Chronicles Of Depression 2.0: #107

One post with several oil stories.

Oil climbs to record above $135

BANGKOK, Thailand (AP) – Oil prices hit a record above $135 a barrel before falling back in Asia Thursday, with supply worries, rising global demand and a slumping dollar keeping crude futures on an upward track.

With gas and oil prices setting new records nearly every day, many analysts are beginning to wonder what might stop prices from rising. There are technical signals in the futures market, including price differences between near-term and longer-term contracts, that crude may soon fall. But with demand for oil growing in the developing world, and little end in sight to supply problems in producing countries such as Nigeria, few analysts are willing to call an end to crude’s rally.

“The sentiment in the market is very bullish at the moment,” said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney. “The U.S. dollar was weaker last night, and also the U.S. EIA report showed an unexpected decline in U.S. commercial crude oil inventories, so there’s a combination of factors pushing the oil prices higher.”

Crude prices blew past $130 on Wednesday amid concerns about demand, supplies and a weaker dollar, and then they just kept going. The rise accelerated when the U.S. Energy Department’s Energy Information Administration said U.S. crude inventories fell by more than 5 million barrels last week. Analysts had expected a modest increase.

Emphasis added by me.

Many investors believe the dollar’s protracted decline over the past year has been the most significant factor behind oil’s rise from about $66 a barrel a year ago.

Hey there, Eeejit In Chief, thanks again for bankrupting us with your stupid, uncalled-for, and unnecessary war in Iraq.

‘Squawk Box’ Guest Warns of $12-15-a-Gallon Gas

Robert Hirsch, Management Information Services Senior Energy Advisor, gave a dire warning about the potential future of gas prices on CNBC’s May 20 “Squawk Box”. He told host Becky Quick there was no single thing that would solve the problem, due to the enormity of the problem.

“[T]he prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 per gallon,” Hirsch said. “And then, after that, when oil – world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we’re not going to be able to get the fuel when we want it.”

Hirsch told the Business & Media Institute the $12-$15 a gallon wasn’t his prediction, but that he was citing Charles T. Maxwell, described as the “Dean of Oil Analysts” and the senior energy analyst at Weeden & Co. Still, Hirsch admitted the high price was inevitable in his view.

Emphasis added by me.

Maxwell is a believer in two things:

1) The Hubbert’s Peak Oil hypothesis

2) The intractability of human beings to change

That second item is my own conclusion, based on what he forecasts as the bleak future of industrialized societies.

I don’t know if this question has been asked by the oil companies themselves: Are they in the oil business or the energy business?

Western Union believed it was in the telegraph business, so spurned the advance of Alex G. Bell and his screwy device called a telephone. Had Western Union realized it was in the communications business, we’d probably have a very different Internet today (if any!).

Now let me scare the living shit out of you. In 2004, Maxwell wrote this:

For the period 1987 to 2003, the historical range of oil prices was approximately $10 to $40 per barrel, with an average of $20. For 2004 to 2010, the price range could be $30 to $60, with an average of $40. For 2011 to 2020, the range could be $50 to $100, with an average price of $70 per barrel.

In other words, he’s been low. We’re already past $100/barrel three years before he predicted. So could we then be looking at $20-$25/gallon gasoline?

Ambrose Evans-Pritchard, the smartest guy covering finance, chimes in with Oil’s perfect storm may blow over:

The perfect storm that has swept oil prices to $132 a barrel may subside over the coming months as rising crude supply from unexpected corners of the world finally comes on stream, just as the global economic downturn begins to bite.

That sounds like good news. However:

None of this has been enough to curb the buying frenzy this spring. Goldman Sachs has warned that prices could reach $200 in a final spike, and even the bears at Lehman Brothers say there may be enough momentum to keep the boom going until Christmas.

It is unclear whether hedge funds and investors piling into futures contracts have now become the driving force in a speculative bubble. The Bank of England said yesterday that they were not a factor.

Lehman’s latest report – Is it a Bubble? – says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion’s share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said.

“We see many of the ingredients for a classic asset bubble,” said Edward Morse, Lehman’s oil expert.

This week has seen a dramatic surge in oil contracts dated as far forward as 2016. Futures have moved higher than the spot price, a rare event known as “contango”. This can cut both ways: either as a sign of an impending supply crunch years hence; or that the futures market has become unhinged from reality.

The U.S. government does not believe in Peak Oil. Every forecast I’ve seen quoted, from whichever agency has been put forward to cite its forecast, calls for oil production to increase with no shortages in sight. Now, remember this is the same government that gave us the Iraq war and wants to move research into foot and mouth disease onto the mainland. Feel reassured?

And who to believe about these record rising oil prices?

1) World demand outstripping supply?

2) New sensitivity to supply disruptions?

3) New sensitivity to refinery capacity?

4) New sensitivity to global stockpiles?

5) Greed greed greed?

Or all five?

If it’s, just right now during this year, nothing more than number five, we might end up wishing it was one through four! Because if this is a bubble, and nothing more than that, it’s going to burst. Just like all bubbles do.

And we’ve seen what has happened with the real estate bubble.

This could be far, far worse.

Explore posts in the same categories: C.O.A.T. - Other, C.O.A.T. - Scams, Depression 2.0

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