POLL: CLV08 blew past $100...so, in the next 60 days, the front month price of CL will...

hit $160 before it hits $85
26% (625 votes)
hit $85 before it hits $160
13% (311 votes)
stay in a trading range between $85 and $160
49% (1201 votes)
it's still all geopolitics and other "above ground factors," so what does a price signal mean anyway?
3% (78 votes)
it's all about the varying dollar value and speculation...why bother?
9% (214 votes)
Total votes: 2429

This is an open thread, since the DrumBeat is getting kind of long.

So why such a wide price window 85 -> 160 this time?

Previous polls by Pr. Goose had much smaller windows, and I think he was following some kind of "system".

Did you just pick arbitrary high and low values for this poll?

We've been discussing increasing the range, because oil has been so volatile. We've been going through these polls like crazy. They're supposed to last longer than a couple of days. We can't keep up.

In today's DrumBeat, someone suggested $200, $250, or even $1,000 for the upper limit (and $1 for lower limit). I thought that was a bit extreme.

So I picked 30% either way from the closing price. I suppose I should have moved to the new front month, which would be 30% from $109 instead of $120. But I like the idea of breaking new ground (new record high, or breaking through a floor we haven't seen for awhile).

One Trillion bailout, not just for US financial groups, but foreign as well? This isn't just about peak oil, but the dollar. I see the precipice, just within view. How long before the US is declared bankrupt and we can speak of US citizens as 'enronized'? I didn't enjoy being correct last time. This is going to get ugly rather quickly. I don't see any way for this to go other than hyperinflation. We need criminal investigations of the advisers to the current leading presidential contenders for setting up the deregulation that created this predictable calamity, namely McCain's Phil Graham (and his wife Wendy) and Obama's Lawrence H. Summers and Robert E. Rubin.

It's not a done deal yet.

lol, Leanan does have a sense of humor!

by Jason Linkins , The Huffington Post, September 22, 2008

A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 (which ironically reminds one of the popular name of the portion of the 1937 Housing Act that paved the way for subsidized affordable housing ) of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.


My comment: Hey, when you're down 9 trillion, what's one more? Done deal? Oh yes it is.

This is unbelievable! I remember an interview of Paulson in 2005 on CNBC, he was so upbeat about the state of the economy, saying that there was no visible or foreseen slow down in the housing market and the economy was strong, etc. whereas most economic blogs were buzzing already about an housing bubble burst of epic proportion! I thought he was on crack at that time.

Well, here we are now, 3 years later. I think he should resign.

On NPR this morning it was characterized like this [paraphrased]--->

Excecutive Branch to Congress:

"Oh, by the way Congress, It's nice to have you around but you are no longer relevant."

This isn't just about peak oil, but the dollar.

On one hand, it's hard to see where the prices are going, it's easier to figure out where they are coming from.

Most of the people who participate in the financial markets at the highest levels ... hedge fund managers, equity money managers, commodities traders, currency traders ... are sophisticated and have good analytical tools. When they read the Treasury's plan to trade good money for banks' toxic paper ... they not only come to the conclusion the government has gone insane, they act on it.

What's happening in the credit markets is a giant bubble is bursting. The Treasury is trying desperately to keep it inflated. In the 'old days' when the government did something stupid and pointless, the bond market would react by lifting interest rates. Interest rates matter to the government ... which borrows trillions.

Bond traders became known as the 'Bond Vigilantes'. This was in the 1970's and 80'a.

Currency traders as well the bond traders would hedge their positions in Treasuries in the bond markets. The market is large enough to make a difference.

In the intervening years, the Fed has made it impossible to raise bond yields outside of a narrow range. One strategy has been for the Fed to manipulate the futures market by concentrating their buying and selling activities there. Their allies have been the big investment banks that are currently disappearing.

With the bond market unavailable to hedge currency and interest rate risk, traders have turned to the crude market as a synthetic bond market, a place to offset risk in dollars and dollar denominated securities. Instead of strangling the Treasury at the ATM, the public is strangled at the gas pumps.

Think of this $16 jump in crude price as the markets' 'vote' on the Treasury's Bailout plan ...


Your blog spot appeals for higher interest rates for savers. Being a saver I can sympathize with that view. Real interest rates on savings are below zero giving no incentive to save.

