NationStates Jolt Archive

NEW YORK: The $100-a-barrel oil that Goldman Sachs Group said would prevail by 2009 could be just a few months away.

Jeffrey Currie, a commodity analyst in London for Goldman Sachs, the largest brokerage firm, said that $95 crude was quite likely this year unless OPEC unexpectedly increased production and that declining inventories were raising the chances for oil prices to reach $100.

Jeff Rubin, chief strategist at the brokerage unit of Canadian Imperial Bank of Commerce in Toronto, said $100 a barrel could come next year.

John Kilduff of the New York office of the futures trading firm Man Financial said, "We're only a headline of significance away from $100 oil. The unrelenting pressure of increased demand has left the market a coiled spring."

New disruptions of Nigerian or Iraqi supplies, Kilduff said, or any military strike against Iran might cause the rise.

Higher prices will increase revenue for energy producers from Exxon Mobil to PetroChina, while eroding profit for airlines and railroads. The United States and other oil-importing countries risk higher inflation, while increased energy costs could restrain growth.

The benchmark crude oil future ended last week at $75.57 a barrel on the New York Mercantile Exchange, twice the level of early 2003. A record number of options have been sold that give the buyer the right to buy crude oil at $100. The contracts, covering 50 million barrels, pay off only if oil were to go above the target price.

Arjun Murti, a Goldman Sachs analyst in New York, roiled markets in March 2005 with a report saying prices could touch $105 a barrel during a "superspike" period because demand was stronger than anticipated.

Currie, the global head of commodities research for Goldman Sachs, is predicting that oil prices will probably touch a record high and stay at unprecedented levels for months or years. The benchmark's record high is $78.40 a barrel, reached July 14, 2006.

The failure of near-record fuel prices to restrain global oil demand growth is what concerns Rubin.

Outside the United States, the growth in demand is being led by India and China, where growing economies mean more cars and trucks and more factories that use oil and natural gas.

Is the sky the limit? Oil prices could triple in three months to more than $200 a barrel, given the right circumstances, according to Matthew Simmons, chairman of Simmons, an investment bank in Houston. "Oil is still cheap," he said. "In the 20th century, with a few exceptions, oil was almost free."

It's going to be a wild ride.

http://www.iht.com/articles/2007/07/24/bloomberg/bxoil.php

Well this sucks. I reckon I better invest in a nice bike to get from here to there.

Get a motorcycle. Mine gets 50 MPG. My friend Kate's Ninja 250 gets 80 mpg.

That's ridiculous. They're just worry-warts.

And that, kids, is why I'm getting the next-gen Prius for my first car. $100 oil is affordable if you're not dependent on buying a lot of it.

Shoes would be cheap too if you can fly ><

Unfortunately I can't so I bought a ninja 500...

Which has not working speedometer... so I'm gonna go try to fix it.

Meh. I'm not believing Bloomberg. Oil is expensive, no doubt, but I don't see $100 barrels in the near future.

Meh. I'm not believing Bloomberg. Oil is expensive, no doubt, but I don't see $100 barrels in the near future.

People didn't see $70 oil either:

http://www.casi.org.uk/discuss/1999/msg00181.html

Frankly, I think it's best if people err on the side of caution because it will be win-win no matter what. If it turns out oil prices fall or remain stable, they save money and if they skyrocket they are insulated against the increase. The last thing we need is to act like we did in the and 90's and squander 10 years of cheap oil despite all the warning signs and lessons of the 1970's.

That's ridiculous. They're just worry-warts.

I'll bet you don't know anything about the industry.

Meh. I'm not believing Bloomberg. Oil is expensive, no doubt, but I don't see $100 barrels in the near future.

Read the article. Bloomberg isn't predicting it, they're reporting that a slew of other analysts are predicting it.

I said this yesterday.

And this is old news. It's not a peak oil thing though.

And you can pretty much ignore anything goldman sachs says.

