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  • $500 barrel oil

    http://money.cnn.com/2008/09/15/news...ion=2008092216

    Here comes $500 oil


    If Matt Simmons is right, the recent drop in crude prices is an illusion - and oil could be headed for the stratosphere. He's just hoping we can prevent civilization from imploding.
    By Brian O'Keefe, senior editor
    Last Updated: September 22, 2008: 4:43 PM EDT

    (Fortune Magazine) -- Matt Simmons is as perplexed as anyone that it has fallen to him to take on OPEC, Exxon, the Saudis, and all the other misguided defenders of conventional wisdom in the oil patch. Why should one investment banker with a penchant for research be required to point out what he regards as the obvious - that from here on out, oil supplies can't meet demand, and if we don't act soon to solve this crisis, World War III could be looming?

    Why should a man who scorns most environmentalists have to argue that locally grown produce and wind power are the way of the future? Why should a lifelong Republican need to be the one to point out that his party's new mantra - "Drill, baby, drill!" - won't really fix anything and that his party's presidential candidate is clueless about energy? That the spike in oil prices earlier this year wasn't a temporary market anomaly and the recent retreat in prices is just a misleading calm before a calamitous storm? That we're headed toward $500-a-barrel oil?

    "I find it ironic that here we have the biggest industry on earth, and I'm one of the few people to figure out that we have a major problem," he says, in his confident if not quite brash way. "And I did it all in my spare time. How stupid and tragic is that? I shouldn't be one of the only folks that actually has a handful of ideas of how we can keep from blowing each other up and get through this."

    Indeed, Simmons isn't the obvious candidate to be the bearer of bad news about oil. He's spent his career working in the business, has lived in Houston for decades, and is such an industry insider that he helped edit the Bush campaign's comprehensive energy plan in the 2000 election - the document that was ultimately more or less rubber-stamped by Vice President Dick Cheney's infamous secret Energy Task Force. Over the past 35 years, his boutique investment bank, Simmons & Co., has helped finance and shape much of the country's existing oil-services business. With profits gushing, you might expect him to be celebrating.

    Not to mention that the 65-year-old banker doesn't have the personality of a prophet of doom. He has a puckish wit, a relentlessly cheerful and enthusiastic demeanor, and the appearance of a rosy-cheeked cherub in a navy blazer. He routinely refers - in earnest - to his daily experiences as "tremendous fun." His closest business associates have a hard time recalling him ever showing anger. But when it comes to oil and gas, his message is downright scary.
    An unlikely maverick

    Simmons was transformed overnight from an influential industry expert to an A-list pundit by the publication in 2005 of his book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," a fairly technical read which argues that Saudi Arabia's oil supplies are much more limited than everyone thinks.

    Since then he has moved to the forefront of the peak-oil movement - a once fringe but now growing contingent of oil industry veterans, independent consultants, investors, and academics who believe that world oil production is at or near an inflection point, after which it will fall inexorably and fail to meet projected future demands. According to Simmons, we have already passed that peak. And while we're not going to run out of it anytime soon, the era of easy oil is over, and the world is about to enter a period of convulsive change. (Hint: Learn to garden, and buy some comfortable walking shoes.)

    The soaring price of crude - it has risen from below $20 a barrel in 2002 to as high as $147 earlier this year - has helped thrust Simmons further into the spotlight. He was one of the main voices, for instance, in the recent oil-shock documentary "Crude Awakening," and his book has now sold more than 100,000 copies. His willingness to make bold predictions about how high crude may go has made him an A-list guest for cable TV news programs and a go-to source for newspaper reporters covering oil and gas. In 2005, when oil was $58 a barrel, he predicted it would be at or above $100 within a few years. Now he sees it climbing to $200, $300, or higher. "There really is no roof on oil prices at this point," he says.

