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Old 06-25-2017, 11:46 PM   #1
DoOrDoNot
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Nows the time to buy oil?

With oil stocks at record lows, and with OPEC slashing production again, is it a good time to buy oil? Most serious analysts are saying return to $60 sometime next summer, when the current glut runs out.

Thoughts on this?

I own a couple...BTE, CVE but Ive got a couple other ones Im considering as well
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Old 06-26-2017, 12:37 AM   #2
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Re: Nows the time to buy oil?

Crude has corrected 70-80% 4 times before.

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Old 06-26-2017, 12:42 AM   #3
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Re: Nows the time to buy oil?

Supply is way too high to sustain anything much higher than it is now, and any significant increase in price would just bring more dormant supply back online.
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Old 06-26-2017, 12:59 AM   #4
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Re: Nows the time to buy oil?

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Originally Posted by Shoe View Post
Supply is way too high to sustain anything much higher than it is now, and any significant increase in price would just bring more dormant supply back online.
This. The most terrifying (for OPEC) about shale is shale oil lead time is down to 6 or 7 months. That basically makes it impossible for OPEC to keep prices high for any extended period of time.

OPEC really should take a page out of the Canadian potash producers' playbook: keep prices just below the cost of next lowest cost producer. The problem for them is that level may be too low to sustain their budgets.
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Old 06-26-2017, 04:30 AM   #5
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Re: Nows the time to buy oil?

Nitrogen fertilizers or copper are better commodity's to bet on.
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Old 06-30-2017, 07:35 PM   #6
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Re: Nows the time to buy oil?

The technology of fracking has allowed us to pretty much have infinite oil. The reason oil dropped so much in price is because of fracking. It is my understanding that fracking costs generally about $70-80 a barrel to produce. This is why fracking was a viable business when oil is $100 a barrel.

OPEC doesn't like you trying to take away their control of price. Rather than allow this business to succeed and OPEC squander their control of the markets, OPEC would rather cut their assets in half than potentially face the scenario of losing it all.

Oil is never coming back to those levels because of fracking.

Buy oil @ $44 if you want to. I would get out at $50 ish. If it touches $60, sell everything you have and consider shorting.
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Old 06-30-2017, 09:06 PM   #7
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Re: Nows the time to buy oil?

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Originally Posted by Ek0 View Post
The technology of fracking has allowed us to pretty much have infinite oil. The reason oil dropped so much in price is because of fracking. It is my understanding that fracking costs generally about $70-80 a barrel to produce. This is why fracking was a viable business when oil is $100 a barrel.

OPEC doesn't like you trying to take away their control of price. Rather than allow this business to succeed and OPEC squander their control of the markets, OPEC would rather cut their assets in half than potentially face the scenario of losing it all.

Oil is never coming back to those levels because of fracking.

Buy oil @ $44 if you want to. I would get out at $50 ish. If it touches $60, sell everything you have and consider shorting.
Fracking is mostly for natural gas.....
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Old 06-30-2017, 10:28 PM   #8
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Thumbs up Re: Nows the time to buy oil?

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Originally Posted by DoOrDoNot View Post
Fracking is mostly for natural gas.....
"Hydraulic fracturing accounts for about half of current U.S. crude oil production"

https://www.eia.gov/todayinenergy/detail.php?id=25372


You're more than welcome to write me off as ignorant and buy as much crude oil as you wish sir.
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Old 07-01-2017, 03:39 AM   #9
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Re: Nows the time to buy oil?

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Originally Posted by Ek0 View Post
"Hydraulic fracturing accounts for about half of current U.S. crude oil production"

https://www.eia.gov/todayinenergy/detail.php?id=25372


You're more than welcome to write me off as ignorant and buy as much crude oil as you wish sir.
I'm not saying you don't get oil from fracking, oil is found in a lot of wells but its mostly natural gas in the wells that are being fractured. It's certainly not an 'infinite supply of oil' and fracking has not given new access to it. Fracking has been around for a long time.

What happened was the US found a ****ton of shale gas that they didn't know was there before. There is some oil in some of the wells that are fracked, but US will still be a net oil importer for a long time:

https://www.eia.gov/tools/faqs/faq.php?id=727&t=6

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Old 07-01-2017, 05:30 AM   #10
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Re: Nows the time to buy oil?

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Originally Posted by DoOrDoNot View Post
I'm not saying you don't get oil from fracking, oil is found in a lot of wells but its mostly natural gas in the wells that are being fractured. It's certainly not an 'infinite supply of oil' and fracking has not given new access to it. Fracking has been around for a long time.

