Why oil prices will tank

[AJ]

http://money.cnn.com/2008/06/06/news/economy/tully_oil_bust.fortune/index.htm?cnn=yes

[mazdamn02]

I hope its true.

[mndsm]

I've been saying that for a while, HOPEFULLY I was right.

[dmention7]

It would be nice, but I'm not holding my breath. I'm not convinced of how accurate the parallels are between the housing market, the oil crisis in the 70s and todays situation are.

[shadyspeed3]

i think it will happen we are not gonig to see $1.00 a gallon gas ever again but if it went back down to 2-3insted of 3-4 i would be happy.

[Schmitty]

It would be nice, but I'm not holding my breath. I'm not convinced of how accurate the parallels are between the housing market, the oil crisis in the 70s and todays situation are.

What do you see as the difference?

[DrWebster]

The problem with comparing oil to housing is that oil is a limited supply, and more simply cannot be "made". We're already at what's considered "peak oil," where we cannot extract oil from the ground any faster. That means as demand goes up, supply goes down. We can always build more houses, and continue to build/replace houses in perpetuity -- since most houses are made from renewable resources. I will be very surprised if gas goes below $3.50 ever again.

[LASERBLUE135]

What do you see as the difference?

Housing was going up soooooo high that the average Joe couldn't afford a house. That's why the price dropped. If no one can afford a house no one will buy a house. Only when the average Joe can't afford to buy oil will oil prices drop. Is that $4 a gallon? Could be. I know that $4 a gallon doesn't scare me, but $220,000 average home price sure did. I'm betting $4 a gallon is not the top of the bubble, there is a couple more dollars to go.

Income vs house cost: Housing costs historically were stable at 6 times the median income in an area. Places where the median income vs housing cost was a lower multiple have not been hit as bad as places where housing dramatically increase vs median income. In Cali the median house was up to more than 12X income in some areas. People could no long afford homes there and thats where the price of a house has tumbled 20+%. So we need to look at the cost of oil vs median income to determine when the bubble will burst. It will be when people can no longer afford to buy it.

[JustROLLIN]

Housing was going up soooooo high that the average Joe couldn't afford a house. That's why the price dropped. If no one can afford a house no one will buy a house. Only when the average Joe can't afford to buy oil will oil prices drop. Is that $4 a gallon? Could be. I know that $4 a gallon doesn't scare me, but $220,000 average home price sure did. I'm betting $4 a gallon is not the top of the bubble, there is a couple more dollars to go.

Income vs house cost: Housing costs historically were stable at 6 times the median income in an area. Places where the median income vs housing cost was a lower multiple have not been hit as bad as places where housing dramatically increase vs median income. In Cali the median house was up to more than 12X income in some areas. People could no long afford homes there and thats where the price of a house has tumbled 20+%. So we need to look at the cost of oil vs median income to determine when the bubble will burst. It will be when people can no longer afford to buy it.

Its not as simple as the bubble bursting when people can no longer afford to buy it...It will lower gas back down a price where people can just barely afford to buy it and continue at that price. Its simple supply and demand, the equilibrium price will be set. But, that does not mean the bubble will burst, it will just lose some of its cost and settle at the EQ market price. Among dozens of other criteria we have not even mentioned.

[LASERBLUE135]

^^^ well put. Solid point. ^^^

[Picklz]

What do you see as the difference?

In the 70's OPEC or whatever it's called put sanctions/embargo's on selling oil to nations that were helping the isralies. They basically stopped selling us oil. I'm not going to say there aren't some similarities to that situation and our situation right now but it's certinaly not a direct comparison. To my knowledge we arne't having supply problems here yet (I havent seen rationing or stations flat out sold out of gas), our price is just catching up to the rest of the world, the dollar taking a giant shit isn't helping with that either.

