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OIL Prices

BigRed1

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I am cautiously optimistic about the price of crude oil dropping and the corresponding drop in refined product...to a point of course. But...At least we are heading in the right direction. Demand has finally taken a downturn as prices have stayed stubborningly high. For those of you who are chart or statistic buffs, this one year chart of the price of crude oil shows several bearish signs(downward pressure on price). One...From mid August to the end of September a "Head and Shoulders" pattern has formed on the price chart for crude. This is a strong indication prices will continue lower. Two...The uptrend line for crude price at the end of September was roughly 65 dollars a barrel. You can see in the chart the trend has easily been broken and the downward momentum is well on its way to establishing itself. Third...There was major support in the 64 to 66 dollar range for the last several months, and that support has been broken. The next support level is at 58 dollars. Lets hope this support level gets taken out as well. If that is taken out, and we have a milder winter than planned, you will likely see 52 dollars as the next target.

http://quotes.ino.com/chart/?s=NYMEX_CLX5&v=d12

I was researching some support material to back up my bearishness for the price of crude. I came accross a presentation produced by the EIA (Energy Information Administration) back in February of '05. This was of course long before the hurricanes, etc. Their predictions in February were for world wide oil demand to drop from an unexpectedly high 2.7 million barrels per day in 2004, to 2.1 million barrels per day in both 2005 and 2006. The majority of the drop is due to a decline in Chinese demand. The demand has fallen even more now due to higher prices of gas. They also predicted the price of crude oil to average between 35 and 55 dollars per barrel over the next 2 years. Now this is coming from the Government's Department of Energy whom one whould expect to have a pretty good grip on where the prices SHOULD be, and not where the speculators and rare extreme natural disasters force it to be temporarily. If you want to view the slides the website URL is below.

http://www.eia.doe.gov/pub/oil_gas/petroleum/presentations/2005/jetfuel/jetfuel_files/frame.html

Another interesting site is www.eia.doe.gov. Here is the latest report from the EIA from the October 5th report:

Petroleum
As Hurricane Rita approached, 16 refineries along the Gulf Coast shut down as a precautionary measure and to allow employees to evacuate, and as today, 9 are completely shutdown. In sum, there are 4 refineries still shut down in the New Orleans area following Hurricane Katrina, 7 shut down in the Port Arthur and Lake Charles areas, and 2 shut down in the Houston/Texas City/Galveston refining area, amounting to a total of over 3.1 million barrels per day of refining capacity that is currently offline. This accounts for nearly 1.4 million barrels per day of gasoline, about 750,000 barrels per day of distillate fuel, and nearly 400,000 barrels per day of jet fuel that is not being produced as long as these refineries remain shutdown. Please consult the Office of Electricity Delivery and Energy Reliability's Situation Report for specific information on the refineries.

According to EIA's Weekly Petroleum Status Report for the week ending September 30 (released October 5), U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) inched lower by 0.3 million barrels from the previous week. At 305.4 million barrels, U.S. crude oil inventories remain above the upper end of the average range for this time of year. Total motor gasoline inventories dropped by 4.3 million barrels last week, putting them just above the lower end of the average range. Distillate fuel inventories fell by 5.6 million barrels last week, and are just above the middle of the average range for this time of year. A sharp drop in low-sulfur (diesel fuel) distillate fuel more than compensated for a slight rise in high-sulfur (heating oil) distillate fuel. Total commercial petroleum inventories plummeted by 9.9 million barrels last week, but are in the upper half of the average range for this time of year.


My take on the falling price of crude after this report is this.

"At 305.4 million barrels, U.S. crude oil inventories remain above the upper end of the average range for this time of year." Simple supply and demand again. As we have heard many times over the past few months, there is NO shortage of crude oil, even after the hurricanes. The SPR also helped the short term disruption.

"Total motor gasoline inventories dropped by 4.3 million barrels last week, putting them just above the lower end of the average range." If the refineries currently out of service produce 9.8 million barrels a week, and supply dropped just 4.3 million, another indication of falling demand. As more refineries come back online, the stock piles will rise again.