And this is old news. It's not a peak oil thing though.

I don't know, though. Since OPEC cut output significantly this year, it's hard to know what the real supply margin is and if production has really peaked or if this just reflects an attempt by the cartel to ensure a stable price for their product. However, I think $100 oil would confirm a peak, simply because no OPEC producer in their right mind would willingly risk a surge in prices to that level. That's way beyond their comfort zone.

I'll bet you don't know anything about the industry.

Man Financial, of which John Kilduff is an employee, is not very reliable. As you can see, its stock prices have recently plummeted; perhaps this faulty analysis precipitated the decline.

http://www.londonstockexchange.com/en-gb/pricesnews/prices/coveredwarrants/warrantDetail.htm?sym=ANN8129L4877GBGBXLVSDB1XN3V4SA17

Also, I know enough of the industry to pay no heed to these "doom-and-gloomers." I'm proud to be buying a Hummer in several months.

And, anyway, with the recent privatization of Iraq's refineries, a drop in the price should be imminent.

http://www.iraqslogger.com/index.php/post/3721/Parliament_Passes_Law_to_Privatize_Refineries

One of the possible catalysts mentioned that could theoretically push the price up to $100 dollars per barrel was military intervention in Iran; that can safely be ruled out this year. There will be no "disruptions" in Iraqi supplies -- indeed, production will surge forward in the country, thanks in part to the effectual troop surge.

Read the article. Bloomberg isn't predicting it, they're reporting that a slew of other analysts are predicting it.

I noticed that, yes. ;) I've seen a couple cable news regulars say the same. I don't quite buy it, that's all.

And you can pretty much ignore anything goldman sachs says.

Ove the last four years Goldman Sachs has been one of the ONLY investment firms to consistently get it right. When oil was $40 everyone was saying it would fall back to $20 and GS said, "no it will go to $50." When it was $50 everyone said it would fall back to $30 and GS said, "no it will go to $60."

And how could you possibly know whether we're at Peak Oil? The market and the news say different.

I noticed that, yes. ;) I've seen a couple cable news regulars say the same. I don't quite buy it, that's all.

We'll see. Remember, people were predicting a massive surge in natural gas prices during the past few winters and now prices are at 2003 levels again.

The market is hard to read, especially now that so many more investors are involved and there is a lot more money chasing commodities than in the past. Technically speaking, we are in a secular bull market for commodities and prices will have upward momentum regardless of fundamentals for at least another 2-5 years.

So, you've got the warning, start finding ways of cutting out your overall dependence on oil. Instead of doing a shopping trip that requires a drive three times a week, do a big shop once a week. Walk or cycle anything that is less than 3-5 miles (good exercise for you, and a nice cheap alternative to driving). I've saved around £600 this year alone by cutting all those little car trips out (admittedly not out of some kind of environment loving/money saving exercise, but because my car keeps breaking down).

So, you've got the warning, start finding ways of cutting out your overall dependence on oil. Instead of doing a shopping trip that requires a drive three times a week, do a big shop once a week. Walk or cycle anything that is less than 3-5 miles (good exercise for you, and a nice cheap alternative to driving). I've saved around £600 this year alone by cutting all those little car trips out (admittedly not out of some kind of environment loving/money saving exercise, but because my car keeps breaking down).

You've hit the nail on the head. Conservation is the key to weathering high prices and the only way prices have a reasonable chance of declining.

I don't know, though. Since OPEC cut output significantly this year, it's hard to know what the real supply margin is and if production has really peaked or if this just reflects an attempt by the cartel to ensure a stable price for their product. However, I think $100 oil would confirm a peak, simply because no OPEC producer in their right mind would willingly risk a surge in prices to that level. That's way beyond their comfort zone.

I tend to think that $100 dollar oil this year would be a spike, caused by supply disruption, declining dollar &c. rather than a canary for peak oil.

Man if I had a job, I would start investing in companies that were producing Bio-Fuel or Ethanol.

