Is a Huge Oil Price Bust Looming?

[danarhea]

This site, which claims that oil prices have been manipulated by Wall Street, seems to think so.

In light of the Alberta tar sands, which are now being mind, and new discoveries in Venezuela, I would say that this is a possibility, but would like a good discussion on the pros and cons of this prediction. Although the article is promoting a report which is published by NewsMax, it does make some pretty interesting points.

Article is here.

 

[tecoyah]

Sorry...looks like a subscription is required for the report, and I really cant justify the expense for an article from newsmax. That said I have seen information , some quite convincing, for this scenario from a few other sources. Though I have also seen economic indicators pointing in the opposite direction. My conclusion is that the oil industry creates its own volitility based on the profits it can achieve, rather than a supply and demand scenario....might as well toss a coin.

 

[oldreliable67]

Newsmax is not a source that I would typically rely on, so I'm not inclined to spend money for their stuff. However, the notion that oil prices have been/are being manipulated have been the subject of several discussions of late. These comments from their touting of their report, while interesting, are not interesting enough for me to subscribe,

Oil prices have been severely exaggerated through manipulation. We have been pounding the table stating that there is plenty of supply to meet worldwide demand, and soon those hedge funds that are now driving up the price of oil will be dumping their oil contracts like there is no tomorrow.
[...]
Daniel Yergin-chairman of Cambridge Energy Research Associates says there will be a large, unprecedented buildup of oil supply in the next few years.

Yergin says between 2005 and 2010 capacity to produce oil could grow by 16 million barrels a day-a 20% increase.
[...]
In this issue special report we reveal why many of the "doom and gloom" forecasts of "peak oil" are based upon a common misunderstanding about oil supplies. Forbes blames the oil price spike on rising inflation and aggressive buying on the part of burgeoning Pacific Rim countries.

but I do have a couple of observations concerning them...

First, the allegations of "manipulation" and the driving up of prices by hedge funds: baloney. For an extensive discussion of why this is tubular steak, see the "Boycott Citgo" thread, here. In this thread, another poster and I exchange views on the topic of the possibility of crude price manipulation. For the reasons listed in that thread, particularly the effective supervision and regulation of the NYMEX, manipulation of this market seems highly unlikely.

Second, Yergin's forecast of a large build-up in oil supply may ultimately be proven correct thanks to the price increases that we are witnessing right now. That is, the near-record high prices are a huge spur to search and discovery efforts, meaning that oil companies can now bring on-stream fields that, at lower prices, are too expensive to search for and if found, most likely too expensive to develop. This is the free market and economics at work.

Third, Steve Forbes is probably pretty close to the truth when says that current historically high prices are partly due to aggresive buying on the part of Pacific Rim countries. It is now well-known that China's economy is one of the more rapidly growing the world today. Consequently, it should come as no surprise that China's appetite for energy is also growing quite rapidly. This at the margin very high growth rate is certainly contributing to the higher prices seen currently.

Not mentioned in the tout is the effect of ME tensions. Observers of crude oil price action in the last few weeks will have noticed a pretty strong correlation between crude prices and Iranian pronouncements about their new weapons, et al.

All in all, when fear and greed are coincident with strong fundamental demand, prices can usually go only way: up.

 

[danarhea]

Newsmax is not a source that I would typically rely on, so I'm not inclined to spend money for their stuff. However, the notion that oil prices have been/are being manipulated have been the subject of several discussions of late. These comments from their touting of their report, while interesting, are not interesting enough for me to subscribe,


but I do have a couple of observations concerning them...

First, the allegations of "manipulation" and the driving up of prices by hedge funds: baloney. For an extensive discussion of why this is tubular steak, see the "Boycott Citgo" thread, here. In this thread, another poster and I exchange views on the topic of the possibility of crude price manipulation. For the reasons listed in that thread, particularly the effective supervision and regulation of the NYMEX, manipulation of this market seems highly unlikely.

Second, Yergin's forecast of a large build-up in oil supply may ultimately be proven correct thanks to the price increases that we are witnessing right now. That is, the near-record high prices are a huge spur to search and discovery efforts, meaning that oil companies can now bring on-stream fields that, at lower prices, are too expensive to search for and if found, most likely too expensive to develop. This is the free market and economics at work.

Third, Steve Forbes is probably pretty close to the truth when says that current historically high prices are partly due to aggresive buying on the part of Pacific Rim countries. It is now well-known that China's economy is one of the more rapidly growing the world today. Consequently, it should come as no surprise that China's appetite for energy is also growing quite rapidly. This at the margin very high growth rate is certainly contributing to the higher prices seen currently.

Not mentioned in the tout is the effect of ME tensions. Observers of crude oil price action in the last few weeks will have noticed a pretty strong correlation between crude prices and Iranian pronouncements about their new weapons, et al.

All in all, when fear and greed are coincident with strong fundamental demand, prices can usually go only way: up.

This is true, but in the last conversation I had with Bob Poe, who is a rather well respected geologist, he told me that the break even point with the Alberta tar sands was a little over $30.00 per bbl. Therefore, it stands to reason that the prices over and above that break even point could very well be due to manipulation alone.

True, and by the way, almost 100% of the oil coming out of Alaska is going to the Asian spot market.

Not much of our oil currently comes from the Middle east, but Europe, as well as China, are battling it out over this oil, which could account for much of the spike.

Amen.

 

[akyron]

The Trillion-Barrel Tar Pit


Does anyone else hear the beverly hillbillies theme song when they read this article?


"These days, Congress is considering a $3 per-barrel tax credit to companies that import heavy oil from north of the border. So forget those scraps over prescription drug prices and trade policy - Canada has never looked like such a pal. The friendly relationship is a none-too-subtle part of Jim Carter's Syncrude pitch: "Our American neighbors know what Canada's like. It's a good, stable country."

And chock-full of tar patties."