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$56 a Barrel

Discussions about the economic and financial ramifications of PEAK OIL

$56 a Barrel

Unread postby RonMN » Wed 15 Jun 2005, 11:02:31

I've been watching the oil price fearing that $56 might be some sort of psychological barrier that when broken...could spell the beginning of much further price climbs.

Does anybody else think this or am i over reacting?
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Unread postby 0mar » Wed 15 Jun 2005, 11:06:39

Every dollar up is a psychological barrier until about 100 dollars or so. Then reality hits and it hits hard.
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Re: $56 a Barel

Unread postby stu » Wed 15 Jun 2005, 11:32:06

RonMN wrote:Does anybody else think this or am i over reacting?


Personally I think you're over reacting. Psyschological barriers are nice round numbers. $50, $60 etc. I see them say the same thing about the stock markets, e.g "Today the FTSE finished above the psychologically important 5000 mark".

When demand outstrips supply, as looks like likely this 4Q, then the market moves from being a buyers one to a sellers one and then the price gets really interesting.
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Unread postby Wildwell » Wed 15 Jun 2005, 11:36:29

$50-70 Price is a bit high isn’t it?
$80 We have a problem. Get the SUV on Ebay.
$100 Airlines, what airlines? Oil price is the No1 subject for the man in the street Major shift to efficiency, demand destruction begins to set in.
$150 Panic sets it, food prices high, rationing, financial collapse?
$200 Grab your horse and run to the hills!
$300 Might as well not bother getting out of bed and keep a big wool straight jacket on.
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Unread postby linlithgowoil » Wed 15 Jun 2005, 13:01:39

nah, $60 is where the barrier is at. once it breaches $60, it will stay there for a very short while and jump right back down again to the low $50's, before rising again to the mid $60's by year end i would say - probably going lower by early next year again - only to rise further and further with each rally.

at least its not hitting $150 overnight - this way at least we have some time.
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Unread postby FoxV » Wed 15 Jun 2005, 13:35:47

I agree that the psych barriers will be the nice round 10's and that when each barrier is broken the price will quickly drop as traders do some "profit taking"

however there two BIG barriers that are not round numbers, that will strike terror in those flat earth economists:
$65/brl - the average price of oil (in 2005 dollars) during the 70's energy crisis
$86/brl - The highest price of oil ever (in 2005 dollars)

Even the economists will be hard press to miss these "Market signals" of an energy problem (but they probably will, idiots :-x )
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Unread postby smiley » Wed 15 Jun 2005, 15:01:42

Looking at the graph I would say that the area between 55 and 58 is an important resistance, just like the area 42-44 was.

Image

When it is convincingly breached, it is going to act as a support. In effect we have then entered a new trading channel which could take us to as high as $70 oil before we meet a new resistance.

So I do believe that $56 oil is something to watch when it is passed for a couple of weeks there might not be a way back, at least not soon.
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Unread postby AirlinePilot » Wed 15 Jun 2005, 16:17:56

Look at the graphs for the last 48 months or so, even while most would agree we have not reached the peak yet, we are close. Prior to peak it has been two steps forward and one step back fairly consistently. I agree that the round numbers on the tens act as phsycological controls but only fleetingly. Especially once it becomes common knowledge that demand has outstripped the supply for the long term. After that I can see large jumps based on hysterical speculation.
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Unread postby Waterthrush » Wed 15 Jun 2005, 16:27:51

Yes, when I logged in, it gave me a turn to see only a "torn page" icon where the graph for light, sweet crude usually is on the front page. A great sense of foreboding - the graphs aren't available any more. I agree with Stu, though, round numbers are much more appealing as psychological barriers to us humans. Though, maybe Wall Street types are different. They seem to thrive on systems built around numeric bases of 8, or odd percentages, or numeric spreads. Maybe they just have calculators much more handy than I do!
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Unread postby smiley » Thu 16 Jun 2005, 12:37:44

There is a logic behind the fact that important levels are never round numbers.