However, we still live in a globalized economy. If interest rates rise here, the Japanese, Chinese or the wealthy oil exporting economies of the Middle East will rush to put money into the U.S. economy driving them down again. Savers have to compete with the Japanese whose interest rate is effectively zero and who have lots of money.

Buying appreciating assets like oil, gold or farm land is the only way out of this dilemma for savers IMO. Personally I like farm land. It is hard for anyone to steal it. It makes you an instant business person with the associated tax write offs plus you can live on it thereby reducing living expenses. It is not as easy as putting money in CDs but the reward seems to be higher over time.

I vote for farm land. Eventually we will all need to provide/create food and biomass energy. If you have food or the capacity to grow food it will be much more valuable than gold.

I disagree with your statement that farmland is hard to steal its trivial to steal just set the taxes higher then the profit margin on your product and pretty soon the state owns all the land.

Stealing of good farmland by the rich and powerful is a time honored profession probably the second oldest one.

Next as far as I can tell a lot of farmland is in a pricing bubble right now from the corn ethanol squeeze and at least in the US we have more than enough farmland to supply our population with food and enough for export.

Given that industrial agricultural will eventually get squeezed to the point that profit margins are lost as fuel and fertilizer prices increase we can expect a glut of formally good farmland laced with chemicals on the market.

Leaving all this fallow and reverting it back to sustainable agriculture will take some time but most importantly the land itself will have to be very cheap for quite some time to support reverting back to long fallow periods.

And last but not least on of the big drivers in land prices has been suburban expansion as this wanes land in general will revert back to being inline with its productive value.

And finally in the US at least the distribution of productive farmland and population is heavily distorted and abnormal with the larger cities located in some of the least productive regions. As transportation costs climb local but poorer land may well become more valuable then distant richer farmland.

And finally of course the distortion effect of subsidies.

Thus as a serious investment farmland does not look all that good to me it should lose 75-50% of its current price if not more.

I often get a lot of flack for making these statements but right now and for some time in the future investing in farmland for monetary gain is probably foolish. If you can afford to write off most of the money you put into farmland now and simply want the asset for its productive value then fine but its should not be treated as a good investment. At some point the rich that have bought up a lot of the farmland will dump the holding to raise cash and when they do farmland prices will plummet.

Hi memmel,


1) What do you think *is* a good investment - (if anything)?

2) An anecdote from a recent National Geographic article
involving a different version of the "improve land and lose it" story,

about farmer named Yacouba Sawadogo in Burkina Faso(excerpts):

"Sawadogo, too, laid cordons pierreux across his fields. But during the dry season he also hacked thousands of foot-deep holes in his fields—zaï, as they are called, a technique he had heard about from his parents. Sawadogo salted each pit with manure, which attracted termites. The termites digested the organic matter, making its nutrients more readily available to plants. Equally important, the insects dug channels in the soil. When the rains came, water trickled through the termite holes into the ground. In each hole Sawadogo planted trees. "Without trees, no soil," he says. The trees thrived in the looser, wetter soil in each zai. Stone by stone, hole by hole, Sawadogo turned 50 acres of wasteland into the biggest private forest for hundreds of miles.

Surveyors went through the property, slicing it into tenth-of-an-acre parcels marked by heavy stakes. As the original owner, Sawadogo will be allotted one parcel; his older children will also each receive land. Everything else will be sold off, probably next year. He watched helplessly as city officials pounded a stake in his bedroom floor. Another lot line cut through his father's grave. Today Yacouba Sawadogo is trying to find enough money to buy the forest in which he has invested his life. Because he has made the land so valuable, the price is impossibly high: about $20,000."

"the public is strangled at the gas pumps"
Come on Steve you're having a laugh, Americans pay a ridiculously low price for gas so hardly being strangled. Take a look at European prices.

The big investment banks are already dead, the last two are to convert into tightly regulated bank holding companies. The US taxpayer bail-out of America’s banking sector will reverberate for many years. The US Treasury was already planning to borrow $400bn+ next year to shore up the budget deficit. That could now rise to $1 trillion or more - a significant number. This is not the sort of change you find down the back of the sofa. Failures now have a "get out of jail/bankruptcy free" card. Please tell the voters don't worry TPTB are "doing something".

