Meltdown

[BachQ]

crude going to $25 Dm?

Merrill Lynch: Crude Oil may Dip Below $25/bbl as Demand Drops

Prices may dip below $25 a barrel next year if the contraction spreads to China, Merrill Lynch & Co. said in a report yesterday. Oil has dropped 19 percent [during the first week in December], and is poised for its biggest percentage decline since March 2003. "We've got the U.S., U.K., Europe and Japan all in recession for the first time since World War II, and the oil market is reacting," said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $5 billion energy-company bond portfolio.

[BachQ]

crude going to $25 Dm?

Goldman Sachs: Oil will average $45/bbl for 2009 -- SINGAPORE/LONDON (Reuters) -   Goldman Sachs' energy equity research team, which predicted a crude oil spike to $200 a barrel earlier this year, slashed on Friday its 2009 forecast to just $45 as demand deteriorates.

The team led by Arjun Murti, who made waves in 2005 by calling crude's ascent to $100, also said prices would bottom out early next year and that a shift from "demand destruction" to "supply destruction" would ultimately revive oil's rally.  In a separate report, Goldman's commodities research team also cut its 2009 forecast to an average $45 and predicted world oil demand would fall by 1.7 million barrels per day (bpd) and help drive oil prices down to $30 a barrel in the first quarter. "We expect that an additional 2 million barrels per day (bpd) of OPEC supply cuts will be required in 2009, along with a 600,000 bpd reduction in Non-OPEC production, in order to rebalance the market," the team led by Jeffrey Currie wrote.

[BachQ]

crude going to $25 Dm?

CNBC guest Devina Mehra, chief strategist at First Global (Dec. 11): Oil May Crash to $10 a Barrel ---> Click here for 3 min video <--- "We tend to give too much importance as to how much [OPEC] can control ..."

[BachQ]

crude going to $25 Dm?

Below are links to Matt Simmons and Robert Hirsch explaining the price of oil and the destiny of peak oil (audio only; 55 min):

Real Player ----->  http://www.netcastdaily.com/broadcast/fsn2008-1213-2.ram

WinAmp ----->   http://www.netcastdaily.com/broadcast/fsn2008-1213-2.m3u

Windows MediaPlayer ----->   http://www.netcastdaily.com/broadcast/fsn2008-1213-2.asx

MP3 ----->  http://www.netcastdaily.com/broadcast/fsn2008-1213-2.mp3

Matt Simmons: "The [oil] industry is now panicked and is starting to unravel itself. ... It's the worst thing to happen at the worst time."

Upon interpreting the IEA's 2008 data (which was derived from 798 oil fields), Matt Simmons concluded: "The game's over. The era of cheap oil is over. ... We need to start evacuating the theater folks. ... We're going to see the problem so quickly now, that I think the game is over "

Robert Hirsch "The giant oil fields (which provide 60% of world oil) are in decline, and more and more are going into decline, and the decline rates are increasing ..."

[ezodisy]

I wish I'd gotten into the Yen when it was low.

Why think about missed chances? Sell the dollar and cash in. In some respects it's not too late to sell the pound too. Have you seen the beating it's taken in the past few days against the Swiss Franc?

CNBC guest Devina Mehra, chief strategist at First Global (Dec. 11): Oil May Crash to $10 a Barrel ---> Click here for 3 min video <--- "We tend to give too much importance as to how much [OPEC] can control ..."

haha this is crazy. Surely it has to be the equivalent of Goldman Sachs' $200 oil?

[ezodisy]

Helicopter Ben goes ZIRP, QE and More...While the Global Economy Enters Stag-Deflation

Nouriel Roubini | Dec 17, 2008

The Fed decision yesterday to cut the Fed Funds range to 0-0.25% formalized the fact that, over the last month, the Fed had already moved to a ZIRP (zero-interest-rate-policy) - as the effective Fed Funds rate was already close to zero -and started a policy of QE (quantitative easing) as its balance sheet has surged over the last few months from $800 billion to over $2 trillion. And – as discussed below – the Fed is now undertaking even more unorthodox policy actions.

