(crude) oil price discussion thread

Discussion in 'Fred's House of Pancakes' started by cwerdna, Apr 6, 2010.

  1. cwerdna

    cwerdna Senior Member

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    crude oil price discussion thread

    Not sure if there's an "official thread" but I figure we should talk about it again since it's been rising despite the crap economy.

    I'll start. :)
    Oil hovers above $86 after 2-month, 24 pct rally - Yahoo! News

     
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  2. GrumpyCabbie

    GrumpyCabbie Senior Member

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    Oh great :(

    Petrol prices have been rising here daily. We're upto £1.20 a litre ($6.72 a US gallon). They have now beaten the record highs we had at the end of 2008, but oil was about $140 a barrel then.

    Apparantly our crap economy (thanks Gordon Brown) has caused our UK£ to be worthless and it doesn't buy US$'s like it did. God help us if oil prices increase to over $100 or highter.

    One little comfort is that I now have the Prius.
     
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  3. oldmech

    oldmech New Member

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    IMHO, here in the US, it appears that panic pricing, terminal raids elsewhere in the world, refinery fires, closely controlled supply problems, and the ever-present spark at all that the economy is getting better, is being used as a current pricing guide for petroleum products. I don't look forward to hurricane season either.

    I'm almost sure that by any and all means necessary, oil companies will see that they get every penny possible for their product.

    I'm sure glad we have a prius too...
     
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  4. TyAtkinson

    TyAtkinson Junior Member

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    I am truely puzzled by the recent increase in oil price, just seems like someone in wallstreet decided to pad there pocket.
     
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  5. mojo

    mojo Senior Member

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  6. bwilson4web

    bwilson4web BMW i3 and Model 3

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  7. robbyr2

    robbyr2 New Member

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  8. malorn

    malorn Senior Member

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  9. Tom183

    Tom183 New Member

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    That's it exactly - oil should be around $60 based on real-world demand, but many investors are using it as an inflation hedge, which distorts overall demand. (I'm tempted to put part of my portfolio into oil also, but it's already too high.)

    The irony (as with all bubbles) is that the more investors pile on, the more it goes up and the more money they make. Although in this case, I think there's some awareness that the price has gone beyond where it should be, and investors have backed off a bit out of fear of creating (or already having) a bubble. Note that by driving the price up, they have decreased demand from real-world users, which is a downward pressure on prices.

    I suppose what may happen is that the cost of "holding" all this oil starts to become a burden and reverses the price trend - then we may see another sharp dip as investors start bailing out.

    Bottom line: if oil makes it to $100 anytime soon, it's not going to stay there long.
     
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  10. hyo silver

    hyo silver Awaaaaay

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    Too bad we couldn't just peg the price of oil to match its full economic cost.
     
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  11. djasonw

    djasonw Active Member

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    It seems that the price of oil lately has been in lock step with the US Stock Market. If there is a huge rally (triple digit increase) then oil goes up. I know it's a commodity but I don't understand why the price isn't just influenced by good 'ol supply and demand.
     
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  12. MJFrog

    MJFrog Active Member

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    Because the market for oil is no longer a trading market, it's a casino.
     
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  13. Tom183

    Tom183 New Member

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    No, the "demand" is being distorted by investors diversifying their portfolios by putting a few percent into oil as a hedge against inflation. Since a few percent of several trillion dollars is a lot of money, that's a lot of new demand.

    What should happen is that after investors have set their portfolio "mix" to a certain level, that demand will level off - I think it hasn't yet because it's both a new market area for fund managers (something to sell) and because the price has continued to creep up so a lot of people have upped their targets accordingly. And nobody really knows the score on future inflation - i.e.: how much and when - so that uncertainty is leading to a higher percentage of portfolios converted to oil than it would be if we had a more accurate inflation forecast.

    But since this use of oil is NOT consumption (investors are "parking" money in oil, not burning it like the rest of us stupidly do), that demand should actually disappear completely once the levels are set. In other words, it's essentially a one-time purchase causing temporary demand increase - when the purchase is complete, the demand is gone. It's not like millions of barrels per day are burned up just sitting in a portfolio - once you put them in, they stay in (unlike your gas tank).

    It's not unlike the strategic oil reserve - adding more to the reserve can temporarily prop up prices, but once the tanks are full, that demand disappears. So when this bubble pops (when we know more about how bad future inflation will be and when it's likely to hit), the pop will likely happen extremely quickly - but prices won't collapse, they'll probably stabilize somewhere near where they were before investors added oil to their mix (i.e.: $60-70), because of ongoing demand (all of us "burners").

    That's my WAG...
     
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  14. tpfun

    tpfun New Member

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    The house always wins by manipulation, so good luck to the rest of us.
     
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  15. drees

    drees Senior Member

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    Everyone seems to be short sighted here...

    While Western oil consumption is down from 2008 levels, Eastern oil consumption has nearly made up for the drop in Western oil consumption.

    It will not take much of a bump in global demand to quickly outstrip supply as it did when oil shot up to $140/barrel.

    I will not be surprised to see gas rise another $0.50-$1.00/gallon here in the US, putting a big damper on any real economic recovery until we can make some real progress in reducing our oil consumption.

    Hang on to your Prius and grab the Leaf if you can when it hits the market late this year. Too bad it's not available now - I'd bet you could sell one at a very nice profit in 3-4 months.
     
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  16. robbyr2

    robbyr2 New Member

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    While I agree with most of your points, I think the evidence is clear that our casino economic model was more responsible for the last price spike than global supply-and-demand. Industry analysts say given the amount of oil in inventory, prices should be between $60 and $65 a barrel. The speculators make up for the difference.

    It makes for a real conundrum- high oil prices are good for the environment but they also hurt the most vulnerable populations. Of course, the latter deserve to be there according to our Horatio Alger culture.
     
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  17. cwerdna

    cwerdna Senior Member

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  18. daniel

    daniel Cat Lovers Against the Bomb

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    Perhaps because there are too few suppliers. The free market sets prices efficiently when there are a large number of suppliers competing on an equal playing field and not colluding with each other, and when there are a large number of consumers, also competing with each other. But it does not work well when there are too few suppliers, or when the suppliers collude with each other (as in OPEC) or when the consumers are addicted and therefore unwilling or unable to reduce their consumption in response to excessive prices. Some sectors of the economy do contract in response to rising prices, but middle-class drivers will squeeze somewhere else if they need to in order to fill the SUV.

    So: too few suppliers, collusion among suppliers, and addicted consumers. Speculators also profit from addicted consumers.
     
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  19. hyo silver

    hyo silver Awaaaaay

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    Excessive prices?! We're practically giving the stuff away. The price of oil is far below the true economic cost.
     
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  20. Zythryn

    Zythryn Senior Member

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    The market is also bidding on 'futures'. Basically they are guessing what supply and demand balance WILL BE, not what it is.
    So with increase demand coming from China and India, and hurricane season coming up, and the likelihood of any new off-shore rigs also going down, prices tend to go up.
    Some of these are very likely (increase demand in China due to more car sales), some are speculative, most fall somewhere in the middle.
    For example, it is very likely that there will be more hurricanes June through Oct, than there have been in the past 5 months;)
     
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