Unfortunately the gap between the Fed funds rate and the Libor rate (rate at which banks lend to each other) has jumped to the widest for a very long time showing banks don't trust each other. This trillion of extra Treasuries should depress price (more supply less demand) so increasing yields (rates), higher rates will push up mortgage rates etc so slowing the economy. Rinse and repeat, vicious circle??

So as the dollar goes down oil goes up in symetry. Expect more calls against speculators.

Meanwhile over in Denmark, Ebh Bank put itself up for sale yesterday as it cut its profit forecast to zero and removed CEO Strier Poulsen after bad real-estate related loans were larger than expected. Sound familiar? Many senior managers at banks simply did not understand how their institution funded itself. Things have improved but they can still be blindsided by sudden events. That's another fine mess they've gotten us into.

Yeah... I was just reading the DrumBeat... I guess I should have started with that, before the poll.

One thing is now perfectly clear. Speculation is a huge factor in the price of oil. Another thing that is implied by that fact is that Peak Oil will occurr in spite of (or regardless of) price.

My guess is that the worse the fallout from the reordering of American and global capitalism the higher the price of oil in the near term. If we have a global depression, prices could fall deeply. How's that for hedging?

Too big of a price swing for the time limit, Leanan. You should increase the time limit if you're going to increase the targets. If you ask whether the price can hit $160 within 120 days, you have a much more interesting question.

If we can jump from around 100 to 130 in one day, I think we could see anything between 80 and 200 over the next 60 days. Nothing would be too surprising, although I'll admit 200 would be hard to hit because there would be massive profit taking at anything above 130.

These price swings are crazy...

But it has been noted that the really big jump only happened on the october futures. So the size of the spike there may have had something to do with it being the last day of trading in october futures.

Now that we are looking at november as the front month, there is not such a huge spike in the graph.


I wonder if it might be better to only look at spot prices for the poll, to eliminate these kinds of "volatility effects" near the end of the trading cycle.

I guess if I can still add a comment, the range was not wide enough?


I suppose the Haitians would prefer to be building an Ark, but trees are a little difficult to find at the moment:

SAN JUAN, Puerto Rico (AP) -- The Atlantic may be brewing up another tropical depression.

Forecasters say a cluster of wind and rain swarming toward the Dominican Republic could become a tropical depression in the next few days and batter storm-drenched Haiti.

National Hurricane Center

445 PM EDT MON SEP 22 2008


IMHO the shortage of capital to expand (or repair) production will be more significant than the decline in usage due to economic contraction. Since we are so close to a supply shortfall, prices will have to rise.

New here, though I've been lurking for a couple months now. I love this place! I've been reading everything Ican get my hands on lately so I've become very enchanted by Matt Simmons. Finished "Twilight..", so when I saw this interview with a full dose about the Peak with Mr. Simmons on CNNMoney/Fortune.com today I thought I would share:


I was very surprised a mainstream outlet is giving him this much coverage, but glad to see it.

Welcome! Great to have you onboard Aaron!

Nice catch. Mr. Simmons seems to be primarily concerned with supply as in geological supply. As such it is a long term but very serious argument. I have had a feeling we got a nice reward for our collective conservation over the summer, maybe we caught the market off guard by that, but I hope we all took the lesson to heart.

I can't say much about high finance in the oil industry, however, this quote from the recent Cleantech conference (http://media.cleantech.com/3438/cleantech-investors-weigh-wall-street-tu...) leads me to believe that alternatives may not save the day and keep oil prices low.

Project finance and other large capital outlays should be expected to become harder, suggested investor Josh Becker of New Cycle Capital, a venture capital firm.

"I think people underestimate the degree of financial uncertainty on Wall Street right now. The degree of—I wouldn't say panic, but I'd say uncertainty—will slow things down, especially things that require large amounts of capital, project finance, big plants, etc."

And, as Becker noted, many cleantech companies require large sums of money.

"It's going to make things more difficult. How much more difficult? I don't think we know. There's a chance that cleantech is somewhat immune, but listen, when the market's down 500 points, that's not going to help anyone."

He goes on to say that smaller, promising companies will be funded but doesn't have much good to say about the chances for large scale projects. Of course this complicates the chances of dealing with shortfalls through alternatives, and the BAU attitude belies our short-term likelihood of continuing consumption "inelasticity". Peak energy? Expensive. Still, the very small scale projects that have a net energy output will quietly support our post-peak lifestyle.

