End of cheap oil. Going to 150 by feb/march.

peilthetraveler

peilthetraveler

USA today said this summer that americans drove 30 billion fewer miles. I did the math and assumming the average vehicle gets 25 MPG (2004 est was something like 24.6 so i rounded up) thats 61.5 million barrels of oil saved over 1 year (basically we drove a little less than 1% of what we normally do)

Now..Opec has decided to cut production by 1.5 million barrels (but they say it will be closer to 1.8 million because they are already producing 300k barrels a day too much) But using that 1.5 million barrel number, in 41 days those cuts will pick up the slack from us not driving as much for an entire year. Couple that with the fact that gas is at 2 bucks per gallon and americans will probably start driving more (I plan to take a road trip next week just because of the cheap gas) and we are picking up our own slack at the same time! Yes inventories were just released that we had more than expected, but next month, prices will probably go up.


(now to hedge my bet!)

Of course if some other country is picking up OPECs slack. Ignore everything i just said. Oil will stay cheap. Kinda makes you wonder though, if someone knows something we dont and if they are unloading oil while they still can. Maybe we are on the verge of some new alt. energy being created?
 
One thing to always pay attention is that just because OPEC members agree on a cut does not mean they will actually do it. They cheat all the time, hoping that it is the neighbor that is cutting. Also, do not forget about Russia that deeply needs oil revenue.
 
Saudi Arabia has not cut anything to important customers like the US. Second, emerging markets are just now going into a recession. The US has been slowing for at least a year. So, the demand picture should fall off a cliff in the next 6 months. Plus, Saudi Aramco will make sure the US has cheap oil until it gets through the slowdown. There is no longer the type of buying power from hedge funds, pensions, hedgers and the like to get crude to re-test 147 anytime soon.

Another issue, now that OPEC is cutting, there's excess capacity that traders know about. The peak oil theory is dead in the water for a while. Every time OPEC cuts further, it just adds to the excess capacity. The past year, lots of petrolium reserves were filled in the US, China, and Europe.
 
Quote from RedDuke:

One thing to always pay attention is that just because OPEC members agree on a cut does not mean they will actually do it. They cheat all the time, hoping that it is the neighbor that is cutting. Also, do not forget about Russia that deeply needs oil revenue.
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Good point! They were over supplying by 300k barrels per day in october, so looks like they are still cheating. haha. But if they ever did what they said, It might look bad for us.
 
Quote from RedDuke:

One thing to always pay attention is that just because OPEC members agree on a cut does not mean they will actually do it. They cheat all the time, hoping that it is the neighbor that is cutting. Also, do not forget about Russia that deeply needs oil revenue.
More...

Is russia oil industry becoming more effective to respond to this task?
 
In recent years China has had an ever increasing demand for automobiles and hence fuel.

Now with the economic downturn hitting China real hard (seen the Shanghai index?) I suspect that the fuel consumption in China will drop dramatically. Similarly with times becoming real tough I suspect many cannot afford to take a trip, not to think about all these verhicles bought on credit and which will shortly all be taken back when the purchaser is not keeping up with the payments. There will be finally a move in the US to get rid of these big gas guzzlers and move into smaller and more efficient cars.

Am not trading in oil but I suspect that it will be very interesting to watch where the price of petrol will be during the next year.

Maria
 
Governments that were heavily subsidizing fuel consumption, including India and especially China, won't have that luxury if this global route continues.

Strip away those subsidies, and then you get a peek at just what the true demand for gasoline and diesel really is. It's not anywhere near what it was when we were paying $4.05 a gallon but a Chinese taxi driver was paying the equivalent rate of 55 cents USD.
 
The price spike was in response to speculators buying contracts that they could never take delivery on. If I buy a contracts and I don’t own a refinery, what am I going to do when it comes time to take delivery and no one will pay what I did?
 
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