Robert Pretcher predicted a deflated oil market back in 2009 which was covered by Business Insider (via Bloomberg). In the story, Pretcher says:
Oil should fall to between $4 and $10 a barrel based on a technical analysis called Elliott Wave principle, Prechter said in the Elliott Wave Theorist report last month. The forecast rests on a “supercycle” theory, which through a series of five waves from last century suggests a decline from last year’s peak.
…“The Elliott-Wave picture pretty much assures us that there will be no additional waves of advance to extend the ‘peak oil’ mania,” Prechter said in the report. “On the contrary, if five waves are complete from the early 1990s, oil should fall to between $4 and $10 a barrel, which, needless to say, supports our deflationary outlook.”
Can you imagine? From a peak of $147.50 the summer of 2008 down to below $10 today? The last time oil was $10 a barrel was back in 1974 and gas was 50¢ a gallon! (source) But, current oil prices are about $75 a barrel, a long way from $10/Barrel. The interesting part is that Oil SHOULD actually be around $10 a barrel today! According to a recent story by CNBC, right now we’ve got more oil reserves than we’ve ever had in recorded history. In the CNBC report,
The price of a barrel of oil would be closer to $10 if the commodity wasn’t traded as an investment instrument, given the record-high levels of U.S. oil inventories, Peter Beutel, president of Cameron Hanover, told CNBC Monday.
So, what can we predict for gas prices in the near future? According to the Bloomberg story
“Commodities may have peaked last year and the next major top may be in the late 2030s, Prechter said in the report, citing wave and cycle analyst Harry Dent, who showed a 29-year cycle in commodities, with past peaks in 1920, 1951, 1980 and 2008.”
Ok, so what does this all mean? Because it is an investment instrument, oil will continue to trade at over $70 a barrel and when we see solid economic growth in the next five years and begin to increase our demand for oil / gas, the price of a barrel will spring back to life to what Chatham House predicts will be around $200 a barrel. Why? Bloomberg says:
Crude supply will be tight when demand rebounds because national and international companies haven’t spent enough on exploration and development, Professor Paul Stevens of the London-based research group said in an e-mailed statement.
And, with an expected peak around between 2030 and 2040, I wouldn’t be surprised to see oil spike to $300 a barrel! I don’t want to be driving an oil powered vehicle when that hits… HELL! I don’t think I want to be driving a oil powered vehicle when it hits $200 a barrel! What would gas prices be? $6+ a gallon? That means an $80 fill up for the wife’s CRV and a $12 fill up for the scooter as soon as 2015? That’s not a purdy picture.
1. September 2010 at 10:15 am
Well, this is the reality for our European counterparts, and rather than whine about it, they’ve taken steps to make their lives sustainable. Gas was around $8/gallon (when adjusting for liters vs. gallons and dollars vs. euros), and every time we filled up our rental car (a tiny Yaris), we were forking over about 50-60 euros (about $70).
To be honest, I almost wish that gas prices were higher here. I realize this would be a strain on people who are already struggling, but it would inspire a complete revamp of the way we live over here. Our lives as they are lived today are simply unsustainable, and in many ways widen the gap between rich and poor. Were we to increase our use of public transport, encourage people to walk, and boost efficiency and conservation, we would all live a little better.
1. September 2010 at 10:19 am
Don’t forget all of the components and materials made from oil–plastics, chemicals, textiles, drugs, etcetera. Prices on just about everything you see at the market will go up, even before taking increased fuel and transport costs into account.
1. September 2010 at 11:06 am
(1) Technical analysis is utter and complete hokum. It is not based on statistics and has repeatedly failed to predict market performance in controlled academic studies.
(2) In as much as “hedging against future price fluctuations” is an investment instrument, I guess that investment could be holding up prices.
But I suspect that VERY little of the oil inventory is actually being held for purposes of speculation. I say that because you only hold a commodity for speculation if the price is likely to go up, and if the majority of that inventory were liquid (heh heh, I mean financially liquid), then prices would be going down and the speculators would sell. Indeed, they would sell now, and when the price went down, they would buy new inventory and get MORE oil for LESS money.
But the stored inventory is not financially liquid; companies don’t want to give it up because they’ve mapped out their supply chain conservatively and they have an internal business requirement to have X days of raw materials available in the event of a supply interruption so they can meet contractual requirements to provide fuel/plastic/benzene/whatever. It’s raw materials storage, not investment.
If you know you’re contracted to provide 100 units of something deliverable in 3 months, then you start buying raw materials early enough to meet your deadline with some conservative assumptions for supply interruption. That oil in storage isn’t an investment. It’s *committed*.
2. September 2010 at 5:02 am
If you look here you can see how expensive is Gas in Europe: http://www.spritmonitor.de/en/detail/407705.html
Those are the fuelings of my Volkswagen Vento.
Gas price is around 1.2 Euro / Liter, translated in USD/GAL is:
~ 5,9 USD / GAL
So when i fill up the tank, 10.5 GAL that is, i spent 62 USD.
And the costs for a Aprilia SR50 Replica from 2008 are here:
http://www.spritmonitor.de/en/detail/393858.html
Around $12 for a full tank of 2 GAL.
And all this is here in Romania where we earn around 300-400 USD / month. I don’t know what is the average income in the US but i guess it’s better than here.
So there in the States is PARADISE :)
So i can understand the big cars with V8 engines. People don’t care about fueling costs with 1$ / GAL :))
2. September 2010 at 5:05 am
People are waking up to the oil cartels con job and price manipulation that amounts to extortion. it will not be long when we see vehicles running on water or Tesla type technology and the oil fields will be abandoned as they will all be bankrupt if the depression that just around the corner does not hit us all first which is what i predict and i don’t need history to tell me I just look at the greed of man to show me what’s going on.
2. September 2010 at 12:44 pm
One thing the price spike of 2008 showed the oil companies is where the pain point is for most consumers. Over four bucks/gallon, people make meaningful, permanent changes in their behavior. Three bucks and change is a bargain by comparison, and about where the price of gas would’ve been anyway, had its price increased at the rate of inflation since 1975.
Unfortunately, in the present economy people aren’t going to be able to make any meaningful changes in where they live and how they get around, because that would involve spending money they don’t have, and can’t get because of newly-tightened credit markets…
2. September 2010 at 4:09 pm
Orin,
I’d agree that if you only use a car/truck making a “meaningful change” might be financially difficult. However, if you look at the used scooter market there is currently an abundance of scooters that were bought when gas prices peaked. A lot of people purchased them with good intentions, rode them a few times, and have left them parked. With finances being as they are, many are selling them off at very low prices.
Even though my primary transportation is a Suzuki Burgman 400 maxi-scooter, I still often use a Honda Elite 80 that was purchased after the owner dumped it … on each side. Although not as pretty as a new one, I got it for only $700 over a year ago. Not too bad for a 2004 model with less than 800 miles on the odometer. 15 or so full tanks of fuel for my truck would pay for the cost of the Elite and it gets well over 4 times the fuel economy of the truck. It’s cheap, reliable, fuel-efficient transportation.
Bill
3. September 2010 at 5:13 pm
High gas prices actually means good news for those of us with scooters and not only cages.
When gas got high, there were fewer Hummers, Escalades and uninsured hoopties on the road riding full bore or driving around stoned which decreased the the odds of a scooterist getting crushed.
Check out another bookmarked site:
http://lifeaftertheoilcrash.net/Index.html
for the real doomsday scenario.
ride safely,
irv
13. September 2010 at 6:07 pm
Ya, $.50….. That’s why it jumped to $3.00 a gallon today…..And I have to fill the van…..Great!!