What happened was the US found a ****ton of shale gas that they didn't know was there before. There is some oil in some of the wells that are fracked, but US will still be a net oil importer for a long time:

https://www.eia.gov/tools/faqs/faq.php?id=727&t=6
Ah, I understand what you intention was. Yeah, to be specific, shale and tar sands are no longer economical either.

Oil hitting $60 is definitely a possibility. But I would still be selling what I held at $54 or so and looking to short or sell OTM calls if price touched $60. Oil is highly unlikely to consolidate above that price level.
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Old 07-01-2017, 05:55 AM   #11
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Re: Nows the time to buy oil?

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Originally Posted by DoOrDoNot View Post
I'm not saying you don't get oil from fracking, oil is found in a lot of wells but its mostly natural gas in the wells that are being fractured. It's certainly not an 'infinite supply of oil' and fracking has not given new access to it. Fracking has been around for a long time.
Everything I know about fracking, which certainly isn't expert level, leads me to disagree with the above. Fracking is producing large volumes of oil, and the finds aren't finished. For example:

Large-scale fracking comes to the Arctic in a new Alaska oil boom

Quote:

Over the past year oil companies have discovered volumes on Alaska’s North Slope totaling as much as five billion barrels or more of recoverable oil. This is a 14 percent increase in U.S. proven reserves, based on recent estimates, which is no small thing.

One discovery, “Horseshoe,” made this year by the Spanish company Repsol in partnership with Denver-based Armstrong Oil and Gas, is the largest new U.S. find in more than 30 years. It is estimated at 1.2 billion barrels, and comes just after a find by ConocoPhillips in January, called “Willow,” evaluated at 300 million barrels.

Both of these are dwarfed by “Tulimaniq,” a spectacular discovery drilled by Dallas-based Caelus Energy in the shallow state waters of Smith Bay, about 120 miles northwest of Prudhoe Bay, in October 2016. Caelus has confirmed a total accumulation of as much as 10 billion barrels of light, mobile oil, with 3-4 billion barrels possibly recoverable at current prices of about US$50 per barrel.
Those numbers add a million barrels a day at $50 for 10 years. And they're not the last find. There are large now capped wells all across the US just waiting to come back online for a minor price rise.

$60 may or not be likely but your view of the abundance of oil from fracking seems off. For all intents and purposes, the amount of oil it can add on top of global volumes for well over a decade makes it essentially an infinite supply, as far as prices are concerned. And one that can come online quickly, more and more, at $50, $60, $70.



The above is a not-trivial amount of oil to add to global markets, and whether it also produces a bunch of natural gas seems irrelevant. That graph above can continue and grow for 10+ years, probably 20+ if you include advancing technology.

Then add in the vast shale sands, which can be had for around $60.

I agree we'll eventually drift to the cost of production, which is likely around $60, all things considered, but the cost of production isn't high, and it's by no means a certain thing given the pessimism that the above will create, and technological advancement.

It is also a bet on no global recession happening.

Further comments:

Quote:
Oil companies have ways of being nimble in hard times, such as selling assets, adjusting production levels and seeking mergers. Now rapid innovations in drilling, seismic imaging and data processing enable well-run companies to cut costs in multiple areas. Some firms can make money today at prices as low as $35 to $40 per barrel or even lower. This includes drilling offshore and fracking onshore.
The link above is an interesting read. Betting against US technological capability seems frankly a stupid thing to do. They have managed to halve the cost of fracking in some areas in 2 years, from $56 to $28.

Last edited by ToothSayer; 07-01-2017 at 06:04 AM.
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Old 07-01-2017, 06:43 AM   #12
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Re: Nows the time to buy oil?

Also I'd add that the fact that much fracking oil also comes with natural gas is a huge negative for your thesis. It brings the price way down when there's another product they're extracting in large volumes at the same time as opposed to just going after oil.
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Old 07-01-2017, 03:14 PM   #13
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Re: Nows the time to buy oil?

