Crude Oil = $61
We were talking about deflation when Crude Oil hit $75 -- 2 weeks ago; This morning, we hit $61 and change:
Crude Oil via Barcharts
Monday, October 27, 2008 | 09:52 AM | Permalink
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The coming inflationary rebound will make the $140 to $60 per barrel fluctuation look like a downward blip in a flat line.
Posted by: Marcus Aurelius | Oct 27, 2008 10:01:37 AM
FWIW - Gasoline is under $2.00 a gallon here in Oklahoma.
Posted by: Jim | Oct 27, 2008 10:42:05 AM
Any Peak Oil doomers publicly eating crow out there? Like Matt Simmons, who in July ~150/barrel was beating his chest on CNBC -"It's going to go a lot higher. This is not a bubble. It's not going to collapse. Not a temporary energy spike."
Posted by: NiNM | Oct 27, 2008 10:42:37 AM
Inflationary rebound? When? Three to five years from now? We're not even close to being halfway through this deflationary cycle and money and credit is being destroyed so quickly that the Fed can't keep up, even with all acronyms they can come up with. And velocity now has also ground to a crawl.
There is no danger of inflation...unless you are Trichet and living in some strange world where you only see the past and not the present or the future. And all operations are still sterilized. And even if not totally, a little inflation now wouldn't be a bad thing. Oil is going no where for the next few quarters at least as everything slows down. And this proves that anyone that thought $160 a barrel oil was due to fundamentals had better recalibrate their economic models and thinking.
Posted by: ipodius | Oct 27, 2008 10:45:17 AM
I read recently that Russia is kaput if oil falls to and stays around $50; they'll burn through their reserves quickly. Putin may have gotten a little too big for his britches, too quickly.
Posted by: Dan | Oct 27, 2008 10:58:03 AM
The dollar has gone parabolic. The correction will be swift and radical. When? Who knows? I'd bet sooner rather than later.
Posted by: Marcus Aurelius | Oct 27, 2008 11:01:53 AM
Not understanding how a temporary (albeit drastic) price drop on excess inventory disproves the Peak Oil question. Help me out here, please. Surely you're not saying a depleting resource should show no elasticity in pricing when global GDP hits a giant pothole?
Remember that deflation has to do with money supply/credit availability. So you also have to correct for the purchasing power of the dollar now and over the next few months.
Posted by: Transor Z | Oct 27, 2008 11:03:13 AM
I'm thinking we will see oil in the $40s before we see oil in the $80s.
To all who went long above $120 and forgot to sell ..... Henk Henk Henk! Do you still worship the Theory of Boone? ("Oil supply is 85 mbpd and demand is 87 mbpd") Pardon my insensitivity, but you can't say you weren't warned. And, if you were in a position to have that kind of money to invest, you should have used about 10 cents worth of elementary economic theory and common sense to save your employer a lot of money. People like you should be fired, then humiliated.
Like I said, this will be a Wall street recession and not a main street recession. Wall street will vanish substantially in the coming months and years. Main street will start to flourish, albeit slowly at first, now that the financial parasites are going away ... many permanently. See you at Burger King. You financial geniuses, being out of work and unqualified for anything meaningful, you will be waiting on me.
I just listened to Roubini. The only flaw in his thinking is his belief that Wall street dominated Main street. This was true only in the past few years. His fatalistic predictions will be mitigated substantially by the return of affordable living. To be sure, Wall street did more damage than Al Quaida could have ever done. Main street will save it.
Posted by: dead hobo | Oct 27, 2008 11:04:16 AM
We've just got back to where we've undone the bubble effects on oil from the Aug 2007 rate cuts.
Posted by: super-anon | Oct 27, 2008 11:09:08 AM
When will the sunami of inflation take over the deflationary trough? I suspect that the market will start anticipating it in about 3-5 months.
Yep, right now collapsing credit and velocity is dominating the picture and more than offsetting the increase in money supply the Fed is using to try to offset the credit collapse.
But I think this will come back to haunt us in coming years and sort of put us in a cage where any return of velocity could bring on an inflationary nightmare.
We could see a deflationary "mini-depression" that takes us to 10% unemployment followed by another late 70s, early 80s type period that adds another 10% on top of that.
I don't think you can fix the real economy by deliberately detaching the financial system and money supply from it.
That's like trying to rescue an out of control plane by changing the instrument panel to say everything is just fine and perfectly under control.
Posted by: super-anon | Oct 27, 2008 11:14:40 AM
"Experts" calling for a coordinated rate cut of 50 bps. Bring it on!! No inflation. Please....
Posted by: Pat G. | Oct 27, 2008 11:22:10 AM
BR- Don't you think we have to give the Fed credit for sticking to their guns and staring down inflation this year?
People give Helicopter Ben a hard time but he was right on this one. He stuck to Econ 101 and the belief that its never different this time. A lot of the "smart money" got this trade very wrong.