"Total commercial petroleum inventories plummeted by 9.9 million barrels last week, but are in the upper half of the average range for this time of year." Even with all the incredible forces going against the petroleum infastructure, the inventories are STILL in the upper half of the range for this time of year.

In conclusion...And I know this is a long post...Frankly, I don't know why I am spending the time to write it. But I guess after lurking on this board for a while, I am getting a feeling that everyone seems to think oil will forever be at 65 dollars and higher, and that this price really is not the consensus among those who REALLY know the business. Here is an interesting video by Steve Forbes. Give it a few seconds to load. Disregard the first commercial.

http://g.msn.com/0VD0/15/64?i=fce44531-746d-495c-83e5-367db951f1f0&p=Source_CNBC&m=&mi=

The US. Goverrnment thinks the price will drop. The United Airlines CEO (The previous CEO of Chevron) and the banks financing their BK exit (JP Morgan and Citigroup) think the price will drop. They target an everage of 50 dollars/barrel over the next 6 years. Steve Forbes gives a strong argument about why the price will drop...

Because demand is dropping in China and the United States. Technology will help oil companies find more oil deposits. One can profitably refine Canadian tar sands into motor fuels, and Mexican reserves will be bigger. One can make a case for crude oil at around $35 a barrel. "But $65, $67 $70 oil? No way. This is a bubble," he said.

Now, before one dismisses Forbes as a wild-eyed capitalist wacky, at least one member of the Market Dispatches team is old enough to remember that Forbes magazine was one of the first to predict the oil bust of the early 1980s.

When the price spikes and people get panicky, demand drops, new technologies get implemented, and new proposals like this one from Senetor Dick Durbin become legislation. I think this is a FANTASTIC idea to reduced the rediculous volitility in the price of refined fuel. A Strategic FUEL Reserve in addition to the SPR. I like it. It makes sense.

http://www.alertnet.org/thenews/newsdesk/N29218198.htm

Ok, that was a long conclusion. I really am done now. My final points are these. The sky is not falling. Oil and the price of its refined product will come down. Even JackAss George W. said we need more refineries and the expansion of existing ones. Now when a corrupt oil man from Texas says that...You KNOW the price will fall. Oh, and lastly...I am SICK of hearing about JETLBUE and SOUTHWEST. Geez!

Relax.

And thanks for reading.
 

Smoking Man

High Speed Aluminum
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Nov 25, 2001
Posts
561
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7701
Traderd said:
JetFlyer should be along any minute now to correct you.

He has plenty of peak oil information.
 

XJETDriver

06 STL WS Champs
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Yeah... Jet knows everything there is to know about oil. :)
 

bugchaser

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Great post. I agree completely and have been saying that oil should be at around $35 according to the fundamentals. The bubble will pop eventually. Hopefully in the end, this will be a good thing in that it brings about some new tech advances, exploration, etc. Where are you Jetflyer?
 

SmackYourPappy

Purple People Eater
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Its all a good show my friend, HOWEVER if you have looked at JET-A instead of Light Sweet Crude (or other oil stock) then you might have noticed that your analysis is a bit off. I dont have the office stuff handy, but while the price of crude futures is indeed down by around 10% the past few days- have you seen what Jet-A is going for??? It's almost up 15% in the same time frame.

If you are wondering why/how then you just have to look at the relatively small market (compared to say mo-gas) of Jet-A combined with the relatively small margin on the finished product, and you will end up with a limited number of producers/suppliers. When they get pinched (as a result of a few Hurricanes) then guess what suffers... production. The present scarcity of future supplies are reflected in these ever higher prices and its not going to end anytime soon. Its all about production of our product and not just any old oil product.

It's gonna be a while so settle in...
Tailwinds-
Pappy
 

capt. megadeth

Metal Momma!
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When has the price of anything that has gone up come back down?
 

