Warren Buffet asked about the future for this country

[Fredledingue]

When the oil lobby won't control the US administration after the next elections, things will be better.

[Novice Investing]

Fredledingue:

I have the same general feeling as you. In fact, I am quite confident that oil will fall towards $ 50 once it is all over. Perhaps in the 2009-2010 period. I had seen it in the petrochemical market where some producers make outsized gains in a year, followed with outsized loss in the following year. Supply and demand? Perhaps, but capital allocation plays an important role too nowadays. But looking at oil market now, of course everyone will say how nuts I am.

[Airelon]

I don't think mankind will ever see $50.00 Oil again. Just won't happen. The only thing, the only way this could possibly happen in my mind? Is that China and India just disappear.

Cheap oil has gone away, and it is never coming back. I'm not saying we won't see huge pullbacks. But we've hit a whole new area of nearing peak / peak / past peak oil - that's trying to be determined.

[Fredledingue]

Yes, while oil is largely overvalued, overspeculated by now, cheap oil is a thing of the past due to emerging markets demand.
What I expect is a stabilizing gas consumption in China and India as poeple can't afford it any much more, a stabilization everywhere else in the world as poeple start to care.
Henceforth, oil repriced under $100 and above $80. $50 seems to me too low unless we develop new transportation energies.

I don't know why Warning Buffet is talking every second day about recession. There are about 3 articles per week telling of Buffet on US recession "deeper and longer than anyone think".
So why doesn't he sell all his portfolio if it so?

I still believe that the next presidency will be a major change in US politics and a boost for US economy.
If Bush were still to make war on Iraq in 2009, that would be worrying, but improvements in Iraq signals the end of it and hopefuly a less arab-oil obsessed administration will lead the country.

[Airelon]

I sat in on some tanker webcasts last week. The interim CEO of one company just came out and let people know that some members of OPEC will charge them 3x's as much, if they tried to ship it to the U.S., but was offering discounts if they'd ship it to China and India.

Heck, the U.S. doesn't really even depend on OPEC oil any longer. The number one supplier of Oil in the U.S.? Canada. More than any middle-eastern country out there. And the % they are supplying is increasing every day (They've discovered that the oil in Canada is more than the Middle East ever had - 1700 Billion Barrels of oil. Some are putting it closer to 2.3 Trillion).

The reason that the U.S. is still involved in many oil situations, is because their allies (Europe and elsewhere) are still dependant on OPEC oil. So the U.S. has decided to take a bit of a hit for their European neighbors. As far as the U.S., they could just say: "We're tired of helping, screw you all", give Canada about 1 trillion to help out their oil infrastructure - and the U.S. Oil needs would be set by their northern neighbors.

As far as the recession? It's just a matter of what he's buying. Warren Buffet, like me, is very concerned about folks who don't have money. They're getting screwed over big time by economic vultures during this recession. The only person that can hurt? Is me in the end. I keep on hearing this lunacy about "Taking Oil away from the Futures markets". Not only would that instantly drive the price of oil up further, but it would eliminate the ONE group of people that's trying to keep the price of oil from instantly jumping to $400 a barrel. In addition, that's a direct attack on my line of work.

And I really like my job.

[Novice Investing]

I don't think mankind will ever see $50.00 Oil again. Just won't happen. The only thing, the only way this could possibly happen in my mind? Is that China and India just disappear.

This is what most people will say nowadays. But please, I would have to remind you that we actually just hit $ 50.00 oil in early 2007. Seems like forever isn't it? What has changed since then? What you say is correct. China and India won't disappear. Cheap oil is a thing of the past. Yes. That is correct. But is $ 50 cheap? What has changed since early 2007?

1. Do we consume 50% more oil and drill equally? (And thereby, causing 100% higher price)
2. If we consume equal amount of oil since last year, then do we drill 50% less oil? Don't think so. Perhaps US producer is drilling less oil. But elsewhere, they have been hoarding oil such as Venezuela. In the US, we consume 3-5% less oil than last year (Correct me about this statistics). And while China is growing, our energy need is 20 M Barrels/day versus China's 6 M Barrels/day.
3. Interest rate is low. Yes, this create speculation on oil future. But when interest rate can get back to normal, just like housing, oil price will come down.
4. Dollar is down. Yes the greenback is down since early 2007. This has caused price of oil to spike.

