Crude O I L Price

[LaoPo]

Crude O I L Price It's strange we don't have a special thread about the most important 'fuel' in the world: O I L

Crude Oil Tumbles Below $36 as Demand Drop Swells Inventories

Data image from: Nymex published in MarketWatch *

By Mark Shenk

Dec. 18 (Bloomberg) -- Crude oil fell below $36 a barrel for the first time since June 2004 as declining demand created a glut of crude and the weakening economy undermined OPEC’s efforts to reduce supply.

Oil for delivery in future months has dropped less than the contract for January as supply has swollen in the storage hub for crude traded in New York. The U.S. Energy Department said consumption will be lower in 2009 because of the recession. OPEC agreed to reduce output by 2.46 million barrels a day yesterday.

“There’s a lot of supply and not a lot of storage left,” said Adam Sieminski, Deutsche Bank’s chief energy economist, in Washington. “There’s a hope somewhere that the economy will be better in 12 months and the OPEC cuts will start to have their intended impact.”

Crude oil for January delivery dropped $3.84, or 9.6 percent, to $36.22 a barrel at 2:47 p.m. on the New York Mercantile Exchange, the lowest settlement since June 29, 2004. Futures touched $35.98 during today’s session. Prices have tumbled 75 percent from a record $147.27 on July 11. The January contract expires tomorrow.

February futures cost $5.45 a barrel more than January oil today, based on Nymex settlement prices. It’s the biggest premium between the two most-active contract months in Bloomberg data going back to 1986. The spread allows oil traders who can line up credit and storage space to lock in profits by buying and holding crude oil to sell a month from now.

Oil Contango

Oil for delivery in January 2010 is 53 percent more than for delivery in January 2009, increasing the opportunity for traders to profit. This price structure, in which the subsequent month’s price is higher than the one before it, is known as contango.

Contango trading encourages companies to increase stockpiles. U.S. crude-oil supplies rose in 11 of the past 12 weeks, according to the DOE. Inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 21 percent to 27.5 million barrels last week, the highest since May 2007, the government said yesterday.

“Unless demand picks up appreciably, the front-month contracts will remain under pressure because nobody wants to take delivery,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “We could see a lot of fireworks tomorrow.”

Volume in electronic trading on the exchange was 412,007 contracts, as of 3:20 p.m. in New York. Volume totaled 664,140 contracts yesterday, up 32 percent from the average over the past 3 months. Open interest yesterday was 1.17 million contracts. The exchange has a one-day delay in reporting open interest and full volume data.

Demand Decline

“The continuing decline in demand is running ahead of supply cuts,” said Robert Ebel, chairman of the energy and national security program at the Center for Strategic and International Studies in Washington. “Right now OPEC has its fingers crossed. If this doesn’t work, they will have another meeting soon and make another cut.”

World oil consumption next year will drop by 0.2 percent to 85.68 million barrels a day, OPEC said in a Dec. 15 report. The U.S. Energy Department said on Dec. 9 that global demand will decline 0.5 percent to 85.3 million barrels a day.

JPMorgan Chase & Co., the largest U.S. bank by assets, reduced its 2009 average oil price forecast to $43 a barrel from $69 as a global economic slowdown causes a contraction in demand. The prospect of oil falling to $25 is “hard to dismiss amid a serious deterioration of economic conditions and building stocks,” the bank said in a report released yesterday.

Supply ‘Leakage’

“When you look at the spare capacity that is being created, even if prices do start to pick up, you will see more leakage of supply onto the market,” Lawrence Eagles, global head of commodities research at JPMorgan Chase in New York, said in a conference call today.

Yesterday’s record Organization of Petroleum Exporting Countries’ production cut is larger than a 2 million-barrel drop indicated on Dec. 16 by Saudi Arabian Oil Minister Ali al-Naimi. OPEC ministers met in Oran, Algeria.

OPEC has called on other exporters to help it bolster prices. Non-OPEC members Russia and Azerbaijan signaled yesterday that they may be willing to trim supplies to help the group.

Norway, the fifth-biggest oil exporter, according to the country’s Ministry of Petroleum and Energy, won’t follow OPEC’s decision to cut output, Stein Hernes, a spokesman for the ministry, said in an e-mailed response to questions today.

No Confidence

“Even though OPEC announced a substantial cut yesterday, the market doesn’t seem to have any confidence in their ability to manipulate the market,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “Even if they make the promised cuts, it will be a long time before we see evidence of it here.”

Oil companies have booked 25 supertankers to store crude, enough to supply France for almost a month. The vessels, equal to about 5 percent of the global fleet, can carry as much as 50 million barrels.