Capital is not required; the resources it commands are what are required. There is plenty of capital and an increasingly short supply of resources.

Quite. However in some cases, the resources (drilling rigs, refineries) can be created, but only with patient capital. That seems to be in short supply right now, unless you're the fed or an exporting country receiving a high price for crude.

Can anyone tell me why there is such a huge price gap between US blends and non-US blends? Upstreamonline shows $20+ discrepancies.

The reason that I have seen in the press is that some shorts need to cover before the expiration date. Meaning that a bunch of money expected oil to be falling more than it has, they sold oil futures and now they need to buy contracts or actually deliver physical oil.

I have no ability to determine if this is true or not, but the gap between other oil markets, and the fact that futures chain doesn't reflect the increase support that assessment.

Hope that was helpful.

Responded to your post before reading the rest of the post. Read down thread, these guys know more than I do.

Unfortunately for all of us, devaluing of the dollar looks to be a fairly large factor now. I see the bailout (flooding the world with dollars) and general financial distress as severely weakening the value of the dollar, and pushing crude prices up and up for the time being (until we get another bout of demand destruction).

I got some jitters and called to buy heating oil today, and so I understand the dilemma about the range for the poll. Even I was shocked to see what oil was doing today, and I've come to expect wild swings in the market. It was about time to buy the heating oil anyway.

In any case, I went for the $160.

Should have gone for the last option.

For the next few months the oil price in dollars isn't going to be driven by supply and demand, its going to be driven by the dollar and the flight to more dependable investments.

Now Saudi may cut back on supply, but that's going to be as nothing against the run on the dollar. I still think we will go through $150 by the end of the year, but I'm not so sure against the basket of world currencies.

What I suggested might happen before appears to playing out. The US is pulling itself apart and killing itself as a world superpower. In doing so its going to take 10Mbpd out of the demand side of the market and give everyone else time to prepare for the downslope.

Thanks guys !

CLX08 vs CLV08:

CLX08 = Nov contract.
CLV08 = Oct contract.



I noticed that today, too. The front month price went way above the other months.

An analyst on NPR suggested the discrepancy was the result of traders finally being forced to make end of month purchases after holding out hoping for lower prices. Any thoughts on that analysis?

That's what Darwinian suggested in the drumbeat (I'm no expert in this area):

No, it is a short squeeze. Shorts get margin calls which most do not meet because they do not even have time to before the market rises well past their maintenance point and they are sold out. Or more correctly, their position is bought back. This drives the price even higher, more margin calls, more repurchases of their position.

Also this is the last trading day this (October) contract will be traded so everyone must get out today. The November contract, when we get the close, will not be up nearly as much as the October contract.

Makes sense to me. But the strength of the spike--today's range was $103.35-$130.00 ($26.65)--is nevetheless very interesting.



IMO this is very significant, if I understand the futures market correctly then unlike other days the price at the contract close is determined purely by physical demand and supply.

I've posted about this several times, but have given up mentioning it lately as .. well no one cares.

Perhaps what happened to the oil price is after the last contact closed at $136, because the US strategic petroleum was filled there was a reduction in demand for oil. Perhaps the Chinese filled their strategic reserve at the same time, although I have no proof of that. This caused the upwards trend in the oil price to be broken, and all the trend followers piled in to force the price down below the equilibrium price.

I see comments about speculators effecting the price of oil. I think this is true but the main speculators are the large governments that maintain strategic petroleum reserves.

IMO this is very significant, if I understand the futures market correctly then unlike other days the price at the contract close is determined purely by physical demand and supply.

Actually I agree with that, it seems logical at least. On the last day of the month everyone has to make good on oil delivery so the traders all have to stop playing games and actually buy the oil they need (true demand). If the supply is really tight, we have a run up like we did yesterday. If it's more sufficient than people think, the price may collapse.

ICBW, how does this idea reflect on previous months?

I do think the need to make delivery at the contract close 'imposes discipline' on the price. I think these are the last 4 months closing prices, although Jul is just from memory, and the other 3 are just from looking around on ino.com.

CL.N09 Jul 136ish?
CL.Q09 Aug 127.95
CL.U09 Sep 114.98
CL.V09 Oct 120.92

Clearly from the market action in the last few hours of the Oct contract market participants were very surprised by how tight physical supply was (compare to demand) last month.