My conclusion is that price of oil is not merely caused by the imbalance of supply and demand. There is some imbalance but the 100% price swing of oil is not caused by that. In fact, I would say that it is mainly created by: 1) Low interest rate, 2) Devaluation of Dollars, 3) Speculation

Just a note regarding speculation. Similar with any other types of speculations, stocks, houses, grain (100% rise in 3 months. do we run out of rice, everyone? Heck no), and oil, you can leverage your money. 1:2, 1:5, 1:10, in currency 1:20. Thus, do not count this effect out. While speculator is good for the free market, it does cause large swings both ups and downs. Have you ever wondered why some of the dot coms can go up by 2000%? Houses going up 50% a year? Please check the history and see how far they can fall. Yes, the argument is: this time is different. Dotcoms is easily identifiable. They have no profits! But still, those that have profits (eBay, Yahoo with P/E in 100s), they fell down more than 50%. Houses, too can be sold. It is an asset which can be rented. True! But, if price goes up way above rent value, it will go down, just like current situation. How about oil? Yes, oil has its uses. Supply is constraint, demand is down slightly due to high price. But, will it go down to $ 50? That is up to you to decide.

[Airelon]

I would agree with almost everything you said, but Oil is an ugly picture. Quite frankly, 'a perfect storm' of factors started happening simultaneously to drive prices up so quickly. I would say it's a result of four factors, none of which are speculation (which actually help keep the price reasonable, and we're not seeing $250 Oil)

1. Demand. As we've already mentioned, the increasing demand from China, India, and other countries have just exploded. I heard a guy from GMR mention that China and India cannot get the oil fast enough. They almost appear desperate. It's why companies like FRO are rolling in the cash right now. The demand has gone through the roof in the last few years.

2. Inflation. To help ease the credit and solvency crisis, the Fed cut rates like mad. It got us past the credit and solvency crisis, but now we've landed knee deep in inflation, which drives the price of oil up.

3. The Geopolitical scene. The U.S. is saddled with debt with the war, and this upsets other OPEC nations, that control the supply. Then all of a sudden, Nigeria, what was once the model of stability for Africa, just goes nuts (TIA). Venezuela has become more and more biligerant. And the clergy controlled Iran just hates the U.S. with a passion (Notice I did not say Iranians hate us. Just their clergy who run the country)

4. Peak Oil Theory. From Hubert's work, and from the numbers that have been matching this theory in a very remarkable way - we're wondering if we've hit peak. Not for how much oil is left in the world, as much as - what's left in the world? Will it be able to keep up with demand?

There is some inflationary pressure with speculation. But economics teaches us that when you begin to see speculative inflationary pressure, a severe correction in price is usually the result.

All of these factors coalesced together at one time. $135 Oil is the result.

[Fredledingue]

Airlon,
I disagree with all your 4 points!!

1. Demand.
Yes, demand is increasing and has boomed in some part of the globe, but it would take an economical miracle to see that trend continue that fast.
If oil stays at $133 I doubt many chinese will afford driving car much more in the future.
It's the poorest poeple, those who led the asian oil price boom, who will stop driving first. Catastrophical oil demand projections are based on a continuous economic growth in BRIC regions and no price changes globaly and no higher taxes on gas localy.
That remains to be verified...

2. Inflation.
It's not inflation which brought oil prices up, it's oil price which drove inflation. Higher gas price at the pump is not a US phenomenon: It's global. And eveybody is suffering faster inflation.
The price increase in USD is more spectacular because it comes with a devaluation against other currencies.

3. The Geopolitical scene.
That was true with the shock of the invasion of Iraq. Today, I see rather improvements than degradation.
Chavez and Ahmadinejahd hate us, yes, but the still depend on price on the global market to sell.
If these two decide to sell only to non-aligned countries, these non-aligned will buy less from US-friendly producers.
There are very few countries which would sacrify billions of dollars just to p*** off the US. Even Chavez and Iran, they claim that's what they do, in fact it's just that they have plenty of other clients and don't need ths US.
Now let's see when Iraq will open the taps for goods. So far they still didn't reach a multiethnic agreement on oil revenues sharing. When that's done, we will see oil flooding out of there rapidily.
The only thing that still could move price higher is a war on Iran.

4. Peak Oil Theory.
Not sure what you want to say. You claim that the current oil future market actualy keep the price down.
It's obvious to me that's the exact opposite.
There has even been rumor of arab state funds buying futures, beting on their own oil.
It's clear that oil price increase have no material basis.
From $60 to $80, maybe there was, but moving over $135 after six months is utter speculation.
It's exactely the same speculation as with the real estate oe and half years ago and with the dot.com circa 2000.