As Prof Goose would say (edited from last poll to include current results):

in our last poll on 23 JUL, 22% of you predicted that CL would hit $114 in the front month before it hit $140, and 39% of you predicted that CL would hit $140 before $114.

In the three polls prior to the last two, the results have predicted 10% rises within 60 days of each poll and were on target, and now our last two polls have witnessed 10% declines, which a majority have missed.

Past performance is not a predictor of future values, YMMV, and as it says in the disclaimer, nothing here should be construed as investment advice.

As I said last poll, this is the point about a plateauing oil supply to me: increasing uncertainty and volatility over time. As far as I am concerned, it's a guessing game right now...and will be for the foreseeable future.

We need an "I'm Feeling Lucky" option that votes randomly.

A link from the DRUDGE REPORT containing a prediction:

The great oil bubble has burst

And where will that price be by mid-autumn, after a couple more months of gloom-laden statistics from the industrialised economies? Perhaps, with all the speculative fizz taken out of it, down by as much as a half from its June peak. That's not to say it won't go up again when the signals change and all those long-term factors loom large once more.

So what are the main factors at work here and can we quantify them?

Assume the supply numbers via IEA are correct...

What is the elasticity of demand?
Demand is softening by what percent?
Which equals how many $ via elasticity?

What is the state of OECD stocks? Are commercials going to be forced into buying?
What is the state of heating oil stocks especially? Not much time till winter in the north.

When must people start living inside their means?
How extended is the average consumer on credit?
How fast will the credit crunch dry up consumer credit?

I am surprised stocks are not jumping upward, because this would seem a great opportunity to hedge.

The "demand is down" mantra the MSM trumpets will be hitting a flat note in the coming weeks IMO.

I still know of no one who drives less and from what my lying eyes tell me, nobody else is driving less either.

As a matter of fact, travel is up in Southeast Michigan, people are leaving Detroit in droves

Well, I'm giving myself some kudos because I did predict the price arc back in Feb/Mar. Matter of fact, my wife was getting pretty annoyed with the prognostications. I didn't think it would go quite as high as it did, I thought around $140; but, I did estimate it would fall back to around $110 to $115 in August and hold above $105 into the Fall.

We're close to the floor price and I doubt we will see double digit pricing short of major economic collapse. Wait until the Olympics are finished and China gets back to BAU.

I'm one of those who got the polls right so far. Summer peak gasoline consumption is down about 4% vs last year. OECD demand is down. I read somewhere that demand in India is now flat with last year, and growth has slowed in China despite subsidized prices. The dollar is strengthening a bit, and dollar hedgers are changing their bets and baling out of commodities, which means speculators will bale out of oil also. There is considerable new supply coming on stream in the next few months, both from Megaprojects and refineries to refine heavy sour crude. The fundamentals still point down. Judging from past trends, before this recent spike, supply/demand fundamentals combined with the dollars present strength might justify a price now near $105./b. I don't have a model, just eyeballing.
If the supply comes on as expected, and the dollar strengthenings a bit more, that value drops (obviously). Overshoot on the down side is not unlikely. Brief downspike to $90./b anyone?? Murray

I posted some long thoughts in today's Drum Beat about this. With graphs and tables. I don't want to copy all that here - I don't want to litter. So just saying... should any of you guys be interested, my comments on the issue are in the other thread.

$126 before $102, no choice for a doom3r.

Supply is up a tad and stocks are tickety-boo. Demand is down a smidgen. Overall supply is a dog's dinner; VenMex o/p is diving, UK is struggling, Russia has maxxed, most others are level-ish and Saudi is pounding the pumps to little effect.

The promised new oil may not be enough to offset global declines, may take a while for buyers to get that message.

Prices are being deliberately suppressed at the moment; some stock build here, more supply there and some phone call deals to the right people - how long the Global Elite can, want, or are able to, maintain control is another question.

The next couple of winters are going to be particularly harsh and prolonged. I expect NG prices to go, well, up.

Never in all my years of watching the various markets, stock, commodity, etc, have I observed this degree of volatility. The stock market is up 300+ points one day, down 200+ the next, down 100+ the next, then up 300+. Oil kept rising to astronomical levels to 145, then started dropping like a stone to now less than 115. Instability seems to be the key word in today's market.

When I was a kid in high school in the mid 70's, stocks would go up 1/8th, or 1/4, or down 1/16 or a 1/32. It was all done with fractions back then. On a rare occasion a stock would rise or drop more than 1 full point, a full dollar. Maybe it's Globalization, but it sure seems whacky now!

