OK, I'll finally spew positives on energy prices

Discussion in 'The BS Topic' started by Rick WI, Dec 5, 2008.

  1. Rick WI

    Rick WI Veteran Member

    Messages:
    10,400
    Likes Received:
    1
    Joined:
    Jul 9, 2001
    Location:
    Madison, WI
    Late in July/Aug timeframe I sent a daily update to my customers on the then current energy market which had come off it's highs of the summer. Remember 147 oil and natural gas at 14 per million BTU. There were signs of finacial meltdown not of the magnitude we now see but with a select few who were clearly and heavily upside down on their finacial positions. The economy also showed some low luster as well. I indicated at that time energy pricing likely had some more downside and oil below 100 looked likely and 90, I'd have to look back at my charts but crude was generally in the 120ish range. I also said natural gas would go below 10 bucks and 8 would be a reasonable hedge for the winter. The hangman I put on this was the economy. I said something to the effect that a further slowdown in the economy would put crude below 90 and natural gas in the 7/mmbtu range. That, at the time I thought would be a steal relative to natural gas cost. I indcated also that a total meltdown of the economy would see crude in the 50 range and natural gas in the 5/mmbtu range.

    Well holy cow, total meltdown of the economy, customers are closing plants, I call to talk to a Controller or Purchasing Manager and within a week of talking to them last they have been laid off and it just seems to be getting worse and worse out there.

    On to the good news, relative to oil............

    Charting of crude oil for this week appears likely to support a close below 49/bbl, well below in fact. Current pricing is 44. Technical analysis points to 30/bbl crude next week, all things being equal and no solid support for pricing until 25 freaking dollars per barrel. 25 bucks................ That is simply amazing, unreal and I might add a good futures position to take???????

    Speculation aside, or speculation upfront, shows a lot of buyers of crude oil on the speculative side of the business. NOT speculative with paper money but speculative with physical product. Players are literally buying crude product, leasing 2 million barrel tankers and floating them at sea as storage. Hmmmmmm....good or bad idea.....only time will tell.

    Natural gas tonight had slipped solid under 6/mmbtu and trading $5.88. Utility customers won't see the total benefit as utilities have stored much of their winter supply underground with summertime priced gas, well over $10.00/mmbtu average cost.

    I hedged a lot of customers 50% this past August in the $8.00 range with the remaining volumes left to purchase off the spot market, in other words at current pricing. Will seriously consider hedging more gas for these customers over the coming week(s) long term.

    We are getting to and past in many cases, price levels that are well, well below replacement cost. Oil and gas wells go dry, production declines without drilling for more. Drilling is slowing down and will likely slow down very hard over the coming months. Can't drill at $80 per barrel cost and expect to make it up on volume with $40 or $30 crude pricing. Same with natural gas costs. On top of that credit is almost non-existant for the smaller players. So even if they did want to drill, they could not get the cash to do so.

    There is a picture buried in all this. The cure for low prices is low prices and the cure for high prices is high prices. Econ 101 AGAIN proves correct on the later and will prove correct on the former.

    Short term, we could see gas pricing close to a $1.00 in some locations IF crude slides into the $20's AND demand does not creep up. Gasoline did show a slight increase in consumption in this past week's inventory report but 1 week does not make a trend. That data point though did get noticed in the market.

    The economy though is driving the energy market and from the bright side of things every report (Friday's job report won't likely do the market any favors) that shows a worse economy will take energy pricing down with it. Even high consumers like Japan are cutting way back on crude imports.

    OPEC will act at their mid month meeting and cut supply, no doubt about it. The question though is can OPEC stick with the cuts or will low pricing cause OPEC partners to overproduce just to get cashflow.

    How will these low prices affect Venz., and Iran? they need cashflow and soon the natives will get angry. China is loaded with cash so they won't feel too much pain I suspect.

    If we can keep consumption in check we will see some seriously cheap gasoline costs. It would be amazing if we went from $4.00+ in Summer 08 to $0.99 in Jan 09. Nothing else compares to that. Totally crazy. :screwup:
     
  2. ZS10

    ZS10 Moderator Staff Member Lifetime Gold Member

    Messages:
    12,166
    Likes Received:
    5
    Joined:
    Jan 18, 2003
    Location:
    BC, Canada
    Is there actually any place that has a cost of production of $80/bbl?

    Last I remember even our oil sands were well under $30
     
  3. muscl car

    muscl car Veteran Member Lifetime Gold Member

    Messages:
    23,103
    Likes Received:
    1,592
    Joined:
    Jul 8, 2001
    Location:
    SoCal High Desert
    cool gas prices nearing late 70's prices !!!!!!!:) :) :)
     
  4. jdove

    jdove Veteran Member Lifetime Gold Member

    Messages:
    3,264
    Likes Received:
    3
    Joined:
    Oct 19, 2002
    Location:
    Chattanooga,TN
    Thanks for the awesome "as usual" report RICK!

    If one had substantial funds one could invest in said market and "hold on" for 6-8 months and make some serious crude, I mean money no? Or, would it take longer? Like until hurricane season comes around?:eek:
     
  5. grasmo

    grasmo Veteran Member

    Messages:
    893
    Likes Received:
    0
    Joined:
    Dec 21, 2005
    Location:
    tallahassee, fl
    good post rick but i'm just not so sure that these level of prices is positive. it scares me that the fact that after 5 yrs. of record price increases of oil, that the producers were not able to expand output enough to meet demand. and now like you say, producers not able to produce, new projects being put on hold or even shut down, new tech. abandoned, etc. because of the low prices, what's it gonna be like when the global economy bounces back and everyone starts to get on that crack pipe again? i feel like we'll be even further behind next time. maybe $250/bl. possibly within just a few yrs. what do you think?
     
  6. rickcact

    rickcact Veteran Member Lifetime Gold Member

    Messages:
    773
    Likes Received:
    1
    Joined:
    Jan 16, 2004
    Location:
    Thompson Ct. USA

    Is there an actual oil stock you can buy into, or do you buy stock in the oil companies?
     
  7. grasmo

    grasmo Veteran Member

    Messages:
    893
    Likes Received:
    0
    Joined:
    Dec 21, 2005
    Location:
    tallahassee, fl
    depends on what you want to purchase. stocks for companies and futures for the product.
     
  8. rickcact

    rickcact Veteran Member Lifetime Gold Member

    Messages:
    773
    Likes Received:
    1
    Joined:
    Jan 16, 2004
    Location:
    Thompson Ct. USA
    That was the word I was looking for- futures. How do you go abouts buying them?

    Rick
     
  9. grasmo

    grasmo Veteran Member

    Messages:
    893
    Likes Received:
    0
    Joined:
    Dec 21, 2005
    Location:
    tallahassee, fl
    if you purchase yourself, you can open-up a ordinary online trading account. if not, look for a reputable commodities broker. the thing about futures is the minimum investment. it's generally about 10k. i've seen some that will open you for 5k.
     
  10. green 1977

    green 1977 Veteran Member Lifetime Gold Member

    Messages:
    3,845
    Likes Received:
    143
    Joined:
    Aug 18, 2003
    Location:
    On Wisconsin!
    Great news Rick!!!
     

Share This Page