Not long ago we were freaking out about the price of oil. Well, I wasn't freaking out but I was beginning to become a smart shopper for gasoline in ways I hadn't since college. I certainly realized that people were freaking out. And yet I still wanted, and still do want a Hummer. Turns out you can get them cheap nowadays. Well I'll have to move quickly because the price of oil is dropping like a rock.
Now I'm certain that I have said, somewhere in this blog, that the reason 'we' are not digging for shale oil is because the fact that it is increased demand from China and India that is driving up the price, not a short supply. The contradicts the direness of the Peak Oil scenario, but it was impossible to see the black swan of $70 oil once it was over $100/bbl and rising. Well I said that shale will be economic when it is, and we can continue on a regular pace of consumption because as the price goes up we'll exploit other types. But shale seemed to be economic at the time - yet investors were hedging against a decline in demand from China. If you put up a billion to build the infrastructure for extracting oil from shale at an economic price of 90 bucks a barrel, then you have to have a lot of confidence that price will remain stable at that level or higher for a long time. Nobody had that confidence to put the money out there. Looks like they were right.
Adam Sieminski the cheif energy analyst from Deutche Bank is forecasting $50 bucks for late 2009. Average prices will be about $60 which he sees as fair value. This is a sign of weakness in the economy. OPEC has even cut production and the price of oil keeps dropping. It's not oil itself that's driving all this. This is driven by consumption. Global growth GDP is 1.2% according to Sieminski. He's saying retail prices will come down. And by the way he's saying that the meaningful number for new exploration is now around $85/bbl.
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