Cara's Commentary & Community Chat, Fri., Jan. 9, 2009

[7:21am ET] In a Toronto Star article [


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loannetter
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loannetter

Teamon…re: “1.) housing prices are still too high; they are roughly 3.65 times average national household income.” Would you admit that is is perhaps the income of average Americans that is not keeping up with inflation and housing? It is unlikely that folks who own property will happily devalue their investment any more than an automaker wants to pay their people according to what actual cost of living suggests is fair and equitable. I foresee a meeting in the middle. Americans made more per capita in light of costs in the 60’s than we do now. (remember getting out of… Read more »

rocinante
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rocinante

Those numbers look more like what each country needs to be selling oil at for a balanced budget. See http://www.eia.doe.gov/neic/infosheets/crudeproduc… for some costs for production.

yaba
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yaba

Hi CP, I got the cost per barrel from this post. I had to go back and look through all the posts to find it as a gesture of respect for you and a kick in the behind for me for not saving it in the first place. Cheers Submitted by Chickenpookie on Mon, 01/12/2009 – 08:55. #6225 yaba – I’m curious, where are those ($97/$62) production cost figures posted? I read somewhere Saudi production cost is much lower (~$2/bbl). oil and countries newSubmitted by EDC on Mon, 12/15/2008 – 15:53. #3041 From Gartman/Mauldin Cost-year-’00-’07-’08-’09 Venezuela-$34-$91-$94-$97 Nigeria—$32-$63-$68-$71 Iran——$18-$49-$55-$58 Saudi-Arb-$23-$49-$55-$62 Kuwait—-$11-$45-$45-$51… Read more »

Chickenpookie
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Chickenpookie

There may be a longer-term ceasefire declared today….

Chickenpookie
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Chickenpookie

yaba – I’m curious, where are those ($97/$62) production cost figures posted? I read somewhere Saudi production cost is much lower (~$2/bbl).

yaba
Guest
yaba

I saw the 60 minutes segment on oil speculation. It seemed a bit lopsided to me. It really made the oil companies look like the victims of the big banks; oil companies are involved in trading oil contracts for purely speculative purposes as well. Fundamentals are based not only on the supply and demand but also on the cost of production. If cost of producing oil in Venezuela is $97 per barrel and $62 for Saudi Arabia, $147 per barrel does not seem that out of whack, once political risk and possible disruption is factored in. Remember the threats of… Read more »

NYUGrad
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NYUGrad

but drys is rocking up 5% premarket.

Lori Smyth
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Lori Smyth

Check out the video posted on CBS aired last night regarding how speculation drove oil prices through the roof last summer. More to do will Wall Street bankers than commodity fundamentals.

Ron Sen
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Ron Sen

http://tinyurl.com/6trvjo

Open for business.

teamonfuego
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teamonfuego

I think that point is only true if they can increase production such that the additional production is making them a profit. That’s the problem. Their cost of doing business, in this case making oil, is greater than the revenues generated by selling the oil. That is why they want the price of oil up. Think of it in terms of the housing bubble. Home builders profit margins weren’t greater in 2006 than in 2004 despite housing prices rising some 20+% because the cost of doing business (i.e., the value of the land they were purchasing) went up greater than… Read more »

2nd_ave
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2nd_ave

“My view is if oil price drops, some OPEC country may have to increase production to meet their revenue goal. They need oil income; some of these countries do not have other source to earn foreign currency.”

vinod- good point…going back to Mauldin’s point, is it possible for them to lock in profits by selling futures contracts at (much) steeper prices, while storing/delaying current production at (presumable minimal) warehousing/idling costs?

szoya
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szoya

Central GoldTrust Increases Equity Offering to U.S.$38,008,005 as Underwriter Exercises its Right to Purchase Additional Units
http://tinyurl.com/75gfys

2nd_ave
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2nd_ave

David- I’m also puzzled by your Mauldin quote: “..oil is now in the steepest contango on record. That means oil is cheap today and more expensive in a few months. That is not normal.” I would think that contango (price of future delivery higher than spot price) would in fact be the normal scenario, as there are costs associated with taking delivery in the future (eg, storage costs, as well as the cost of having capital tied up in a futures contract). If he thinks “oil is going lower (and maybe much lower — can you say $1-a-gallon gas?) in… Read more »

Chickenpookie
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Chickenpookie

I thought the world’s largest oil company was GS+JPM??? They’ve got more storage capacity than Exxon? They were responsible for $145 oil this summer.

http://www.portworld.com/news/2007/07/68476

Chickenpookie
Guest
Chickenpookie

teamonfuego – I suppose the earnings estimates issue can be a bit subjective, and that would skew the resulting numbers slightly, but I think the concept is the underlying important factor: (In this case a downside indicator)

http://www.financialsense.com/Market/daily/thursda

Chickenpookie
Guest
Chickenpookie

Is the bullion premium falling? This might be indicative of lower POG?

http://tinyurl.com/7c6u5c

edit: Oh, I see someone exercised an option to purchase…

teamonfuego
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teamonfuego

chicken – not over 70% less, but yes we’re still overvalued in the context of earnings estimates. that is why i’m still short term bearish. i think we will definitely test those lows from earlier at some point because of valuations. people saying that valuations are cheap are either lying or dumb or both. the only exception to this is that at some point when we hit the bottom in earnings, the growth in earnings will be quite strong. after the bottoms in 01, ’90, the 80’s, etc…earnings for the S&P 500 grew quite rapidly. i believe they were over… Read more »

blue bluff
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blue bluff

This is of great concern to me that the E in P/E is overinflated and therefore stocks are not as cheap as commonly believed. I have switched to a capital preservation posture by initiating hedges and making only very conservative option selling trades. When the bear is finished ravaging it’s prey most people have thrown in the towel and sworn off stocks forever. Real P/E’s end up very low and dividends very high but only seasoned investors want anything to do with them. That hasn’t happened yet in spite of the prevailing historic economic calamity. There is still a lot… Read more »

Chickenpookie
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Chickenpookie

Dr. Strangelove – Yes, I knew what you were saying about 20% more fuel efficiency. But with a price that’s more than 20% higher than gasoline, and the extra cost of a diesel vehicle over a gasoline version, I couldn’t justify purchase of a diesel vehicle. This didn’t include the additional expense for oil changes.

I really liked the Countour and looked for such a car once returning home but to no avail… Started looking at the diesel P/U and couldn’t get the numbers to work.

Dr. Strangelove
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Dr. Strangelove

Chickenpookie –

Diesel is approx 20% more fuel efficient. Not referring to price differential. That old diesel you had in Belgium could run on used motor oil or restaurant grease and a little pump gas all day long. Modern diesels can’t even do that!