# Oil Prices



## shnaek (19 Aug 2005)

I was just wondering what the opinion is out there about future oil prices - like in the next 6 months for example. My Dad and I are after having a long chat about it. He feels they will continue to go up, especially with the uncertainty in Iran regarding their nuclear developments. I feel they might stabalise for a while as I read that Chinas demand for oil has dropped 30% in the first two quarters of this year. What is the general view here?


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## CCOVICH (19 Aug 2005)

I read an article recently (in the Sunday Times I think) that said that prices should fall on the back of a build up in stocks.  But that view was tempered by the fact that the fear of terrorist attacks and disruption to supplies had lead the this hoarding of stocks, and that situation could continue for some time.


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## Duplex (19 Aug 2005)

All the information you could ever want on Peak Oil.


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## beattie (19 Aug 2005)

I think they will remain high for the foreseeable futue, i.e. $50+ as there look like there is always 'some' worry about disruption/terrorism. Even if consumption in China is down it won't go much lower. As wages grow their appetite for new houses/cars will only grow which means huge demand for oil. Remember their age profile is relatively young so if you subscribe to the notion that China will be the main driver of the world economy in the next 10-20 years then I can't see oil returning to the 10-30 dollar range.


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## johnwilliams (21 Aug 2005)

wait till november/ december when the us winter starts setting in and supplys start getting low there  we may be talking double what we are paying now


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## Carpenter (22 Aug 2005)

As an average domestic consumer is there any way we can "hedge" against possible future hikes in the price of heating oil?


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## CCOVICH (22 Aug 2005)

Carpenter said:
			
		

> As an average domestic consumer is there any way we can "hedge" against possible future hikes in the price of heating oil?


 
Switch to gas .


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## Carpenter (22 Aug 2005)

But is gas not going up by 25%?


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## CCOVICH (22 Aug 2005)

Yeah, I think it is.  At least the price of gas is regulated, so there is less scope for increases, and Bord Gais have to justify the case for the increase to the regulator, a situation that is probably better than being at the mercy of market sentiment and the actions of terrorists (i.e. by being dependent on oil).  

P.S.  I'm not anti-oil, or pro-gas or anything of the sort, it was the only 'smart' answer I could think of to the hedging question you posed.  I'm not aware of any hedging solution that operates in commodity markets (forwards, futures etc.) that would be available to domestic heating oil users I'm afraid.


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## demoivre (22 Aug 2005)

The interesting question to my mind is what is driving oil prices up? The general assumption is that physical  demand is driving up price but if that is the case why has the oil market been in contango for some time and why are tanker rates stalling? I believe hedge funds are behind the rise - they couldn't give a This post will be deleted if not edited to remove bad language what fair value is , it's performance they're after and as long as they are selling for more than they bought they're quids in. The whole thing seems like a huge bubble to me and like all bubbles when it bursts it could come crashing down fairly sharpish as long positions are rapidly covered. Of course the other point is .......................I could be talking complete and other horlicks


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## Carpenter (22 Aug 2005)

I had toyed with the idea of buying a second oil tank, thus "hedging" for at least 6-9 months.  When I first started buying heating oil in 1999 it cost only £200 for a 1000 litres!


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## CCOVICH (22 Aug 2005)

I had actually thought about suggesting that, but

1.  Tanks are pretty ugly things, and I would have thought that one is enough to have in the back garden.
2.  This is only a 'hedge' if prices continue to rise, i.e. if they fall you will have made a loss.

One way to 'hedge' might be to invest in the shares of oil/energy companies.  Price of oil goes up, your heating oil costs more, but your investments might have risen in value, thus 'hedging' the increase in the cost of buying oil.

But the costs etc. of this strategy would more than likely outweigh any possible upside.


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## Eurofan (24 Aug 2005)

demoivre said:
			
		

> TI believe hedge funds are behind the rise - they couldn't give a This post will be deleted if not edited to remove bad language what fair value is , it's performance they're after and as long as they are selling for more than they bought they're quids in. The whole thing seems like a huge bubble to me and like all bubbles when it bursts it could come crashing down fairly sharpish as long positions are rapidly covered.



I can't for the life of me recall where exactly but I did read something along these lines a few months ago. I must admit though I don't quite follow, could someone elaborate or link to what hedge funds are and how they could have a significant impact on oil prices? Thanks.


