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IBDvalueinvestin (99.66)

End Recession for good "Drop Oil to $10/b

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August 30, 2010 – Comments (5)

If Oil was $10 we would save 70% off our heating and driving expenses. That savings would go directly to more consumer spending and not to buiding Mansions and Yachts of Oil Executives. 

Oil Should Be Around $10 a Barrel: Analyst

On Monday August 30, 2010, 12:57 pm EDT

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.

"I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn't be anywhere near where it is," Beutel said.

"We have so much oil right now, more than we've had in 27 years. Why is it 27 years? Because that's how far our records go back. It's probably the most in 50 or 100 years," he added.

Part of the reason the price of oil is currently above $74 (BIS: US@CL.1) a barrel is because of a belief in the economic recovery, Beutel said.

Comments by Federal Reserve Chairman Ben Bernanke over the weekend gave the commodity a boost as he signalled a willingness to support the fragile economic recovery with additional policy measures.

From a historical perspective, Beutel pointed out that the current level of inventories is even higher than when the price of oil was below $20 a barrel.

"We've got 50 million barrels of crude more than we had two years ago. We have 176 million of distillate," Beutel said. "When I started in the business back in 1980 we used to think to ourselves: "Gee, we would love it if we had 140 million barrels of distillates to start the winter."

Not all market watchers agree that the price of oil should or will go lower. Jonathan Barratt, managing director at Commodity Broking Services, told CNBC that he thinks oil will rise to between $82 and $85 a barrel.

5 Comments – Post Your Own

#1) On August 31, 2010 at 7:55 AM, mardukkorn (73.86) wrote:

You are on to something. We all ( on average) get richer if prices of houses and oil drop. We all become poorer if they rise.

 

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#2) On August 31, 2010 at 8:42 AM, NOTvuffett (< 20) wrote:

IBD,

Beutel fails to account for the fact that the production cost on much oil is  higher than $10/bbl.  I could see oil going lower but not to that level.

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#3) On August 31, 2010 at 10:23 AM, SweetMircha (93.33) wrote:

NOTvuffet, You are so right. I remember a drilling rig operator back about '92 telling me then that if Oil dropped to $13 per barrel that companies would just leave it in the ground because their cost to bring it up was higher than that.  With todays costs & overheads that $13 should be up to over $25 a barrel.

I owned and managed a motel in the oilfields areas of Alberta, Canada during those years.

The oil companies must also pay royalties to the Province of Alberta before taking their profits.

It is also NOT a renewable source. When it runs out, its gone for good. How many years do we really have left of this resource?

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#4) On August 31, 2010 at 10:49 AM, Dow3000 (< 20) wrote:

The price of oil should be what the market prices it at.  No one person knows what the price of anything should be...interest rates included.  That said, the price of oil would be much lower if we stopped destroying our currency with massive deficits and money printing (does anyone actually believe buying our own treasury debt helps the economy or creates jobs???!  if so, please use a little common sense)

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#5) On August 31, 2010 at 1:09 PM, IBDvalueinvestin (99.66) wrote:

Dow3000 thats a good comment, but you should change ur name because if the Dow goes to 3,000 majority 401k's will be 101k's

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