But why is the Nov contract still trading under 110?

Oops those 09 should be 08. I had to get the 08 prices from ino.com by looking at the 09 contracts and manually replacing 09 with 08 in the url. If anyone has a better list of historic contract closing prices or knows where to find them that would be great.

Prices should "stay in a trading range between $85 and $160". If the US dollar weakens further, then a large flow of dollars into oil could potentially cause an oil price bubble.

Supply, Demand & Price to 2012 - click to enlarge

I'm not a technical analyst, but according to the average 16 year cycle in the chart below, oil prices could keep increasing for another 7 years.

For the last 200+ years, there has been an average 16 year long cycle where investment returns move between paper and hard asset leadership. Below we show four ratios: the Dow divided by gold, the Dow divided by 3.5 barrels of oil,the same with the Commodity Research Bureau index, and then the U.S. median house price in gold (times .1 to fit on the scale).

click to enlarge


An interesting observation in the chart above is the similarity in the current hard asset cycle to the hard asset cycle which started in 1968.

Chris Puplava of Financial Sense wrote a story comparing the 1970s to the 2000s.

The current Dow Jones Industrial Average to gold ratio still favors hard assets (commodities) relative to paper assets (stocks, bonds), with a reading of 12.11 as of August 25th.

Although there are similarities between the 1970s and 2000s, Chris Puplava points out two significant differences:

While the similarities shown above have been a bit of déjà vu, not everything is entirely the same. For starters, the U.S. average savings rate was 10%, and it’s closer to 0% currently if you back out the economic stimulus checks. Moreover, total debt to GDP was roughly 145% with the current reading coming in at 337%, quite the precarious position relative to the early 1970s experience.

Not sure about staying in the trading range. I think what we witnessed this year is the first post peak oil shock regardless of the supposed production levels this year. I believe we have seen significant production declines from the real peak back in 2005. On a global scale the production distribution will either take a Gaussian shape or may be distorted by years of systematic effort that could result in a longer plateau and steeper decline.

The double peak solution puported by the press is extremely unlikely and effectively requires a miracle.

Thus its simply one of the many pieces of misinformation thats causing the market to become progressivly more misinformed and volatile. However despite this volatility assuming I'm correct the real price range for oil assuming we are now 2-4 mbd down from peak is more like 130-180. Given our current situation with the hurricanes the market will soon have to begin to discover the truth one trade at a time despite the serious amount of global misinformation floating around at the moment.

Just like the current US gasoline spot market represents a much better picture of the current gasoline situation while the US futures market remain in bizarro world as these trades are closed and real oil is requested for delivery we will see price forced back into alignment with supply.

What happened in the oil markets today had little to do with the economic turmoil on wall street this has been going on all week what happened is people simply closed their contracts and asked for delivery and the oil was not available.

I think this comment is spot on.

I think the mistake your making is not accounting for the increase in the amount of misinformation it will make the market more volatile but also given that the current market is in my opinion misinformed about the availability of oil we will also see large shifts in the floor prices upwards as the markets discover the truth.

This shifts in the floor prices look like sharp increases when the market is badly misinformed but they really are a almost tectonic shift to a new pricing level and prices will then fluctuate around the new floor.

Your own supply demand curve exhibits the rising stair step effect this would create.

I can give a long list of reasons why I think that the equilibrium price should be 120-130 but whats important and maybe it should be added to the poll's is price gets more volatile is a way to pick the equilibrium or midpoint price. It not 110 in my opinion thus 85-160 is the wrong answer :)


Because of the credit crunch, the markets will fluctuate wildly for the next several months. However, the general trend will be downward (higher consumer and commodity prices, lower Dow, more failures of various types of financial institutions, more turmoil in jobs, interest rates, dollar value, and politics). Oil prices will rise primarily because of the decline of the dollar due to the general loss of trust in the tumultuous U.S. economy. We may see $90 again, but each top will be higher than the one before.

It depends also on when China will see the great oil consumption spike which could happen any time now, as the next decade is the great oil intensive fase in that country's development, hitting the markets like an earthquake.

I'm voting down again and I like the range change. It give the middle some room for now. Looks like I have some company on the down vote but not so much as in the last poll which was wrong. So, I'm happy to be less popular (and more humble) again.


