The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

18 Responses to “Crude Oil = $46”

1. ADB Says:
   December 4th, 2008 at 8:40 am

   Why is it that when I see another one of these charts I feel like we are slipping off a cliff. Really slipping off a cliff…

2. jmborchers Says:
   December 4th, 2008 at 8:53 am

   This chart says buy oil now for 20% gain.

3. VennData Says:
   December 4th, 2008 at 8:54 am

   I don’t look at is crude going down… but the dollar going up. Way up. There’s a bull market in dollars.

4. Homerpalooza Says:
   December 4th, 2008 at 9:15 am

   Short crude, buy dollars.

5. datanerd Says:
   December 4th, 2008 at 9:17 am

   Last year in your end of year counterintuitive projections post, I predicted oil would be down to 60-70 a barrel. I expected to be wrong, but I didn’t expect to be too high! VennData hits what I was expecting, a relative strengthening in the dollar.

6. Blif Says:
   December 4th, 2008 at 9:23 am

   And what of gold?

7. dead hobo Says:
   December 4th, 2008 at 10:05 am

   If anyone could hear me, the sound of a deep abdominal Jabba The Hut like ‘Ho Ho Ho’ would fill the room. What’s even more cool is ImA DinnerJacket from Iran is now using a barrel price of $30-$35 for the national budget. That’s better than a pie in the face. He hasn’t said much lately, has he? What a goofball. I love being right!!!

   While an overshoot on the low side is inevitable, the price should stabilize around here. The marginal cost of the highest cost producer, which I assume is about $45, is where prices will probably stop, although I wouldn’t put money on it. Maybe I’d put some cash on the service companies since there is still a need for new wells, but not the commodity salesmen. Remember the pure competitive model from the texts? Here it is, now that excessive and inflationary credit has gone away. Ho Ho Ho.

   Has anyone publicly admitted their little goof about making myriad public statements that supply and demand for oil caused the price to get a little high? This was especially ignorant due to the fact the credit and housing bubble was starting to explode (it was in all the papers) and excess cash appeared to be flowing into the only place rising at the moment. Ho Ho Ho. Or does everyone actually believe the End Of Times is near due to ‘Demand Destruction’?

8. Mark E Hoffer Says:
   December 4th, 2008 at 10:12 am

   this: “The marginal cost of the highest cost producer, which I assume is about $45, is where prices will probably stop…”
   –is something I’ve never understood.

   since when did ‘the Market’ care about your costs of production?

   I’ve never seen a cost+ contract come open-markets, did I miss the Memo?

9. dave Says:
   December 4th, 2008 at 10:17 am

   an interesting chart (IMHO) would be similar to the charts that overlay stock prices with 12 month forward looking revenue/share numbers, but in this case, overlay 12 month forward looking worldwide demand for oil on top of oil prices. Or some permutation of that.

10. Baille Beag Says:
    December 4th, 2008 at 10:17 am

    Has anyone here been smart enough to hold onto DTO since mid-summer? I sold mine a couple months ago because I kept hearing, “oil can’t fall much further”!

11. Juke Jones Says:
    December 4th, 2008 at 10:17 am

    @Mark:
    “The marginal cost of the highest cost producer, which I assume is about $45, is where prices will probably stop…”

    It worked in the housing industry - do you see any house owners underwater? I sure don’t
    It worked in the auto industry - do you see anyone with car loans in excess of price? I sure don’t
    It worked in the chicken/ag industry - ask Pilgrim’s Pride

    It works every time. In fact, I think I am going to put $100K into a lemonade stand with 10 dixie cups at the ready.

12. dead hobo Says:
    December 4th, 2008 at 10:21 am

    Mark E. Hoffer,

    Producers will produce at a loss over the short run if they can cover their variable costs. Fixed costs and profits (the contribution margin) will be ok at $0.00 or a little less for a while. Eventually, production will have to be withdrawn if variable costs can’t be covered. This will remove supply and cause prices to rise. Of course, with something that has such massive barriers to entry as large volumes of oil, this would have to be a slow and jagged process. If production shuts down, it will take along time to ramp up again. Thus, producers will probably run at a loss for a longer time than, for example, a hamburger joint. New players in the business require special qualifications. Theory in action.

13. Mark E Hoffer Says:
    December 4th, 2008 at 10:52 am

    d h,

    I hear ya, I understand the long-run of it, but, as you’re alluding to, Oil Wells aren’t light switches..

    Shutting them in is a dicey proposition, sometimes, they never comeback, and even if they do, it’s still an expensive proposition.

    LSS: in the short-run MCOP is a useless guide..

    JJ, above, delineates some of the other examples to be spied..Pilgrim’s Pride is an epic example.
    http://www.thefreedictionary.com/spy

14. TrickStar Says:
    December 4th, 2008 at 11:05 am

    Oil was $12 in 2001/2002?

15. TrickStar Says:
    December 4th, 2008 at 11:10 am

    Wrong. A little higher than $12 in 1998. About $16.

16. Lynn Says:
    December 4th, 2008 at 1:17 pm

    Barry,
    What’s the best way to invest in oil? I think in a few years oil prices will go back to $150, if not higher. Do you like ETFs that invest in oil futures, oil companies, or some other product?

17. willid3 Says:
    December 4th, 2008 at 2:01 pm

    i saw where it might hit $10. then we will probably have it hit 200 later if and when the economy gets off its back.

18. John Pozzi Says:
    December 4th, 2008 at 10:51 pm

    Global Resource Bank at http://www.grb.net exchanges US$ for ecocredit.