    Being so outspoken, of course, invites criticism, and Simmons has endured plenty. But he has also won a lot of high-profile admirers. "Like most people who ignore conventional wisdom, he was scoffed at, ridiculed, and denied," says commodities guru Jim Rogers. "And now, of course, people are starting to say, 'Oh, well, I thought of that.'" Billionaire oil and gas investors Richard Rainwater and Boone Pickens both heap praise on Simmons's analytical abilities. Maine's Senator Susan Collins, a Republican who recently began consulting with Simmons on energy issues, says, "I think he's issuing a clarion call that policymakers need to listen to."

    In his own upbeat way, he despairs about what is to come. As the price of oil has fallen this summer (to $101 at press time), Simmons has watched in dismay as complacency has returned and the champions of do-nothingism have popped out of the woodwork to say I told you so. Not that it's lessened his conviction about the road ahead. "I do think there are a growing number of people who are getting it," he says. "But I guess it just reminds me that as a society, we don't have the ability to actually come to grips with a crisis until it's hit us in the face. I am discouraged enough now to think that we're going to have to have a really nasty shock before we wake people up."
    Has peak oil peaked?

    On a Thursday morning at the end of July, Simmons is sitting in a wicker chair on the back porch of his six-bedroom summer home on the coast of Maine, waiting to do a live television spot on CNBC. Sun glints off Penobscot Bay below him. In the distance, sailboats glide in and out of Camden Harbor. It's the kind of scene that has captivated him since his Harvard days in the 1960s, when he started coming up here on weekends. Wearing a blue-and-white-checked shirt, cream-colored pants, and tasseled loafers, Simmons chats with Ellen, his wife, and Emma, one of their five daughters. His earpiece is chattering as CNBC anchor Melissa Francis teases his upcoming segment.

    At the moment, the price of oil is hovering around $124 a barrel, and CNBC wants him to interpret why crude is suddenly tumbling. "Has peak oil peaked? I guess that's our topic," he reports to everyone within earshot, before the shot goes live.

    It was on this same porch five years ago that Simmons had the insight that convinced him that the oil age had passed its zenith. During a trip to Saudi Arabia in February 2003 with his friend Herbert Hunt (yes, the son of H.L. Hunt who, with his brother Bunker, almost cornered the silver market in 1980), Simmons had become suspicious of the Saudis' claims about the vastness of their oil supply. In his four decades of working in the oil and gas industry, everyone he had ever talked to had taken it as gospel that the Saudis had enough oil to bail the world out when other supplies ran short. If that wasn't true, Simmons believed, the era of cheap oil was over. Demand for crude was on the rise worldwide, and supplies were getting tighter all the time. If the Saudis were pushing up against the limits of their oil production, the world needed to know.

    In his typically analytical fashion, Simmons went hunting for data. He found it in the form of hundreds of technical papers submitted by Saudi oil geologists to the Society of Petroleum Engineers over the past 50 years. Simmons spent the month of August 2003 sitting on his porch in Maine and grinding his way through the minutiae of technical accounts of, for instance, reservoir pressure and water-cut percentages, trying to piece together the challenges that the Saudi geologists had encountered in managing their precious oilfields. In the end, his conclusion was clear. "I finished reading the last paper on a Sunday afternoon," says Simmons, "and I sat back and I thought, Holy crap, this is unbelievable. I've just discovered the biggest energy illusion ever in the world. We're in big trouble. I'm going to write a book."

    And so he did. But writing the book didn't exhaust his passion. Today he is more convinced than ever that we've reached peak oil. If he's right, current world oil production- 86 million barrels a day- is about as high as we're going to go.

    Of course, if demand goes up but supply doesn't, prices are apt to go through the roof. And unlike global oil production, global oil demand doesn't appear to be anywhere near a peak. Both the U.S. government's Energy Information Association and the independent International Energy Agency, based in Paris, estimate that worldwide demand will be more than 115 million barrels a day by 2030.
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    WHAT IF THE AMERICA YOU KNEW, WAS ABOUT TO CHANGE?

