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Price of Oil

Discussion in 'The Economy' started by Chris C, 28th Jan, 2009.

  1. Chris C

    Chris C Well-Known Member

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    I have been doing a lot of reading into Oil of late and its potential as a long term investment.

    I know investing in commodities can be a bit speculative and that the oil price has been very erratic in the last 12 months, but I still think in these troubling times investments in the most common commodities may be the safest and most lucrative investments. So I'm very interested to read what others predict for the future of oil over the next couple months and years.

    I personally am quite bullish on oil in the longer term (12 months+), though I'm very undecided about where it is going in the short term.

    Part of me thinks that it is one of those commodities whose value has dropped immensely in the last 6 months and this may be a great opportunity to get back into before to takes off again considering the fundamentals in the long term haven't changed, assuming that you believe the world isn't about to end.

    Yet another part of me says that things are likely to get much worse before they get better and despite the talk of productions cuts by OPEC many of the major oil storage facilities are reaching capacity and over supply will force prices down in the near term, making me think that I will be able to buy in a hell of lot cheaper $25 - $35 if wait a few weeks/months.

    What does everyone else think?
     
  2. Martyvee

    Martyvee Member

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    Hi ChrisC,

    I love where you're coming from with your posts, probably because I seem to think very similarly, but I think they're very stimulating for discussion from which we can all learn, good work!

    I subscribe to the Peak Oil theory, which is very real in my opinion so personally think there's a great future to oil.

    In the short term, I have no idea what will happen with prices, though I think any time you can buy under $40 you'd be doing pretty well.

    Are you buying futures contracts or shares in producers/explorers? (I own some shares in the latter). I believe, but could be wrong, that there hasn't been a supersized field discovered since the 70's (not sure about the deep sea Brazil find announced recently(?)). With oil at these low prices there is also not a lot of incentive for companies to spend great amounts on exploration, another positive for the oil price.

    In addition, the North sea has peaked and is in serious decline in production, and many other fields are apparently in a similar state. Saudi Arabia's reserves are apparently fudged, as are probably all OPEC member's reserves (they doubled overnight sometime in the 70's (or was it 80's?).

    I'd recommend "Twilight in the Desert" by Matthew Simmons, a great read on the topic.

    I'm not confident I can time my way into the market, so anytime oil prices are low, and correspondingly share prices in producers/explorers low, I'm gradually building up my portfolio in them.

    All the best,

    Regards,

    Martin
     
    Last edited by a moderator: 2nd Feb, 2009
  3. Chris C

    Chris C Well-Known Member

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    Yeah I also love discussing complicated issues with a range of informed individuals to help get greater insight and areas to research via the different opinions on the issues.

    I tend to agree with you on the Peak Oil theory, though it would it would appear that its imminence has temporarily been put on hold, given the global circumstances. With the US being by far the biggest oil consumer and, IMHO, looking more and more likely to end up going the way of the Soviet Union, in terms of bankruptcy and the devaluation of their currency placing pressure upon its ability to import its essential commodities, like oil.

    So whilst I think the threat of Peak Oil is still very real given the rapid development of China and India, I question whether it will get much attention in the next couple of years given this protracted world recession and, IMHO, likely breakdown of the US, which will likely more than offset developing nations demand.

    Yeah I'm also starting to think that the sub $40, sub $35 might be the price where you are getting a good deal in both the medium and long term.

    At this stage I would only be looking to invest in oil related companies that are traded on the ASX. Hopefully in the not too distant future some form of OIL ETF will be put on the ASX like the GOLD and other commodity ETF's that are available currently. I'd be quite interested in investing in these as a form of longer term speculation on oil.

    Sounds like a similar sort of strategy I'm planning to adopt, though I tend to think that prices on oil related stocks will be pretty good for few months yet, the world from where I'm sitting is still on a downward slope, and it would seem that OPEC's proclamations of productions cuts seem to be doing little to abate the price drops.

    My biggest fear is that Peak Oil could become more a prominent issue sooner is there are prospects of a large scale war. The world hasn't seen a big war for quite awhile, and I think at this point there seems to be a lot of finger pointing and consolidation of position going on, which I fear will result in somewhat of a power/land/resource grab. In addition to this it would appear that at this stage the playing field is leveling somewhat, which I think only gives rise to conflict.

    Russia over the last decade or two has begun to rebuild itself plus has huge reserves of oil and gas and a capable army as well; China is now a super power in its own right; the US isn't the economic superpower it once was; the Middle East whilst relatively defenseless still holds much of the world's oil resources; and the EU is a whole new beast unto itself. Very complicated geopolitical environment, and this doesn't even factor the waining power of the USD as the reserve currency of the world, which will no doubt create its own geopolitical storm.
     
  4. Chris C

    Chris C Well-Known Member

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    I was going to make a post two days ago about the Oil price about how it might be good buying again now that it has dropped below $35, which I think is a pretty damn good price to be buying in, but I popped back on today to see that it is already bounced back above $37.

    What are people's thoughts on the direction of oil in the short and medium term?
     
  5. dudek

    dudek Well-Known Member

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    For what is worth, CTX is rather showing some unusual trends in the past 2 months or so. Share price is steadily going up against the current market trend. It may indicate some future movements on oil markets. Also retail prices are going silently up indicating there may be some “inside” confidence brewing.

    Can anyone explain why we always quote oil price in US if our market is relaying on Singapore price index?
     
  6. Chris C

    Chris C Well-Known Member

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    Because USD is the reserve currency of the world.
     
  7. dudek

    dudek Well-Known Member

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    I didn’t refer to US dollar. I referred to US oil prices quoted in our media while oil companies in Australia are relaying on oil prices in Singapore not US. Both oil prices are in US dollars.
     
  8. Chris.R_WA

    Chris.R_WA Well-Known Member

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    Hi dudek,

    Oil ain't always oil...:) it has different qualities and regional availabilities.

    The prices quoted in the US market are generally Brent or WTI (West Texas International), as these are the marker crudes which most of their oil is priced off.

    You are correct that Oz price their oil off a different basis, which is usually the Tapis oil quote (a light/sweet, South-East Asian crude)

    All prices are in $USD as Chris C said.

    Rgds, Chris R
     
  9. Chris C

    Chris C Well-Known Member

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    Well it looks like the bargain basement prices for $30 - $35 are gone... I should have trusted myself and bought in :(... but that's not to say that going forward over the next few years oil may still be a screaming good buy even if the price has doubled in the last couple of months.

    What's everyone else's interpretation.
     
  10. Billv

    Billv Getting there

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    That it's currently overpriced and it should come down.

    World economies haven't really recovered to justify a higher price and
    the higher cost of petrol only delays the economic recovery.

    However, oil is linked to the US$ and as long as the US $ is losing value
    the price of oil would be increasing to compensate for the loss so with this logic it could climb up even higher.
     
  11. mlowbeer

    mlowbeer New Member

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  12. dudek

    dudek Well-Known Member

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    I said earlier CTX will go up and it did. what ever you say I am 45% ahead :)
     
  13. Chris C

    Chris C Well-Known Member

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    It was a good call on CTX.

    You may have made 45% to date, but I expect in 12 months time you will have made even more... ;)... It still looks to be a reasonable buy even after over 100% gains from its bottom.
     
  14. Martyvee

    Martyvee Member

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    Nicely done on Caltex!

    I think Caltex is a refiner, and not a producer of oil/petroleum products(?) so their profits come from their refining margins.

    I expect that to get the most benefit from rising oil prices in the future, you're best off investing in producers/explorers. What are your thoughts?

    Cheers