“The market is failing to find any support,” Bentz said. “The worries about demand are still out there because of the recession. We’ve got at least 45 million barrels of excess floating storage out there on top of all the storage we’ve got on land.”

Brent crude oil for February settlement declined $2.17, or 4.8 percent, to settle at $43.36 a barrel on London’s ICE Futures Europe exchange.

-Bloomberg

* http://www.marketwatch.com/

LaoPo

[Kf6vci]

Quote: Jim Rogers says that the world is currently using 7% of reserves p.a.

I read that most investments are on hold - including refineries. The few new refineries rely on government aid.

IMHO, there will be a huge supply issue - investment is getting deferred. At some point, when higher prices justify such investment, time will be lost. In this industry, it is not just a matter of getting something done in a year. Most projects take years before new supplies go online...

Whatever the current price - oil will remain a scarce resource! Sadly, NYMEX futures get very expensive at the longer end, up to 2016. They climb every month and every year, reflecting market expectations of higher oil prices in future!

Considering the current crude price, the oil multis are strangely high. XOM and CVX were below 70 at some point...

Given the weak Dollar, the current price is all the more shocking When the dollar falls, crude tens to rise and vice versa.

Many supplier countries got to be hurting - big time! Others will just run huge unplanned budget deficits. ++ Mexico hedged most output - a clever move with hindsight.

FYI, there are crude tracking stocks like OIL or also USO (I did not check out the latter).

Disclosure: I'm long on crude

[Mosha]

I can't remember where I read it, but I was browsing yesterday. The threat is to turn of the taps, if the price does not go north soon. The fear being they just aren't selling enough. One quote was even 0 US$ by Christmas.

PS I actually googled crude oil price

[Naam]

crude prices:

http://www.bloomberg.com/markets/commoditi...ergyprices.html

[lannarebirth]

I din't know why everyone worries over crude prices. It is historically "not cheap" here. During this last cycle the financial pundits were able to convince a substantial number of investors that rising oil prices were a "good" thing and that in fact "owning" commodities was an investment, which it is not. If this finanacial crisis is for real, I wouldn't expect to see crude back over 5o in the next 5 years at least.

[flying]

I wouldn't expect to see crude back over 5o in the next 5 years at least.

At last some good news

[Smithson]

Disclosure: I'm long on crude

That would make sense, considering all the talk about Peak Oil. I don't know anything about buying commodities, but am very interested in oil as a long term investment, for obvious reasons. How does one go about investing in oil long term?

[slapout]

Depends on what you mean by 'long term.' Several oil producers have been around for several decades as have a few of the major oil service companies. The latter will always have work due to remedial work involved, to continue, prolong, enhance, etc the existing and new producing and injection wells. The oil shortage/boom of the 1970's and the past couple years have brought out the promoters where you can invest in their drilling programs direct vs buying shares in the afore mentioned oil and service companies. Many of the 1970's promoters absconded, went to jail, filed bankruptcy, or worse if the investors caught them. If you have a source of oil and a place to store/refine it the commodities may be your choice or you could set up a company, put your own and other peoples money into it and drill holes to find oil, gas and/or water. Note my 1970's promoter position. On a serious note, some of the investment brain trusts are recommending a couple of the service companies very highly as stock price is down by 65% over past few months.

[sorensen]

Peak Oil might actually already be an reality and we are living it right now. Peak Oil being peak production and NOT peak price.

The oil industry is of course crying snot over the previous months price drop, but in long terms I still think oil service companies and drillers are solid LONG term investments.

[sorensen]

in inflation adjusted $ oil is getting cheab at $35. Anything below $30 will bring back memories of the $10 oil in October 1998.

[sorensen]

A more recent updated chart:

[PCA]

Disclosure: I'm long on crude

That would make sense, considering all the talk about Peak Oil. I don't know anything about buying commodities, but am very interested in oil as a long term investment, for obvious reasons. How does one go about investing in oil long term?

You can buy DXO, a double leveraged ETN resembling the moves of crude oil (not accurately). It trades around 2.60 now coming from about 30. There is no risk of it going to 0 but a high chance for doubling and trippling your money in pretty short time. I would wait until it trades below 2.00 and then jump in with your decided size. Sell half of it above 4 and let the rest go wherever it wants to. A very low risk and substiantially high chance investment/trade.

[Nouf]

well someones buying Oil as its gone contago, in the front months, so i guess future prices are due to move higher in the short term, as oil producers must be thinking that this is christmas come early and securing what ever they can get there hands on, but like all trends we have gone from optimism when we peaked @ $147 now we go to pessimism as the media freak out as we punched through $40

when the anal-lysts from morgan or goldman come out and start giving me figures of $15 & $20 then you know a reversal is near

just like goldmans $200 call earlier this year

i have no doubt that a decent sized rally is due as this move down looks like it on its final stages before a reversal.