These Fed policy actions are occurring while the US and the global economy is now risking a protracted bout of stag-deflation, a disease that I first discussed as early as January 2008 when I warned about the risk of a global deflation and stag-deflation. While it is now fashionable to talk about such deflationary risks – and the latest U.S. CPI figures confirm that we are entering into deflation – some of us were worrying about the coming deflation well before the mainstream – concerned with short-run and unsustainable increases in commodity prices – discovered the deflationary risks in the global economy.

It was clear to those of us that saw early on the risks of a severe US and global recession that, once that recession would emerge, deflationary rather than inflationary pressures would emerge as slack in goods markets, slack in labor markets and slack in commodity markets would emerge. So now we need to worry about stag-deflation, deflation, liquidity traps and debt deflation. Welcome to the world of stag-deflation or, as Krugman would put it, to the world of "depression economics".

So what is the outlook for the US and the global economy in 2009? And what is the likely policy response to the risks of a global stag-deflation? Let us discuss next these two questions...

The outlook for the U.S. and the global economy is now very bleak and getting worse as the global economy is experiencing its worst recession in decades. In the US, recession started last December, and will last at least 24 months until next December — the longest and deepest US recession since World War II, with the cumulative fall in GDP possibly exceeding 5 percent. In comparison the last two recessions in 1990-91 and 2001 lasted only 8 months each and in 2001 (1990-91) the cumulative fall in GDP was only 0.4% (1.3%). There is also a risk that this deep and protracted U-shaped recession (the mainstream consensus view of a V-shaped short and shallow recession is now out of the window) may morph into a more severe Japanese style L-shaped recession unless aggressive fiscal policy and recapitalization of the financial system is enacted.

The recession in other advanced economies (the euro zone, the UK, other European economies, Canada, Japan, Australia and New Zealand) started in the second quarter of this year, before the financial turmoil in September and October further aggravated the global credit crunch. This contraction has become even more severe since then. I don't expect growth in the advanced economies to recover before the end of 2009.

There is now also the beginning of a hard landing in emerging markets as the recession in advanced economies, falling commodity prices and capital flight take their toll on growth. Indeed, the world should expect a recession (growth in the -1 to-2% range) in Russia and a near recession (growth close to zero) in Brazil next year, owing to low commodity prices. There will also be a very sharp slowdown in China and India that will be the equivalent of a hard landing (growth well below potential) for these countries. In China the latest figures for electricity use, export and imports suggest that the economy is already close to the hard landing scenario of a growth rate of 5%. The deceleration of growth in China is much more rapid than expected.

Other emerging markets in Asia, Africa, Latin America and Europe will not fare better, and some may experience full-fledged financial crises. More than a dozen emerging-market economies now face severe financial pressures: Belarus, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Romania, Turkey and Ukraine in Europe; Indonesia, South Korea and Pakistan in Asia; and Argentina, Venezuela and Ecuador (a country that has just defaulted on its sovereign debt) in Latin America.

How is the policy response in the US and other countries to this risk of a global stag-deflation?

The Fed decision yesterday to cut the target for the Fed Funds rate to a 0% to 0.25% range is just underwriting what was already obvious and happening in reality: while the target Fed Funds was - until yesterday - still1% in the last few weeks - following the massive increase in liquidity by the Fed - the actual Fed Funds was already trading at a level literally close to 0%.

So the Fed just formalized what was already happening for weeks now, i.e. that the Fed Funds rate was already zero and that the Fed had already moved to quantitative and qualitative easing (QE) in the form of massive increase in the monetary base and aggressive use of monetary policy - via a range of new facilities and tools - to reduce short term and long term market rates that are stubbornly high in a sign that the credit crunch is severe and worsening.

I predicted early in 2008 that the Fed Funds rate "would be closer to 0% than to 1%" in the midst of a severe recession. Now 12 months into this severe recession (that officially started in December 2007) - a recession that will last at least another 12 months (if not, as possible, much longer) - the Fed Funds rate is already down to 0% (the beginning of the zero-interest-rate-policy or ZIRP for the US) and the Fed has moved into uncharted unorthodox monetary policy as a severe stag-deflation is taking place.