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Originally Posted by ToothSayer View Post
Everything I know about fracking, which certainly isn't expert level, leads me to disagree with the above. Fracking is producing large volumes of oil, and the finds aren't finished. For example:

Large-scale fracking comes to the Arctic in a new Alaska oil boom
Alaska is traditionally unavailable (until recently?). Regardless, all I wanted to point out was the misconception that 'fracking' has anything to do with increased oil reserves. Fracking is an old technology, and it doesn't get at on its own reserves that couldn't have been gotten before, nor does it technically increase the amount available for extraction. It's a quick method of recovery (if you are ok with wasting hundreds of millions of gallons of water)



Quote:
$60 may or not be likely but your view of the abundance of oil from fracking seems off. For all intents and purposes, the amount of oil it can add on top of global volumes for well over a decade makes it essentially an infinite supply, as far as prices are concerned. And one that can come online quickly, more and more, at $50, $60, $70.
There is no 'abundance of oil from fracking.' This is what I wanted to point out as a mistaken assumption. Fracking has been around for 50 years. Fracking doesn't find new reserves. But new reserves of shale gas (which contain oil within them, in small amounts) and new access to Alaska oil does, and fracking allows extraction to happen fast. Just so we are clear, the increase in US production has 95% more to do with finding previously unknown deposits than it does with the technology of fracking. As an aside, I was involved with fracturing oil and gas wells for 10 years, and the technology is unethical.
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Old 07-03-2017, 12:18 PM   #14
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Re: Nows the time to buy oil?

"Most serious analysts are saying return to $60 sometime next summer, when the current glut runs out."

And yet they're not buying the difference.

If you had specific reason to believe fracking, which you'd argue is unethical, is going to be made illegal -and you had the jump on this info for some reason, like say... because you found out that a bill was being introduced to the senate before it was publicly announced, it would give your position credibility. If you're just using info that's publicly available for an industry that's studied so widely and rigorously though - i don't know how you can have any kind of confidence in it being undervalued. It's not as if the deposits in alaska have been solely responsible for changes in price. Large scale investors will be well aware of the fact that the discovery of those deposits represent a finite increase in supply.

And supply is only part of the equation. Electric vehicles are an inevitability, in a world where 2/3rds of gas consumption is for transportation, which I'm sure is at least partially responsible for the decline in prices.
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Old 07-03-2017, 06:07 PM   #15
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Re: Nows the time to buy oil?

Quote:
Originally Posted by Abbaddabba View Post
"Most serious analysts are saying return to $60 sometime next summer, when the current glut runs out."

And yet they're not buying the difference.

If you had specific reason to believe fracking, which you'd argue is unethical, is going to be made illegal -and you had the jump on this info for some reason, like say... because you found out that a bill was being introduced to the senate before it was publicly announced, it would give your position credibility. If you're just using info that's publicly available for an industry that's studied so widely and rigorously though - i don't know how you can have any kind of confidence in it being undervalued. It's not as if the deposits in alaska have been solely responsible for changes in price. Large scale investors will be well aware of the fact that the discovery of those deposits represent a finite increase in supply.

And supply is only part of the equation. Electric vehicles are an inevitability, in a world where 2/3rds of gas consumption is for transportation, which I'm sure is at least partially responsible for the decline in prices.
Do you really think oil is destined to never bounce back to where it was before? That this is the last time in history we see $100 barrels?
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Old 07-03-2017, 07:33 PM   #16
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Re: Nows the time to buy oil?

Once EVs are cheaper to produce than gasoline engines, and provide sufficient range, what do you think happens to transportation and hence oil prices?

When is that changeover point?

Answer those two questions and you'll realize that oil is going to peak forever, some time in the next 10 years. And the peak could very well be in the past.
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Old 07-03-2017, 07:56 PM   #17
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Re: Nows the time to buy oil?

a few things,

fracking is big in oil too.. of course it's massive in NG. it was an immense game changer in NG.

i think fracking and the increase in US output is the dominant reason oil hasn't done well the last 5+ years.

i've seen good work that suggests that fracking output won't increase forever. that the producers have picked the best prospects and the quality will drop off alot in the intermediate to long term.

who actually drills all these fracking wells? either the contractors or the oil companies... is the situation "fluid" such that as company X goes bankrupt that someone can drill their prospects and/or use their equipment 9 months later? would love to see more on this subject... that's probably saudi's biggest problem. they can kill the current producers but then new producers fill the gap.

i agree that fracking may spread but i've seen analysis too that suggests it won't spread much further than it has already.... i would think mexico would be chomping at the bit to get oil from its depleted fields..... i'm not completely certain how much of the new oil is 1) fracking of tight oil; 2) new ways of recovery with horizontal drilling/fracking etc... basically how much of new production is actually tight oil vs. just enhanced recovery.

a few big idea thoughts,

seems like there are alot of countries that would desperately like to sell more oil outside the obvious russia/saudi... iraq/iran/libya/venezuela come to mind immediately............ not certain about this but collectively saudi/iran/iraq production haven't increased much in a long long time.

i would think we are probably at or near peak oil usage.. one big wildcard would be a really good, cheap electric/hybrid car.

obviously could cause world drama and higher oil prices.