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  • #2
    I wish it would hit $500. a barell, but I anticipate it falling down below $80.00 in the next 8 months. Just my opinion.

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    • #3
      I think Rusia or another oil rich islamic country will do something to keep the price up.Rusia will hurting agin if it drops below $75.
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      • #4
        Originally posted by tracker View Post
        I think Rusia or another oil rich islamic country will do something to keep the price up.Rusia will hurting agin if it drops below $75.
        It hit $84 today. I think we greatly overestimate Russia's economic influence, as much as we underestimate her military influence.

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        • #5
          Originally posted by Rustyshakelford View Post
          I wish it would hit $500. a barell, but I anticipate it falling down below $80.00 in the next 8 months. Just my opinion.
          Hate to say I told you so, but oil is hovering around $70.00. Much sooner then I predicted, but nonetheless, I was right!!! :D

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          • #6
            Rusty,

            Obviously, now it's a buyer's opportunity to purchase gasoline and oil. All the better to add to the stockpile in the shed out back.

            :)

            As for stock portfolios with petroleum stocks, well, that might be better diversified with investments in food, agribusiness, water purification, and discount retail, both the actual products and the stocks. I've heard it said that the food industry will last at least 24 hours after everything else has failed. Those words are wiser than ever.
            "Apocalypse is by no means inevitable." --Jim Rice.

            Comment


            • #7
              Originally posted by TheUnboundOne View Post
              Rusty,

              Obviously, now it's a buyer's opportunity to purchase gasoline and oil. All the better to add to the stockpile in the shed out back.

              :)

              As for stock portfolios with petroleum stocks, well, that might be better diversified with investments in food, agribusiness, water purification, and discount retail, both the actual products and the stocks. I've heard it said that the food industry will last at least 24 hours after everything else has failed. Those words are wiser than ever.
              My opinion, is that it will drop some more. I say it should bottom out around $55-$60. Just my opinion, and if you short oil futures based on my opinion, you are insane. :p

              Comment


              • #8
                DON"T get complacent, it will go back up
                WHAT IF THE AMERICA YOU KNEW, WAS ABOUT TO CHANGE?

                The best thing you can do to support the site is pass it on to your friends and fav sites like other forums, facebook, twitter etc. Let people know about us! :)

                Comment


                • #9
                  Originally posted by Diesel View Post
                  DON"T get complacent, it will go back up
                  It is a comodity, just like everything else. I fluctuates like everything else. We will not run out of affordable oil for many hundreds of years.

                  Comment


                  • #10
                    Originally posted by Rustyshakelford View Post
                    It is a comodity, just like everything else. I fluctuates like everything else. We will not run out of affordable oil for many hundreds of years.
                    Ok. I was pretty close to being right on this oil prediction. Here is my next prediction. By the middle of March we will see oil back up above $65.00.

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                    • #11
                      it's going to go back up for sure

                      But might take awhile with the unforseen depression

                      and it will then at some point meet and exceed the highest prices we recently saw
                      WHAT IF THE AMERICA YOU KNEW, WAS ABOUT TO CHANGE?

                      The best thing you can do to support the site is pass it on to your friends and fav sites like other forums, facebook, twitter etc. Let people know about us! :)

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                      • #12
                        Originally posted by Diesel View Post
                        it's going to go back up for sure

                        But might take awhile with the unforseen depression

                        and it will then at some point meet and exceed the highest prices we recently saw

                        Lord, I hope so!! Oil is cyclic. Has been for many years. Manipulated up and down based on the whim of the powers that be.

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                        • #13
                          WTF? Okay, first of all, for the past 5 years we have watched gas prices fly through the roof, fall back down slightly, then go back up. Every single automotive commercial on TV boasts their cars have the best gas mileage of a whopping 26-30mpg on the highway...BFD!

                          In 1961, the Ford Falcon Futura was estimated to get 32mpg (source:http://www.dearbornclassics.com/falcon.html), while the cars of today with all their little electronic fuel-rationing gizmos and computer calculated distribution system get even less.