I have nothing against the vote -- we should try to have a little fun even in the darkest of times. But anything short term is totally unpredictable -- whereas anything long term is almost totally the opposite: very predictable.

There is going to be less and less oil produced, and that which is produced will be more and more expensive. Therefore US, and indeed the Western way of life and all its trappings (housing, highways, cars, suburbs [but not just], airlines, etc) will be ever more devalued, and therefore there will be no bottom to this crisis, unlike all previous ones where there was still a future to mortgage.

There is no plausible scenario in which the price of oil goes down and stays down, or does anything but continue to rise, aside from short term bumps where demand destruction momentarily outpaces decline.

I don't agree that in the long run it (oil price) is predictable.

Some people say "the sky is the limit" meaning in the long run prices will keep reaching higher and higher peeks.

Maybe this is true. But I can equally likely imagine that price of oil will experience wild swings without ever breaking a certain cealing price.

Sure, supply will keep shrinking, but the devastating shock waves that this will send through the economy will bring down demand drastically as well.

That doesn't mean that I think the outlook is a rosy future. If prices don't keep breaking higher and higher levels, it would not necesarily be because the situation is being handled well, but rather the oposite.

Does anybody wonder what Treasury Secretary would have dared to dictate terms to Sam Rayburn or Lyndon Johnson?

We need to do more than stop the Paulson/Bernanke train. We need to find some real Democratic leadership.

Send your critter an email. Do it tonight. It's easy. Google them... an email link will appear.

Takes about one minute to fill out the form.

I am feeling pretty good about my preditions. I sold near the high and bought on Tuesday, the exact day of the recent low. I sold all medium-term bonds on last Monday's panic and got a bit of a premium in the flight to safety. Playing these games with your own real money, much of it saved though austerity, makes you much sharper and more careful.

These were my comments on July 23. I think I called it very well:

"I have been an oil investor since the 1990's. I believe in peak oil. Over 50% of my porfolio was in oil and gas I have been greatly rewarded...
Last week I sold about 20% of my oil investments.
I sold shares in a natural resource fund that I have owned for a long time. Ten years ago I was buying the shares for $7. I sold for $42 I didn't quite get the top of $46. In Febuary, in the middle of the SoGen crisis, I was buying oil and gas mutual funds for $18 a share. I sold for $24. A very nice return for 5 months.

Sometimes you are so far ahead that you just have to take profits.

There is demand destruction out there. We have all sorts of stories about parked cars, increased transit use, etc...Higher interest rates and an economy in long term reccession may push the price of oil even lower. Who needs gas to get to a job, when you have been laid off? Better to spend the money on food, seeds and insulation.

I think I will be able to buy all my shares back with oil at $115. I will buy them back in small lots at a lower price. I think the Saudis will cut production at $100 and definitely at $80. They want to preserve their resources for future generations.
$80 to $115 could be the buying opportunity of a lifetime."

On August 11 I said the following:

Today on August 11, I think we will see lower prices.

In the short term, the price of oil can be about more than just supply and demand. I can be about interest rates and the strength of the dollar.
When real interest rates are negative, commodites are a great play. You lose if you sit in bonds. When the Fed really starts to raise rates, oil prices often drop.

…I also think some American Banks are liquidating commodities and oil stocks because they need the money to stay afloat. The market is being sold all at once.

I think this is happening now. Some of those oil winnings are even making it back into speculation in the U.S stock market.

All those discussions about Chinese and Indian demand, will matter less as those countries have benifited greatly from selling goods to America. Demand from other countries will not make up for the decline in demand from America. The American consumer is tapped out from the housing crisis.

In the short term, think oil will go lower. Let's see if the Saudi's cut production at $100. I will not buy back in until $95. I am going to lighten up in other areas and have lots of money ready incase we get $80 or less in panic selling.

Long-term, I love secure, dependable Canadian oil companies as an investment, but I want to buy them at bargin prices when the newest speculators are scared silly by all the selling.

Of course, Israel or Iran could change everything in an instant. That's why only sold 20% of my oil holdings back when prices were so high.