WMUSIGPI

The $100,000,000 Question
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How about everyone plan for oil at $90 a barrel and if it stays at 65 great then you make a little extra cash if it doesn't .. so what you planned for it. Quit the dreaming that we are going to see oil below $40 anytime again
 

BigRed1

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SmackYourPappy said:
Its all a good show my friend, HOWEVER if you have looked at JET-A instead of Light Sweet Crude (or other oil stock) then you might have noticed that your analysis is a bit off. I dont have the office stuff handy, but while the price of crude futures is indeed down by around 10% the past few days- have you seen what Jet-A is going for??? It's almost up 15% in the same time frame.

If you are wondering why/how then you just have to look at the relatively small market (compared to say mo-gas) of Jet-A combined with the relatively small margin on the finished product, and you will end up with a limited number of producers/suppliers. When they get pinched (as a result of a few Hurricanes) then guess what suffers... production. The present scarcity of future supplies are reflected in these ever higher prices and its not going to end anytime soon. Its all about production of our product and not just any old oil product.

It's gonna be a while so settle in...
Tailwinds-
Pappy

I agree with you Pappy, it is a refining issue. My argument though is crude prices are coming down, refining capacity is being restored, and demand is slowing. There is a bubble in the price of crude, and an exacerbated bubble in the price of Jet-A due to the gouging that is currently going on in the crack-spread for Jet fuel. I disagree with you that this won't end anytime soon and these Jet prices are sustainable for years. The price of crude will fall. This will help the price of Jet fuel decline. Production will increase again and be even better than before as new procedures/technologies/policies/and utilizations will be implemented.

If you want to get a real good feel for the extremes that the industry is dealing with right now, visit this information put out by the ATA. It will make you pissed and amazed at the prices we are all being forced to pay.

http://www.airlines.org/news/d.aspx?nid=9194

Remember, these are extremes and are not sustainable.
 

jetflyer

Concerned Citizen
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Good post Bigred,

I agree there is no need for crude right now. There's no refineries to refine it!

I wonder if demand isn't going down since after the hurricanes though, because the economy is slowing?

Let's just hope the high prices at the pumps and low consumer sentiment doesn't pop the housing bubble.

Plus the bankruptcy laws are changing and in December the credit card companies are going to make the minimum 4% instead of 2% so someone with 10,000 in credit card debt will have to pay a minimum of $400 instead of $200.

This change to the minimum payment comes just in time for people to start seeing their NATURAL GAS BILLS virtually DOUBLE from last year. Great.

I'm also worried a lot of money going into the economy is going to be lost if the housing bubble starts to deflate, because people won't have money to pull out of their homes. This puls the natural gas prices, and the changes to the minimum payments could be a real drag on the economy.

We could see a serious slowdown in the economy reducing demand a TON for OIL, and really could see the oil prices come down significantly.

4th quarter will be interesting for sure. The original estimate for 4th quarter demand was 86 mbd, with the world producing now after Katrina 83 mbd. So this will have to be overcome, but there are a lot of crude inventories. Also with the loss of natural gas from the Gulf, Heating oil demand may actually be higher. So both these things suggest we may see a rise in crude price.

I think the prices will most likely linger around the $60 line till more clarity is seen on how cold the winter is. If it's cold they'll go higher, warm lower.

Cross your fingers.

Jet
 
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klhoard

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I just installed my Magnetic Power home heater. Man, I'll be thumbing my nose at the gas companies this winter!!!
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whymeworry?

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For the sake of us all, I so sincerely hope you are correct. However, I am afraid it's all about spin. One can find all the information they wish about the expected rise or fall of crude. Whichever advice/ evidence you post will certainly make it seem as though that is indeed the gospel of the moment. The reality is there is still PLENTY of analysis out there by the so-called "experts" that call for oil/ nat gas to go way higher. While I feel most of these idiot experts are just that, idiots (almost 100% of the oil/ energy analysts called for oil to stabilize at $30/ $40/ and $50 per barrel... they only started to predict higher prices once oil hit $60, hence my comment about they being "experts", HAH!), the fact is until we gain a foothold on the terror war oil will continue to remain extremely expensive. And just one hit to any oil pruducer by a terror group will likely tip the scale higher. "It's about war, Stupid", jsut as the '92 elections were about the economy. Oil only stabilizes in times of peace.

