Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Is Oil Overvalued? Or are we just seeing temporary weakness in the Price of Crude Oil

Commodities / Crude Oil Jul 02, 2012 - 02:13 PM GMT

By: Submissions

Commodities

Best Financial Markets Analysis ArticleBy Larry Cyna:

Canadian Oil Sands Prices as an Indicator
In recent months there has been an anomaly between world oil prices and the price of oil coming out of the Canadian Oil Sands. Because of transportation issues Canadian heavy oil has been receiving less value than the world price of oil. They say that this is a temporary anomaly and perhaps it is so. But this differential is but an indication of weakness in the price of oil everywhere.


If demand for crude oil were growing rather than moderating, the differential for Canadian Oil Sands crude would be far less.

The Price of Oil Has Weakened Recently
However the price of oil everywhere in North America continues weakening – just a bit each week. From February 2012 until now, there has been a gradual but consistent weakening in price. Perhaps that hasn’t translated into cheaper gas at the pumps yet, but any chart will show a decline in the price of crude oil. This price weakening is perhaps a result of economic weakness, or more oil flowing from Iraq, or perhaps demand weakness, or seasonality. But however you wish to interpret this, oil is reaching new recent lows.

Oil is Trading at the Lowest Price of the Last Eighteen Months
Some traders see the weakness as a leading economic indicator, and as oil prices hit their lowest levels in over a year and a half, it’s a sign that global growth is facing some serious headwinds. With the fiscal cliff in the USA looming as a result of budgets constraints hitting the USA in the New Year, and persistent European troubles that never seem to go away, the energy markets seem to be confirming an inevitable economic downturn.

Yet, others see the decrease in the price of oil as a very positive sign.

A Longer Term View on the Price of Oil and the Effects
We wrote a few months ago, on the long term future price of oil. To summarize our comments, there is a revolution coming in terms of energy availability in North America.

The new Fracking methods, combined with the enormous new fields of natural gas being discovered in which for the first time, the gas is recoverable, have made gas very plentiful in North America. The “normal” pricing curve has become a thing of the past. We still have ‘experts’ calling for the recovery in the price of natural gas (read price increase) but the reality is that the price of gas has a new and lower trading range – at a price that makes the use of natural gas very economical.

Add to this the fact that there are now more oil reserves in North America than there were at the height before the Peak Oil Theory came into vogue. This does not include the ever expanding production coming from the Canadian Oil Sands.

One thing is for certain. There are massive changes coming that will affect the USA position in the world, the value of the Canadian dollar, efficiency and productivity in North America. If the price of crude oil continues to weaken, energy prices will continue to moderate, resulting in lower costs in North America and that will result in higher productivity in North America. This will make the USA much more competitive in manufacturing.

If the export of crude from the Canadian Oil Sands is at a lower price, less export dollars will be flowing back to Canada, resulting in a weaker Canadian dollar, and an increase in productivity in Canada when costs are compared to other countries. This will also mean a lowering of living standards somewhat. The changes will be significant.

The supply side of the equation of crude oil supply and demand, will be strengthening even more. The following commentary about unexpected new sources of supply coming on stream, add further to the supply side of the equation, and will further weaken prices.

The Vanishing North – The Melting of the Arctic
In the June 16, 2012 edition of “The Economist”, is a very interesting article which I urge readers to look at.

Positive Economic Effects of the Disappearance of the Arctic Ice
Some comments included in that article are pertinent to this discussion. I will quote some here – “ Arctic governments are starting to see a bonanza in the melt. The Arctic is stocked with minerals……hitherto largely inaccessible, including an estimated 30% of undiscovered reserves of natural gas and 13% of undiscovered oil reserves.”

How these so-called experts can quote percentages on “undiscovered deposits” is beyond me, but that is a subject for another day. Further quote – ” …. oil companies are flocking north…“.

The Price of Energy is About to Fall
What we have here is a long term trend that looks to change the economics of the world.

If you think that you are secure in your investments in the high dividend paying former gas and oil trusts, think about the long term effects of the dramatic increase in the supply of energy and the expected continuing drop in the cost of that energy (oil).

One Thing is Certain – The Future is Uncertain
In a short blog like this, it is not possible to examine the effects of this coming change, but let me at least mention some of the topics.

Is production of oil from the Canadian Oil Sands too expensive to compete in the new paradigm?

Is productivity in the US about to improve radically because of the lower cost of energy?

Is the diminishing flow of money to the Sheiks of the Middle East going to change the value of the US$?

Will the focus of the US military cease being on overseas oil supplies?

And many more similar questions.

The real issue, is the timing of these coming changes.

By Larry Cyna

www.cymorfund.com

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds. Larry Cyna and/or the CymorFund have positions in the shares of companies mentioned.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules