Comments on: Oil Runup Exceeds Dot-Com Bubble

By: mxq

mxq — Sat, 14 Jun 2008 01:13:00 +0000

Anon @ 7:49

"Quite the contrary, it reflects an attitude of someone who is trying to peddle something."

You are being disingenuous. Your response is less analytical and more parapraxic in its intentions than you are willing to admit.

By: Anonymous

Anonymous — Fri, 13 Jun 2008 23:49:00 +0000

mxq,

Your comment offers yet one more example of the problem I have with the oil price bubble theorists.

You imply that what drives the investors in OGX Petroleum is emotion and not fundamentals. That's a pretty easy sale to make, which you have sucessfuly done, and I agree.

But it is your next step that gives me pause, for that step is to conflate the OGX investors with those who question the oil price bubble theory. The implication is that both are driven by emotion.

And while this might be a good rhetorical strategy--it's called setting up a straw man and then knocking him down--it does not reflect an attitude of inquiry or truth seeking. Quite the contrary, it reflects an attitude of someone who is trying to peddle something.

By: trotsky

trotsky — Fri, 13 Jun 2008 22:24:00 +0000

rising prices are in and of themselves not evidence of a ‘bubble’. contrary to internet stocks it is very difficult to judge whether a commodity’s price is or is not ‘too high’. the point is that you have no yardsticks by which to make such a measurement. oil doesn’t have a yield, it has no p/e ratio and no book value. so how do you know if it’s too expensive? maybe it was too cheap between 1980 to 1998, and is simply repricing to a more normal valuation? the only valid measure by which one can judge oil’s price are the prices of other goods, and best suited is probably real money, i.e. gold. in terms of gold, oil has indeed also become very expensive, which is a hint that the price rise won’t stick. however, this could also be resolved by gold beginning to rise faster than oil, so there is no guarantee that oil will decline to revert to a more normal real price.
note also, in the 1970’s bull market, oil rose far more than it has so far in the current one. a roughly equivalent rise in percentage terms would see oil at almost $400/bbl. – and arguably, the outlook for new supplies coming on stream was a lot better in the late 70’s than it is today. spare capacities in the industry have been whittled down to a bare minimum – after all, there had been no significant investment in bringing new supplies on stream for a very long time, and these things don’t happen overnight. meanwhile, the world’s largest oil fields, which provide a big percentage of the daily supply, are all aging and beginning to experience production declines. should therefore a large additional supply disruption occur (for example a war with Iran), the market will immediately experience a marked supply/demand deficit. all that said, the best guarantee for lower prices at some point in the future is to let prices rise until demand rationing and new supply bring it back into balance. in commodity markets the best cure for high prices are high prices!

By: mxq

mxq — Fri, 13 Jun 2008 19:46:00 +0000

Anon @ 11:03: "But hey, Dad Joiner got lucky, and maybe you will too if you listen to guys like him."

Hey, you also might get lucky if you think there is absolutely nothing wrong with 0 productive assets and a $22bn market cap.

Btw, there's also another popular oil field saying: "an oil well is nothing more than a hole in the ground that is owned by a liar."

By: Anonymous

Anonymous — Fri, 13 Jun 2008 15:03:00 +0000

☺☺"There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania," said Schork...

When I hear statements like this, I am reminded of the story of how the East Texas Field was discovered.

Dad Joiner was the promoter who drilled the Daisy Bradford No. 3, the discovery well for the enormous field. He had a geologist who worked for him called Doc Lloyd.

Lloyd took a map of the world and on it he located all the major producing oil fields that existed at the time. He then drew lines through these various fields, and the intersection of those lines he called "the apex of the apexes." That was where the Daisy Bradford No. 3 was drilled.

Schork's "analysis" and "science" is of about the same quality as that of Doc Lloyd.

But hey, Dad Joiner got lucky, and maybe you will too if you listen to guys like him.

Which brings us back to another popular oil field saying: "I'd rather be lucky than skillful any day."

By: Richard Kline

Richard Kline — Fri, 13 Jun 2008 12:06:00 +0000

The quote from Schork on historical bubbles, like other such short lists making the rounds these days, misses several which are very telling in the present circumstances re: oil. Railroad stocks twice had major bubbles, in the 1830s centered in the UK though with a concommitant bubble in nascent railroads and more in canals in the US, and a second bubble in the US in the 1870s. In both cases, there were profound _and real_ upward demand and profitability trajectories for railroads—but not at the pace and to the levels that rank mania drove speculation in their stocks in both cases. Furthermore, railroad companies where notoriously opaque and manipulative in their ownership and investment structures: no one really knew what they were buying, who controlled it, and how financially sound any layer in between was. Sound familiar in the context of Foamy Oil 2008? Both railway bubbles ended in severe crashes because they took down big chunks of the banking industries both times; I don’t expect that in the same way quite here.

Another historical comparison, and one I think better, is the boom-more-than-bubble in Argentinian wheat before the First World War. Europe had growing populations and money to throw around—i.e. surging demand—and prices for Argentinian wheat went up. Argentinians got, frankly, rich. European wealth and demand took wild gyrations in the disruptions after that war, and by the Second World War other supplies and global changes kicked the props out from under supply. Argentinian wealth got sharply downsized by WW II, and has never really recovered.

Commodity demand and supply links don’t turn around quickly, and they don’t turn around completely, but their are deflection points. And even in situations of growing absolute demand, speculative manias can, have, and do occur. I seriously doubt that oil prices are going back to double digits for any extended period until and unless techonolgical alternatives truly come online. But we could easily see oil come down by $30+ a barrel, with volatility rolls well lower, which just might shave a couple o’ hundred billion off today’s manic wheeler-dealers.

By: Melancholy Korean

Melancholy Korean — Fri, 13 Jun 2008 08:14:00 +0000

``The picture is fundamentally different than the Internet picture,'' Malkiel said in an interview from Princeton, New Jersey. ``I'm not saying we're running out of oil, but we're clearly supply-constrained. Five and 10 years from now, the price is going to be higher than $134.''

OK, I'll bite. I can accommodate the good professor, if he wishes to back his opinion up with a little wager. After all, since it's "fundamentally different" than the last great bubble, what's he have to lose?

So, 5 years from now, let's see if oil is trading above or below 134. We don't even have to adjust for inflation, which is generous of me. A dollar a point, ok? (I'm about to return to school, so no Liar's Poker stakes--this will have to be about bragging rights more than cash.)