Skip to comments.Lehman Bros. Report: Oil Bust in the Cards
Posted on 05/11/2008 4:38:50 PM PDT by TennTuxedo
Is $120 oil even real? Not if you ask the Saudis, or even Lehman Bros. The investment banks oil expert said this week that the oil boom is due to bust. Economic growth across the globe will slow just as new refineries kick in, raising supply.
(Excerpt) Read more at moneynews.newsmax.com ...
Very wishful thinking.
and in this corner... Goldman Sachs:
“Oil prices threaten to hit $200 a barrel in a final “super-spike” over coming months as producers fail to keep pace with blistering demand from China and the Middle East, according to a controversial report by Goldman Sachs. “
I’m inclined to agree with this. Note that this was published a little over two weeks ago.
The price of oil has gone parabolic. That can’t be sustained, regardless of the commodity. Price moves like the most recent, combined with non-stop coverage of it, is always bad for those that fall for it and buy in. I wonder how many green traders are getting ready to learn their first big lesson in the old pump and dump routine.
For those so inclined, spare me the “it’s different this time” babble. I heard it with the dot coms and I heard it with real estate (hmm.. diminishing supply, increasing demand, etc. were all present in real estate). A bubble is a bubble, regardless of the asset.
Now, I’m only speaking from a trading perspective. The long-term trend in oil remains up and there is no reason to expect that to reverse. However, near-term, betting against oil might not be such a bad idea.
I’m hoping it’s the early 70’s all over again. Meaning high oil prices lead to a significant drop in gasoline demand leading to a drop in prices. Although it hurts, I like to see two stages. The one with $3 to $4 gasoline and $100/barrel oil leads to R&D, new alternatives and infrastructure development (oil sands production and new pipelines for wider distribution possibilities) and another brought on by a move to higher mpg vehicles.
End result is fewer bucks for oil producers.
I just wonder if all the oil speculators are also Opec members?
Ping this article to Canada. They are the largest importer of oil to the USA.
“The price of oil has gone parabolic.”
Not to nitpick, but I think quantum is the proper term.
Agree, with one addition: we could say the same for many commodities.
Gold and silver appear to have finally broken down a bit. They usually lead the commodity boom on the way up... and down.
The article is dated April 25. Two-week old analyst forecasts are very old news.
I agree, oil is overblown and should make a blow off top. Then there is the Iranian situation. Just when you thought it couldn’t go any higher.
If there is really a shortage, why aren’t there any lines?
Gee, how bad is it when $70 a barrel looks good?
Now they could be looking to get out [of oil funds], warns Waldron. He figures the money effect has driven anywhere from $20 to $30 into the barrel price.
No doubt speculators are easily adding $30 to a barrel.
New refineries won’t solve the problem. Crack spreads are already low, telling us that is not where the problem is. Inventories are near five year lows (that’s OECD inventories on a days supply basis) despite the high prices. Geology is trumping economics for now.
Rumor is that Russia’s production will decline over the next year. They were down in the first quarter, first time that happened in over a decade. They say things will ramp up later in the year. The Russians have been the only real source of non-opec production growth. If they do peak this year, my guess is we’ll see $200 this year.
I've seen it with oil before.
Much of the price 'increase' in oil is a result of the crash of the dollar. If the dollar recovers, oil will move sharply down.
Quantum? I like parabolic. A parabola starts out low and gets steeper and steeper.
Quantum physics deals in tiny increments with no possible values in between, such as an electron "leaping" from one energy level to another. These are called "quantum leaps". It's kind of a physics joke. Contrary to popular belief, a quantum leap is small.
$120 a barrel says more about how this government supports the dollar than it does about the value of oil.
“I just wonder if all the oil speculators are also Opec members?”
And/or others with the purpose to keep Republicans out of the White House or Congress.
Whatever happened to the big North Dakota Bakken field announcement???
My understanding is that the Saudis have considerable excess production capacity: look for that to come on-line to help McCain and stick the Iranians and Chavez in the shorts a few months before the election.
So why didn’t the old standby “exponential” make the cut?
It’s different this time and I’ll tell you why.
As long as you have a negative exponent on 'e', it will work, too.
Who predicted $100/barrel in 2005. I will take GS over Lehman any day.
Nope....and I can very much guarantee that.
Trends are what they are..............