BTW, one last question i forgot.. what are fracking break-even prices? i saw someone say $70 but market behaviour suggests to me that it's alot lower.

another last thought, i wonder what oil's chart look like if you take out mid 2000's and the credit crisis...

that huge oil bull market was:

1) peak oil supply - pretty much bunk and while i thought it had good potential as a theory back then it also had some big holes i.e. the big argument depended on saudi running out of oil, which i'm not sure i've heard ONCE about in 7-8 years.

2) financialization of commodities... basically pension funds buying oil futures as investments.l
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Old 07-03-2017, 10:20 PM   #18
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Re: Nows the time to buy oil?

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Originally Posted by DoOrDoNot View Post
Do you really think oil is destined to never bounce back to where it was before? That this is the last time in history we see $100 barrels?
A better question is why do you think it's an inevitability that it will bounce back? The price before the wide scale adoption of gas powered vehicles was far less than what it is now despite it being much more costly to get it out of the ground.

We're really not that far away from EVs hitting the price point where they'll completely take over the market.
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Old 07-03-2017, 10:54 PM   #19
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Re: Nows the time to buy oil?

Quote:
Originally Posted by rivercitybirdie View Post

BTW, one last question i forgot.. what are fracking break-even prices? i saw someone say $70 but market behaviour suggests to me that it's alot lower.
Part of what will limit oil price appreciation is that a lot of oil is being produced in liquids rich natural gas plays and enters the market as a by-product of natural gas development.

In this context, the break-even of oil doesn't matter. The more relevant question is what do your natural gas economics look like?

To have a view of future oil prices you really need to understand the dynamics of the natural gas market in North America as part of the puzzle.

Natural gas development will drive oil supply that isn't entirely motivated by the economics of the oil only, which will mess with market prices and help keep things lower.

The whole demand part of the equation suggests there is no reason expect oil to rise, either. Baring some huge supply disruption I would think peak oil prices are behind us.
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Old 07-04-2017, 04:08 AM   #20
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Re: Nows the time to buy oil?

peak-demand is still years, i'd say atleast 2 or 3 decades, away.
sure EV's will be cheaper and better, i guess within the next decade, but it's gonna take another 20-30 years to replace most of gasoline powered transportation. my guess would be another ~20years of 1-2% demand growth and maybe another 10 years of steady demand after that before any singnificant downturn, maybe around 2050.

what this means for oil prices is up to price action and resulting capex. the longer we stay below or around 50$ the higher the chance we see above 100$ again and vice versa.
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Old 07-04-2017, 05:49 AM   #21
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Re: Nows the time to buy oil?

Quote:
Originally Posted by rivercitybirdie View Post
a few things,

fracking is big in oil too.. of course it's massive in NG. it was an immense game changer in NG.

i think fracking and the increase in US output is the dominant reason oil hasn't done well the last 5+ years.

i've seen good work that suggests that fracking output won't increase forever. that the producers have picked the best prospects and the quality will drop off alot in the intermediate to long term.

who actually drills all these fracking wells? either the contractors or the oil companies... is the situation "fluid" such that as company X goes bankrupt that someone can drill their prospects and/or use their equipment 9 months later? would love to see more on this subject... that's probably saudi's biggest problem. they can kill the current producers but then new producers fill the gap.

i agree that fracking may spread but i've seen analysis too that suggests it won't spread much further than it has already.... i would think mexico would be chomping at the bit to get oil from its depleted fields..... i'm not completely certain how much of the new oil is 1) fracking of tight oil; 2) new ways of recovery with horizontal drilling/fracking etc... basically how much of new production is actually tight oil vs. just enhanced recovery.

a few big idea thoughts,

seems like there are alot of countries that would desperately like to sell more oil outside the obvious russia/saudi... iraq/iran/libya/venezuela come to mind immediately............ not certain about this but collectively saudi/iran/iraq production haven't increased much in a long long time.

i would think we are probably at or near peak oil usage.. one big wildcard would be a really good, cheap electric/hybrid car.

obviously could cause world drama and higher oil prices.

BTW, one last question i forgot.. what are fracking break-even prices? i saw someone say $70 but market behaviour suggests to me that it's alot lower.

another last thought, i wonder what oil's chart look like if you take out mid 2000's and the credit crisis...

that huge oil bull market was:

1) peak oil supply - pretty much bunk and while i thought it had good potential as a theory back then it also had some big holes i.e. the big argument depended on saudi running out of oil, which i'm not sure i've heard ONCE about in 7-8 years.