People would be well advised to read the upcoming statement carefully. The Fed will probably end being right on a lot more things too, someday.
Posted by: Vermont Trader | Oct 27, 2008 11:23:51 AM
dead hobo,
Are you the person previously known as cinefoz?
Posted by: hpov2000 | Oct 27, 2008 11:24:17 AM
Still with wages in real terms stagnant or falling for much of a decade, and possibly because of that fact consumer debt increased, I don't see near term inflation.
There is no wage in the wage-price spiral....
Posted by: Bruce in Tennessee | Oct 27, 2008 11:27:43 AM
loading the boat here S&P futures long side.
astronomically we are going to explode to the upside today. thats a pun. my astronomical indicators tell me get long and stay long all day today. take them up scotty...woohoooo
Posted by: MsJuly | Oct 27, 2008 11:36:33 AM
Bruce in Tennessee @ 11:27:43 AM
“…I don't see near term inflation”.
No one is arguing “near term inflation”. The question for many investors is, at what point will the commodity futures market begin to anticipate the inflation? I don’t know, but the futures market will begin to sniff it out at least a year before the unsophisticated public sees it.
Posted by: DL | Oct 27, 2008 11:51:38 AM
"Monetary inflation is the term used by some economists of the monetarist tradition and Austrian economists, to differentiate direct inflation in the money supply (or debasement of the means of exchange) from price inflation which they view as a result or necessary outcome of the former. Originally "inflation" was used to refer simply to monetary inflation, whereas in present usage it often refers to price inflation.[1]" --Wikipedia
What happens when all these governmental intrusions catch up to us in real time?
Posted by: Pat G. | Oct 27, 2008 11:55:33 AM
I just find this deflationary talk interesting.
Most people around me are getting their mortgages refinanced 1 to 2 % higher. So if you're an everage Joe with a 150K mortgage anf 60K household income, that's 3K more per year or 5% of your income. Evaluations are still increasing by 15%, thus increasing muni tax bill. The electricity bill has just been increased by 10%. Many people can't even get a lease for a new car!
Well, I guess well just have to wait.
Posted by: DANM | Oct 27, 2008 12:02:46 PM
Maybe Bugget can do for gold and silver what he did for GE?
Posted by: Bob A | Oct 27, 2008 12:38:21 PM
ConcernedCitizen @ 12:09:41 PM
“Buffet is buying gold and silver...what does that tell'ya?”
Notice that Buffet writes a NY Times article telling people to buy stocks. But doesn’t tell people that he thinks inflation is coming.
Posted by: DL | Oct 27, 2008 1:02:56 PM
I don't think its cyclicality detracts from the argument for peak oil. I think any rational peak oiler would say that, yes, it's still a deep cyclical and hence subject to the business cycle; it's just that we're likely to see higher highs and higher lows until it's replaced as an energy source.
Also, we're dealing with a process that should be measured in a timeframe longer than a few months or a couple of years. Sure, we've sucked 1m bpd of aggregate demand out of the world. So now what happens when Mexico falls off the face of the earth in a few years?
I think what you'll see is that energy prices will slap a lid on any nascent economic recovery. That's a critical difference between the 1873, 1929, 1990 and lost-two-decades models for this crisis.
Also, you know things are getting grim when Buffet has to start his own Buffet rumors.
Posted by: ZackAttack | Oct 27, 2008 2:35:58 PM
"Oil is not a bubble" (Paul Krugman, June 2008). A lot of smart people got this one wrong.
I note that many people are now saying Treasuries are not a bubble. They are wrong too...
Posted by: leftback | Oct 27, 2008 3:47:33 PM
We've seen from earlier posts here that increased oil prices increased GDP substantially.
Will the lower energy costs implied by oil falling from $150 to $60 show up in GDP?
If it boosted it on the way up, it is only fair for it to destroy it on the way down. Somehow, I don't think this will happen.
Posted by: Mike Sankowski | Oct 27, 2008 4:53:12 PM
@ Mike Sankowski:
Nah, they'll make it up on volume. LOL
Posted by: Transor Z | Oct 27, 2008 5:03:08 PM
Posted by: ZackAttack | Oct 27, 2008 2:35:58 PM
Zack,
let me simplify things for you, "Peak Oil"-theory was never about the idea that Oil, because we live on a small Globe, is, ultimately, limited.
It was/is a hype/hoax pretending that the 'last drops'--like the proverbial Maxwell House commercial--of Crude were going to be wrung out, in near time, and that the Demand for Oil would be, til' the end of days, in excess of our ability to Supply..
forget about 'Deep Cyclical' revisionism, it still doesn't come close to the Reality of our Oil & Gas Reserves--Plentiful, and then some.
also, 'Peak Oil' delusions helped propel the Ethanol craze, and the Commodities 'Bull' market.
simply, 'PO' is a Purchase Order, to be paid by yor own Crudulity, for additional Control..
Posted by: Mark E Hoffer | Oct 27, 2008 6:40:55 PM
