Oil futures contracts won't be tradeable by year end 2009.

What does that potentially do to the Simmons-Tierney Bet?

Would Tierney claim that counts as a zero price? Would Simmons claim it implies oil is much harder to get and thus much more expensive?

I suppose they'd just have to split the pot in half, I hope they're rational enough to do so.

Actually, I wish you had included the choice, "I have no freaking idea". All I have is my largely gut feeling that oil just has to bottom sometime soon and head upwards, although not to a new record. But it mostly depends on what happens to the economy.

In the absence of strong carbon taxes or gas taxes or oil import taxes, I fear that what little progress has been made so far on alternatives to fossil fuels, conservation, EVs, etc. will reverse. In fact, progress has already start reversing since SUVs/Trucks are now dominant once again in sales.

Anyway, 2008 should have humbled most of us quite a bit with respect to our ability to forecast oil prices. I think it demonstrates that just because there are a lot of big brains on TOD, their brains are not near big enough to accurately assess the complexity of what constitutes an oil price.

I think the lesson should be, although it won't be, is that we should not let the market determine oil or gas prices. Relying on the market is literally suicidal, which is also, in part, the takeaway from the financial crisis.

Despite the possible disillusionment that may occur in 2009, there is still hope because at the end of the day we have a new and bright President. There was no hope in 2008 or in any of the years preceding that going back to 2001.

Who knows? Not me. Volatility makes the "no freakin' idea" option very attractive.

However, I am betting that supply problems due to depletion and geopolitics will raise prices above the highest prices we saw this past year.

I don't think the big shots want this or are necessarily working to make it happen. In fact I guess that many people are rooting for low petroleum prices to help keep things running along. High oil prices could really hurt a lot of us as the economy continues to take water and sink.

I also guess that we are in a global crisis which will be managed from the top down by the same organizations who do this now -- WTO and World Bank and various other regional, political, and economic groups.

Our economies are managed in a very strange and ineffective way as various people and groups push this way and that with legislation, lawsuits, business schemes, and bureacratic two-steps. I guess that the militaries and NGOs have far more influence than most of us notice from day to day.

To sum up rather bluntly: I think that war will trump all other considerations this year. Even though supposedly politicians and businesses say that they oppose war, I think that most are planning for it, many will try to profit from it (as always) and many are trying to influence the eventual dividing up of the spoils of war. This will make oil much more dear.

It's almost always better to pick a price that is far away from the current price, when going out a year in any market(in a guessing game). I think oil will re-test the old high this year. However, I think it will close the year out closer to 100.00. So I chose the 100-147 category.

At the moment, only some think reflation will work and even among those most are just looking for a re-flation trade. Even future inflationists like Hugh Hendry in London, and Brynjollfsen in Calif think we keep deflating for some time before inflation appears again.

I think a much faster reflation therefore is a decent contrarian bet. Here's why: the monetary base is large enough now that even the slightest upward turn in Velocity should get things going. The action in the gold equities are a warning to the deflationists--both the near to mid-term deflationists and the hard-core structural deflationists.

The anvil that is coming for the structural deflationists, especially those who flog the Japan analog for the US, is the coming trainwreck in the US treasury market. To be sure, too many are trying to call a top there already, so, I'm not saying Treasuries melt down next week. But it's coming. It's written in the stars.

I also think risk is rising quickly for some more long-tail action in oil. This time around we could see some action in the whole price-taker/price-maker arena. Also, if we do deflate hard in the next 6 months, I think we could see a petro-state collapse, which in some cases like Nigeria would be likely to result in a production collapse.

Finally, I've also been watching the ratio of Gold to Oil over the past two weeks. That thing is in rare territory. The chances that this ratio is maintained for 2009 is pretty low, so, on that score alone oil seems fated to make more headlines in 2009.

G

I'd say somewhere between $25 and $50... so I went with the lower end of that range just to be contratian.

