's something that never gets much attention, even within groups that are devoted to discussing oil production/demand/peak oil/etc.

Not enough discussion has been devoted to the impact of rising domestic oil demand in countries that are currently net exporters. This applies especially to developing countries whose oil exports we have come to rely on. Let's say Nation A previously produced 5 million barrels of oil a day, and that they consumed 1 million of those barrels, and exported the other 4 million. If they experience sustained economic growth, maybe they'll increase their domestic oil consumption to 2.5 million barrels a day. In terms of exports, the world oil market just lost 1.5 million barrels a day (from 4 million to 2.5 million). So, it's not enough just to look at worldwide supply and demand. You have to go a step further and look at what's available for export.

This veers into conspiracy theory territory, but that does offer a perverse incentive to limit economic development (and the attending increases in oil consumption) in oil-exporting countries.

I hate $4 gasoline too, but it's still cheaper and more efficient than the bus.

-- Pleasant Plains, Tuesday, 10 June 2008

http://bp1.blogger.com/_X2sjPjJJdH8/R-99ofs_g9I/AAAAAAAAEDM/Q7KwdtFEeYs/s400/a160_s1.jpg

This veers into conspiracy theory territory, but that does offer a perverse incentive to limit economic development (and the attending increases in oil consumption) in oil-exporting countries.

a more perverse incentive which has existed for years is simply that the caste system of governance extant in most OPEC nations provides a strict hierarchy that's very good at limiting upward mobility. There has never really been a middle class in most of these countries, to my knowledge, at least not since the turks and the mongols cleaned house.

just had a convo with a coworker who lives out in the boonies and he agrees that the transport infrastructure is due for a complete turnaround in the next five years. If he had a good way to get to mass transit from his house he'd take it in a heartbeat. This is a total NASCAR/David Allan Coe/dodge trucks and cheap beer army vet redneck, btw.

Mass transit. It's not just for cleaning ladies any more.

Not enough discussion has been devoted to the impact of rising domestic oil demand in countries that are currently net exporters. This applies especially to developing countries whose oil exports we have come to rely on. Let's say Nation A previously produced 5 million barrels of oil a day, and that they consumed 1 million of those barrels, and exported the other 4 million. If they experience sustained economic growth, maybe they'll increase their domestic oil consumption to 2.5 million barrels a day. In terms of exports, the world oil market just lost 1.5 million barrels a day (from 4 million to 2.5 million). So, it's not enough just to look at worldwide supply and demand. You have to go a step further and look at what's available for export.

cf. indonesia leaving opec as it is no longer a net exporter (NB this has as much to do with falling production as rising domestic demand)

It's not just the straights of Hormuz, Oil tends to come from unstable places (or fuels instability, take your pick), any kind of rebel activity in the Niger delta, Chavez flexing his muscles, piracy off somalia or in the malacca straights, feeds right into oil prices. And when gazprom says oil will soon be at $250 a barel you can read this more as a promise or a threat, Putin knows he has power over resources prices and uses this as leverage. The US better pray that civil war doesn't break out in Canada.

dry petroleum froth

I'm seeing a huge increase in motorcycles on my daily commutes these days.

I mean, like walking down the street and having a chopper go past me and thinking what the fuck? Another one?

Gee, quite a drop we're seeing...

I'm guessing it falls a little while longer, then we get either some new ridiculous claim from Gazprom or an event in Iran or Venezuela or Nigeria that scares everyone again and another spike.

This is a correction back to trend, but by the winter fuel oil buying season we are going to be seeing some new highs.

http://newsvote.bbc.co.uk/1/hi/business/7532205.stm "> http://newsvote.bbc.co.uk/1/hi/business/7532205.stm

http://www.bloomberg.com/markets/commodities/energyprices.html "> http://www.bloomberg.com/markets/commodities/energyprices.html

I didn't vote, but this thread's good. What do you think now?

Demand destruction proceeding faster than expected, oil producers and Asian economies slashing (or removing entirely) subsidies on domestic consumption (as they simply can't afford the subsidies any more).

I say US$100 by end-year - which is still VERY VERY high, lets not forget.

But I don't understand how speculation, if it's significant, actually works, and how futures markets affect the spot price (and if anyone can explain backwardation and contango, that would be great) and so on.

In terms of supply, I think the issue is that there is no incentive for the big producers to try and increase actual production (although they all have plans to increase capacity), as what can they do with the money? They stick it in reserve funds and sovereign wealth funds and so on, but they realise it's actively screwing their economies - double-digit inflation throughout the Gulf now. Much better to leave it in the ground and be rich in however many years' time. I'm not sure peak oil is actually a helpful concept, but there is lots of oil out there: Iraq has 9.3% of the world's proved reserves, but only 2.7% of world production, for a start. Getting it is the problem ...

But the really, really good thing about all this is the reduction in demand (which I think we're seeing, not just a reduction in demand growth, but correct me!).

Anyway, this is good for figures http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622 "> http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622

http://newsvote.bbc.co.uk/1/hi/business/7532205.stm
http://www.bloomberg.com/markets/commodities/energyprices.html
http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622

gah!

Do any of the people who were decrying speculators think that:

a)they have all gone on holiday
b)they have all lost their shirts
c)they are still operating in the market and making money?

Their positions are probably so complicated they don't know.

Speculators in any market are as likely to be short as they are long

Has anyone changed their mind about peak oil? Has anyone changed their mind about dollar destruction? Does anyone think that wealth won't continue to be transfered away from the west? What demand elasticity have?

On the other side all these things were also true in 1978 and commodity prices dropped then

Does the fact it was true in 1978 make it any less true in 2008?

Can current lifestyles continue not only to be maintained, but to expand continually at 5% doubling every 14 years?

Is inflation back in the bottle?

Speculators in any market are as likely to be short as they are long

Not true.

Badly phrased then. Just pointing out shorts are speculators too

I don't know specific stats on the oil market. I know that in equities being long is WAY more common than being short.

I can certainly believe so in equities.

Isn't any market involving leverage vulnerable to margin calls and quick drops?

So, in summary, there was (is?) an element of speculation driving volatility and 147 was probably unjustified, but wherever prices go, they will still be historically high. (OPEC reckon 70-80, by the way, but I can't seem to find that article.)

This is a structural shift, driven more by China's increased demand than long-term fears over supply.

I still think the fall in US demand is impressive, 2.4% down from a year earlier in the past four weeks. I feel un-doomed. The price-conscious US consumer will save us!

http://www.climatecartoons.org.uk/invisiblehand.jpg

There was a headline in the NYTimes the other day, something like "Foreign Oil Subsidies Taking Their Toll on the US" about how those subsidies keep demand higher which in turn drives up prices for non-subsidizing countries. My first reaction was that there was a strong irony to the headline (Malaysia keeping its citizens from starving is sure taking its toll on Americans who shop in the mall!)

But at the same time those subsidies are preventing demand from falling further, which would probably be a good thing in the long run.

Of course what eventually happens if prices keep rising is that some countries can't afford to subsidize anymore. The market is a bitch.

Lets ask a few questions and see what we think

How much comparison is there with the 1970s here? Rapid peak in 1974 after almost a century of stable prices. Fell off again fairly quickly before rising much much higher in 1979 then total fall off for the equities bull market of 1980-2000. Then as equities have struggled since 2000 oil and other commodities have now been in their own bull market for 8 years.

The fears we have now aren't so different from the fears we have in 1978, yet the bottom dropped out of oil prices for 20 years. Could the same happen again today? Are we going to fall back as we did in 1981? Fall back like we did in 75-76 before doubling again? Or is this short term volatility?

Yet the above happened in a time of high wage inflation. We're told we're now in a period of low inflation (and is true in terms of wages). What difference does this make? If commodity prices were to fall at same time as asset prices and also stocks continue in a bear market - and recession starts and unemployment rises, does this begin to look more like deflation than inflation? But where is all the money going? Being destroyed as it pays off debt? But.., Really?

Asset prices are falling because of so much debt that was issued in the past 3 years is bad debt based on a housing price bubble. This is forcing asset liquidation and revaluation.

However, the US government is attempting to absorb much of this bad debt in an attempt to forestall this liquidation of bad debt and to support housing prices at unrealistically high levels. This is like trying to hold your breath to avoid a bad smell. It will only work in the short term.

Since there aren't any productivity gains to support the current inflated level of housing prices, then preserving those inflated prices will tend to force the US dollar down, and bring commodity prices up to a level commensurate with housing, while wages stagnate and purchasing power declines.

The remedy for high oil prices in the 70s was more efficient extraction and new oil fields in the 1980s. IOW, productivity gains. The same general remedy will need to be applied now, but the chances of new oil fields being discovered are much lower, so the gains will most likely have to be in efficiency and conservation. Investment in new energy technology is exploding, but the dollars being allocated to research are FAR outpaced by "investment" in oil futures contracts (aka speculation).

This is going to take a while to shake out.

But where is all the money going?

Dollar devaluation will take the place of asset devaluation.

This "solution" appeals to the rich because it leaves every member of society in the same relative position while it happens, even though it makes them poorer in a global context. Most of the suffering will be socialized to the lower classes, rather than hurting investors specifically.

113 and sliding.

and thank God for that!

Flirting with 100 again. So where will the bubble money go next?

shorting palladium?

So where will the bubble money go next?

the dollar?

Sweet. I'm going to start buying up dollars.

Think its too late for that. Don't think comparative recent strength will last at all, the US inflationary policies remain in place

Next bubble could well be oil!

it was a joke because I'm american

$91.75 dudes. Even I didn't think it was going to drop past $100.

When will petrol pump prices reflect this new price?

Pump prices will drop more slowly than futures contracts, but they will drop.

The latest round of bad debt liquidation (Lehman Bros, AIG, recent stock market losses) has been destroying money faster than the Federal Reserve can offset, and the US recession is gathering a good head of steam. The 'good' news is that oil prices have fallen and can't get up.