2) financialization of commodities... basically pension funds buying oil futures as investments.l
Oil sands break even prices are $65-85. Fracking is just punching holes upstream so it's gotta be profitable for way way lower.
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Old 07-04-2017, 05:53 AM   #22
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Re: Nows the time to buy oil?

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Originally Posted by Abbaddabba View Post
A better question is why do you think it's an inevitability that it will bounce back? The price before the wide scale adoption of gas powered vehicles was far less than what it is now despite it being much more costly to get it out of the ground.
Because it has a dozen times?

Quote:
We're really not that far away from EVs hitting the price point where they'll completely take over the market.
I thought this too but then I thought about it again and it's not the case. Even for light transportation vehicles EV will not take over the whole market. EV won't probably ever be as powerful as gas for one, so in certain sections of that market gas will hold on. Also, the trucking industry will likely remain gas, so will pickup trucks and other transport. Airliners will never be electric. Heavy machinery will remain gas/diesel. Marine will always be gas/diesel. Housing will remain natural gas, Tesla shingles might take a small portion of the market in democrat states.

Only the car market will see a loss to electric, and it won't be as much as you think, and it's not close either. 5-10 years minimum before they start to make significant gains.
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Old 07-04-2017, 06:26 AM   #23
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Re: Nows the time to buy oil?

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Originally Posted by DoOrDoNot View Post
Even for light transportation vehicles EV will not take over the whole market. EV won't probably ever be as powerful as gas for one, so in certain sections of that market gas will hold on.
Is this some kind of joke? EVs crush gasoline cars in power and it's not even close. In 5 years, 0-100 in whatever is safe for the tires will be standard in even the lowest end EV.

EVs will have:

- Lower manufacturing cost
- Lower fuel cost
- Far lower maintenance costs
- Far better performance/power/acceleration for each price range
- More storage space/passenger room
- Instantly responsive acceleration, and superior braking.
- Far better noise profile
- Lower vibrations

EVs wipe the floor with regular cars in every category, and it's not close. It's just a matter of time until the cost tipping point is reached, and the ICE cars are done.

Assuming you were serious in the above, /thread.

Ironically, your view that ICE cars will grow for a while is correct, but for the wrong reasons. The second/third world is predicted to add a huge number of cars, and most will be low end ICE cars for reasons of infrastructure. at least for a while.
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Old 07-04-2017, 06:44 AM   #24
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Re: Nows the time to buy oil?

Quote:
Originally Posted by ToothSayer View Post
Is this some kind of joke? EVs crush gasoline cars in power and it's not even close. In 5 years, 0-100 in whatever is safe for the tires will be standard in even the lowest end EV.

EVs will have:

- Lower manufacturing cost
- Lower fuel cost
- Far lower maintenance costs
- Far better performance/power/acceleration for each price range
- More storage space/passenger room
- Instantly responsive acceleration, and superior braking.
- Far better noise profile
- Lower vibrations

EVs wipe the floor with regular cars in every category, and it's not close. It's just a matter of time until the cost tipping point is reached, and the ICE cars are done.

Assuming you were serious in the above, /thread.

Ironically, your view that ICE cars will grow for a while is correct, but for the wrong reasons. The second/third world is predicted to add a huge number of cars, and most will be low end ICE cars for reasons of infrastructure. at least for a while.
The best electric car can do 0-60 in 2.28 seconds or something right? Fastest gas is like 2.5. I wouldn't say that's CRUSHING. That said, even if you are right about electric cars, everything else I said in my post is uncontested at this point. While electric has good power to weight, they have diminishing torque, and will never take over marine, aero, or heavy machinery.

Not only that, but you need electricity to even charge battery powered cars. How do you make electricity? By burning oil.

Last edited by DoOrDoNot; 07-04-2017 at 06:58 AM.
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Old 07-04-2017, 08:14 AM   #25
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Re: Nows the time to buy oil?

Or coal or natural gas or nuclear, which makes up the bulk of power generation by far (Oil is insignificant as a power source).

The tires/safety are the limitation on the fastest end, not the engine. And electric cars (as of now) are accelerating far heavier bodies.

The point is that electric makes possible a noiseless, ultra low running cost V8 engine in even the cheapest passenger car, for no extra cost.

As for oil usage, the ration of car:truck/heavy vehicle oil usage is about 120:40. Add another 15 for jet fuel.

And yes, trucks will be replaced and become all electric as well. <10 years until electric becomes superior there as well in terms of cost to build, maintenance, and running cost. Hybrids will be viable before that, and dramatically reduce consumption.

You'll be left with 5-10% of transportation running on oil, including planes.

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