[CPH]

A more recent updated chart:

This is a very interesting chart. To me it seems that the normal level for the oil price right back to 1946 has been around 20 to 30 USD per barrel.

The peaks during the seventies were due to manipulation by the oil producers, and the recent peak was due to manipulation/speculation by large traders and pension funds. I would expect the oil price to hit 25 USD per barrel in Q2 2009 caused by a broadening of the recession.

[britmaveric]

OPEC's last breath - pretty dam_n funny - they can't cut too much because they need to push supply - make their dosh. $50 per barrel is prob about right - however think we will see $20 before long.

[LaoPo]

Oil falls over 6 percent on demand outlook

Fri Dec 19, 2008 3:33pm EST

By Edward McAllister

NEW YORK (Reuters) - Oil fell over 6 percent on Friday, as fears of economic slowdown weighed heavier than proposed production cuts by the world's major oil exporters.

U.S. light crude for January delivery, which expired Friday, settled down $2.35 at $33.87 a barrel, the lowest since February 10, 2004, when it ended at the same level.

The more active February contract settled up 69 cents at $42.36 a barrel with cuts in OPEC production expected to take hold in that month.

London Brent crude gained 64 cents, settling at $44.00.

Friday marks the sixth consecutive day of falls in oil, off more than 29 percent from the $47.98 seen when prices last rose on December 11.

Oil prices have fallen more than $100 from their peak above $147 in July as a global economic downturn ripped into global oil demand, and looked set for one of their biggest weekly declines for years.

Industry forecasters predict that global oil demand will contract for the first time since 1983.

Pledges by the Organization of the Petroleum Exporting Countries (OPEC) to cut output by 2.2 million barrels per day (bpd) -- the largest ever reduction by the producer group -- failed to support January prices.

"The market is signaling that it is taking a look at the OPEC cut and recognizing that is more likely to be evident in February," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

"The Feb contract has not been able to crack $40 yet, but if inventories and refinery use continue to drop then pressure will resume," he added.

However, many traders doubt OPEC, whose third production cut since September has brought its total reduction to more than 4 million bpd or 5 percent of world supply, will fully implement the agreed cuts.

"We believe that full implementation of the cuts is unlikely," Goldman Sachs analysts said in a note to clients.

OPEC kingpin Saudi Arabia's Oil Minister Ali al-Naimi, speaking in London on Friday, said the kingdom would be pumping less oil in January and would be at its new output target in line with the group's latest cut.

"BITE THE BULLET"

That reassurance appeared to be having some impact on the market in late European trade on Friday.

"From a credibility standpoint, OPEC has no choice but to bite the bullet for the next few months," said Jonathan Kornafel, Asia Director of Hudson Capital Energy.

"Until traders see a sustained drop-off in the rate of demand destruction, the market will have a hard time establishing a floor."

OPEC President Chakib Khelil said on Friday he believed oil prices had found a floor around current levels.

"I don't believe there is any reason for it to fall any further. I don't see it going lower," he told Reuters in London.

-Reuters

LaoPo

[ace]

I wouldn't expect to see crude back over 5o in the next 5 years at least.

But if that were the case, wouldn't a large number of marginal producers be forced to cut production significantally? As well as lots of OPEC cuts. Would it take 5 years to shake out the current excess supply? Or would demand collapse (in this scenario) be sufficient. If it's demand collapse then, well,

[lannarebirth]

I wouldn't expect to see crude back over 5o in the next 5 years at least.

But if that were the case, wouldn't a large number of marginal producers be forced to cut production significantally? As well as lots of OPEC cuts. Would it take 5 years to shake out the current excess supply? Or would demand collapse (in this scenario) be sufficient. If it's demand collapse then, well,

Hel_l, I don't know. One thing I do know however, is that the former high price was not based on demand. It was based on speculation. Where oil goes now will not be based on demand either it will be based on where it has to go to unwind the considerable speculation that remains going out into next year. After that is done, I imagine we'll see how badly some oil economies need money and if they will pump at any price. I imagine they will.

I never see oil as a supply demand issue. It is always a speculative issue as far as I'm concerned. My demand for oil has gone up considerably now that the price has dropped, yet the price keeps falling.

Edited December 20, 2008 by lannarebirth

[think_too_mut]

I remember, there was a moron in Oz press, saying "Petrol prices will be over 2 A$ a litre (then almost 2US$), that will never go back.

He was as right as the Iranian moron president who declared the oil price will never drop under 100US$ and made his budget commitments safely at 80US$.