And, as predicted here over a month ago, the Fed is now committed to keep the Fed Funds rate close to zero for a long time (as a way to push lower long term Treasury yields), is purchasing agency debt and agency MBS in massive amount; and is even considering purchasing long-term Treasuries as a way to push lower long term government bond yields that are already falling sharply.

More aggressive policy actions may be undertaken by the Fed as a severe credit crunch shows no signs of relenting. In his 2002 speech on deflation the Bernanke spoke even of helicopter drops of money, monetizing fiscal deficits, and even buying equities. The latter actions have already been partially undertaken: the Fed is effectively already monetizing the US fiscal deficits as the purchase of markets assets (agency debt and MBS and other facilities) is financed with the Fed printing presses rather than the TARP program; and now with the Fed considering the purchase of long term Treasuries such monetization of deficits will be made more formal. Also, since the TARP has been turned into a program to recapitalize financial institutions (and thus boost their capital and market value) the U.S. has already effectively intervened indirectly in the equity market (by partially nationalizing a good part of the US financial system); once the Fed starts to buy the US long term Treasuries financing the TARP program this indirect Fed purchase of U.S. equities will be even more clear.

While Fed actions to reduce mortgage rates – via purchases of agency debt and agency MBS – are partially successful as long term mortgage rates are falling most of Fed purchases of private assets have been so far limited to very high grade securities. Thus, the gap between the yield on high grade commercial paper purchased by the Fed and the one that the Fed is not purchasing is sharply rising; ditto for the gap between agency MBS and private label MBS; also while long term Treasury yields are sharply falling the spread of corporate bonds – both high yield and high grade – relative to Treasuries remains huge as a sign of a severe credit crunch. Thus, as a next step the Fed may be soon forced to walk down the credit curve and start buying private short-term and long-term securities with lower credit rating. That would mean that the Fed will take on even more credit risk than is already taking on today while purchasing illiquid private assets. But desperate times lead to desperate actions by desperate policy makers.

In the rest of the world monetary and fiscal easing is also occurring as global policy makers are trying to prevent a global stag-deflation; but the policy response in most countries is more limited and constrained than the aggressive one of the US monetary and fiscal authorities.

In the Eurozone the policy response has been extremely slow. First, the ECB is behind the curve and cutting rates too little and too late. Second, the ECB has been much less creative and aggressive than the Fed in creating new facilities to unclog the liquidity and credit crunch that is becoming as severe in Europe as in the US. Third, the fiscal policy stimulus in the EU is weak: those countries that need a stimulus the most (Italy, Portugal, Greece, Spain, UK) are the ones that can afford it the least given their large fiscal deficits and debts; and those who can afford it the most – Germany – are least willing to have it. Fourth, the recapitalization of financial institutions in Europe is occurring more slowly than in the US and some of the financial firms rescue plans have been partly botched. Also, cross-border financial activities and the lack of cross-border burden sharing in the EU limit the ability of the EU to rescue large financial firms with cross-border activities. Add to this the fact that many banks in Europe are too big to fail but also too big to be rescued (large relative to the fiscal resources of their country's government). Fifth, the structural rigidities of Eurozone (labor markets in particular) may cause the Eurozone contraction to be as severe as the U.S. one even if the initial economic and financial imbalances were less severe in this region.

While the US and Japan are already into a ZIRP policy other advanced economies' central banks will in 2009 get very close to it, starting with those in Switzerland and the UK. And more unorthodox monetary policies, such as QE and the other ones adopted by the Fed, may become more popular in a number of advanced economies.

In the many emerging market economies at the risk of a financial crisis aggressive monetary easing and fiscal easing are not likely. Indeed, many of these countries start with large fiscal deficits and debt, thus requiring fiscal discipline rather than easing. Moreover, many of these countries have large stocks of foreign currency liabilities whose real value would sharply increase if easy monetary policy leads to a sharp depreciation of their currency. Thus, there is less room for monetary easing. Also, many of these countries don't have the fiscal resources to provide liquidity and capital to their financial institutions that are now facing a sudden stop of capital inflows. The international community – IMF programs, World Bank other IFIs financial support, and the Fed/ECB with their swap lines – can help countries under distress as long as they implement appropriate policy changes but the risks of outright financial crises remain in some of the weakest economies.

