Wednesday, December 3, 2008

Oil and its Future.

Markets are unpredictable because people are unpredictable.

Market researchers can not promise the success of a product or service even after millions of dollars are spent in research. The future is a always a guess, though sometimes an educated one. Ask Coca-Cola (New Coke), McDonalds (Rib sandwich) and hundreds of others. A sure thing is never a sure thing.

Why? Public opinion, which generally moves slowly and somewhat predictably based on historical data, can turn instantly and move in the opposite direction. It's the effect of "critical mass" applied to large groups -- and no one knows why until it is over.

It's like watching a swarm of wasps. I think, and I emphasize think, we are observing one of those movements in energy.

Demand for oil products is dropping.

Until recently the OPEC members could bank on one thing, if they lowered oil production, prices will rise because of the demand / scarcity laws. No mas. OPEC keeps cutting production but -- prices are falling as well because the decrease in demand is faster than the decresase in the supply. It couldn't have happened to a more deserving bunch.

Everywhere one looks there is a new product that is cutting energy costs. It's hard to open a newspaper or magazine without seeing some new trend in energy savings. This last week I read about city-sponspored bicycles in European cities. A car that runs on air. ZipCar has 200,000 members who rent cars by the hour. Green is in, not just in transportation but in other sectors as well.

And I love it. Not because I am an activist on the environment, I am just tired of reading about Dubai, Saudi Arabia, and their new found riches. Every dollar we don't spend on foreign oil makes us all wealthier. I know that's a concept hard to grasp but take my word for it.

Meanwhile OPEC keeps cutting production in hopes of bolstering the falling price per barrel but to there surprise demand is still lower than production. From a recent news report:

Crude is now trading 62 per cent below the $147.27 peak reached in July this year, and has continued to decline despite Opec, the cartel of nations responsible for 40 per cent of the world's oil production, announcing plans to cut output.
The joy that brings me is immeasurable.


Anonymous said...

So being slightly conservative, what were your thoughts on the whole "Drill, Baby! Drill!" debacle...

And to back up the demand statement, my fiance and myself sold one of our 2 cars... cutting our oil usage. Yes, we use the one car more, but not nearly as often as both of us driving...

What's even more crazy to think about is the mercantile exchanges. What are the traders thinking about their futures and hedging? They live to buy low and sell high... granted they can make millions in a day (back in our high price time) but are they starting to crumble to the green movement?

You know what I'm more fearful of than carbon waste? Plastics and other containers that don't biodegrade shorter than 10,000,000 years... And yet I can't live as a consumer without hitting those walls. I have reusable bags and never ask for bags at stores unless I can't physically carry the stuff, but all the rest of the plastics... And then there's the stuff that nobody thinks about, like the "exfoliating" beads in soaps... those are plastic, yup! And they make their way to water beds where fish and other small marine life attempt to eat them.

At any rate, the book "The World Without Us" is a fantastic read...

Francis Shivone said...

I'm more enthusiastic about natural gas and alternative energies than I am about drilling for more more petroleum. The "wealth transfer" that T Boone Pickens talks about isn't rhetoric only. It is real assets, so I am hopeful that we can get away from oil dependency.

By the way, for the first time in over 30 years -- I do not own a car. Almost impossible in Texas, but in the more densely populated northeast it is a dream.

In theory, "hedging" is good for the producers of commodities, being a kind of insurance, I don't know enough about the practice to comment, but I am not naive enough to think that greed and avarice are not a part of much practice.

Always like your comments -- loved the iphone post you had.