                          IMHO, it is not the price of oil that we need to be worried about, it is the amount of fuel we burn in our "technically advanced" automobiles that needs to be addressed. Who cares if the price of oil is $500 a barrel, if the demand for gasoline is extremely low, we, as a country, won't have to import so much of it, process as much, or consume as much, which in turn drops the price of gasoline to record lows. If someone's not going to buy it, someone else isn't going to be selling it, are they?
                          "Reject the basic assumptions of civilization, especially the importance of material possessions." "The things you own end up owning you"-Tyler Durden

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                          • #14
                            Originally posted by Visinedrops View Post
                            WTF? Okay, first of all, for the past 5 years we have watched gas prices fly through the roof, fall back down slightly, then go back up. Every single automotive commercial on TV boasts their cars have the best gas mileage of a whopping 26-30mpg on the highway...BFD!

                            In 1961, the Ford Falcon Futura was estimated to get 32mpg (source:http://www.dearbornclassics.com/falcon.html), while the cars of today with all their little electronic fuel-rationing gizmos and computer calculated distribution system get even less.

                            IMHO, it is not the price of oil that we need to be worried about, it is the amount of fuel we burn in our "technically advanced" automobiles that needs to be addressed. Who cares if the price of oil is $500 a barrel, if the demand for gasoline is extremely low, we, as a country, won't have to import so much of it, process as much, or consume as much, which in turn drops the price of gasoline to record lows. If someone's not going to buy it, someone else isn't going to be selling it, are they?
                            +1........Always wonder why my 2007 Trailblazer gets sh*ttier mileage than my '85 Blazer.....
                            "I Have Sworn Upon the Altar of God eternal hostility against every form of tyranny over the mind of man." -Thomas Jefferson

                            "When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it." -Frederic Bastiat

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                            • #15
                              Originally posted by Visinedrops View Post
                              WTF? Okay, first of all, for the past 5 years we have watched gas prices fly through the roof, fall back down slightly, then go back up. Every single automotive commercial on TV boasts their cars have the best gas mileage of a whopping 26-30mpg on the highway...BFD!

                              In 1961, the Ford Falcon Futura was estimated to get 32mpg (source:http://www.dearbornclassics.com/falcon.html), while the cars of today with all their little electronic fuel-rationing gizmos and computer calculated distribution system get even less.

                              IMHO, it is not the price of oil that we need to be worried about, it is the amount of fuel we burn in our "technically advanced" automobiles that needs to be addressed. Who cares if the price of oil is $500 a barrel, if the demand for gasoline is extremely low, we, as a country, won't have to import so much of it, process as much, or consume as much, which in turn drops the price of gasoline to record lows. If someone's not going to buy it, someone else isn't going to be selling it, are they?

                              Ok, being in the industry, let me give a little overview of Oil. A barrel of oil is 42 gallons. When a barrel of oil is processed we get 44 gallons of petroleum products. Yes, there is an increase. This is due to the decrease in the density of the product. Out of the 44 gallons, only 19 gallons are used for gasoline and diesel. That is 43%. The remaining 57% is used for plastics, chemicals and distulates. These include still gas, petroleum coke, liquefied refinery gas, asphalt and road oil, various oils for foodstocks, lubricants, special napthas, kerosene, waxes and an assortment of other miscellaneous products.

                              This can vary depending on where the oil came from. Not all oil is considered equal. There is the premium finest which is West Texas Light Sweet Crude, and the Brent Crude from the North sea. On the bottom of the list is the crap from the middle east known as sour crude.

                              So, 57% of the market is driven by "other" products. The demad for these "other" products slows as the economy slows, thus dragging down the price diesel and gasoline, creating a glut of automobile fuel. When you get a glut, the price drops further.

                              In reality, the variation if fuel mileage is such a miniscule part of the whole picture that it is almost negligable.

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