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Oil Falls Below $40 for First Time Since 2009 as Glut Grows

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Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#121

Post by Plough_Jogger »

ars wrote: post #114
ori_b wrote: post #11

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground. High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

It's also an opportunity. It costs energy to make alternative energy sources. So build them now while prices are low (I.e. don't send the Middle East lots of cash). Then reduce demand for hydrocarbons by simply producing lots of alternative energy. The other alternative is wait for prices to be high, which increases demand for alternative energy exactly when it's the most expensive to manufacture. A smart company wil…

Building and stockpiling solar panels would certainly be disastrous.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#122

Post by lexcorvus »

TillE wrote: post #12
lexcorvus wrote: post #2

I remember ten years ago when worrying about Peak Oil was all the rage. You don't hear too much about that nowadays…

It's obviously a matter of when, not if. It's difficult to put an exact estimate on when oil scarcity will become a true crisis, but we can all agree that it's a non-renewable resource which will not be around forever.

It's obviously a matter of when, not if

It was just as obvious a hundred years ago that horse manure piling up in city streets was just going to keep getting worse.

we can all agree that it's a non-renewable resource which will not be around forever

True but irrelevant. The oil supply is finite only in physical terms, not in economic terms. It is possible to extract an unbounded amount of value from a bounded resource. All you need is an increasing price, which happens automatically as supplies decrease, and which provides an incentive for substitution. I'd happily take a wager that humanity will transition off petroleum long before we "run out" of oil.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#123

Post by hinkley »

alexqgb wrote: post #86
mhurron wrote: post #63

Earlier quoted context omitted.

Pretty clear the majority of people don't care. So just hope that when the music stops, you're already dead.

And hope your children are dead too, and also your grandchildren.

That escalated quickly.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#124

Post by a8da6b0c91d »

esaym wrote: post #90

So now that it is down and will go up to $120 again soon, how do I invest in it?

It probably won't ever go back to $120. What we're seeing is the dynamics of energy deflation. The world economy simply cannot function with the price of oil much above $75. When it crosses that threshold the economy slows and sputters, credit contracts, and nobody can afford oil, thus driving the price down. The wrinkle is that the cost of producing oil is forever edging upward. Most oil cannot be brought to market with prices lower than about $75. 20th century style economic growth was fun, but it's over now.

http://www.economic-undertow.com/

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#125

Post by stergios »

dwharrison wrote: post #93
callmeed wrote: post #73

Earlier quoted context omitted.

So, how long until my 5-figure position in UCO gets back to June levels? https://www.google.com/finance?cid=14807175

Tough question. 2-3 years...maybe longer. An awful lot of production capacity has to be sweep out of the North American market (production is actually still going UP!!!). A lot of small to mid-size operating companies will need to go bankrupt...they're the ones keeping production volumes high. They need the cash to cover interest on the bank notes taken out to drill and frack those wells. The other wildcard is how qu…

I imagine the parent hopes you are wrong. The tracking error in a double or triple ETF is significant over that time horizon.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#126

Post by makomk »

ori_b wrote: post #11

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground. High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

This is why the idea that the free market will solve global warming doesn't stand up. We need to leave a huge amount of oil in the ground, it's in the financial interest of oil producers to make sure that doesn't happen, and the price of extraction is low enough that many of them can sell it dirt cheap to ensure it all goes. Indeed, I've seen arguments that the Saudis are driving down the price in part because they've noticed renewables are about to undercut them and want to make sure that doesn't happen.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#127

Post by OniBait »

pm90 wrote: post #100
sliverstorm wrote: post #57

Earlier quoted context omitted.

Capacity doesn't increase, but costs do decrease as the cost of raw materials drops. Now, obviously price is only partly determined by cost.

That's kinda the whole point. There is nothing for refineries to gain by reducing the price of gas because...nobody is going to sell gas at a lower price and take over the market because...the EPA does not allow one to build refineries. Free markets y'all.

So much this. Price is driven by supply and demand. Not the cost of materials.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#128

Post by giarc »

a8da6b0c91d wrote: post #124
esaym wrote: post #90

So now that it is down and will go up to $120 again soon, how do I invest in it?

It probably won't ever go back to $120. What we're seeing is the dynamics of energy deflation. The world economy simply cannot function with the price of oil much above $75. When it crosses that threshold the economy slows and sputters, credit contracts, and nobody can afford oil, thus driving the price down. The wrinkle is that the cost of producing oil is forever edging upward. Most oil cannot be brought to market…

So to cater to OP's comment, if it needs to get to $75, how does he/she invest.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#129

Post by jfoutz »

makomk wrote: post #126
ori_b wrote: post #11

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground. High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

This is why the idea that the free market will solve global warming doesn't stand up. We need to leave a huge amount of oil in the ground, it's in the financial interest of oil producers to make sure that doesn't happen, and the price of extraction is low enough that many of them can sell it dirt cheap to ensure it all goes. Indeed, I've seen arguments that the Saudis are driving down the price in part because they'v…

I think it could, but we have to account for the externalized costs. And, we're pretty bad at that. Lots of people's paychecks depend on stuff not getting more expensive.

Re: Oil Falls Below $40 for First Time Since 2009 as Glut Grows

#130

Post by a8da6b0c91d »

giarc wrote: post #128
a8da6b0c91d wrote: post #124

Earlier quoted context omitted.

It probably won't ever go back to $120. What we're seeing is the dynamics of energy deflation. The world economy simply cannot function with the price of oil much above $75. When it crosses that threshold the economy slows and sputters, credit contracts, and nobody can afford oil, thus driving the price down. The wrinkle is that the cost of producing oil is forever edging upward. Most oil cannot be brought to market…

So to cater to OP's comment, if it needs to get to $75, how does he/she invest.

Physical USD cash. There's going to be a lot of deflation as huge defaults, including national defaults, sweep the land.

I don't think you understand the dynamics. Oil will stay down and much less will be pumped. Without cheap abundant oil you don't get enough credit circulating in the economy that people can afford higher prices. There is no more cheap abundant oil. The higher cost drillers will simply go bankrupt and all that expensive oil will stay in the ground forever because nobody can afford it.

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