I chose oil to hit 102 before it hits 126. But what do I know, I've only gotten one of these polls right so far. But I have a good excuse - too much volatility.

There aren't many posts here so I decided to copy my posts from the other thread. sorry for this, it was too late I realized I should have posted everything in this thread.

------------------------

If you take a look at the diagram below, I think the petrodollar effect is clearly visible.

Oil fell 15% while the exchange rate did not change at all. After the price of oil seemed stabilized at this new, much lower level, confidence in the dollar grew. This, paired with negatíve news coming from Europe led to the strenthening of the dollar.

In the last few days, the price of oil followed the exchange rate. The price of oil is moving the dollar, making it stronger at the moment.

Methinks after oil goes back up again the dollar will weaken -- again. No wonder: oil is priced in dollars and if you have to put a substantially bigger amount to the market to get your oil, that creates an oversupply of dollars, this weakening the currency.

-----------------------

Imagine the following: We have to scenarios. Oil costs USD 150 or USD 120. Net exports stand at roughly 45 mbpd. So:

If WTI (or FOB) = USD 150, that's 6.75 billion dollars per day
If WTI (or FOB) = USD 120, that1s 5.4 billion dollars per day

You buy the same thing (oil) with more or less of the same dollars. But there is a more than 1 billion USD idfference there. So what happens?

Oil trades for USD 150 ---> lot's of dollars into the pockets of the exporters. It means there is an oversupply of dollars on the market, that tends to devalue the dollar. On the other hand, the exporters are still either spending or investing all these dollars. So what happens when oil goes to 120? There is a relative scarcity of dollars on the market in comparison with a few weeks earlier. Scarcity means the value is bound to go up: Hence the dollar strengthens.

You can follow this on the above diagram, I think.

------------------

WTI spot traded for USD 145 on July 11th. It was 116 yesterday. In the meantime, the dollar strenghtened, too. So what happened? Here is the full period:

Exchange rate adjusted oil lost almost 20%, while the dollar strenghtened 3.6%

But how did this happen? Let's see 3 different periods:

1) July 11th - July 25th
2) July 25th - August 4th
3) August 8th - August 9th

It is clearly visible from the numbers, that in period 1) the exchange rate didn't change at all but the dollar fell. In periods 2 and 3 the dollar strengthens (the above mentioned petrodollar effect), and oil changes in parallel with the euro. See the tables below.

So basically there was a sudden change in supply and demand between July 11th and July 25th? What was that? Supply remained basically the same. So it has to be demand then. May and June data for the US economy? The Chinese buying less oil (diesel) on the import markets due to the Olympics? I don't know.

But it's pretty obvious to me that demand weakened before the 25th of July, and the strenghtening of the dollar is a result of this (and the negatíve news coming from the EU). Later on ,the strengthening dollar is pulling down oil.

Just my 2 cents. I see no speculative effect here. At all. Only supply and demand and some changes in the exchange rates.

---------------------

So what's next? I'm not sure. But I think:

1) After the games China comes back into play
2) Lower prices will make people and nations buy more oil
3) There is an OPEC meeting in early September
4) Heating oil comes into play in early October

All in all I think prices will remain relatively low in August and early September, but we will see a sudden jump come October. I don't rule out USD 150 in November.

------------------

Oh, and as for the question at hand: I say 126 before 102. I don't think oil has too much place to go down from here. It may touch 110, but that's it I think.

I said 126 before 102. Two reasons:

1) Georgia. Lots of the heavy fighting occurred after markets closed on Friday...so we'll probably see some rise on Monday from that...plus more if the pipeline is damaged severely.

2) The next sixty days correspond to the peak of hurricane season. We got lucky with Dolly, and things are quiet at the moment, but that can change quickly.

It really is shocking how quickly the oil market has fallen. Are we really cutting back THAT much on demand? Or is it mostly emotional response to bad economic data?

I still think $150 is very possible by Thanksgiving.

Do you have a Plan B for your life?

We are building a community. A solution for peak oil, the unfolding financial and economic crisis, climate change and the pursuit of authentic happiness.

