This kind of goes along with John’s post yesterday about gas prices. This is from an investor newsletter, so take it with that grain of salt.
In the short run, psychology and entrenched beliefs can drive a market or the price of a commodity. In the long run, the laws surrounding supply and demand win out. No current market shows that better than in the market for a barrel of oil. We at Smead Capital Management (SCM) believe today’s price of oil is driven by belief in the “Peak Oil” theory, the perception of a very long-term transition to electric/hybrids cars and Oil’s use as a trading or investment vehicle to pursue international economic growth and diversification. At SCM we think the day is coming when supply and demand take over. The folks from Cameron Hanover, led by President Peter Beutel, shared on CNBC recently why that is.
The price of a barrel of oil would be closer to $10 if the commodity wasn’t traded as an investment instrument, given the record-high levels of U.S. oil inventories, Peter Beutel, president of Cameron Hanover, told CNBC Monday. “I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn’t be anywhere near where it is,” Beutel said. “We have so much oil right now, more than we’ve had in 27 years. Why is it 27 years? Because that’s how far our records go back. It’s probably the most in 50 or 100 years,” he added. Part of the reason the price of oil is currently above $74 a barrel is because of a belief in the economic recovery, Beutel said.
[…]In his book, “The Prize”, Daniel Yergin points out that “Peak Oil” theory has popped up every ten to twenty years since oil was first discovered in Pennsylvania in 1855. Whether “it’s different this time” doesn’t matter to us because we see a dramatically quicker transition away from gasoline to electric and hybrid automobiles than the average portfolio management firm does. We believe the transition to electric/hybrid vehicles is a 10-15 year process. […] If you cut demand for gasoline by 25-50% in twenty years, you chop off the “lack of supply” argument which “Peak Oil” is all about.
From a historical perspective, Beutel pointed out that the current level of inventories is even higher than when the price of oil was below $20 a barrel. “We’ve got 50 million barrels of crude more than we had two years ago. We have 176 million of distillate,” Beutel said. “When I started in the business back in 1980 we used to think to ourselves: “Gee, we would love it if we had 140 million barrels of distillates to start the winter.”
The taxpayers money is used to finance the wars on the middle east to protect the oil. They’re only protecting those investors.
The REAL cost of a barrel oil much include cost of:
Wars (and 1000s of affiliated costs)
Foreign bases and navies
Environmental disasters (clean-up, loss of usefulness)
Health costs (and loss of productivity)
Transfer of wealth to oil producing countries
Cost of mayhem by terrorists funded with US $
Cost of mayhem cause by us “oil men” like GW Bush, T Boon Pickins and Dick Cheney
… and, of course, the eventual desolation and destruction caused by global warming.
The Oil Cartel is no different from the DeBeers Diamond Cartel !!! They BOTH FIX PRICES – WITH NO LINKAGE TO SUPPLY !!!
And if oil cost $10, electric cars wouldn’t be close to being economically competitive therefore they wouldn’t be made. So back you go to $100/barrel.
If the price of oil was TRUE, that is it included ALL of the costs in extracting/processing it, it would be much much more than it is now. The “cost” of oil should include all wars, including the latest $1 trillion + in Iraq, that only happen to protect access to oil. There’s a reason we put our entire military might behind protecting Kuwait, but didn’t lift a finger to protect Tibet. Tibet doesn’t have oil wells we use. You think George W. Bush was holding hands and kissing (literally) the Saudi’s because he’s in love with them? No, we have to kiss up to them to keep the oil flowing cheaply.
The TRUE cost of oil is more than you think.
The cost of roads is far more than gasoline taxes pay for. Gasoline is a steal at the current artificially high price. The U.S. auto companies have been selling cars and trucks at a loss — for your driving pleasure. The money you spend at Walmart helps the Chinese buy oil. The inscrutable CHICOMS add a million cars a year to their festive Bejing traffic jam.
