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Oil prices declining, all just a speculation bubble?

Discussion in 'The Pub' started by robsalvv, Aug 8, 2008.

  1. An interesting article: http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/08/08/do0801.xml

    Some salient parts of the article:

    ...Just possibly, it means that what investors refer to in shorthand as the great "oil up" story has finally revealed itself not as the fundamental reflection of scarce supply that its adherents liked to claim, but as a simple, speculative bubble that was always going to burst.

    The market's conviction that oil prices were set on an unstoppable upswing was underpinned by a set of mantras to be chanted daily before breakfast by anyone hoping to make money by following the crowd: insatiable demand from China; indolent Opec sheikhs unwilling to open the supply taps; that nasty Vladimir Putin playing political hardball with Russia's oil and gas resources; those mad Iranian mullahs hell-bent on nuclear conflict; and beyond all these, the looming threat of "peak oil", the inevitable moment when Mother Earth's carbon-fuel gauge starts pointing towards empty.

    One way or another, said the fundamentalists, the only destination for oil prices in the medium term was somewhere north of $200 a barrel. And hooray to that, chorused the green lobby, because it may be the only thing that will ever make us wake up to the need to stop cooking the planet with carbon emissions.


    And meanwhile, five years of rising oil prices have provoked a wave of investment in new drilling and refinery capacity - including the opening up of inaccessible oil sources that no one wanted to tackle when prices were low. Whether it is deep under the Arctic ice-cap or soaked into the tar-sands of northern Alberta, there turns out to be quite a lot more oil waiting to be exploited before we really approach the peak-oil apocalypse. More than that, high oil prices have encouraged rapid development of such alternative energy sources as wind and solar power, and more efficient engine and heating technologies.

    On the demand side, a shuddering deceleration in economic activity across the industrialised world is starting to take pressure away. Many economists think the downturn will be deep and painful, and Opec (whose predictions are naturally at the low end of the range) thinks demand for its output could be lower in the early part of the next decade than it was in 2006.


    Reading these tea leaves, if you are a hedge-fund manager who has spent the past year smugly amassing "oil up" positions in sophisticated financial instruments, you will certainly be trying to get out of them now: hence the sheer speed of the recent falls.


    But for the time being, a return to a relatively "normal" oil price in the $60 to $80 range would take the sting out of the current inflationary surge...

  2. Speculating on the price of crude oil. The greatest form of white man's voodoo magic.
  3. I think this is exactly what what I mentioned some time ago.

    But it wasn't the oil companies necessarily to blame, but the funds who have tens of billions of dollars to invest.

    These same funds are buying food. To force the price of staples up. To make more money. And to hell with the poor who then simply cannot afford to eat.

    It's the same in Australian. One of the few countries with mandate private superannuation schemes, our fund managers HAVE to invest the money they receive every pay packet. And when the stock market doesn't look so good, they buy something else. Property for instance.

    Nothing is at it seems.

    Now, where's PP or Duncan Bayne when you need an economic rationalist?
  4. I lost a buttload of money on this - not speculating on oil itself but buying some oil shares to hedge when rising oil prices meant falling prices for other shares. But the oil shares fell even when the oil price rose (because the economy and therefore demand for oil fell), and then fell again when the oil price fell. Ah well, we live and learn.

    There are a heap of factors in the fall, just as there were in the rise, and the fact that the US economy is in recession and dragging most of the rest of the world there with it, thus lowering demand, is a big part of the picture. Speculation was some of it but there are some fundamentals involved too.

    And even now we're still at *double* the oil price of a year or so ago - just not triple.
  5. What? It's just the typical cycle.....
    Investors/speculators push the price way up, and when it comes back down, it is still far higher than it was before the craziness.
    Mug motorists think "cool, ONLY $1.30 a litre now!" forgetting it was 25c less than that before the craziness, so oil companies/speculators/investors win..........

    Regards, Andrew.
  6. Thanks Andrew. That's been my argument for years now! I remember when petrol first hit a $1 a litre after it had been steady at around 86c for a while. People panicked and then it went as high as $1.15 and the panic worsened. THEN the price went back to a dollar and the mugs were all going "well it's cheaper now thank God" :roll:

    They forgot that it used to be 86c before the craziness started.
  7. Rob Slave, you are not to become the next Pro-pilot. Cease and desist.
  8. When I first started working for "Shell" back in 1986, super was 36cpl, ulp was 35cpl, standard was 37cpl, diesel was 42cpl and LPG a mere 11cpl.
  9. Rog, :?

    I believe you may be confused.
  10. So how much to full-tank the Freightliner ???
  11. pffttt, freightliner......
    it was a K100E Kenworth kingcab aerodyne, with a 425 cat.
    4x400ltr tanks, but the most I ever put in it was 1050lts for a melb-syd return trip. :LOL:
  12. Yeah, but if you work on the basis of prices (for everything) doubling every 10 years (which is a rule of thumb that seems to hold fairly well in the UK and Australia at least regardless of what the CPI might say), you get ULP at $1.40/l and diesel at $1.68/l (or a bit more since 1986 is now more than 20 years ago) which is within a sniff of what I paid to fill up a couple of days ago.

    Which isn't too bad a rate of inflation when you consider the exponential growth in the oil price over the last five years or so.