Please visit our web site:

www.relocatenow.eu

By consistently voting down, and voting more than once in the more recent polls, I am now getting more correct votes than incorrect. Maybe its time to start trading, though olive oil seems nicer than the black goo. Let's keep this trend going on down to $20/barrel by cutting US consumption by 20%. http://mdsolar.blogspot.com/2008/06/oil-is-too-expensive.html That could help us meet our Kyoto obligations as well.

Chris

Forecast updated for oil price drops, EIA data, stronger US dollar and OECD demand destruction.

My guess is that oil price will "hit $126 before it hits $102". My forecast indicates that average monthly oil prices will never go back down to $102.

Supply, Demand & Price to Dec 2012 - click to enlarge

On CNBC Pickens recently said he was still long on oil (after being wrong short on oil). When Pickens throws in the towel and sells then I will buy back into oil.

Even Pickens is a contrarian indicator....LMAO!!!

Maybe we should rephrase the poll so that it asks what the price of oil will be in Euros or a basket of currencies to avoid the fluctuations associated with the value of the US dollar.

After a long bull run markets have far too many spec longs so the markets are vulnerable to sudden drops which forces them out. A vicious circle develops as prices continue to drop and more longs are forced to liquidate. This age old dynamic is evident in every commodity market and really all markets to some extent and always will be.

It's true that these types of market dynamics are more common and more pronounced in markets where futures volumes are large as the ease of entry for speculators attracts more weak hands. In oil the volume of contracts is large but still a small part of the overall trade. Without doubt there has been significant hoarding of physical oil worldwide as the psychology has been to hold onto the oil for one more hour, one more day, one more week. I know the reported inventory numbers don't show a lot of hoarding going on but don't take those numbers as gospel. It is in the self interest of all holders to under report their holdings after all. Assuming holders of oil are likely to be stronger holders of losing long positions than futures specs a flood of oil is not likely to be let loose quickly onto the market. Still, longs are now thinking in terms of selling into new strength. The tendency for some time now will be for supply to hit the markets as prices rise instead of the near past tendency of supply to tighten up as prices rose as greed took over.

None of this is in the nature of a prediction but just somethings to keep in mind as one watches the market.

How about $126 next week? Some over-weekend reports of $122 and 123. I think the Russians have spooked some people and forced them to look at their hole card. Lot of speculators playing oil short may wish they had evened up their positions on Friday. Just my opinion

All I have to say is that one group is always capable of driving down oil prices and this is oil producers.

They can readily keep oil low for a time via a combination of playing the future markets and actually delivering oil. It won't work for ever but think about it.

If your a widget manufacture and you feel the price of widgets has gone to high what you can do is store up some widgets to ship at a later date. Short term this will drive up the price of widgets even more but as demand weakens you can "flood" the market with your stored widgets sending prices into a nose dive.
Also to make it even better you time the flooding of the market to happen during the lowest widget demand season. Next lets assume it took the widget producer six months to store up enough widgets for a 2-3 moth surge.

The market was correctly responding to a perceived shortage in widgets when really it was just the widget manufacture playing the market. Next since you have a widget futures market you can also take the opposite or delivery side of a lot of trades and make a killing as the prices drop since your hedged at the higher prices.

Very little or no widgets is actually delivered for the low price as you refuse most contracts for the new low price. So as people attempt to take future delivery at the new low price you simply send them to some other widget manufacture saying your orders are filled. And they probably are since you took a lot of contracts promising delivery during the high price period.

Even better since your also having problems producing widgets you can claim that the market is well supplied and cut back deliveries even further during the low price period and store more widgets up to force the price higher take out future positions etc.

Rinse and repeat.

Since you have huge amounts of cash and you don't want to make your market manipulation obvious you operate via hedge funds and secondary investment groups. This allows you to safely claim your not manipulating the market.

What this does is adds a lot of volatility to the market. For widget consumers what they see is a initial pulse of widgets at a fairly low price as the widgets flood the market. Between the widget consumer and the widget producer in our case we have a middle man that polishes widgets. At first while prices for polished widgets are high he ships a lot of widgets but as prices fall he is forced to sell his polished widgets at a loss his inventory builds driving prices down and he drops production of polished widgets. Naturally even though the prices are low he is forced to limit the amount of unpolished widgets that he buys.
The signal is a small inventory build of unpolished widgets but polishing machine utilization drops making people think that demand for polish widgets has dropped.

Also as a further twist you have to ship the widgets by large ships between the producer and consumer you ask your ships to sail slowly and you filled almost all of them up so the market sees this large amount of oil setting on the ocean however its actually taking several more weeks then normal to reach its destination.
It seems to set there just over the horizon and never actually arrive.