When rationality finally returns, the markets will stop inflating bubbles. There just won't be enough credit to keep them aloft. Compared to the irrational exuberance of the past two decades, rationality will look fairly grim.

A reasonable % of those falls are due to dollar bounce, so the pump prices wont drop in UK to same extent by any means

Also while there is bad debt liquidation happening, aren't the bailouts and current interest rates weakening the dollar (despite the recent rises against faster depreciating currencies)?.

A reasonable % of those falls are due to dollar bounce, so the pump prices wont drop in UK to same extent by any means

I don't understand, this please explain further. How does that affect the price at the pump? We are being even more shafted by the oil companies than usual here and I want to be able to understand any bullshit they come up with for keeping prices at £5.50 a gallon.

Worldwide oil prices are denominated in dollars. That's just how it is. Let's say you have a shitload of oil you want to sell, and the price of oil is rising. However, the dollar is weak (i.e. it doesn't buy as much as it did a little while ago). You're going to want even more dollars for your oil to make up for the dollar's weakness, otherwise, you're losing some on the deal by accepting a devalued currency.

But the UK currency is the euro. During this same period the euro was stronger than the dollar, so as the dollar slipped against the euro you could get more dollars for the same number of euros as before. Then, when UK went to buy oil (in dollars) this offset some of the cost increase.

Now the dollar has been rebounding, and oil prices are falling, so the USA will see a double benefit in terms of falling costs - from lower prices and from a stronger dollar - while the UK will see somewhat less benefit, since the euro is slipping against the dollar and you still must spend dollars to buy oil on world markets.

I hope this clears things up a bit for you.

Except they have the Pound not the Euro! But above still holds true (but more so as Pound has also been at record lows against the Euro. Those Pounds really don't buy too much these days)

G'wan! The pound? Still?! You shittin' me. Them daft englishers couldn't be that daft, eh?

Trying to get the Great British Public to accept the Euro would be political suicide. So right up the present governments alley you might think.

Oh, and thanks for the explanation. I knew we were going to continue to be shafted but at least I undersatnd now why. Incidentally are the pump prices in the US going down?

Pound may have fallen a lot against the Euro but the Euro is far from a safe bet. The contradictions within likely to be tested more now. What Spain and Ireland want is not what Germany wants. Interesting times for the euro ahead

Don't forget Italy's inability to devalue it's way out of trouble.

Clearly no sign of speculation. Completely demand-driven.

http://markets.on.nytimes.com/cgi-bin/upload.dll/file.png?z0889100azd8fc660bbe6a4b8b83c7754378939cbe

Looks like the recent dollar bubble popped!

4-5 months later

A lot has happened since this poll. Where do you stand now?
For me the missing/misleading factor in the poll was the myth of decoupling. Firstly - real demand destruction outside the US. Growth in eastern europe and across many 'emerging markets' look built on even flimsier foundations than in west. Secondly - currency collapses. Prices falling heavily in dollars, but the dollars to buy the oil with are getting expensive if you live in Korea, South Africa, Denmark, Iceland, Argentina, Uk, Australia and the rest. The credit-bubble economies in europe look more messed up than in the US (and not just the obvious ones like spain and the UK) - both domestically and through exposure to tinpot economies like Latvia

So where now? The extreme volatility in...everything... makes short term difficult to guess. Dollar strength really changes the dynamic - the deleveraging process, and the rest of the worlds flimsy currencies point to continued cheaper oil (in dollar terms and for americans) but not really for most everyone else.

Thoughts?

I'm still bullish on oil long term because new discoveries are falling and alternative energy sources and the systemic change required to make use of them is not coming along fast enough.

It is very hard to say whether we've seen the worst of the asset devaluation already. Barring another round of big write downs and collapsing valuations, I foresee a steadily worsening recession throughout 2009.

As of now, the big mid-2008 oil bubble seems well and truly popped. But I think there's still too much money sloshing in the system and oil's fundamentals will invite speculative runs until the last froth has been squeezed out of the credit bubble.

My basic thought is that oil price volatility will continue in 2009, but within a range of $50/bl - $100/bl.

Note: I can afford to be wrong about all of this, because I do not and will not base my financial decisions on such guesses as these. I am purely a kibbitzer.

This may be wishful thinking on my part, but I think oil has bottomed.

I think the price of oil is very closely tied to the value of the dollar, especially vs. the euro. Now that the US is dumping huge amounts of cash into the market, I think the strengthening trend of the dollar will come to an end and the price of oil will start to rise again. I don't think we are going to see $145 oil soon, but I think we could see it settle around $100.

One of the greatest ironies of the economic meltdown is that we spent so much of the year wringing our hands over inflation, especially wrt oil. But it was only when this trend reversed to massive deflation that the shit really hit the fan.

http://www.guardian.co.uk/business/2008/nov/07/oilandgascompanies-energy

200% by 2030? That doesn't sound too bad. It oil prices had doubled in the last 20 years we'd be looking at the terrifying prospect of oil at $30 a barrel.