Why oil prices will tank

CNNmoney ^ | June 6, 2008: 8:11 AM EDT | By Shawn Tully, editor at large

[ChildOfThe60s]

NEW YORK (Fortune) -- High-flying tech stocks crashed. The roaring housing market crumbled. And oil, rest assured, will follow the same path down.

Not everyone agrees. In an echo of our most recent market frenzies, some experts pronounce that the "world has changed," and that the demand spikes, supply disruptions, and government bungling we face now will saddle us with a future of $4, $5 or even $10 a gallon gasoline.

But if you stick to basic economics, it's clear that the only question is when - not if - prices will succumb.

[rightinthemiddle]

Just like the tech stock boom of the late ‘90s, traders are buying every dip.

The reason oil is going so high is because the Market believes we are going to do NOTHING about using our own resources. Neither McCain, Obama or the Congress show any inclination to increase domestic oil production, etc.

Here’s the truth: They don’t care. They want oil high...for our “own good.” No one in power has any incentive to change things. The Left owns the issue and the Republicans are wimps.

IF we announced expanded drilling, coal-to-oil, oil shale utilization, you’d see oil cut in half.

But, nobody really cares. ‘Cept us and the naive masses.

[mysterio]

Butanol before ethanol, and biodiesel before either of them, in my opinion. I think hydrogen could be made viable, though. Remember, gasoline wasn’t viable when all we had was whale oil.

[mikeus_maximus]

Disagree.

Tech stocks crashed because they were selling air-- clicks with no tangible or market.

The housing market crashed largely because fraudulently inflated appriasals and slipshod lending practices extended credit on air.

Oil prices are high because there is a restricted supply of an essantial commodity.

[BGHater]

The world has changed. China and India can afford the gas even if we cannot. The prices will not come down for a while. Just look at how many refineries there are now.

[RogerWilko]

Here's a good start:

DRILL HERE, DRILL NOW

Sign it, sign anyone else's name and email you can think of, and send it to everyone you can think of.

Environmentalists and Congress... EAT MY SHORTS!

[griswold3]

I went to school with the grandson of Krupp. (It was during the Carter administration.) We were discussing methods his grandfather used to ‘survive’ the Nazis.

My mother never would join the party and was arrested many times. I often wondered what I would do if faced with the same circumstances. The ‘tone’ of the 2008 campaign is familiar. She said beware of those using Hate as their main motivation. She was alarmed when she heard Howard Dean say “I hate Republicans and everything they stand for” and of the BDS that is prevelant in the Democratic Party. She even told me to change parties.
You don’t need a weatherman to know which way the wind blows. As a small business owner, I only feel it’s a matter of time.

[Utah Binger]

A more conservative approach will solve the oil problem.

Keep the big gas guzzlers handy for enjoyment but stop driving them to work. Get a throwaway commuter car that gets 30 mpg.

Put as many employees as possible on “work at home online” to eliminate their commuting. If not, give them a 30 mpg throwaway car.

Be very aware of ways to use less fuel.
Shop online for everything possible and stop making unneeded
trips to the mall.

Get a motor bike or a bicycle.

Market is driven by “supply and demand”. If we can use 20-30% less, the supply goes up. And guess what? The prices will plummet.

We cannot continue to allow ourselves to be used by these greasy bastards.

[Mr. Quarterpanel]

I stopped reading when the first sentence of any story contains the words “Communist” AND “Nazi”.
It is pretty easy to figure out where this little nugget of knowledge is going.

[Red Boots]

I think hydrogen could be made viable, though

There has already been a lot of government money toward making hydrogen "viable". California had a heavily subsidized program, but even with huge tax credits, they couldn't make it viable. The last few stations shut down a few months ago. I think it's naive to think that throwing money at technologies will make them viable.

If you study the history of natural resources use; whale oil was expensive, and kerosene came onto the market as a cheaper, and better alternative, all without government funded anything. This could happen again, if governm,et would get the heck out of the way with all it's crippling regulations.

Coal gasification is already being used in China, and would likely be the most viable ( meaning : cheaper) alternative, if we could just build the damn plants.

You can thank the Environmental Defense Fund lawyers for that - they assign a lawyer to every coal plant that comes up for permitting, with the sole purpose of shutting it down.

Algae might look good on paper, but is decades away from anything even remotely practical.

[DannyTN]

Basic economics says that demand is relatively inelastic. There aren’t economical substitutes available yet. And you have a cartel not a free market setting the price.

I’m not sure how that translates to a falling price.

[CharacterCounts]

Isn't the supply of oil artificially restricted? By that I mean, supply is not restricted because of natural causes, such as difficulty in extracting oil, but by governmental fiat such as no drilling in Anwar and the Opec cartel.

As for demand, it is also artificially expanded with countries such as China subsidizing price.

When the market price of any commodity is set (at least in part) by artificial means, the elements of a bubble exist. Sooner, rather than later, cheating will begin within the oil cartel. China can't subsidize oil forever, just like banks couldn't subsidize the housing market forever. New supplies will come online, just as demand is starting to decline.

[RightWhale]

Up 11 in two days is spooky. I wonder if anybody is really home.

[CharacterCounts]

Just look at how many refineries there are

So, the number of refineries have declined over the years. What has happened to refinery capacity over the same period of time.

[ThisLittleLightofMine]

Why doesn’t the current President make an executive order....immediately?

[RedEyeJack]

The problem is that the big investment houses (Goldman Sachs) have been selling products (derivatives) will oil or oil futures as the underlying capital. They have been borrowing real capital to finance the purchases and selling them with the “promise” that as oil prices go up the value of the “investment” will rise. If anything reduces the value of the underlying “equity” (oil) there will be what is a de facto “margin call” and everyone will start dumping to cover their positions. That is what will be called a “panic” and there will be blood on the streets. What is needed is a statement that the U.S. Government will not come to the rescue of those who have chosen to play this game at the consumers expense and a tightening of regulations on how much real capital must be risked (as opposed to borrowed or “leveraged”) in making such transactions. The stage is set for a collapse. All that is needed is a spark to set it off. Think ENRON.

[Mr. Quarterpanel]

...Just look at how many refineries there now

Not sure what you mean. Most of the refineries that are gone were ones that were too small, too inefficient, and/or too specialized, and/or too old, making them too costly to upgrade.

Upgrades at existing refineries using newer technologies have double and tripled outputs of existing refineries, and allowed them to be much more flexible in products produced from the crude oil.

Otherwise, refineries could not keep up with growing demand since the downturn in refineries began in 1981.

Right now, over 30 billion dollars is being spent along the I-10 corridor on petrochemical plant upgrades. This will increase output without adding the substantial real estate required and the decade it takes to turn up new refineries.

Fewer numbers mean little unless you can show a correlation in production drop as well, and I suspect that is not the case.

[palmer]

double top. Maybe a short squeeze?

[raybbr]

Found it. The ever-present qualification:

But sooner or later the world won't keep paying those prices: Eventually, the price must fall back to the cost of that last barrel to clear the market.

Sooner or later the planet will die.

Sooner or later the war in Iraq will end.

Sooner or later....

The question is, how much damge will have been done when "later" gets here? And, will we be able to recover from it?

[palmer]

but oil is actually worth something.

About $20.

[raybbr]

Right now, over 30 billion dollars is being spent along the I-10 corridor on petrochemical plant upgrades. This will increase output without adding the substantial real estate required and the decade it takes to turn up new refineries. Fewer numbers mean little unless you can show a correlation in production drop as well, and I suspect that is not the case.

Fewer numbers also mean greater volatility in the case of breakdowns or disasters.