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## CoffeeBrew (25 Aug 2005)

Eurofan said:
			
		

> could someone elaborate or link to what hedge funds are and how they could have a significant impact on oil prices? Thanks.


 

Here's one definition (Google can provide you with many more plus additional details)

A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. 
Hedge funds are exempt from many of the rules and regulations governing other mutual funds.

What's not generally known though is that there is estimated to be $1,000bn invested worldwide in hedgefunds and as much as much as $300bn of that is administered out of Ireland. 

30pc of global hedge funds, and 60pc of all European managed hedge funds are managed out of Ireland, 

They are controversial  but they've been attracted here with incentives and over 2000 Irish jobs are involved in administering them.


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## Eurofan (25 Aug 2005)

CoffeeBrew said:
			
		

> What's not generally known though is that there is estimated to be $1,000bn invested worldwide in hedgefunds and as much as much as $300bn of that is administered out of Ireland.



Thats interesting, wasn't aware of that at all! Thanks for the info I'll have a look through Google for more.


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## dam099 (25 Aug 2005)

CoffeeBrew said:
			
		

> Here's one definition (Google can provide you with many more plus additional details)
> 
> A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives.
> Hedge funds are exempt from many of the rules and regulations governing other mutual funds.
> ...


 
Thats a good summary of what they are, as to how they influence oil prices, one of the derivatives that some of them are trading are oil futures.


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## CoffeeBrew (30 Aug 2005)

I wonder if Dan McLaughlin was reading this thread as he's now giving his views on capacity problems and the involvement of hedge funds in the price of oil:



> Traditionally, oil prices spiked at certain times of the year but then fell back again. Now it looks like the six-month and twelve-month expectation is for even higher oil prices


 
http://www.unison.ie/business/stories.php3?ca=80&si=1459139


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## demoivre (31 Aug 2005)

It will be interesting to see how global physical demand for oil is going to be affected over the coming months if prices continue to head north. Demand for oil will only be price inelastic up to a point. Remember there is also a time lag so the  70 buck a barrell price still has to feed through. How long before people stop going for the Sunday drive, start sharing cars to work, turn on the heating for an hour instead of two, switch to wood burning stoves etc. etc. There are millions  of people around the globe who could easily reduce their consumption of the black stuff if they really had to . Meanwhile supply is likely to increase over the next few years . The combined effect should be downward pressure on price.


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## CoffeeBrew (31 Aug 2005)

demoivre said:
			
		

> Meanwhile supply is likely to increase over the next few years . The combined effect should be downward pressure on price.


 
That's a _crude_ prediction !

Sorry - couldn't resist that one.


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## joe sod (31 Aug 2005)

"There are millions of people around the globe who could easily reduce their consumption of the black stuff if they really had to . Meanwhile supply is likely to increase over the next few years . The combined effect should be downward pressure on price."

That of course happened in the seventies but it was different then because prices rose because of supply restrictions OPEC, Iran etc. The supply existed to supply the demand then but was disrupted because of international politics. This time the big question can only be answered by nature not politicians, and nature only answers questions slowly. The big problem now is that oil is not being discovered in the quantities needed to satisfy the current demand even with all the advancement in technology.


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## CCOVICH (31 Aug 2005)

joe sod said:
			
		

> The supply existed to supply the demand then but was disrupted because of international politics. This time the big question can only be answered by nature not politicians, and nature only answers questions slowly. The big problem now is that oil is not being discovered in the quantities needed to satisfy the current demand even with all the advancement in technology.



That's not my understanding of the issue.  Politics (i.e. to the extent that the terror campaigns in the Middle East and elsewehere can be termed 'politics', and indeed the US intervention in the Middle East can be termed 'politics')  are playing quite a big role in the current price of oil.  And nature (as evidenced by Katrina and other recent inclement weather conditions in the  Gulf of Mexico) is also having a _negative_ effect.

I agree that there probably isn't enough oil to satisy current demand at prices _we've been used to_, but I believe that there is probably enough oil to supply us at prices lower than we have experiencing in the past six months or so.  

As mentioned above, hedge funds are having an impact, as are disruptions to supply caused by nature, as are concerns about future disruptions to supply as a result of terrorism.  The last two aren't/won't necessarily cause supplies to fall _per se_, but rather will result in delays in moving supplies from oil producing nations to consumers.


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