The lead article in Barrons this week is titled, "Bye Bubble? The Price of Oil May Be Peaking." It's accompanied by a video at their website where a Barrons associate editor makes the prediction oil will fall to the $100 level by the end of the year.
"In the next decade, oil indeed may hit $200 a barrel. But prices could fall to $100 a barrel by the end of this year if Saudi Arabia makes good on its pledge to increase production; global demand eases; the Federal Reserve begins lifting short-term interest rates; the dollar rallies, and investors stop pouring money into the oil market. China raised prices on retail gasoline and diesel fuel by 18% Thursday, in a move that is expected to curb demand."
IF Saudi Arabia increases production.
IF global demand eases
IF the FED raises rates
IF the dollar rallies
IF investor bullishness on oil cools
That's a lot of "IF's" to making predictions on.
My guess is that a correction, which I still expect, will be fairly brief and that as soon as prices drop at the pump by 10-20%, demand will again go up and off we go again.
All, interesting piece of data, at least to me, but not sure what to make of it. Maybe it just reflects the assumptions at the time the decisions were made. The fact is I just saw a projection that LNG imports will be 6 bcfd in '13. And we have 19 bcfd of import facilities today. Which is wrong?
We tend to extrapolate from the prevailing convention. Hare
Hugh, that 48% or whatever it is sounds good. I remember my beginnings in the oil patch when the geologists would string their maps across the walls and if you exceeded a 10% success rate, you were a hero. Now for a lot of the tight sand, shale plays, if you don't have 100% success, development of course, something is considered to be wrong.
The saying was that oil was found in the minds of people. What technology is out there that we can't even imagine at this juncture? Hare
Hare, I posted the wildcat drilling dry hole rate of 48% after I read an extended article giving the new drilling finding rate of something around 80%. 80% is easy to get if you drill between two producing wells 500 yards apart. Otherwise?
One type of area that does have a lot of potential at a very high cost is ocean sub-salt. Some has been drilled in the G.of Mexico, Viet Nam ?, and off Brazil but the Mediterranen has an undrilled layer over 2000 km long and up to 2 km thick. I follow it because it is geologically interesting, not because it will soon solve the oil problem.
Otherwise, the positive articles that I read remind me of the DOE oil reserve numbers some years ago. They looked great until I found the footnote "not yet found". By the way, I am a multibillionaire(a). Regards, Hugh
(a) Not yet found.
Peter, Hugh, all- Williams is hosting an analyst day today.
Looked briefly at the slides. Also make projections for NA gas and LNG. They are projecting surplus global oil capacity to rise from 2 to 5 million barrels a day in the next five years. Don't know where they are getting their projections.
As for gas, you see that the global LNG pull away from NA has been the story for gas and they don't see that changing but with a better oil supply/demand picture, who knows? Also, they didn't seem to factor in South America in the slides.
All, One reason that is often given for the "plenty of oil" view is that new technology makes drilling a more sure thing. This is very true for developmental drilling (i.e. drilling in known fields.). However, for exploratory drilling, (wildcats) meaning finding new oil, the picture is less rosy. US Data: percentage dry holes....2000...60%, 2006...46%, 2007...48% and four months of 2008.... 48%.
=DJ Dow Chemical Raises Prices Again, Adds Surcharges
DOW JONES NEWSWIRES
Dow Chemical Co. (DOW) announced its second round of price hikes in a month, saying they will rise as much as 25% starting July 1 as the company continues to deal with surging energy costs.
The inflation risks poised by the new price hikes, on top of up to 20% increases that began June 1, show the pressures facing the Federal Open Market Committee as it meets starting Tuesday to discuss the U.S. economic picture and set interest-rate policy.
Dow's price increase, which it said was caused by "the continuing relentless rise in the cost of energy and hydrocarbon feedstocks," will be coupled with freight surcharges and the idling of additional manufacturing plants.
Chief Executive Andrew N. Liveris called the steps "extremely unwelcome but entirely unavoidable" as the global cost of oil, natural gas and hydrocarbon derivatives surge ever higher. He noted that for the first half of the year, feedstock and energy costs are up more than 40% from a year earlier.
Dow Chemical, one of the largest chemical manufacturers in the world, uses oil-based products and natural gas as raw materials and is also a heavy user of energy to power its manufacturing plants.
Dow's price hike last month led a parade of other chemicals makers boosting prices to pass on higher raw-material costs to their customers. In addition, past increases had been usually confined to one product or one region. Analysts said when Dow made its first price hike that its decision to increase prices for all its products worldwide was nearly unprecedented.