Today on September 16 I think we will see lower prices. We did have a small production cut, as I predicted

I think we are swinging from a potential hyper-inflationary future to one that is potentialy deflationary. All asset classes will go lower, but long-term, I still like owning oil companies

Right now, we have some panic selling. It's not about fundimentals right now. It's about having the money to buy. Lots of former players, like Lehman Brothers don't. They are are no longer in the game and you don't have to bid against them.

I will probably start buying today. (meaning Sept 16th) I will do it slowly and in small peices. You always always want to have some cash. There can be further dips and you never know how long these things can last.

Baron Rothschild, the quintessential banking opportunist, said buy when there is "blood in the streets." I think I see some blood.

I went on to explain that I though the cost of non-conventional sources, especially the oil sands..."should create some support or a floor price."

Markets are often about the behaviour of crowds, but fundimentals often rule in the long-term.

Today on September 22. I think oil is somewhat fairly priced. I voted on trading range but I will tighten it up a bit.

Paulson's plan is infationary, bad for the dollar and good for oil, that is priced in dollars.

There will be more dollars printed per barrel of oil and the American consumer's abiltiy to buy those barrels will be extended through this meassure, somewhat at the expense of the currency and the rising debt load of the country.

I am a buyer at less than $95 and I might start selling peices at $137.

...but I want the price to be real and reflected in some movement of the energy indexes. Today's short squeeze did not do that, so I didn't even think of selling today. Watch the energy indexes, if the price move is more than very short-term, they should move as well.

I might lower my selling price if we have new really bad data on employment that might indicate demand destruction down through the costs of oilsands production.

I will raise my selling price in accordance with declines on the dollar against the Euro. I don't want to sell just on curency weakness.

In the next few weeks, I will be looking for more data. That's what I do.

Some very good calls, congratulations, and thanks for making the markets more efficient.

I also got out when crude fell under $136, and have been buying back in gradually. But only 1/4 filled so far.

Hi dp,

You said "I think we are swinging from a potential hyper-inflationary future to one that is potentialy deflationary." I would be interested in how and when you think that will come about.

I might disagree when you say "There will be more dollars printed per barrel of oil and the American consumer's abiltiy to buy those barrels will be extended through this meassure" yes more dollars per anything tangible but this will not equally be spread throughout the American consumer.

I had thought the stock market would hold up for a but longer but it seems to be resuming its downward trend, not a plunge this week as some feared, but this may be because the Paulson plan looks like it might be held up. IMHO we are only half(ish) way thorough this, so I expect stocks to continue to fall for several months.

You said "I think we are swinging from a potential hyper-inflationary future to one that is potentialy deflationary." I would be interested in how and when you think that will come about.

It's mostly about the money supply. I recently looked at something that was a reconstruction of the M3 money supply number. The rate of expansion slowing seemed to match some of the decline in commodity prices plus we had some dollar defending. However, the game has changed a bit. A 700 billion dollar bailout puts more money in and so I am leaning less toward deflation and more towards inflation...or I think the swing has been delayed. You can only print so many dollars without angering your foreign creditors. When the rate of expansion slows or intrest rate increases are unlnleased on the tapped-out consumer, that's when I think might get a swing toward deflation.

I might disagree when you say "There will be more dollars printed per barrel of oil and the American consumer's abiltiy to buy those barrels will be extended through this meassure" yes more dollars per anything tangible but this will not equally be spread throughout the American consumer.

True, but my veiw is probably more negative than yours. Some of the news of last week had me very concerned. The bailout, which seems to incude protection for money market funds does offer some hope and possible benefits for the masses that didn't seem to be there before.

I really don't want to debate this. It's just what I think. I try to be as obejective and data-driven as possible. If some new useful data is unearthed, I am open to change.


Can anyone explain why distillate stocks are so high and gasoline so low? Is this a consequence of the airline downturn and people delaying buying heating oil?

What effects does this imbalance mean for the systems in the long term? (if you end up with excessive distillate)

Thanks Neven

I think distillates are pretty normal:

Looks like it usually peaks about now, in preparation for winter. So "high" is normal for this time of year.

Gasoline has fallen off a cliff:

Probably due to our friends Gustav and Ike.


Thanks, I was incorrect in saying distillate was high, what I meant to point of was the relative disparity between them. Either the US Has to import 15M barrels of Gasoline or refine it (which will result in more distillate) and export the distillate to get in kilter again.