In China – that is now at risk of a severe hard landing - it is not clear whether the aggressive fiscal and monetary/credit easing will be able to prevent a hard landing. Can aggressive monetary/credit and fiscal policy easing prevent this hard landing? Not necessarily. First note that China has already reduced interest rates three times in the last few months and easing some credit controls. But monetary and credit policy easing may be ineffective: if capex spending by the corporate sector will start to fall sharply as the fall in next exports leads to a sharp fall in the expected return on new capital spending on exportables a reduction of interest rates and/or an easing of credit controls will make little difference to such capex spending: easing money and credit will be like pushing on a string as the overinvestment of the last few years has led to a glut of capital goods. There is indeed already evidence that but corporate loan demands have diminished sharply while commercial banks have hesitated to lend while choosing to firewall risks. The government can ease money and credit but it cannot force corporate to spend and banks to lend if loan demand is falling because of low expected returns on investment.

Could fiscal policy rescue the day and prevent a Chinese hard landing? The optimists argue yes by pointing out that fiscal deficits and public debt are low in China and that China has the resources to engineer a rapid fiscal stimulus in a short period of time. But the ability of China to implement a rapid and massive fiscal stimulus is limited for a variety of reasons. First, the combined effects of natural disasters, social strife in the West, and the Olympics have created a large hole in the central government budget this fiscal year. The Ministry of Finance may have dipped into various stabilisation funds to avoid the appearance of running a large deficit. For regional and municipal governments, the decline in turnover in local property markets has reduced the flow of fees and taxes, causing them to delay ambitious industrial development plans in some cases. Second, a hard landing in the economy and in investment would lead to a sharp increase in non-performing loans of the – still mostly public – state banks; the implicit liabilities from a serious banking problem would then add to the implicit and explicit budget deficits and public debt. Note that the poor quality of the underwriting by Chinese banks –that financed a huge overinvestment in the economy - has been hidden for the last few years by the high growth of the economy. Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high. Third, as pointed out by Michael Pettis – a leading expert of the Chinese economy – a surge in tax revenues in last 4 years has been more than matched by surge in spending so that if revenue growth diminishes/reverses it might not be easy to slow spending growth proportionately. Contingent liabilities from non-performing loans could also reduce resources available for a fiscal stimulus.

In summary, with traditional monetary policy becoming less effective, non-traditional policy tools aimed at generating greater liquidity and credit (via quantitative easing and direct central bank purchases of private illiquid assets) will become necessary in many advanced economies. And while traditional fiscal policy (government spending and tax cuts) will be pursued aggressively, non-traditional fiscal policy (expenditures to bail out financial institutions, lenders and borrowers) will also become increasingly important in these advanced economies.

In the process, the role of states and governments in economic activity will be vastly expanded. Traditionally, central banks have been the lenders of last resort, but now they are becoming the lenders of first and only resort. As banks curtail lending to each other, to other financial institutions and to the corporate sector, central banks are becoming the only lenders around.

Likewise, with household consumption and business investment collapsing, governments will soon become the spenders of first and only resort, stimulating demand and rescuing banks, firms and households.

The long-term consequences of the resulting surge in fiscal deficits are serious. If the deficits are monetized by central banks, inflation will follow the short-term deflationary pressures; if they are financed by debt, the long-term solvency of some governments may be at stake unless medium-term fiscal discipline is restored.

Nevertheless, in the short run, very aggressive monetary and fiscal policy actions — both traditional and non-traditional — must be undertaken to ensure that the inevitable stag-deflation of next year does not persist into 2010 and beyond.

[ezodisy]

well that was worth reading, more me anyway. Part about China was very informative, and this part "if they are financed by debt, the long-term solvency of some governments may be at stake unless medium-term fiscal discipline is restored" sounds dire for the UK, if I'm not misunderstanding too much.

