The Coming Oil Crash: Why Oil Prices Will Drop

Portfolio | January 2008 | John Cassidy

[Clemenza]

http://www.portfolio.com/views/columns/economics/2007/12/17/Why-Oil-Prices-Will-Drop

[Clemenza]

I thought that coal was around 65%, due to its abundance in the US, and the fear of American's for "nuclear power."

According to my last statement from PSE&G, I get 55% of my electricity via the nuclear power plant at Forked River. Lots of good fishing around said plant, btw.

In addition to the fact that the NIMBYs won't allow more nuclear plants to be built (they may have no choice, especially if we crack down on coal burners), a big issue we have is that so many of our nuclear plants use noncompatible components, making the maintenence of existing plants highly expensive, as basic parts often need to be customized at each plant. I know this has been a problem at Forked River for years.

[am452]

So what is the connection? Are you saying traders have raised the price out of fear that Bush will attack Iran and once he is out and a dem is in then that fear subsides? Is that what you are thinking? Just curious

I think he is refering to Bush has kept his oil buddies rolling in the dough while in office and once he leaves office he will no longer have control of the market.

[Clemenza]

Cheap dollar = commodity inflation = petrodollars, many of which are not even gained via “petrol” these days. If you want to know why sovereign funds are going on a shopping spree, just look at commodity prices, whether oil, wheat, sugar, etc., and the vast dollar reserves they are producing in Asia, the southern cone of Latin America, and the middle east.

[Carry_Okie]

Just in time to make the Democrats look good.

Why does it always seem to work this way?

[AmericaUnited]

The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel.

Story after story after story of alternative energy sources. And most of them are real, not pie-in-the-sky fiction. they will all start hitting within the next few years.

[OKIEDOC]

am452 wrote:

You are smoking crack if you think a gallon of gas will ever be $1.50 per gallon in this country ever again...does not matter who is president Republican, Democrat, Independent or looney Tune

Courtesy comment:

Depends a lot on whether the dollar continues to fall further into third world currency status.

The low dollars has been good for our economy in the short run but it also will in my opinion cause serious potential problems in the coming years.

Many economies around the world count on the dollars for a stable currency.

With the dollar falling faster than Paris Hilton's panties it can only spell trouble for both parties.

[plain talk]

I think he is refering to Bush has kept his oil buddies rolling in the dough while in office and once he leaves office he will no longer have control of the market.

I thought of that angle but then thought "naaw" a FReeper wouldn't be thinking like that. But you could be right. There is no shortage of those kind of people. Some believe in contrail conspiracies. :-)

[OKIEDOC]

The current state of the low dollar scares me and may be a ploy of the one world government crowd.

[the gillman@blacklagoon.com]

I paid 3.25 yesterday. By summer it will be 4.50.

[mamelukesabre]

I remember the gas wars of the spring of 88; I think that’s when it was. Gas briefly dipped down to 89 cents a gallon. THem were the good old days. My car got 6-8 MPG in town. I’m glad I don’t drive that thing now.

[PapaBear3625]

I’m with you. I see it going over $3.25 this summer and it will stay there, then continue to creep up more each year. The more we just pay it, the more it will continue to rise. And, there is not much we can do about it. Even if you cut your driving as much as you can, and we do by combining all our stops into just one trip and not several trips, you still are going to drive a lot of miles.

There comes a price-point where it's cheaper to use an electric car, and put up with the hassles of battery capacity, than to continue to buy so much high-price gas. And when there's a big market for high-capacity batteries, then it will be profitable to invest a lot of research money in figuring out how to make them better and cheaper

If we greatly expanded construction of nuke plants, and gutted the ways that environmentalists try to halt them, then our oil consumption would start trending down over time.

[Bigun]

It still sickens me that we still use petrol and other oil byproducts as a source of electricity, however.

Makes absolutely no sense at all does it?

If we simply stopped doing that the price of crude would drop appreciably.

[been_lurking]

I think oil prices are how W measures the strength of the economy. I think he takes care of his political friends, and his enemies are more than willing to help drive down the dollar and drive up the prices of commodities.

I remember how oil prices used to be partly blamed on hurricanes in the Gulf. No hurricanes the last two years and prices still went up.

Are you really that ignorant, or do you just pretend to be so you get more replies on public forums?

[Redbob]

There have been confident predictions of an end to the oil reserves for 50 years that I personally can recall.

[theBuckwheat]

Economist von Mises wrote that prices have two important functions: the first is well known. The second is important in its own right, and was in fact the reason the USSR collapsed: prices send signals to everyone about the value of the product in relation to similar products and in relation to the market as a whole. They also send signals about what the people involved with producing the product think about the future supply or demand about the product. Prices help people to plan and set priorities.

We are scolded by the Left about “peak oil” a concept that is as truthful about the supply of gasoline as “global warming” is as honest about climate change. But the only thing that matters is the price of fuels at the pump, for the price sends the only signal the public needs to understand.

If the price climbs too high, the public will change its behavior that affects the amount of fuel it needs to buy. It also signals investors as to what alternate fuel process is commercially viable, so as to provide a replacement source for the hydrocarbons we now get by cracking crude into diesel, jet fuel and gasoline.

If the price falls too low, the public will buy more, but there is a limit to that as other wants such as buying a new iPod start to compete for the funds previously spend on fuel.

[mysterio]

loller. We all have to drive to work and are forced to buy oil based fuels weekly. We import much of the oil from other countries, and the majority of those countries hate us. That price is going to drop precipitously if dropping precipitously means that gas will be $4 a gallon by summer.

[Grampa Dave]

Link that works:

http://www.portfolio.com/views/columns/economics/2007/12/17/Why-Oil-Prices-Will-Drop#

[RightWhale]

It’s amusing to be reading ‘The Prize’ and find most of these statements and concerns being voiced over and over in 1890, 1930, 1950, 1970, and on and on. All the alarms over shortage and glut repeat in nearly the same phrasing generation after generation. Is it the real deal this time? Sure looks that way.

[dangerdoc]

The sad fact is that we don’t have a likely replacement for petroleum to be used within our current infrastructure.

We can’t grow enough corn or even biomass to power our industry as it sits.

Nuclear power can certainly displace coal but not our liquid fuel needs, the same can be said about solar, wind, and geothermal.

Hybrid vehicles can help delay the crunch but still use liquid fuels and realistically only have moderate impact in our fuel use.

Domestic oil supplies are present and would help delay a crunch but politically, we do not seem to have the will to use them. Although, this will cause us short term pain, it may be a mixed blessing. It will leave a valuable source of raw material to our descendent's.

We have a large country and barring despotic algore clone, people will be widely dispersed and require vast amounts of fuel to move themselves and product across the country.

Our only hope to get off the petroleum for transportation use. If some of the promised technology comes through, we should see full-sized, full-range and full-powered vehicles that are run off of electricity within the next ten years. I realize many here scream and cover their ears when electric vehicles are mentioned but when you switch to electricity, you open up a world of energy sources. Suddenly, your vehicle can be nuclear powered, or solar, or wind, or coal or whatever comes down the pike.

[Clemenza]

I also agree with Professor Burton Makiel of Princeton that prices reflect all knowledge, public or non-public, about a given commodity/item/stock. What you see in terms of price is what there is, in terms of total knowledge at that time.