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Here are the real facts on oil, from the International Energy Agency, the world’s foremost authority:
http://changealley.blogspot.com/2009/01/unhot-commodities.html
As I say, the danger with oil is in receiving second-hand or derivative information, coming from outdated sources. As you see in the link, the unreported story about production “falling off a cliff” went unreported because it isn’t true.
In fact, I notice that Jim Rogers and Marc Faber aren’t talking up crude oil the way they were a few years ago. They opine more on agriculture now, for good reasons.
Nic,
production and supply are two different things. supply is up due to demand destruction. production is also down. what is more alarming long term are the major operations that have been postponed due to the price fall.
further, most productions cuts have been very recent and will not show up until Q4 2008 and Q1 2009 #’s are released.
there is oil that cannot be got for less than $30 a barrel. those project are now on indefinite hold.
For the non-OPEC figures, production is up, according to the International Energy Agency. Yet it is true that OPEC transparency is a major concern, and the longer-term ramifications as a result of the economic/credit collapse will certainly come home to roost.
I don’t argue that the bull market in oil is over. But I do believe that the bull market might be tempered for a longer time than many people currently expect.
The 1970s are a perfect example of how the oil market can whipsaw, and stay depressed right through bullish fundamentals. In fact, the same thing happened with gold prices in the 1970s. Here is a chart of gold prices:
http://jcrs.com/JCRS_for_consumers/jewelry_information/precious_metals/images_precious_metals/gold_prices_1975-2003.gif
Longer term, I agree with George Soros in saying that commodities are horrible investments, not appropriate for individuals.
Gold declined in real terms from 1940 to 1970. Oil essentially traded flat for the hundred years before the 1970s, with only short-lived spikes in price as mini bull and bear markets.
There is no doubt that serious money can be made in commodities; but it generally occurs over a very short period of time.
Land, labor, capital and commodities are all combined to create businesses that increase productivity. And while any one of these factors may become relatively attractive during a boom, owning excellent businesses is the best investment over the long haul.