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end of round one
Aug. 15th, 2005 02:47 pmIt looks to me very much like we're at the end of round one of the oil spike. Barring a major incident, crude has probably peaked, and gasoline on the street will peak in another few weeks, followed by a slow decline in prices over a period of a few months. Crude has spiked past where demand fundamentals should actually have it right now, and more importantly, a bit past where demand growth should put it in three to six months, which is about as far ahead as the commodities market bothers to think.
Many people will take this overshoot as evidence, or even proof, that the concerns about any end to cheap oil are overblown. I continue to hear about how "all those capped wells in Texas" will pop right back up now, for example. And about how all there's all this domestic production we could tap if only those evil environmentalists would let us.
This is not true, by the way. Check the USGS data yourself, if you want. It's all available. And sure, there are some marginal-production wells that can be brought back online. But few of them have much left, anymore. That's why they're idle.
Regardless, oil could sink back to $55/barrel, or even reasonably as low as $50/barrel over the next few months - particularly if the US falls into recession. Falling prices at the pump are likely to end incipient concerns about gas milage and/or fuel economy for another round of automobile buying. Oil will be called cheap again, as it takes its one step back before taking the next two forward. The Summer of 2005 will be called the New 1973, in that way that the current commentariat likes to compare everything now to The Vietnam Era Of Their Youth.
I don't know how long oil's down cycle will last. However, it will only last as long as it takes for the continued economic growth of China and India - emphasis on "and India," as China faces a variety of structural problems which may slow, though will not not stop, its growth - to pick up their demand. The same applies to American demand, for that matter. The China Effect, as economists are calling it, has saved the US from the normal inflationary disaster that would have historically followed an oil spike like this one. It will likely continue to do so for at least the near future - which could, in turn, prompt this coming downturn in oil prices - this correct, more or less - to be fairly short-lived.
A great deal will depend upon how quickly and how efficiently oil shale production can be ramped up. With large-scale investment going into Alberta, that can be expected to ramp up somewhat quickly, and should help oil maintain a fairly stable adjusted-dollar trading-range for a few years whenever it does finally become a large factor. (The price-point for that remains to be determined. However, we're safely above the breakeven point of around level-dollar $50/barrel, so since there's good money to be made, it will be made.) However, even if that were to be at, say, a level-dollar $60/barrel, I think it's likely that there will be another downward adjustment in the US dollar, resulting in a slow 30% rise in unadjusted dollars over two to three years.
In completely unrelated news, I woke up and watched the milk truck pull up the street early this morning; out popped probably an eight year old(?) girl - "OMG milk maid!" - who ran up to get the list for her father, who then brought up the milk, yogurt, and cheese. It was so cute it made me grin all morning. ^_^
And here, since I hardly ever post budgie pictures; this is Oasis. She MUST KILL ALL RINGS! At least, when she thinks nobody is watching. ^_^
Destroy All Rings!
Many people will take this overshoot as evidence, or even proof, that the concerns about any end to cheap oil are overblown. I continue to hear about how "all those capped wells in Texas" will pop right back up now, for example. And about how all there's all this domestic production we could tap if only those evil environmentalists would let us.
This is not true, by the way. Check the USGS data yourself, if you want. It's all available. And sure, there are some marginal-production wells that can be brought back online. But few of them have much left, anymore. That's why they're idle.
Regardless, oil could sink back to $55/barrel, or even reasonably as low as $50/barrel over the next few months - particularly if the US falls into recession. Falling prices at the pump are likely to end incipient concerns about gas milage and/or fuel economy for another round of automobile buying. Oil will be called cheap again, as it takes its one step back before taking the next two forward. The Summer of 2005 will be called the New 1973, in that way that the current commentariat likes to compare everything now to The Vietnam Era Of Their Youth.
I don't know how long oil's down cycle will last. However, it will only last as long as it takes for the continued economic growth of China and India - emphasis on "and India," as China faces a variety of structural problems which may slow, though will not not stop, its growth - to pick up their demand. The same applies to American demand, for that matter. The China Effect, as economists are calling it, has saved the US from the normal inflationary disaster that would have historically followed an oil spike like this one. It will likely continue to do so for at least the near future - which could, in turn, prompt this coming downturn in oil prices - this correct, more or less - to be fairly short-lived.
A great deal will depend upon how quickly and how efficiently oil shale production can be ramped up. With large-scale investment going into Alberta, that can be expected to ramp up somewhat quickly, and should help oil maintain a fairly stable adjusted-dollar trading-range for a few years whenever it does finally become a large factor. (The price-point for that remains to be determined. However, we're safely above the breakeven point of around level-dollar $50/barrel, so since there's good money to be made, it will be made.) However, even if that were to be at, say, a level-dollar $60/barrel, I think it's likely that there will be another downward adjustment in the US dollar, resulting in a slow 30% rise in unadjusted dollars over two to three years.
In completely unrelated news, I woke up and watched the milk truck pull up the street early this morning; out popped probably an eight year old(?) girl - "OMG milk maid!" - who ran up to get the list for her father, who then brought up the milk, yogurt, and cheese. It was so cute it made me grin all morning. ^_^
And here, since I hardly ever post budgie pictures; this is Oasis. She MUST KILL ALL RINGS! At least, when she thinks nobody is watching. ^_^
Destroy All Rings!