Everything looks rosy for a bit but since we know what happened we can look forward into the future.
This was a very dangerous move.

On the producing side.

1.) Actual production cuts are announced or implemented covertly allowing the producer to rebuild storage to some extent but no way can the widget producer rebuild fast enough. During the period of demand drop from widget polishers you also refuse to fill some contracts.

2.) Demand is high on the polished widget side and prices for polished widgets are dropping fast so you try and catch the wave while you can and limit your losses. You have to keep taking delivery of all the unpolished widgets you ordered but you don't order any more and you start dropping production of polished widgets as your taking your losses. You have to keep selling polished widgets because of pre-existing contracts but you let your inventory of unpolished widgets drop and because prices are dropping still on unpolished widgets hesitate to by more.

What next lets switch to oil.

What you have just done is set up the conditions to cause a shortage. Eventually in a few months the surge of oil will reach the consumers and be burned but inventories in the consuming nations will begin to go down fairly rapidly and as people try and make orders for more oil they find they cannot get it. This will force the refiners to the spot market and oil prices will go to the moon and worse spot shortages will develop.

However this time around the widget consumer thinks he has figured things out and that prices will drop any day now. This means that being the brilliant people Americans are they will assume that this time the fast rise in oil prices is temporary and any day now a slug of oil will show up. The problem is this day never seems to arrive. Eventually of course it does but the next big dip is from a much higher price point.
And the consumer or rat ( not to dismiss the intelligence of rats ) has become conditioned to the new higher prices and welcomes the drop to "low" prices that would have been unthinkable just six months earlier.

So at least for now the game is to pulse oil supplies timing the arrival of the largest amounts of oil with the minimum in market demand. Given this model we could see another pulse next spring but oil prices will be touching 200 a barrel when it arrives and we will start next summer at a new low price of 150-160 a barrel.

On July 30 Rembrant posted discussion "Mainstream Dutch analysts foresee oil supply constrained world" of the CIEP report " Oil turbulence in the Next Decade" along with a link to download the report. As Rembrant states : CIEP is especially important because it is endorsed by amongst others BP, Shell Netherlands, Total E&P Netherlands, three Dutch Ministries, Wintershall, Vopak Oil Europe Middle East and several Dutch energy companies.

http://europe.theoildrum.com/node/4358

I highly recommend this report to those who want to understand oil pricing and the looming crunch between supply and demand.

The 17 page section 4 is an instructive guide to four factors affecting oil pricing and I now understand "contango and backwardation" for the first time. They conclude" the current high prices are driven by structural factors and can be explained without resorting to throwing blame at speculative investors playing the futures market...".

Their conclusion is oil prices will be highly volatile between a floor of about $110/bbl set " by the marginal cost of the last barrel needed to match demand" and an upper price heading above $200/ bbl by 2009 based on the " The Real User Value" of that oil in increasingly closed oil markets.

Section 8 on decline rates of existing oil fields describes (see page 62) how at an average 4.5% decline rate, that by 2030 only 34 million b/d of today's oil production will remain. They see, at best a plateau of a fixed oil pie to be divided among the world's nations. The choice will be cooperation or confrontation.

They conclude," In practice this means demand rationing will be required in the OECD countries, and particularly the US, in order to accommodate growth in the newly developing countries... Much will depend, therefore, on responsible leadership in this scramble for oil and other liquids"

Even if the US goes into recession and reduces demand the number of high oil consuming people in world has more than doubled since the mid 1990s and this will offset any small drop in US demand.

The title is very accurate- We are in for a Turbulant Decade!

Like I said with the last poll,$80 oil will come around pretty quickly. $40 oil could take 10 or 15 years,depending on how quickly alternatives ramp up.

Although I believe that the overall trend for Oil Prices will be up for the next couple of years at least, I also believe that the price spike up to 145 USD was in fact caused largely by the weakening dollar and a general rush into commodities. Remember, it is not long ago that the price of oil was at 55 USD/BBL. A steady upward trend would suggest a price of about 80-90 USD now. I therefore suspect that oil prices will fall back to about 80-90 USD/BBL and then continue to gradually trend upwards. Incidentally I believe the floor is at about this level due to increasing lift costs/bbl.

I have voted for the 102 USD/BBL option and am quietly confident about the outcome of this prediction!

I voted 102-126 this time. Thinking we are close to bottom.