[H2oDunc]

There was a guy on the Geoff Rense radio show last June who was told by one of the oi big wigs that the price of oil would be $50 a barrel by the election. This was when it was pushing $150 a barrel and people were saying it would hit $200 a barrel. Everybody laughed at the guy. He also said that this would continue for a long time and the plan was to bankrupt the middle eastern states. His name was Lindsey Williams and he worked as a pastor for the oil companies up in Alaska. He also tells of the oil companies finding the biggest deposit of oil in history there but it has been hushed up and not being used yet for reasons unknown ! Opec think they control the price of oil. Having just reduced production to an all time low the price is still falling and they can do nothing about it. Dubai needs the price to be at $80 a barrel minimum or they are in BIG trouble ! Watch them suffer now.

[zaphodbeeblebrox]

One thing I do know however, is that the former high price was not based on demand. It was based on speculation. Where oil goes now will not be based on demand either it will be based on where it has to go to unwind the considerable speculation that remains going out into next year. After that is done, I imagine we'll see how badly some oil economies need money and if they will pump at any price. I imagine they will.

I never see oil as a supply demand issue. It is always a speculative issue as far as I'm concerned. My demand for oil has gone up considerably now that the price has dropped, yet the price keeps falling.

As soon as investors get an inkling that a recovery is on the way, oil prices will make a steady rise. Right now, oil producers are buying tankers, and storing their crude at sea, waiting for that jump in prices.

[VegasVic]

There was a guy on the Geoff Rense radio show last June who was told by one of the oi big wigs that the price of oil would be $50 a barrel by the election. This was when it was pushing $150 a barrel and people were saying it would hit $200 a barrel. Everybody laughed at the guy. He also said that this would continue for a long time and the plan was to bankrupt the middle eastern states. His name was Lindsey Williams and he worked as a pastor for the oil companies up in Alaska. He also tells of the oil companies finding the biggest deposit of oil in history there but it has been hushed up and not being used yet for reasons unknown ! Opec think they control the price of oil. Having just reduced production to an all time low the price is still falling and they can do nothing about it. Dubai needs the price to be at $80 a barrel minimum or they are in BIG trouble ! Watch them suffer now.

H2o, If you go back and read my posts from 6 months ago you will find that I was saying the same thing also! I was telling everyone to short oil and go long the Dollar. I don't know of any plan to bk the middle eastern states, but oil will be down here for quite a while and OPEC is powerless to do anything about it, hel_l OPEC won't even be able to make its members adhere to the most recent production cuts The scenario that you put forth is not as far fetched as many might think, when you squeeze OPEC you put a big hurt on countries like Iran and Venezuella and that creates revolution and governmental overthrow and so situations in those two countries that could have led to major world conflict all of a sudden are nullified. It sounds like a win win situation to me, low oil for the foreseeable future and akmadinajihad and chavez at the end of a rope Merrry Christmass everyone

[meom]

Where you think Obama is gonna get funding for his 1 trillion bail out plan? Sovereign wealth funds from Abu Dhabi, Saudi etc.. maybe?

[Smithson]

Peak Oil might actually already be an reality and we are living it right now. Peak Oil being peak production and NOT peak price.

This is what I'm thinking and would like to know about investments of 5 -10+ years. The chances of prices skyrocketing in the future seems high.

[britmaveric]

Peak Oil might actually already be an reality and we are living it right now. Peak Oil being peak production and NOT peak price.

This is what I'm thinking and would like to know about investments of 5 -10+ years. The chances of prices skyrocketing in the future seems high.

Peak Oil is a myth however markets have gotten wise to the idea that there will be any near shortage of oil, and in conjunction with serious development in alternative fuel sources - oil has seen its peak. Expect lower oil prices for the long term.

[meom]

Why is it a myth? Peak Oil simply means the moment in time where yearly world consumption exceeds new discoveries.

Maybe we're not there yet but eventually we'll be I guess.

[Smithson]

Peak Oil might actually already be an reality and we are living it right now. Peak Oil being peak production and NOT peak price.

This is what I'm thinking and would like to know about investments of 5 -10+ years. The chances of prices skyrocketing in the future seems high.

Peak Oil is a myth however markets have gotten wise to the idea that there will be any near shortage of oil, and in conjunction with serious development in alternative fuel sources - oil has seen its peak. Expect lower oil prices for the long term.

Thanks BM, considering you're prediction on exchange rates over the past 2+ years, I'm more sure than ever regarding peak oil.

[britmaveric]

^predicted going short on oil with Vegas long ago, so dare say you'd made a heap of dosh if you'd gone with what I said - I sure did.

[Smithson]

^predicted going short on oil with Vegas long ago, so dare say you'd made a heap of dosh if you'd gone with what I said - I sure did.

So you feel there's enough oil to keep up with increasing demand for 20+ plus years? Alternative fuel sources?

[britmaveric]

YES