How is this analytical article, internally contradictory but still analytical, “go along” with JDC posting a picture of a gas sign from 2 years ago?
Sadly, oil/commodities/stock market are all controlled/manipulated markets meant to allow the SUPER RICH to siphon away trillions of dollars from the poor, middle, and rich classes.
And “you” sheep/dithering idiots still take “advice” on how to “invest wisely” from pundits who think they have a “system” to beat the odds.
At least sheep think about nothing but grass which they can eat. Silly Hoomans have a lot of work to do to get to their level of self interested functionality.
Doddo, have you been taking your meds?
Do you have next of kin we can notify?
We have more oil now because oil is $75/barrel.
If oil was $10/brl we would have less.
Fancy working in the Alberta oil sands to extract $10/brl? Or deep drilling in the North Atlantic?
It’s the same with Gold, at $1200/oz suddenly there are a lot more mineable reserves than there were at $200/oz – who would have guessed
I can remember when the cost of a gallon of gas was less than a bottle of pop. Using that, gas should be $1.25 today and the recession over with. And that is one reason why “NO WE CAN’T” Obama is in trouble at the polls. He hasn’t fulfilled his promise.
NO.
We want tech advancements in the green field and all related fields in general. Just be thankful your hand in oil is still being held tightly and the grip loosening ever so slightly.
“I honestly think that if there were no investors using oil as an asset …..”
No shit! Substitute gold, diamonds, art, whatever.
Crude oil peaked in 2005. Crude + Distillates peaked in 2008 at the time the price skyrocketed.
The era of cheap oil is over.
#11 has it exactly right. Many of our current sources of oil would shut down if oil prices dropped very far. The Alberta Tar Sands can only operate at a profit if oil is $80 a barrel. There would be no need to ban deep water drilling if oil sold below $40 a barrel, because no one would bother.
Much of the “oil” used in the Eastern US is made from tar steam cleaned off grit/gravel in Canada. At less than $50 a barrel this is not profitable.
Deep water drilling is not cheap however that is where the new oil fields are.
You might want to take a look at where you can expect oil prices to go as the Chinese economy continues to expand while ours stagnates. India is doing better as well. Between those two countries you have most of the worlds population. I hope you guys like taking the bus and living in small apartments.
As these people transition to cars and trucks we are going to have to transition to scooters, mopeds, and bicycles for personal transportation.
>> bobbo,
>> Sadly, oil/commodities/stock market are all controlled/manipulated markets meant to allow the SUPER RICH to siphon away trillions of dollars from the poor, middle, and rich classes.
And, to add insult to injury, we are subsidizing the oil companies with our tax dollars!
Our dependence on oil is OUR choice.
Obama could mandate that the US government which — owns 12% of all US vehicles — will only buy fuel efficient vehicles.
But he doesn’t.
A lefty president could be a good thing, but only if he walks the walk. Instead we got a wannabee RockStar President who only talks the talk.
Both parties are a failure. Just watch whatever the so-called conservatives fail to do after they re-gain Congress. They’ll just fleece the country like the Democrats are actively doing.
“…if the commodity (crude oil) wasn’t traded as an investment instrument…”
Well, thank the financial gawds it IS traded as an investment instrument because it fattens my portfolio very nicely, thank you!!
As for the complaint of high gasoline prices, the cost of crude as it relates to gasoline prices at the pump is only significant in that our refining capacity is maxed out at 110%. IE: crude oil costs are currently the only variable with what it costs you to fill up.
If you want lower gasoline prices, build more refineries!
From the article:
“…the current level of inventories is even higher than when the price of oil was below $20 a barrel.”
Yes, and demand is quite a bit higher as well, enough higher to more than counter the increased inventory — we have more, but it won’t last as long.
#12 Grandpa:
“…Using that, gas should be $1.25 today and the recession over with. And that is one reason why “NO WE CAN’T” Obama is in trouble at the polls. He hasn’t fulfilled his promise.”
I don’t remember him promising cheap oil…