Thursday, January 03, 2008
A TigerHawk poll: What direction for oil prices?
I've been the oil price bear on this blog -- which means I'm a bull for all you oil consumers out there -- but yesterday was a tough one. Oil touched $100 per barrel before finishing the day at $99 and coin. That said, Stratfor's note last night argues the case for a reduction in the geopolitical premium embedded in today's high oil prices (the other question, of course, being the extent of such geopolitical premium):
We see much of the price increases of recent years as geopolitical in origin — specifically in light of the idea of increased risk. There are few places in the world that produce oil that have not suffered bouts of instability of late. Nigeria has seen massive attacks on its infrastructure; Venezuela has crippled its national energy firm for political reasons; Osama bin Laden has rallied against Saudi Arabia and the other petro-economies of the Persian Gulf; Iraq is enmeshed in a civil war; and Iran has threatened war with the United states — and been threatened with war in return. Add it together and it is small wonder that oil traders can see straight, much less function.
But all of this froth in the market is likely to die down in the months ahead.The disruptions in Nigeria in 2006 and 2007 were all about determining who would become the next president (and thus gain control over the oil). That contest is now over and many of the forces who were disrupting crude flows have succeeded in getting into the new inner circle. No one in Nigeria now has a vested interest in seriously disrupting output. Venezuela has seen its oil output drop by roughly a million barrels per day since Hugo Chavez became president a decade ago. While this decline is not over, it is no longer a surprise, and Venezuela’s relative importance to the global energy picture is now roughly half of what it was ten years ago. There are few surprises that Chavez can throw at energy markets that do not also threaten his hold on power. While the apex leadership of al Qaeda — the people who planned the Sept. 11, 2001, attacks — are still dangerous people, their operational capabilities are largely sequestered in the Afghan-Pakistan border region. The Arab states of the Persian Gulf are more tightly aligned to the United States than ever, and their security forces are more than capable of preventing small scale attacks by local militants from harming oil exports. Ultimately the Iraq conflict will burn until Washington and Tehran have a meeting of the minds. The November U.S. National Intelligence Estimate, which asserted that Iran lacks a nuclear weapons program, was a gesture of good faith from the United States to Iran, one that has sparked a series of public talks over the future of Iraq. Such a detente would bleed away — in fact, is bleeding away — much of the violence within Iraq. A calmer Iraq is one that can finally invest in energy infrastructure, and an Iran that is on better terms with the United States is one that is not pumping in the shadow of a war scare.
All in all, this suggests that not only is the Jan. 2 price point about to become viewed as aberrantly high, but that we could soon experience price drops that have not been seen since the days immediately after the Sept. 11, 2001, attacks. (Most people forget that the Sept. 11 attacks made people fear that a global recession was imminent — that fear pushed oil prices down, not up.)
On the other hand, there are plenty of smart people who argue that oil prices have nowhere to go but up.
So, to restate the question occasionally posed on this blog, which price will oil see next: $140, or $60?
12 Comments:
By 
, at
Thu Jan 03, 09:49:00 AM:
Some feeble minded thoughts: I hope you are right Tigerhawk. I use huge quantities of fuel. People have been saying for 5 yrs that oil is headed down and then it goes up another $10/barrel. Demand for fuel is apparently inelastic. Aggregate demand is growing. Why will prices fall when demand is rising? I don't see a tsunami of new oil coming to market and that is the only thing I can see that would push prices down.
By 
Purple Avenger, at
Thu Jan 03, 10:16:00 AM:
If shale/sand is economically viable in the $50/bbl range, there's your answer.
What moron would walk away from a $80-$90/bbl profit?
By , at
Thu Jan 03, 10:32:00 AM:
Perhaps relevant.
"An independent trader 'seeking his moment of fame' caused oil prices to hit unprecendented levels of $100-a-barrel yesterday following a single deal."
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=505706&in_page_id=1770
By , at
Thu Jan 03, 10:55:00 AM:
Tige:
We are SO unqualified to take this poll. Don't be discouraged if not a lot of people vote, and the vote, itself, has to be beyond meaningless.
Unfortunately, I'm kinda with 'feeblemind' on this one. The only thing I can see knocking prices down is a fresh well of opportunity -- literally and figuratively -- opening up, but I can't remember the last time I read the words "oil discovered" in the media. And with the environmentalists pulling the strings, it's hard to see how any existing reserves are going to be utilized.