As for the housing market the insane inflation of the price of homes and poor lending practices helped to create the problem we have right now, not sure if you guys know it but 1/4 of all homes for sale in our market are short sale or foreclosures. Things like interest only loans, crazy ARM's, and lending to people that flat out shouldn't have qualified all helped to create this mess.

As for the article it does make some intersting points. I'm not really sure what all to think right now as far as what gas prices will do. I'm hoping they hold steady or drop back to $2.50-$3.00/gal, however I'm planning for $5 and $6 gas.

[ZoomZoom Diva]

However, the amount of money investors are putting into the commodities market is a false demand. People are buying the commodity that will never use the commodity, making the demand for it appear far greater than it is.

Other analysts are stating the average price for oil will be $82 in 2009.

[Slim]

However, the amount of money investors are putting into the commodities market is a false demand. People are buying the commodity that will never use the commodity, making the demand for it appear far greater than it is.

This is what will cause a change eventually IMO. Great point.

[Young Roids]

One thing that would surley bring the prices down would be a mass adoption of electric vehicles in the near future.

[Bartron8000]

I partly agree with the article I think prices will go down but they are not going to go down more than 50% its current price, and its going to be a few years before this all happens. I see it maybe going back closer to $100 a barrel, but not $50. Really the only solution to help ease gas prices is start looking into alternative fuels, once the petroleum industry realizes they no longer control the biggest energy source they will have no other option but to reduce the cost so that the remaining people/companies/processes that require oil will still buy it.

I definitely agree with Laserblue and Mrmatt on the housing market. But this is definitely a buyers market (if you can afford it), my brother just bought his first house (2 years ahead of his plans) all because the previous owner wanted to sell it that bad.

[JustROLLIN]

Well, after today... 139.12 a barrell... nasty...

[Big Nate]

Tanking oil good call


















































NOT

[StealthSpeed3]

"OPEC President Chakib Khelil on Monday said that but for the weak dollar, political tensions and speculation, oil prices would probably be around $70 a barrel."

spotted this morning in yahoo news...anyone else slightly pissed now?

[Workdawg]

Oil companies CEOs have been saying that for a while. Current supply and demand doesn't support the price. Speculation is driving it up.

I would also argue that the weak dollar and political tensions are both a part of speculation.

[Young Roids]

"OPEC President Chakib Khelil on Monday said that but for the weak dollar, political tensions and speculation, oil prices would probably be around $70 a barrel."

spotted this morning in yahoo news...anyone else slightly pissed now?

yes I am. I am pissed at George W and the republican war machine. Political tensions = the war in Iraq.

[ZoomZoom Diva]

Now, let's not combine that. There are a lot of political tensions in Nigeria that have nothing to do with the war in Iraq, and in other areas of the world as well. I'm not saying Iraq has no influence on the price, but that was already included years ago.

[YSOSLO]

Weak dollar is a legitimate reason, but most people fail to recognize that the reason the dollar is wea now, is because of the shocking increase in our national debt over the last 6 years. I know a lot of people get pissed off at Democrats because they're known as the "tax and spend" party, however the alternative of spending while either not raising taxes or even lowering them means greater national debt. And while I understand the typical Republican platform is the intention of reducing spending and lowering taxes at the same time, this most recent administration has managed to attempt to lower taxes a couple of times while INcreasing spending to an UNFATHOMABLE level which has caused our National Debt to skyrocket, which in turn makes our dollar worth diddly-squat in the World economy.

To make it simple, it's like traveling to Mexico....you exchange your dollars for pesos and 10 years ago you'd get anywhere from 45-50 pesos per dollar you exchanged, 2 years ago you'd get 26 pesos per dollar and today you only get 10 pesos per dollar. If a barrel of oil from (in this example) Mexico were $40, then 10 years ago we'd get at least 1 barrel per dollar, while today we'd have to pay $4 for the same barrel of oil even though the price of the oil itself never went up at all.

