Crude Oil = $49
By Barry Ritholtz - November 21st, 2008, 6:33AM
Despite numerous OPEC production cuts, Crude Oil breaks $50. This morn, its trading between $48-49, as demand destruction and deflation have their way.
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December Crude Oil Futures, 30 minutes
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December Crude Oil Futures, Daily
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Source: Barcharts
November 21st, 2008 at 6:52 am
Citigroup sale rumours… This is how you keep Saudis financing the deficit.
November 21st, 2008 at 7:00 am
This is going to be great fun for me. Certain people are always whining about OPEC like they can just charge whatever they want. Those people will soon be the recipients of some delightful ‘I told you so’s.
November 21st, 2008 at 7:27 am
Now that we have met the minimum downside target of $50 based on the previous bubble analysis how do we stay here or go lower? Perhaps through more production rather than the much discussed cuts. Budgets going forward were based on much higher crude prices as they drank their own cool aid now they have to pump for the spent cash flow. Here’s hoping! Now if we could go to $30 maybe Chavez will be hanging from a lamp post along with Imadinnerjacket. Come on $20.
Also met yesterday was the spooz breaking the October 2002 lows. Now we get to see if 1974 rules. All I can say is it had better.
November 21st, 2008 at 8:24 am
I told you a couple of weeks ago that oil would hit the $40s before it hit the $80s. It’s fun being right about oil, again.
Now, how about all those with big brains who proclaimed commodities an ‘asset class’ as opposed to a consumable? Gold marches to it’s own drummer. The rest of the commodities world for a living. Treating commodities as an asset class is equivalent to treating retail store clerks as an asset class. Without a union, they are interchangeable and expendable. Commodities are made to be used. Astute price fixers may try to use runaway credit to corner the market, but it didn’t work for the Hunt brothers and it still doesn’t work.
I’m sure there are still a few true believers who believe The Theory of Boone and it’s sickly step brother, The Theory Of Demand Destruction. A few probably hold Nobel prizes. Ha Ha Ha. (I’m righter than them.)
Well, here’s the follow up. Stocks will be the next place to put your money, even though it doesn’t look that way now. The market and the economy will take on the appearance of the New Era market of the later 1990’s. Startups will be common again, and probably of more substance. Regulators will build safeguards into the credit markets that prevent commodity bubbles. This will prevent, or at least delay, stupid people from, once again, hitting their heads against the wall just to see if it still hurts.
This little downdraft is the reciprocal of the recent commodity boom. It will pass sooner than you think.
November 21st, 2008 at 8:31 am
Unions and OPEC are bad ideas, and for the same reasons.
November 21st, 2008 at 8:37 am
I concluded:
This little downdraft is the reciprocal of the recent commodity boom. It will pass sooner than you think.
To clarify: I was referring to stocks, not commodities, with respect to what will rise sooner than you think. Commodities will remain a fungible consumable and remain low in price. Any bull runs in commodities will turn to cow chips.
November 21st, 2008 at 9:35 am
By demand destruction, do you mean demand for index funds primarily responsible for the rush to $150?
November 21st, 2008 at 10:05 am
very cold here this week and across new england.. think oil is a buy here and so I am buying this morning…
November 21st, 2008 at 12:31 pm
This IS demand destruction and it just shows how severe the downturn is. Deutsche Bank is calling for $40/barrel by April ‘09. A lot of factors at play they say including the brand new more efficient oil refineries coming on line in China. But remember this: China’s government is basing its economic salvation (at our insistence) on emulating the American car and consumer lifestyle. They aren’t building their interstate highway system just for trucks. Right now per capita consumption of oil in China is maybe 2 barrels/per person a year. If, as Marc Faber predicts, per capita use in China reaches only Mexico levels that means at least a 10-fold increase i nChinese demand. And that is just China.
November 21st, 2008 at 12:50 pm
I think that crude oil continues down for a while. But I also think that, at some point, the U.S. dollar is going to be toast.
I plan to buy gold and oil at some point in the next six months or so.
November 21st, 2008 at 5:21 pm
I don’t buy demand destruction and deflation as the reasons for the plunge in oil prices. Both of these forces work a little more slowly than futures markets. Why is there no discussion in MSM about hedge funds and the role they may have played — first in driving up oil prices and now in pushing them down?
November 21st, 2008 at 5:52 pm
… Treating commodities as an asset class is equivalent to treating retail store clerks as an asset class. Without a union, they are interchangeable and expendable. …
And precisely what is interchangeable with oil?
November 21st, 2008 at 11:30 pm
The reason oil went up was myth. It was the same old we are running out of oil nonsense that I heard back in the ’70s. Oh, and this time we had inelastic demand. Gosh, you raise the price of a good high enough and people cut back on it. THAT SUPPLY AND DEMAND THING WORKS AFTER ALL.
Can we also agree that everyone in the CFTC who said that higher oil prices was due to supply and demand needs to be fired and return their paychecks to taxpayers. What the hell were these people doing? Making FEMA look good?
As far as the future goes, one thing that peak oil nuts did not get is that the places where oil is easiest to obtain are hamstrung politically. Venezuela and Iran are not going to have spare oil capacity because they are afraid they are going to be taken over in a coup. The Venezuelan tar sands are not like the ones in Canada. You can drill a hole in them and the oil comes out flowing at 2000 barrels per day. Because Chavez is behind the eight ball with debt payments, he is going to auction off huge chunks of said tar sands to the highest bidder. Ecuador, whose main export is oil, is already defaulting on their debt.
Iraq is on schedule to increase production to six million bpd, which is a 3 million bpd increase. Saudi Arabia is bringing on another 1.2 million bpd filed within the year, and there are places in Iran where you can kick the ground and oil comes up. Yes, more oil will be coming from OPEC than the developed world, but there are not going to be any shortages. We are already awash in oil.
But of all the challenges facing the country, imported oil is IMO a bigger economic threat to the U.S. than any other. We need to increase gas taxes and plow the money into alternative energy. We cannot afford to just slip back to the way we were going.