This situation is not something I've not seen discussed on TOD i.e. that the effects of demand destruction/substitution may be asymmetric and that will cause disruptions in the system


We will probably import it. We did last time (Katrina). Europe uses more diesel than we do, and usually have some extra gasoline to export.

Diesel, now that might be a problem.

Not sure of these prices, today it just picked $25 in a day...that's huge and I guess it maybe, will settle for around $110 in a few days time.

But still the turnaround impact on all major economies will be felt in the next few days time. Specially countries like India, Brazil, China, SE Asia...


Could you elaborate on that? You think BRIC will see massive pain in the coming months or?

at the moment i would think that price is articially depressed due to the reduction in supply from 3MB/d refining which isn't happening in america, so i've voted on a price increase. (actualy 160 before 85, but i don't know if it will actually get to 160 in the next 60 days)
Over the next fortnight i would expect a ~20$ rise as the refineries come back online and demand picks up again (lots of empty tanks to refill, even if the economy is depressed long term).

This is of course valued in todays us$. I don't think that it is going to increase in value at all, with sudden falls more likely if any more nasty financial supprises are lurking in the wings, so if you add another $20 due to variations in the $us onto the above $20, that gets from 120 to 160. As i don't see much in the way of factors for a drop in price, i'm voting up, but i'm not sure if it'll get all the way to 160 by a fortnight after the us election.

With the Federal Government once again in the game of spending more than its income can support; an analyst predicts risk of hyperinflation in America and Britain where the people were burdened with debt of unnecessary war, housing market gambling, and funding special interests:


Prices of food and oil might soar.

I voted $85 before $160, however the $25 jump yesterday showed that it's not about fundamentals anymore but oil has become a shelter for many investors. Volatility will reach levels we have never seen before in the next months.

I went with $ 85 before $160. I think that there has been some external influence on the market, whether KSA or domestic, which has driven it down. If KSA, it would make sense that they had to close the positions on the last day or their actions would be apparent before the elections, which would backfire. The futures market hasn't made any sense to me for the last couple of months, and probably will not until a week or so after the Nov elections.

It is increasingly apparent that the local (TOD) experts think that the ELM and other depletion scenarios are bulletproof, and I agree. Thus, the only thing which makes sense with the declining market is external forces. A two year recession would allow Tupi and Jack to come on line or be close enough that they could influence the price, but I think that the collective market and social psyche will panic if things get worse, and we will see a deep, deep recession or a depression, which will tend to get worse as it develops - jobs get cut, which leads to further job cuts, etc. If we were producing our own energy needs, that would be mitigated, but I do not see that. In romantic Osage County, OK, the economy is still BAU and the only thing impacted is day rates and availability of rigs. It is all shallow production (both oil and gas), but mostly low-risk, and the economy has not been impacted yet. Optimists are still opening new supply stores to boot.

stay in a trading range between $85 and $160

Nothing like a 95% spread to choose from ;-)

Leanan, I think the last poll option should be split as well as the perjoritive "why bother" dropped. Changing dollar value is not in the same league as speculation.

For my 2c worth, there are a number of factors playing out which make any prediction impossible.. but FWIW I say oil will trade within the range, and here's why;

The price of oil and gold are closely linked, that's just a fact, but what I believe is that the price of gold must be being manipulated so that it remains artificially low in comparison to the US dollar (so far never much more than $1000/oz). The ratio is increasing but not that significantly, and certainly not as much as I would expect. If that is true by the same reasoning can be applied to the price of oil, which must be being manipulated also.

So, does oil follow gold or the other way around? I believe that up until now the price of oil follows the price of gold, not the other way around even though there are serious issues of supply we discuss here. I say this because oil has been plentiful and is consumed while gold is extracted and "stored". However I would suggest that once oil shortages really begin to bite, the role between oil and gold will flip.

In the mean time, there must be the deliberate manipulation of the price of both gold and oil by the FED (indirectly of course) to keep the ratio to paper money as low as possible. Without price manipulation the ratio of paper money in circulation today (exponentially increasing) in comparison to a finite resource would be totally off the scale by now. Without price manipulation the true value of the US dollar would be exposed, and people would realise that it holds no actual value.

The stakes are high, and so is the effort to keep the lid on the price of oil. Therefore I say we'll see no more than $140 in the next 60 days...