Say the price is $45 and rising. Then $50 is an important psychological mark. If you're not sure that the price is going to cross that limit you will probably sell at $48 and buy back when it has crossed $50. Because if it does not cross $50 there is a good chance it will drop very fast. If your reaction time is not quick enough this will rob you from most of your profits.

So while $50 is the real boundary $48 is the important level from a trading perspective. It is the last safe exit.

In the end it is all down to psychology.
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Unread postby halfin » Thu 16 Jun 2005, 13:08:32

December crude is $58.55 at the moment. If you find the evidence convincing that it will be much higher due to winter shortages, why do you think the other market traders don't find the same evidence persuasive? Do you think they, who have thousands or millions of dollars riding on these bets, have never heard of the prospect of shortages, and that they haven't considered how supply and demand may play out over the time frame of their bet?

It always amazes me how amateurs are able to speak so confidently about future prices when professionals who spend their entire working day living and breathing this stuff don't see it the same way.
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Unread postby smiley » Thu 16 Jun 2005, 13:30:06

It always amazes me how amateurs are able to speak so confidently about future prices when professionals who spend their entire working day living and breathing this stuff don't see it the same way.


Spotting trends and important levels is easy, any amateur can do that. Predicting what will happen around these levels and in between is the difficult part. Unfortunately that's the part where you make or loose money.
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Unread postby bobcousins » Thu 16 Jun 2005, 14:54:38

halfin wrote:December crude is $58.55 at the moment. If you find the evidence convincing that it will be much higher due to winter shortages, why do you think the other market traders don't find the same evidence persuasive? Do you think they, who have thousands or millions of dollars riding on these bets, have never heard of the prospect of shortages, and that they haven't considered how supply and demand may play out over the time frame of their bet?

It always amazes me how amateurs are able to speak so confidently about future prices when professionals who spend their entire working day living and breathing this stuff don't see it the same way.


I shall print that in gold letters with a fancy blue border. Then when you are proved wrong, I shall nail it to your head.

Professionals never, ever get anything wrong? Trust me, I've worked with professionals all my life. To stay in business all you need to do is be slightly less worse than your competitors. Where does this ridiculous faith in professionals come from?
It's all downhill from here
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Unread postby MD » Thu 16 Jun 2005, 15:04:37

bobcousins wrote:Professionals never, ever get anything wrong? Trust me, I've worked with professionals all my life. To stay in business all you need to do is be slightly less worse than your competitors. Where does this ridiculous faith in professionals come from?

Agreed, I have been in the automation engineering game for 20 years. You would not belive how much project money is budgeted for screwups!

And it gets even worse in the academic world where is where I have kept my sandbox for the last three years or so.
Stop filling dumpsters, as much as you possibly can, and everything will get better.

Just think it through.
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Unread postby MD » Thu 16 Jun 2005, 15:06:37

I remember one assertion that a major investment company used a dart board predictive model very successfully. I still suspect it may have been true!
Stop filling dumpsters, as much as you possibly can, and everything will get better.

Just think it through.
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Unread postby halfin » Thu 16 Jun 2005, 23:42:47

The point is not that professionals are always right. The point is that you, many of you, look at the evidence and find it VERY LIKELY that there will be major shortages this winter that will send prices up. You are basing this not on private information - you aren't personal friends with Saudi royalty, nor do you refine gasoline for a living - but on publicly available information. Yet you find this information very convincing! You think, many of you, that it's almost a foregone conclusion that things will work out this way.

The point of the information from the futures market is that it is based on a consensus of thousands of traders who are spending every waking moment gathering every scrap of information to try to predict prices. They will do anything they can to gain even the slightest edge over their competitors. They have big bucks on the line, their savings, their livelihoods.

So the real point is this: they know everything you do, they have given it more thought and study you have, and they know more as well. And they have derived a very different conclusion than you have. How can you explain that? How can you assume that you are more likely to be right, when people who know more about the issue than you do and who spend more time thinking about it disagree?