I'm suprised no one mentioned Mexico. I think the continued slide in Mexican production will have a big psychological effect in 2009. Unless the US economy slides a lot more than punditry is predicting the loss of Cantarel as a major supply source will revive everyone's peak oil awareness.

So my bet is over $200 just based on Mexico. Hurricanes, wars, terrorism, etc. can only add to the price.

I'll go with "new all time highs".

I just keep thinking of that Caviar article and price graph with the HUGE swings, and that while Caviar is a luxury, oil is not.

Given that pricing is in US dollars I think all time highs can be expected.

Rationale:
For the past 10 years the US has been funding its "non-negotiable way of life" through increasing amounts of debt. The "rich" western consumer has been borrowing from the "poor" eastern labourer in order to fund her purchases.


As creditor nations (China) redirect their savings into salvaging their own economies, they will have less funds to invest in US treasuries. They will likely be net sellers of treasuries.


The new administration proposes up to 1 trillion in spending to "rescue" the US economy. That requires the issue and acceptance of 1 trillion in treasuries. If all the other nations of the world are acting to repair their domestic economies then who will purchase this new debt?
Phrase this another way: "what yield will be required to attract purchasers?"
I think the required yield will be high. This high yield will have the effect of driving up the cost of money which means all debt service will cost more. Higher debt service costs will impact all US borrowing and cause further bankruptcies, defaults, and job losses. This in turn will lower confidence in the US as an investment destination and force the yield up in order to attract buyers who will shun the imploding US economy.


If no one wants to buy your debt, and you need a few trillion dollars, then your only other option is to print what you need. External investors will then demand even higher yields to compensate for the currency risk. The dollar devalues. The price of oil in dollars will skyrocket. This price rise further kneecaps the US economy with another round of bankruptcies, defaults, and job losses.


I think the future gets very ugly.

In the short-run oil has a relatively inelastic demand curve. When this is matched with a relatively inelastic supply curve, you have your answer. A moderate increase in demand, which is to be expected, will result in significantly higher prices. 2009, $80+

There are a lot of little black cygnets out there so if one shows up as a negative adult, Kattie bar the door.

Is it possible to approximate price tolerance by looking at historic oil spend as a %gdp?

OK, anyone with a sensitivity to broad generalisations please look away now.

The total amount spent on oil as a %gdp gives one clue as to what price can be supported. Unfortunately there is very little data on the influence of prolonged high prices. In 1980 and again last summer oil reached approx. 8% gdp (US) and this level does look unsustainable. For much of the 80's and 90's it was between 1% and 2% and this is clearly very cheap. We also know that economic growth can happen around 4% as this was the level in the mid-80's and early 2000's. So the US, and probably the world, can probably sustain an oil price somewhere between 4 and 8% gdp. If we shoot for 6% as maybe just sustainable then we get to a price around $120. Prices above this level are clearly possible but likely to exist only as spikes that cause demand destruction/recession.

By end 2009 I believe we will be back at 4%gdp implying $80 oil. This allows for some normalisation of the price (i.e. reversal of what is probably a speculative undershoot) and at least some influence of OPEC. So my vote is $75-100.

TW

No idea. But probably rising.

Downside risks:

• Unemployment is more severe, prolonged, and widespread than currently predicted. (Economists' models underestimated the scale of the downturn throughout 2008. I don't think that has changed.)
• NOCs pump more, as governments become desperate for income - any income. Even the belief that this is happening will be enough to depress prices, irrespective of geological and/or mechanical realities.

Upside risks:

• War - civil war/revolution, war between nation-states, or other.
• It becomes clear that Mr Simmons is right: Ghawar, and maybe other supergiant fields, are at end of life.
• Large-scale mechanical failure - cyclones, NOC neglect, whatever.
• Politicians suddenly develop the ability to manage change, and an oil tax sets a floor price. (Yeah, unlikely, I know, but we can hope ;-)

My prediction is 25-37.5 range.

