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Stocks B / Berkshire Hathaway


Subject:  Re: OT: what is the big picture for OIL? Date:  8/12/2015  10:42 AM
Author:  mungofitch Number:  218230 of 247053

Does anyone here have thoughts or analysis to share?

My suggestion: think longer term.

There's no shortage of energy, but a gradually growing shortage of dirt cheap energy.
The recent supply gluts, and shortages for that matter, are really just
little squiggles in a long downward slope in supply of oil at any given
price and a long upward slope in terms of average market price.
The shale oil miracle is more like a temporary remission of a fatal progressive disease.
The patient is going to die, and this is going to be the cause of death,
the debates are only about how sick, how soon, for how long.

Always remember there is no such thing as petroleum production.
You can move it around or burn it it transform it into plastic bottles, but nobody makes it.
Keep the long view in mind whenever you read anything about the market
effects of oil and you'll be ahead of most analysts in terms of insight.
In every article you read, replace the word "production" with "extraction".

Possible long range implications:
Petroleum is incredibly useful stuff, with some applications that are amazingly inelastic,
so people will keep digging it up even as it gets really expensive.
The work done to get each incremental unit of petroleum will rise over time.
That will mean more work for service firms relative to the size of the market.
More difficult working conditions, so more accidents per unit extraction.
Aside from the human aspect, that has implications for the investment profiles of petroleum and insurance firms.
More awkward locations, so more political shifts per unit extraction,
perhaps even more domination of state actors relative to the remaining private sector players.
Spare supply will evaporate, meaning supply and demand averaging closer
to balance, meaning much wilder swings in short term prices.
I wouldn't be surprised to hear that Mr Taleb likes the look of medium term $200 call options.
Not that it's remotely likely, but that it may be a whole lot more likely
that most people assume and therefore the options might be badly mispriced.

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