It would be sweet if we could produce a Bio-Fuel that has the same make up as refined crude oil and could be use in the internal combustion engine.

Hmm....*goes off to Google*

I tend to think that $100 dollar oil this year would be a spike, caused by supply disruption, declining dollar &c. rather than a canary for peak oil.

It depends.

If it's like the spike in natural gas prices in 2005, which were nothing more than a bubble driven by speculative fever, I agree. Prices will spike, but then the fundamentals will set in and things will come crashing down, perhaps spectacularly like they did in the mid-1980's. However, if prices hit $100 and stay there or keep going up, it's clear there are really supply and demand pressures in the market and may suggest a peak in liquids production.

The main problem is that the fundamentals are hard to read right now.

I reckon it's time to buy oil on the commodities market.

I reckon it's time to buy oil on the commodities market.

Unless the commodities market is at its equivalent of the NASDAQ in January 2000.

Man if I had a job, I would start investing in companies that were producing Bio-Fuel or Ethanol.

It would be sweet if we could produce a Bio-Fuel that has the same make up as refined crude oil and could be use in the internal combustion engine.

Hmm....*goes off to Google*

That, or start planting corn as quickly as you can. :p Although I think you need a permit to produce ethanol in some states. ;)

I reckon it's time to buy oil on the commodities market.

Yea but Alternative fuel will win in the long run.

Ove the last four years Goldman Sachs has been one of the ONLY investment firms to consistently get it right. When oil was $40 everyone was saying it would fall back to $20 and GS said, "no it will go to $50." When it was $50 everyone said it would fall back to $30 and GS said, "no it will go to $60."

And how could you possibly know whether we're at Peak Oil? The market and the news say different.

Last year goldman reduced the share of gasoline in its commodity tracking index fund. Obviously what they say, and how they act, are two completely different things: leading me not to trust their pronouncements.

I'll file everything they say in the 'sub-prime is contained' folder thank you very much.

That, or start planting corn as quickly as you can. :p Although I think you need a permit to produce ethanol in some states. ;)

Usually it's a tax that is meant to make up for the amount you'd normally pay in gasoline taxes. After all, that money does go to maintain the roads and they need it from vehicle owners regardless of the fuel they use.

It depends.

If it's like the spike in natural gas prices in 2005, which were nothing more than a bubble driven by speculative fever, I agree. Prices will spike, but then the fundamentals will set in and things will come crashing down, perhaps spectacularly like they did in the mid-1980's. However, if prices hit $100 and stay there or keep going up, it's clear there are really supply and demand pressures in the market and may suggest a peak in liquids production.

The main problem is that the fundamentals are hard to read right now.

I'm not against the thesis that the MA of oil will continue to increase for the foreseeable future given demand increases. I don't believe that the squeeze on capacity - absent war and such - justifies such a huge price increase this quickly.

Man Financial, of which John Kilduff is an employee, is not very reliable. As you can see, its stock prices have recently plummeted; perhaps this faulty analysis precipitated the decline.

http://www.londonstockexchange.com/en-gb/pricesnews/prices/coveredwarrants/warrantDetail.htm?sym=ANN8129L4877GBGBXLVSDB1XN3V4SA17

Mann Financial is one of the most respected commodities brokers in the world and the entire market has tanked recently in case you hand't noticed, but that doesn't matter. Everyone who is in the know obviously believes that crude is headed nowhere but up as evidenced by teh fact that contracts ten years out are at or higher than they are today. This is an historical reversal in teh way commodity trading works. Usually futures contracts in the distant future are much cheaper because commodities tend to get cheaper over time if depletion is not an issue. Oil has always been that way - until now. What this indicates is that people who analyze these things with a microscope believe that oil is as cheap now as it will ever be again and the price will only go up from here. It's not just Mann Financial, it's the entire financial establishment. Years ago when I started watching this issue there were always contradictory predictions. Some analysts woudl say oil was going to crash and some would say it was still going to go up. I haven't read a prediction that oil was going to come down significantly in a long time. Pretty much everyone says it has only upward to go.