And my thinking behind that is that the world economy will rebound in the first half of 2009. Resulting in higher oil prices.
Somewhere in the 75-100 range. But that growth will not be sustained and the global economy will again sink lower and oil prices will fall in the second half of 2009 back to 25-37.5 range.

I will opine that we will see extreme volitility over 2009. If the low prices continue for the first quarter, we will see tar sands, Orinico and Athabascan alike, shut in and the time to restore those will be extended, which IMHO is why they are being operated at a loss now, notwithstanding the fact that they are most likely hedged at high prices. If I am correct, the comment of 'Katie bar the door" would appear to be somewhat understated. Economic turmoil, after that shut-in, will definitely be worse than the present, even with OPEC, most notably KSA, scrambling to get that heavy/heavy sour production back up and going. If we do not have the Great Depression II at that point, we likely never will.

We will see another "New Economic Order" and we will not be at the top.

Edit: My guess as to 2009 close is the lower range around $100.

For the record, I voted for between $37.50 and $50, that is, the current price range. I see that about 80% of the voters thought the price would be higher.

I have no idea what the belief in a higher price would be based on in so far as it implies (1) some kind of economic recovery stimulating world demand OR (2) OPEC's effectiveness at setting a reasonable floor price.

I give a 5%< chance for (1) and 30%< for (2). Most people calling for recovery call say it will happen in 2010. Even then, they can't come up with any good reasons for holding this opinion. They just plucked a date from the air.

For those of you who have not seen it, read The Price Is Not Right for some thoughts on the longer term oil price.

Why predict the oil price for one day in 2009? What's so special about December 31? To quote U2: "Nothing changes, New Year's Day."

Why not predict the monthly average in December or the year-long average for 2009.

I picked no change: 37.5 - 50.

The implosion of the US-driven Financal Capital Ponzi Game (FCPG) whipsawed the oil price down to where it now lies, which is a price just as artificial as 147 was during the last year, driven as it was by speculation and war on Iran premium. IMO, the drop in demand serves to ease the pressure of decline rates; however, globally demand will rise again as countries shut out from buying on the market when prices were too high will re-enter. The same is true of this pice drop being a windfall for the airline and trucking industries, which can now lock in very low oil prices going forward for some time and thus enable airlines to continue their cheap seat marketing and causing demand to increase. The financial hindrance (letters of credit) to the global shipping industry also appears to be dissolving, which will result in incresed raw material flows that underlie the real economy. I expect a continuance of the various massive and intensive infrastructure development programs initiated in several countries--China being the most visible--which will continue to drive energy demand upward globally even as a few countries decrease their activity due to their central involvement in the FCPG; yet, by the end of 2009, I expect demand to once again increase in those countries. These primary economic issues cause me to conclude that 2009 year-end oil price will be above $100.

My guess is the prices are going to be chaotic--ie from very, very low ($30?) to very, very high (possibly as high as $250). This is in line with the predictions made by Kenneth Deffeyes (and others) that as oil supply gets limited queueing theory will rule price (for a discussion on this see Deffeyes' book "Beyond Oil", pg 31.)

I have a observation I would like a little input on: Both Mexico and Venezuela have sold most (if not all) of their 2009 oil production on the futures market. It seems to me that such a sale would make it appear there was a huge surplus of oil available (ie there was a lot more oil available to sell than buyers to buy on the futures market), thus driving price down. Comments anyone?

ps -45 F this morning here in interior Alaska...I foresee problems staying warm when oil runs out!!

I picked $25-37.50 because I don't see any real world news that will spur demand significantly. I also don't see any market wide shortages as a possibility which would also drive up price.

I think that the variables pushing price up would be the following:

1. market-wide revaluation (new bubble)
2. high inflation
3. war on a bigger scale somewhere
4. natural disaster

I think that the momentum of status quo is too strong for any of these to happen within 12 months. At this point I am more concerned with the national debt and food security than I am with oil prices. I think 2008 was a valuable lesson for people watching the oil situation. I think that oil traders are dealing in a depleting commodity like there is no tomorrow.