Shouldn't that at least cause you to question your degree of conviction about what will happen? Don't you wonder, what do all those futures traders know that I don't? Or do you think you know stuff that they don't??? You're just fooling yourself if so!
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Unread postby JBinKC » Fri 17 Jun 2005, 01:57:59

CNBC did a piece on this 4 months back and supposedly the Fed uses a formula that every $10 a bbl will cause a .75% reduction in GDP.

I am not sure of the validity of it as I found it somewhat odd that they determined it would have a pure linear relationship.
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Unread postby Russian_Cowboy » Fri 17 Jun 2005, 02:03:46

halfin wrote:The point is not that professionals are always right. The point is that you, many of you, look at the evidence and find it VERY LIKELY that there will be major shortages this winter that will send prices up. You are basing this not on private information - you aren't personal friends with Saudi royalty, nor do you refine gasoline for a living - but on publicly available information. Yet you find this information very convincing! You think, many of you, that it's almost a foregone conclusion that things will work out this way.

The point of the information from the futures market is that it is based on a consensus of thousands of traders who are spending every waking moment gathering every scrap of information to try to predict prices. They will do anything they can to gain even the slightest edge over their competitors. They have big bucks on the line, their savings, their livelihoods.

So the real point is this: they know everything you do, they have given it more thought and study you have, and they know more as well. And they have derived a very different conclusion than you have. How can you explain that? How can you assume that you are more likely to be right, when people who know more about the issue than you do and who spend more time thinking about it disagree?

Shouldn't that at least cause you to question your degree of conviction about what will happen? Don't you wonder, what do all those futures traders know that I don't? Or do you think you know stuff that they don't??? You're just fooling yourself if so!


Halfin, I must disagree with you. Oil supply-demand situation is affected by zillions of factors and no trader can recognize even a significant share of these factors let alone assign weights to them. You may know a lot of insider information, but it is garbage if you do not have a model that connects this information with the future oil prices. And there is no such model, even a very crude one. You could probably train a time-series based neural net, that takes these factors as inputs, to predict future oil prices. But you can't because there is not enough historical data and the relationships between these factors and the resulting oil price change with oil depletion.
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Unread postby Raxozanne » Fri 17 Jun 2005, 02:23:13

halfin wrote:The point is not that professionals are always right. The point is that you, many of you, look at the evidence and find it VERY LIKELY that there will be major shortages this winter that will send prices up. You are basing this not on private information - you aren't personal friends with Saudi royalty, nor do you refine gasoline for a living - but on publicly available information. Yet you find this information very convincing! You think, many of you, that it's almost a foregone conclusion that things will work out this way.

The point of the information from the futures market is that it is based on a consensus of thousands of traders who are spending every waking moment gathering every scrap of information to try to predict prices. They will do anything they can to gain even the slightest edge over their competitors. They have big bucks on the line, their savings, their livelihoods.

So the real point is this: they know everything you do, they have given it more thought and study you have, and they know more as well. And they have derived a very different conclusion than you have. How can you explain that? How can you assume that you are more likely to be right, when people who know more about the issue than you do and who spend more time thinking about it disagree?

Shouldn't that at least cause you to question your degree of conviction about what will happen? Don't you wonder, what do all those futures traders know that I don't? Or do you think you know stuff that they don't??? You're just fooling yourself if so!


If these traders have all this insider information, why is it that the prices always jump around after a DOE stockpile report If they are so damn smart as you say they should have already known which way the stockpiles are heading and I should not be reading 'Shock fall in stockpiles sends prices over $54 a barrel'. Honestly in reality they don't have much a clue as we do. We here also spend alot of time looking at oil prices and supply and news etc. We are also well informed. No one is friends with Saudi Royalty anyway, they won't even let anyone audit their oil and the most they say is 'we have a ever-replenishing sea of oil' which is purely in their own interests. In fact the Iranian Oil minister publically said we were in for $60 a barrel this winter.
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