[BachQ]

Helicopter Ben goes ZIRP, QE and More...While the Global Economy Enters Stag-Deflation

Nouriel Roubini | Dec 17, 2008

[snip]

The Fed decision yesterday to cut the target for the Fed Funds rate to a 0% to 0.25% range is just underwriting what was already obvious and happening in reality: while the target Fed Funds was - until yesterday - still1% in the last few weeks - following the massive increase in liquidity by the Fed - the actual Fed Funds was already trading at a level literally close to 0%.  So the Fed just formalized what was already happening for weeks now, i.e. that the Fed Funds rate was already zero ***

Very true.  The Fed's effective rate of interest had been hovering around zero percent (0.1%, for the most part) since Oct/Nov.  So the USA has been "effectively" ZIRPed for quite a while.

It will be interesting to see whether UK/Eurozone will go ZIRP.  I'm also curious as to how low Canada will go: to ZIRP or not to ZIRP? ... 

On the issue of UK's entering ZIRPdom, Roubini opines:

While the US and Japan are already into a ZIRP policy other advanced economies' central banks will in 2009 get very close to it, starting with those in Switzerland and the UK. And more unorthodox monetary policies, such as QE and the other ones adopted by the Fed, may become more popular in a number of advanced economies.

[BachQ]

Q: What's the best way to rid a company of unwanted toxic assets?
A: Give them to top management as year-end bonuses!

Bloomberg: Credit Suisse to Use $5 Billion of Illiquid Assets for Bonuses -- Credit Suisse Group AG's investment bank has found a new way to reduce the risk of losses from about $5 billion of its most illiquid loans and bonds: using them to pay employees' year-end bonuses. The bank will use leveraged loans and commercial mortgage-backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages... "It's monstrously clever," said Dirk Hoffman-Becking, an analyst at Sanford C. Bernstein Ltd. in London who has a "market perform" rating on Credit Suisse stock. "From a shareholders' perspective it's great because you've got rid of some of the assets and regulators will be pleased because you've organized a risk transfer." *** (continued)

Gotta love it!

[BachQ]

On 12-16-08, COMEX silver inventory was 38.2% depleted.  The following day, on 12-17-08, silver was 43.6% depleted (due to a large decrease in "registered" inventories). 



Silver has become nearly as depleted as gold.

[BachQ]

well that was worth reading, more me anyway. Part about China was very informative, and this part "if they are financed by debt, the long-term solvency of some governments may be at stake unless medium-term fiscal discipline is restored" sounds dire for the UK, if I'm not misunderstanding too much.

Restoring "fiscal discipline"?    Not a chance!

[BachQ]

crude going to $25 Dm?

My current guess is that oil will bottom below $25/bbl -- perhaps in the $17-$18/bbl range.  On Friday morning, NYMEX light sweet crude for delivery in January dipped to $33.44/bbl   -- the lowest price since April 2, 2004. 



Meanwhile, Gold fell in Asia and London, tumbling $42 from Thursday's top – and cutting this week's gains by 80% to 1.5%.

According to GoldNews:

Looking ahead to the Price of Gold in 2009, "How it will perform if the world enters a period of severe deflation is really unknown," says the Virtual Metals consultancy in London in its latest Fortis Metals Monthly.  "The historical precedents are few. During the Great Depression, the Gold Price was fixed nominally and so naturally rose. The more recent Japanese deflation was by definition regional only." But "what seems more certain," the report concludes, setting a short-term range of $760-$875, "is that when economies do recover – and need to deal with the legacy of the current monetary easing – gold should perform better as the threat of inflation returns with a vengeance."

[ezodisy]

My current guess is that oil will bottom below $25/bbl -- perhaps in the $17-$18/bbl range.  On Friday morning, NYMEX light sweet crude for delivery in January dipped to $33.44/bbl   -- the lowest price since April 2, 2004. 

bring it on. That sudden fall at the end might have had something to do with longs closing with the contract moving to Feb, which is at something like $43 now. I wouldn't mind more downside (the trend is your girlfriend). The longer it stays cheap--like $25 cheap--the more exploration will be delayed, and production cut, and reserves used, and whatever else, which is just a big red waving flag for the next bull run baby. Don't taunt the bull!!!!

