Friday, October 10, 2008

The market is falling! Hurrah!

It's been a great week. The market price of oil has been falling:
The stunning collapse in oil markets accelerated Friday, with a barrel plunging below $78 as investors grow more pessimistic about a mushrooming global economic crisis.

A barrel of oil hasn't been this cheap in 13 months — a rare silver lining for consumers amid a rapidly imploding financial landscape.
What, no one cares about the price of oil anymore?


  1. Demand destruction created the current dip in oil prices.

    It will top $150 per barrel in the next 13 months.

    OPEC has stated publicly that they will raise production to lower prices before they start raising prices again.

  2. The price today isn't of a lot of interest to me. The 800-lb gorilla in the room is the fact that in future years there will be less oil available for us to consume as we currently have today.

    Thus as the economy begins to recover, demand will again climb and prices will again spike, which would short circuit any sort of recovery.

    Some have argued that economic growth and development is dependent upon supplies of cheap energy.

  3. How about the price of natural gas? The northern hemisphere of the planet (where the bulk of the planet's population resides) is entering Winter.

    As people following our energy situation are aware, many if not most energy stocks are down 60-70% or more from their summer highs. In a bizarre but not completely surprising announcement after the close (we knew someone was liquidating), Chesapeake, (the US largest natural gas producer) CEO Aubrey McClendon has involuntarily been liquidated out of his rougly 30,000,000 remaining shares of CHK in the past 3 days due to margin calls. CHK, which in July was over $70 per share, hit as low as $11.99 today, and then had a 38% rally to close at $16.52 on 5 times normal volume. We don't typically comment on individual stocks or price movements on TOD but this and related NG stock developments could have a significant impact on the industry's future - CHK and XTO in addition to being top 2 gas producers also operate over 12% of our nat gas rigs. In addition to McClendons margin call, Chesapeake also announced further reductions in capex budgets going forward which means lower natural gas production, and thus higher prices, ceteris paribus. To make things more complicated, the majority of complicated financial hedges undertaken by CHK, are at Morgan Stanley, which fell to single digits today, (but is rumoured to be being bought out by Citi tonight after the close). This is all very good news for natural gas prices but bad news for the North American energy situation.