That said, I'm of the belief that we will finally gain the upper hand on the terror war by end of next summer. We're actually doing quite well against Al-Qaeda but we are loosing the psychological war. Their (the terrorists) hits are small and mainly to the Iraqi population but those hits give some the impression that we are losing... well, that impression is sparked further by most of liberal hollywood (most of whom have the intelligence of a bag of rocks). When we win the war on terror, oil will start coming back down to reasonable levels ($40-$50/ barrel). But only once we gain the upper hand on Zarqawi and crew. In the meantime, consider this: Energy costs have grwon by $100 billion while nationwide wage growth in America has grown by $1.1 trillion (CNBC), obviously this figure excludes airline pilots. Some analysts are making the argument that income growth continues to out-pace energy inflation, and therefore the higher energy costs are sustainable. I personally think their wrong (I have a Wall Street background). Most of the income growth is in the top 5% of the population, while most of the energy costs are bourne by 95% of the population. It's the latter that is feeling the pinch as a result of severly high energy costs.

Anyway, GOD I hope you're right. We need oil to drop quick!
 

Cobra

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whymeworry? said:
For the sake of us all, I so sincerely hope you are correct. However, I am afraid it's all about spin. One can find all the information they wish about the expected rise or fall of crude. Whichever advice/ evidence you post will certainly make it seem as though that is indeed the gospel of the moment. The reality is there is still PLENTY of analysis out there by the so-called "experts" that call for oil/ nat gas to go way higher. While I feel most of these idiot experts are just that, idiots (almost 100% of the oil/ energy analysts called for oil to stabilize at $30/ $40/ and $50 per barrel... they only started to predict higher prices once oil hit $60, hence my comment about they being "experts", HAH!), the fact is until we gain a foothold on the terror war oil will continue to remain extremely expensive. And just one hit to any oil pruducer by a terror group will likely tip the scale higher. "It's about war, Stupid", jsut as the '92 elections were about the economy. Oil only stabilizes in times of peace.

That said, I'm of the belief that we will finally gain the upper hand on the terror war by end of next summer. We're actually doing quite well against Al-Qaeda but we are loosing the psychological war. Their (the terrorists) hits are small and mainly to the Iraqi population but those hits give some the impression that we are losing... well, that impression is sparked further by most of liberal hollywood (most of whom have the intelligence of a bag of rocks). When we win the war on terror, oil will start coming back down to reasonable levels ($40-$50/ barrel). But only once we gain the upper hand on Zarqawi and crew. In the meantime, consider this: Energy costs have grwon by $100 billion while nationwide wage growth in America has grown by $1.1 trillion (CNBC), obviously this figure excludes airline pilots. Some analysts are making the argument that income growth continues to out-pace energy inflation, and therefore the higher energy costs are sustainable. I personally think their wrong (I have a Wall Street background). Most of the income growth is in the top 5% of the population, while most of the energy costs are bourne by 95% of the population. It's the latter that is feeling the pinch as a result of severly high energy costs.

Anyway, GOD I hope you're right. We need oil to drop quick!

Hate to burst your bubble there bub, but most of the terrorist attacks here in Iraq are committed by homegrown Iraqis.

G
 

whymeworry?

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Cobra said:
Hate to burst your bubble there bub, but most of the terrorist attacks here in Iraq are committed by homegrown Iraqis.

G

You're not bursting my bubble at all, I am hoping oil drops as well. Whether or not the terror is being brought on by local Iraqis or by in influx of new volunteers from eleswhere in the Arab world, the fact still remains, so long as the war on terror continues, the oil markets will continue to speculate on upcoming disruptions (perhaps disruptions that could be caused by terrorists) and it is the markets that are propping up the price of oil.
 
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