You are absolutely right. Expect any product that we get from Asia to have a 25% or higher increase in cost due to the price of oil. Its already happening in the furniture industry.
I’ll take Boone Pickens over them both............
“Whatever happened to the big North Dakota Bakken field announcement???”
It’ll be tied up in Enviro lawsuits for the next 20 years, with taxpayers yet again making Envirolawyers filthy stinkin’ rich.
John McCain is against new drilling and new refineries.
Why he says? Because “I’m an environmentalist!”
THE LOW DOLLAR EFFECT:
The lower dollar reduces the profitability of producing overseas, which means some manufacturing COMES HOME. (ie. Plasma TV production in Fort Wayne, Indiana)
This works ONLY as long as Democrats don’t ruin the trend by yet again raising the taxes and costs on employers.
(is.”Carbon Taxes” and “Universal” rationed Healthcare)
“Why he says? Because Im an environmentalist!”
It’s easier for many spineless politicians to go along, than be demonized as “CHILD KILLER!!” by the Left for daring to stand against them.
I think you mean “exporter.”
I’m no T. Boone Pickens or anything, but I am giving oil a price target of $50-$60/bbl within 2 years.
DUG is your friend for those wanting an easy way to short crude.
Not true. Most of the Bakken is wide open for development. It is also a fairly expensive place with very long horizontal deviations and massive hydraulic fracturing required.
The Bakken will produce a lot of oil, but it isn’t close to being a new Texas ... and the US needs about three new Texas sized increments of production [at the peak in Texas production] to get close to independence. Don’t hold your breath.
Hard to predict price, but the price you have suggested would probably require a massive depression. If you are not predicting a depression, where is the new oil going to come from?
How can it be tied up in court when so many of these oil rigs are being leased on private property? Some of these people were millionaires on their first royalty check.
You're right! He predicted before them all. What's he saying now?
On the upside and the downside.
Because inventories are adequate to meet demand. In fact, this very fact belies the notion that this is a speculation-driven “bubble.”
When the Iranians cut us off in the late 70s price increases were driven to a considerable extent by hoarding. That’s not the case this time. The price spriral is strictly a function of supply and demand, the former being driven by India and China.
People are in for a shock when the increases of the past few days start showing up at the gas pump. This is why I’m leery of McWeird’s proposed gas tax “holiday.” It’s not going to have any political mileage when you consider that the federal tax on gas becomes rather inconsequential when the cost per gallon tops $5.
Fact is, most everyone I know will greatly curtail or cancel summer trips when that 5-dollar barrier is crossed, which seems inevitable given the upward pressure on the cost/bbl.
Who knows? You don’t always get to drill where there’s oil.
My guess is that Brazil is a sure thing. I’ve read production will commence 2010.
The real answers are to go nuclear (on this, and perhaps only this, the French are right,) and to open ANWR and the central Gulf of Mexico by giving explorers maximum tax incentives.
As to the enviros’ objections: hit ‘em with SLAPP and RICO suits rooted in national security considerations. Toss any who defies the suit in jail—the price for their obstructionism and outright treason.
At less than 3.50 a gallon the little home brew E100 Machine has popped up. www.efuel100.com
Wait till gas hits ten a gallon! There will be dozens of US Entrepreneurs fielding alternatives.
You're right, I don't thing supply is the answer. But I think looking at prices just two years ago we were in the high $60's/bbl, so it's not unrealistic to think that we could correct that much two years from today.
And I don't necessarily think a "massive depression" would be the root cause. (maybe a 4 to 6 quarter recession would contribute)
Reverse Engineering Crude Oil Prices:
Let's chalk $25 of the $125 price to the futures traders being futures traders.
So now we're down to $100, $25 can reasonably be attributed to the weak dollar (inflation). The dollar is in uncharted terrority. Most commodities, including precious metals, have all gone insane in the last two years partly because of this.
Now we're at $75, and that 4 or 6 quarter recession that is coming will give the U.S. economy a sniffling sneezing coughing aching stuffyhead fever which will, of course, cause the rest of the world to need to be rushed to the E.R., thus driving down crude oil demand worldwide AND causing our dollar to make strong gains vs. those weakening currencies, which is bearish for commodities.
I know this is overly simplistic, but I just don't think it's as far-fetched as you and others might think.