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It’s Amazing How Quickly Things Can Change
By JLP | December 18, 2008
Last summer we were treated to all kinds of newspaper articles claiming that oil prices would continue forever on their march upward. Oil producing nations were living high on the oil hog.
NOT ANYMORE!
Take a look at some of the quotes from this article ($) in today’s Wall Street Journal:
Shrinking oil revenues have also begun to eat a big hole in the budgets of oil-producing nations, several of which have based government spending on prices well over $70 a barrel.
Both Iran and Venezuela have warned their citizens of leaner times ahead as leaders rein in social spending. The pain has been particularly acute in Russia, where falling energy prices and the international credit crisis have halted a nearly decadelong boom.
It looks like those governments made a big mistake! I’m loving the fact that one of the countries hurting is Venezuela. I can’t stand Hugo Chavez. He has been banking on high oil prices to carry out his mission of turning his country into a dictatorship.
Something else interesting (emphasis mine)…
After a long run of soaring prices and rising demand, OPEC faces its strongest headwinds in decades. Demand is retreating sharply — and may never return to its 2007 levels — in the U.S., the world’s largest oil consumer. Europe and Japan are also skimping. But most chilling for OPEC are increasing signs of sluggishness in China, until now the primary driver of demand growth.
Oil demand in China fell in November for the first time in four years. Next year, demand is likely to grow by less than 3%, according to New York-based energy analyst Paul Ting, almost certainly too little to outweigh the declines in developed economies.
Funny how things go from one extreme to another. A few months ago we faced insatiatable demand. Now, demand is dropping dramatically and may never return to the levels seen in 2007. Interesting…
I’m wondering if the demand was ever there in the first place or if prices were being driven solely by traders.
No matter, if I was running a business dependent oil and gas, I would be doing what I could to lock in today’s prices because we all know that in the long run they are headed back up.
I will say that I’m enjoying the lower prices. I filled up the other day and spent about $25. A couple of months ago, I would have paid nearly $70!
Topics: Oil | 11 Comments »
December 18th, 2008 at 1:38 pm
Hey, let’s go back to the Clinton years when the Congressional Budget Office, I believe, reported something like “surpluses as far as the eye can see into future.”
All these bogus forecasts, predictions and chicken entrails are based on current trends being predicted into the future. Any idiot can do that and look good.
December 18th, 2008 at 1:41 pm
Ok, so if a barrel of oil has gone down in price then a refiner that makes the end products has access to cheaper raw material (oil) to produce with. Why are those companies that are refining having such a difficult time right now too?
December 18th, 2008 at 1:47 pm
Jimmy,
I agree 100%!
Philip,
I think that demand is down and that’s the reason why refiners are struggling. But, I don’t know the math involved with gasoline refining so I really don’t know the answer to your question.
December 18th, 2008 at 3:07 pm
what goes up must come down.
so far this is true for the real estate and oil bubble.
December 18th, 2008 at 11:01 pm
I just read in Forbes, but I can’t remember the company/analyst that said it, but back in May, just over 6 months ago, their target price for oil was $200. They just recently revised their target to $45.
It just makes me laugh. People love to throw out numbers and predict the future when most have absolutely no clue. I’m sure we’ll be back to $150 oil again, and we might subsequently drop again. If anything is certain, it’s that nobody knows exactly what the future holds, and the people who make bets based on short-term trends, whether traders, analysts, or consumers, will often lose.
I remember seeing a story on the news about a local family who almost all lost their lives and lost their home because they were stockpiling gas in containers in their home when it accidentally caught fire. It’s amazing that they were that stupid to begin with, but I bet they really feel like idiots now that just a few months later gas has dropped to levels we haven’t seen in years.
As Ron White would say, you can’t fix stupid.
December 18th, 2008 at 11:57 pm
I think speculators along with demand helped drive the price up and the lack of speculators and demand is driving the price down. All of the analysts that predicted oil would not decrease in price are now predicting that oil will not rise either. I don’t trust the $20 predictions anymore than the $200 predictions.
December 19th, 2008 at 4:51 am
Tough times in Iran, Russia and Venezuela?
Wait till they discover deficit spending
What will oil do? I have the answer, it will either
go up or down in price, or it will stay about the
same. There, I’ve made a prediction that is just
as good as those of any CNBC commentator…..
December 19th, 2008 at 8:21 am
I’m surprised that the oil bubble hasn’t received more attention as a cause of the credit crunch. It’s pretty much been pinned on the subprime crisis but I wonder how much of the subprime crisis itself was caused by the oil bubble.
December 19th, 2008 at 10:07 am
Jon, I was thinking the same thing. Household budgets only go so far and if it’s choosing gas (when it was $4+/gal) for the car to get to work or paying the bills, what would most people who are up against a wall pick?
December 21st, 2008 at 9:23 am
@Jeremy – it’s actually quite easy. When everyone predicts $200 a barrel oil, it’s time to short oil. When you hear predictions of $20, it’s time to buy. I plan to increase my holdings of some of energy-related stocks. Not too much, mind you, and only established companies with good dividend.
Cramer said this Friday – I don’t normally watch him, but I was on a Jet Blue plane on Friday, and his was the most entertaining thing on a little TV in front of my seat – that if he were the president, he’d buy oil now and increase the US oil reserves. Unfortunately, I doubt our government will be smart enough to do it.
@Jon – “but I wonder how much of the subprime crisis itself was caused by the oil bubble”
The oil bubble contributed to the slowing economy just as the credit crisis did, but the credit crisis is independent of oil. Real estate prices started falling before the oil bubble, the value of mortgage-backed securities started dropping before the oil bubble; Lehmann’s failure had nothing to do with the oil bubble.
December 23rd, 2008 at 4:38 pm
Higher/Lower oil prices: It just goes to show you that the price you pay at the pump HAS NOTHING to do with the cost of producing the oil.
All that oil price rise is just a combination of gouging by the oil countries, the oil companies, and the speculators.
ANYTHING over one dollar a barrel is just a ripoff.