[ezodisy]

Meanwhile, Gold fell in Asia and London, tumbling $42 from Thursday's top – and cutting this week's gains by 80% to 1.5%.

According to GoldNews:

I'm not yet convinced that it's on the way up. Before that Fed news earlier in the week, it seemed on the verge of collapsing at the 830-840$ resistance. Well it's back there now, $838, and if the rally is on and genuine then it'll have to find support here, which I don't think'll happen. Missed the new Fekete piece until now:

The key to understanding the present upheaval in the world economy and the relevance of backwardation to it is that, regardless of official propaganda, gold circulation (such as it is) never ceased to be an important part of the world's trading system. Backwardation means that gold circulation is stopped in its tracks, which is deflationary in the extreme, greatly contributing to the contraction of world trade.

Backwardation in gold causes, and is caused by, the cascading contraction of world trade. It is preposterous to suggest that no special event triggered the backwardation in gold last November. The special event was the onset of Great Depression II, just as sabotaging the gold standard by Britain on September 1, 1931, heralded the onset of Great Depression I.

The father of backward thinking on backwardation is undoubtedly John Maynard Keynes.

[BachQ]

Ambrose Evans-Pritchard (UK Telegraph): Germany is already collapsing -- The German economy is on the "brink of the abyss", says the IMK institute in Dusseldorf. The country's GDP could contract by 3.5% next year.

Carsten Brzeski, ING's Europe economist, said Germany's fourth quarter will "very likely make history as the worst collapse of the German industry ever. One thing is evident: The current downturn could behave like a rock that threatens to roll down a hill. Once the boulder has gained momentum, it will simply mow down everything in its path. It should be stopped in time."

[BachQ]

U.S. debt approaches insolvency; Chinese currency reserves at risk --  Milan (AsiaNews) 19 Dec 2008- In a few months, America's public debt has grown to more than 100% of GDP. Fear of a valuation crisis for the dollar, with tremendous consequences for Asian countries, major exporters to the United States.

[NOTE: According to a study by the IMF, countries with more than 60% of their public debt held by nonresident foreigners run a high risk of currency crisis and insolvency, or debt default. In 2007, 61.82% of America's public debt was held by foreign investors, most of them Asian].

In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days (Nov. 25, 2008), the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.

US Debt has swelled to 184% of GDP

In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP (gross domestic product) of 13.811 trillion dollars. Public debt in 2007 was therefore 76.75% of GDP. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security). By way of comparison, the Maastricht accords require member states of the EU to reduce their public debt to no more than 60% of GDP. Again by way of comparison, in one of the EU countries with the largest public debt, Italy, public debt in 2007 was equal to 104% of GDP.

Private debt has swelled to over 100% of GDP

Families and businesses are also deeply in debt: in 2007, American private debt was equal to a little more than 100% of GDP.

Asia is VERY WORRIED

In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar. After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them. Chinese monetary authorities, thanks to a steeply undervalued artificial exchange rate, by about 55%, have limited imports (including food) and have achieved an export surplus. This has allowed them to accumulate a large stockpile of dollar reserves. In a currency crisis, China risks losing much of the value of its accumulated currency reserves. (continued)

[BachQ]

crude going to $25 Dm?

... "[Once oil falls] below $38, we don't see anything until the $25 level," said Edward Meir, an analyst at MF Global. "This is admittedly a rather dramatic set of chart-based forecasts for a complex that only six months ago looked like it could do no wrong on the upside."... "There are doubts among market participants of OPEC's ability to comply with these cuts given the magnitude of the cut and their previous history," said Nimit Khamar, an analyst at Sucden Financial. ... "If prices slide toward $30, no doubt OPEC will be meeting before [its next scheduled meeting on March 15 in Vienna] and perhaps announcing further cuts, which will be required in our opinion," Khamar said.

[BachQ]

crude going to $25 Dm?