OPEC knows that they're sitting just fine over there, because they haven't raised prices more than what would be considered normal due to the increased demand by the rest of the world that's being added on top of the demand the U.S. has had for years, however they also know that good-ole GW Bush has managed to put the entire U.S. economy in peril by getting us into the quagmire that is Iraq. It would be nice not to have to connect the 2 situations, but they ARE linked whether we like it or not.

[ZoomZoom Diva]

While Iraq is one reason for the increasing debt, saying that the entire U.S. economy is in peril is an overstatement, and there is little connection between the state of the economy and the situation in Iraq.

I also consider a substantial portion of the devaluation of the dollar to be due to paranoid speculation in the currency exchange markets and the paranoid speculation in the oil markets rather than based on sound fundamentals.

[Young Roids]

Weak dollar is a legitimate reason, but most people fail to recognize that the reason the dollar is wea now, is because of the shocking increase in our national debt over the last 6 years. I know a lot of people get pissed off at Democrats because they're known as the "tax and spend" party, however the alternative of spending while either not raising taxes or even lowering them means greater national debt. And while I understand the typical Republican platform is the intention of reducing spending and lowering taxes at the same time, this most recent administration has managed to attempt to lower taxes a couple of times while INcreasing spending to an UNFATHOMABLE level which has caused our National Debt to skyrocket, which in turn makes our dollar worth diddly-squat in the World economy.

To make it simple, it's like traveling to Mexico....you exchange your dollars for pesos and 10 years ago you'd get anywhere from 45-50 pesos per dollar you exchanged, 2 years ago you'd get 26 pesos per dollar and today you only get 10 pesos per dollar. If a barrel of oil from (in this example) Mexico were $40, then 10 years ago we'd get at least 1 barrel per dollar, while today we'd have to pay $4 for the same barrel of oil even though the price of the oil itself never went up at all.

OPEC knows that they're sitting just fine over there, because they haven't raised prices more than what would be considered normal due to the increased demand by the rest of the world that's being added on top of the demand the U.S. has had for years, however they also know that good-ole GW Bush has managed to put the entire U.S. economy in peril by getting us into the quagmire that is Iraq. It would be nice not to have to connect the 2 situations, but they ARE linked whether we like it or not.


You are on the money my friend. The biggest myth in politics is that the Republicans are fiscally responsible. George W has just destroyed our economy with his war. Makes me sick to think about it.

[YSOSLO]

I don't know that I would call the speculation regarding our currency and oil prices "paranoid." If any investor with the savvy to realize that a war in the Middle East is going to cost the U.S. a PILE of money that we don't have not to mention use a LOT more oil (since all of the vehicles the U.S. is using in Iraq are using more diesel on a daily basis that most of us could even imagine) all while more and more countries are becoming more technologically advanced and wanting things like cars and trucks to build their economies, then their "paranoid speculation" would actually be very logical speculation based on real expectations. If I had an extra million dollars laying around I'd have invested in oil as soon as Bush announced we were going to war....

[ZoomZoom Diva]

Despite the increase in demand for oil, there is little to indicate that supply is not more than enough to meet that demand both right now and for the duration of the oil futures currently reading on the commodities market, and the cost to produce and deliver that oil is far less than the current price. This indicates the fundamentals do not support the current price, and that we are victim of speculation. When you speak to the speculative analysts, they speak of risks that are very unlikely to occur or to occur to the extent to make the supply inadequate, so I consider that to be paranoia.

On the dollar, while the dollar amounts are large, the size of the total U.S. budget is so colossal that the spending in Iraq is a small percentage, and while a more significant reason for the increase in our debt, is still not a leading cause as the debt has increased by 2.768 trillion from the start of the war in Iraq to 12/31/2007, over 4x the amount spent on the war itself ($600 billion estimated from several sources) during that time. Also, while both the debt increase and the sheer level of government spending are significant problems, and cause for some decline in the value of the dollar, the magnitude of decline is beyond reason.