Well, tonight's the Iowa vote, and it looks like the right-wing bloggers' plan to elect Barack Obama is succeeding. And a remarkable job they've done with their two-pronged plot:
1. Attack, attack, attack Hillary!
2. Ignore the Republican candidates except to briefly mention how poorly they're doing in the polls.
You have to admire their foresight, though. Barack will go a long way toward healing the racism in this country that the bloggers and media adore perpetrating.
- A comedian of 20 years standing does a silly skit imitating a Chinese TV announcer and she's branded a racist.
- A politician uses a word he only heard a few weeks before, doesn't know what it means nor has anyone even heard of the word before, yet it could be contrued as racist -- and his political career is ruined.
- A shock jock utters half of what was probably the least-offensive racial epithet spoken aloud in the past 10,000 years and he's fired.
Having a black man in the most powerful seat in the world will go a long way toward getting rid of that hackneyed old "oppressed black man" routine, and maybe racemongers like Al Sharpton and Jesse Jackson will finally be put out to pasture.
Who would have thought the right-wing bloggers would have such foresight?
By Purple Avenger, at
Thu Jan 03, 11:25:00 AM:
I can't remember the last time I read the words "oil discovered" in the media.
You mean other than the discovery off Brazil that might be bigger than the Saudis and western Iraq that rivals all of the rest of Iraq, and the deep water discoveries in the Gulf of Mexico, and a new discovery in Uganda, etc, etc.
By , at
Thu Jan 03, 12:47:00 PM:
Global oil production peaked in May of 2005. All of the Giants are in Decline. They're not for sure when, if ever, they'll be able to get any of that newly-discovered Brazilian oil. The Gulf of Mexico, North Sea, Venezuela, Iran, Mexico, and most of the Gulf States are Declining. Russia seems to have plateaued.
Global growth is running close to 5%, and several of the countries with the highest growth (China, India, Indonesia, etc.) subsidize the price of petrol.
$140.00 before $60.00 is looking, to me, like a pretty good bet.
By , at
Thu Jan 03, 01:16:00 PM:
Your proposition is not just an oil proposition, it's also a US Dollar proposition. The price of oil is quoted in USD, but against a basket of currencies, it's not up as much.
For example, in rough terms, since year-end 2000, oil is up from $25 to $100, but from about EUR 26 to EUR 68.
By Purple Avenger, at
Thu Jan 03, 03:11:00 PM:
Global oil production peaked in May of 2005.
And what happened in 2005 that set refining capacity back? Some triviality in Louisiana as I recall.
People only pump as much as can be refined because storage capacity is very limited. Even OPEC has recognized the refining capacity bottleneck and is investing HEAVILY in the construction of new refineries.
Why would OPEC invest in new refineries for product if they don't have the product to put through them? Answer that, and I'll begin to listen to you.
By , at
Thu Jan 03, 04:51:00 PM:
Most of Saudi Arabia's remaining crude in the ground is of the heavy, sour variety. It requires special refining. That's why Venezuela pretty much has to sell it's heavy, lumpy crude to Valero. Anyway, that's the type of refineries the Sauds are building.
When I speak of production I'm referring to the act of getting the crude out of the ground, not the process of refining it.
As for capacity, we've been running our refineries at well below capacity for almost a year, now. (89% last week, vs 92% average for this time of year.)
As for "storage," our stockpiles are down from 344 million barrels, early in 07, to 290 million barrels as of this morning. And, it's not just us; the Japanese stockpiles are at 30 year lows, and the rest of the OECD countries are down, substantially.
By Georg Felis, at
Thu Jan 03, 07:48:00 PM:
If I could predict oil prices a year in advance, I would not be blogging from snowy Kansas. I would be in a yacht tied up beside Dr. Mercury in a warm climate, having him over for a lobster dinner.
By , at
Fri Jan 04, 11:16:00 AM:
from my understanding, demand is actually down somewhat worldwide; it is all the political instability -- thanks to vlad the prick, and the nut jobs in tehran -- that is driving speculative positions.
from a competetive pov, these high prices will prove to be fatal to oil's dominant position as an energy source. once all the alternative technologies get established, there is no putting that geni back in the bottle -- just ask the whale oil industry, or the candle wax industry.
so in a way "thanks vlad, you made my day"
By , at
Sun Jan 06, 10:00:00 PM:
Its time for our spineless jellyfish politicians to allow drill in the ANWR AND TO FEED THE ECO-WACKOS TO THE POLARBEARS KILLER WHALES AND SKUAS