J.P. Morgan cuts oil price forecast

Strategists at J.P. Morgan slashed their forecast for oil prices in 2009 to $43 a barrel from $69 a barrel, citing "the ongoing deterioration in the world economic environment and the ensuing sharp contraction in global oil demand in both 2008 and 2009."

[BachQ]

The longer it stays cheap--like $25 cheap--the more exploration will be delayed, and production cut, and reserves used, and whatever else, which is just a big red waving flag for the next bull run baby. Don't taunt the bull!!!!

Ezodisy, you raise some important issues.  First, although oil seems super-cheap at $33/bbl, it's still 50% above the price as when Dubya became President in 2001. Thus, there is substantial room for oil to go even lower. 

Second, when oil is priced so cheap that it diffuses efforts toward conservation and alternative energy, that catalyzes a very pernicious downward sprial of disinvestment and non-conservation, as consumers will once again purchase gas guzzling Hummers, and high-tech companies will once again refrain from investing in green energy.  Taken to the extreme, if Western economies undergo a "deflationary depression" (which seems quite possible, if not highly likely), then commodity prices will likely deflate to abnormally low levels (e.g., oil @ $18/bbl), which will kill off most longterm investments in alternative energy, and eviscerate most incentives to conserve. 

Third, and most troubling, given that we are amid peak oil, with oil being pissed away at such bargain prices, and with the infrastructures supporting alternative fuels being eroded, the end result of peak oil will be many orders of magnitude more catastrophic than if oil were priced sufficiently high so as to optimize investments in green energy, and maximize efforts toward conservation.  High oil prices are the optimal free-market mechanism for allocating scarce resources.  That market mechanism is now broken.  Moreover, with bargain-basement oil prices, oil companies will refrain from investing in necessary infrastructure enhancements and upgrades for current and future oil fields/ oil rigs, further worsening the longterm effects of peak oil.

[ezodisy]

First, although oil seems super-cheap at $33/bbl, it's still 50% above the price as when Dubya became President in 2001. Thus, there is substantial room for oil to go even lower. 

When Dubya became president the bull run was already underway.



Maybe it'll go to the mid or high 20s, maybe to 20, maybe lower, it doesn't really matter, it could even go to $1, the point is that the bull run for crude continues and will continue for many years to come and that prices will eventually exceed what we saw over the summer. Oil is still one of the cheapest things going -- even at $147 it was still one of the cheaper things around. Hugh Hendry gave a good example of this in that radio interview I posted: fitting 5 people into a gas-guzzling jeep and paying only 7p a mile (something like that) and comparing it to the price he'd have to pay for one of those rickshaw drivers in Soho to cover the same distance for the same number of people. It sounds silly but is true, and he points out that deflation and the credit crunch are just sowing the seeds for the next bull run ($400, $500 prices possibly, "next decade"). I bet he's right.

Second, when oil is priced so cheap that it diffuses efforts toward conservation and alternative energy, that catalyzes a very pernicious downward sprial of disinvestment and non-conservation, as consumers will once again purchase gas guzzling Hummers, and high-tech companies will once again refrain from investing in green energy.  Taken to the extreme, if Western economies undergo a "deflationary depression" (which seems quite possible, if not highly likely), then commodity prices will likely deflate to abnormally low levels (e.g., oil @ $18/bbl), which will kill off most longterm investments in alternative energy, and eviscerate most incentives to conserve. 

Third, and most troubling, given that we are amid peak oil, with oil being pissed away at such bargain prices, and with the infrastructures supporting alternative fuels being eroded, the end result of peak oil will be many orders of magnitude more catastrophic than if oil were priced sufficiently high so as to optimize investments in green energy, and maximize efforts toward conservation.  High oil prices are the optimal free-market mechanism for allocating scarce resources.  That market mechanism is now broken.  Moreover, with bargain-basement oil prices, oil companies will refrain from investing in necessary infrastructure enhancements and upgrades for current and future oil fields/ oil rigs, further worsening the longterm effects of peak oil.

That was very good. You don't perchance write for oilbarrel.com or some other company, do you?