Ace just sent this round via email:

Global oil supply increased by 890 kb/d in July to 87.8 mb/d. Norway, Canada, Argentina and Brazil underpinned non-OPEC growth of 520 kb/d, amid a lull in seasonal maintenance elsewhere.

OPEC July crude supplies rose by 145 kb/d to 32.8 mb/d.

Highlights IEA OMR Aug 2008
http://omrpublic.iea.org/currentissues/high.pdf

So the fall in July can in part be explained by simple supply demand dynamics. The lower price will stimulate demand whilst the world will likely struggle to maintain 87.8 mmbpd - and I'd bet on Saudi throttling back.

It will take a while for the tanker to turn, but I suspect the next run up to be brutal. The MSM, politicians and the markets will no doubt think that the crisis is now over.

Main caveat to above will be Russia occupying the whole of Georgia and or the US going into Iran - in which case all bets are off.

Any comments on the liklihood of OPEC organizing a serious short-term drop in prices such as this in order to discourage investment in alternatives? Even a short-term drop, if it is dramatic, must take a lot of "wind out of the sails" of investors contemplating PHEV's, wind generation, solar thermal etc.

And might the Pickens Plan be a return "shot across the bow"?

Hi folks,

This is a first post, so excuse any newbiness. I have been following TOD reports for some time, and am impressed with the level of wisdom – something not always linked to intelligence (!) – which the site also has an abundance of.

I love the concept of trying to predict a single resource price in a multi-resource/multiple variable system. An analogy (or metaphor) can be drawn with the dripping tap of the much maligned ‘chaos’ theory. Due to the nature of the global economic system and its complex and intertwined web of causes and effects, the period of increasingly available energy allowed for a similar increase in the available work for activity (work as in the physics kind – mostly mechanical to make stuff like electricity, goods and to transport them) (see: http://www.iea.org/Textbase/work/2004/eewp/Ayres-paper1.pdf) This availability is now being constrained in various ways, from resource peak to supply/demand restriction. This is going to cause a corresponding shrinkage of available work and hence activity.

Back to the dripping tap. In this experiment, a tap (faucet) is opened until water drips out. It’s opening is continued, and it is noticed that the drips become regular and a smooth laminar flow may even form. Then suddenly, on increasing it further, the drips/flow becomes totally erratic and unpredictable. (see: http://perso.numericable.fr/cricordeau41/quatuor/english/fractal_31.htm & http://www.newscientist.com/article/mg12416873.700-chaos-a-science-for-t...)

The oil supply can be seen as analogous to the dripping tap. It was opened slowly, went through various chaotic periods, where amongst other things, the price fluctuated wildly, with long smooth intervals of supply that provided long smooth intervals of economic growth. The point of this analogy is that now there is a new dynamic entering the system, hot air, or the desire to continue as before when the reality of another dynamic, the actual amount of water in the pipe has changed. Thus, while the ever-increasing flow has stopped increasing, the pressure (desire to continue) in the pipe has not. This is causing the whole system to go into chaos, and not just the stream coming out of the tap; the pipes have started hammering, the water now sputters violently and soaks anything nearby. And turning the taps down or trying to regulate it will do no good as the pressure is ever increasing in the system. Eventually the pipe bursts and what little water was left in it goes everywhere. There is none left. Price is now irrelevant.

The thing about chaotic systems is their inherent unpredictability, and instability. One moment they can be completely (seemingly) calm and (almost) predictable, the next they can spin rapidly towards disaster. It appears that we are entering another chaotic period, with uncertain outcomes. The only certain thing left seems to be human nature with all its uncertainties and failings. Somehow I don’t think over 6 billion people are going to learn to work with nature and redistribute wealth and resources fairly and equitably. I only wish it where so, but that is the nature of wishful thinking. Russia’s incursion into Georgia is just the another move in a continuing game of chaotic chess. The global system of human affairs is incredibly more complex than a dripping tap, and so much more chaotic. The results of this chaos will be interesting if nothing else (eg: man loses job, shoots senator: http://uk.news.yahoo.com/skynews/20080814/twl-top-us-politician-shot-dea...)

The allegedly Chinese curse “may you live in interesting times” seems to have landed on us all (http://kiad.livejournal.com/421724.html or http://www.bilinguist.com/data/hy00/messages/13375.html)

As has been said elsewhere on this site - People can’t handle too much reality…

Love,

Sid.