Citing "a serious decline" in North American auto sales, Dow said Tuesday its automotive unit will cut costs and that it will consolidate plants and sell its paint-shop sealer business.
Regarding the production cuts - which Dow said are due to the slowdown in the U.S. and European economies and a recent surge in hydrocarbon feedstock costs - it has already cut ethylene oxide production worldwide by 25%, its European polystyrene production rate by 15%, and idled 30% of its North America acrylic acid production. It plans to additionally idle 40% of its European styrene production capacity.
The freight surcharges of up to $600 per shipment will be effective in North America Aug. 1, applying to customers buying chemicals, hydrocarbons and plastics where Dow absorbs the freight currently. Other geographic regions will see a freight surcharge implemented "as appropriate," the company said.
Dow also said its building-solutions unit temporarily idled 20% of its European capacity for producing styrofoam insulation, citing declines in the housing and consumer sectors, as well as rising costs.
Shares of Dow were recently up 33 cents to $37.95.
-By Donna Kardos, Dow Jones Newswires; 201-938-5963; firstname.lastname@example.org
(END) Dow Jones Newswires
June 24, 2008 08:39 ET (12:39 GMT)
Copyright (c) 2008 Dow Jones & Company, Inc.- - 08 39 AM EDT 06-24-08
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I think you got the situation just about perfect. Absent Harehau's potential disaster scenario what could oil fall to? I mentioned in my earlier post that the 50 DMA is at 125 and the 200 DMA at $102 for oil. Those are both highly logical support levels in the event of any attempt at a fall.
World economic growth does seem to be coming under question. UPS' traffic warnings of yesterday are a bit ominous. And the BDI falls nearly every day now and is below its most recent upward trendline.
But oil shows no signs of cracking this AM.
"Anyone who gets in the business of predicting energy price always ends up being wrong at some juncture. Maybe that's where I am, made money in energy, should take the profits, enjoy it and not worry too much about what happens in the future." Cheers Hare
When I get this feeling it is time to start looking at some farm land. I feel this way now but the bank account has not recovered from the last purchase. So the next idea is to sell a couple covered calls as a way to trim the portfolio. I don't think I could ever be totally out of energy. Hell I can't remember when the last time I didn't own OXY. A 20% pullback would not surprise me at all and this would give everyone a "I told you so" moment. Then life will resume with $3.40 gasoline and it will seem cheap.
Big, appreciate your comments. I don't learn too much from people who share the same position. And I have been wrong enough to know I am not always right. As I like to think of my recent financial buys, I'm not wrong, just early.>Hare
Ditto and back at ya. I know I was early on my recent sell, how early remains to be seen.
<<This commodity blow out does remind me of the internet runup a few years ago when everyone assumed that bricks and mortar would disappear from the scene. That a fertlizer stock is selling for 50 times earnings, no one seems to be concerned.>>
I think comparing commodities, especially energy, to the tech bubble isn't just apples and oranges, it's more like apples and rocks. Commodities are necessities making demand more constant. Tech was/is nice additions. The supply side constraints just weren't there for tech like they are for commodities.
Then there's valuation of the companies. Unless there was revenue/profit growth to match it or a company in the early stage of development, I'd be leery of anything selling at a 50PE, something that has caused me to miss out on winning stocks like SD and BQI, but kept me out of many losers as well. But many stocks in the energy and metals/mining sectors are selling at PEs in the teens, some in single digits. Just for kicks I looked at the energy stocks in my portfolio, the forward PEs range from 8 to 20. The majority of the trailing pEs are in the teens. The tech stocks had PEs in the hundreds if they had earnings at all.
For the record I mostly missed the ag commodity boom, selling my one position, Deere, way too early after a double. I can see long term trends that auger well for ag, but also shorter term factors like the ethanol fiasco that could bring a longer and more severe correction than I think will take place in energy.
Fertilizer? There's an abundance every election year.
Cheap yankee that I am, I buy a pound of Peet's Aged Sumatra, a dark and very aromatic coffee for $15 and get a little less than a hundred cups from a pound--15 cents a cup. Not bad for a cup of coffee that Al couldn't match in his wildest dreams.>pddane
I don't expect a gourmet cup of coffee for a nickel, but surprisingly, it's not bad and the homemade pies the cheap coffee lures you in to buy are excellent.
At home I either grind my own whole beans, usually Italian roast, or a couple times a year my wife's foster sister sends us LIndvall's Kaffe- wonderful coffee from Sweden.