[quote]Also, I know enough of the industry to pay no heed to these "doom-and-gloomers." I'm proud to be buying a Hummer in several months.Dude, you're going to be so fucked. Remember that I said that in 6 months. If you're still here I'll remind you.

And, anyway, with the recent privatization of Iraq's refineries, a drop in the price should be imminent.

http://www.iraqslogger.com/index.php/post/3721/Parliament_Passes_Law_to_Privatize_Refineries

One of the possible catalysts mentioned that could theoretically push the price up to $100 dollars per barrel was military intervention in Iran; that can safely be ruled out this year. There will be no "disruptions" in Iraqi supplies -- indeed, production will surge forward in the country, thanks in part to the effectual troop surge.

At most we can squeeze an additional 2 million barrels/day out of Iraq. that's about as much production as we'll lose from the North Sea and Mexico in teh next year. That's IF Iraq stabalizes which doesn't appear to be happening any time soon.

I'm not against the thesis that the MA of oil will continue to increase for the foreseeable future given demand increases. I don't believe that the squeeze on capacity - absent war and such - justifies such a huge price increase this quickly.

I can't conclusively say for sure either way, but I seriously doubt OPEC would allow it to happen; the only way it might is if their supply claims turn out to be false and non-OPEC supply seriously underwhelms going in to the winter.

The oil market is too well organized and has too much to lose from any wild run-up in oil prices, and there is definitely new capacity coming online that will increase the amount available on the market. These kinds of predictions tend to reek of the "Amazon.com at $1,000/share" claims made during the dot-com bubble. Since companies like GS have a lot to lose if their long commodity portfolios suffer losses, they have an incentive to talk the market up.

I mean, just look at what happened to Amaranth when they tried to manipulate the natural gas market back in 2005...they're gone now as a result of one of the most spectacular hedge fund collapses in history and natural gas is trading effectively unchanged since 2003.

I tend to think that $100 dollar oil this year would be a spike, caused by supply disruption, declining dollar &c. rather than a canary for peak oil.

Historically, swing producers would open their taps to counter any surge in oil prices. That they are no longer able to do that is the definition of Peak Oil. There is no supply cushion. Everyone in the world is running pretty much flat out on production, much as Texas was in 1970-71. If you see a spike to $100 as a result of a political event or weather event and no new crude comes rushing onto the market to fill the supply gap, sorry folks, that's it. If you see a spike to $100 and there is no under lying political event or weather event, sorry folks, that's it. that just means demand is dictating prices and supply has lost control.

evidenced by teh fact that contracts ten years out are at or higher than they are today.

That is a completely normal state of affairs for non-perishable commodities. Google contango.

Historically, swing producers would open their taps to counter any surge in oil prices. That they are no longer able to do that is the definition of Peak Oil. There is no supply cushion. Everyone in the world is running pretty much flat out on production, much as Texas was in 1970-71. If you see a spike to $100 as a result of a political event or weather event and no new crude comes rushing onto the market to fill the supply gap, sorry folks, that's it. If you see a spike to $100 and there is no under lying political event or weather event, sorry folks, that's it. that just means demand is dictating prices and supply has lost control.

Weren't there sustained high prices during the early 1980s?

Last year goldman reduced the share of gasoline in its commodity tracking index fund. Obviously what they say, and how they act, are two completely different things: leading me not to trust their pronouncements. In favor of midstream oil services. Great move.

I'll file everything they say in the 'sub-prime is contained' folder thank you very much.

yea. They've been predicting that for a couple years now. In any case, there are about four or five different sources in that article, not just GS.

Weren't there sustained high prices during the early 1980s?

No, they were high for about a year but that was political. Iran took their oil off the market to punish the West for supporting the Shah and exactly what I said should happen, happened. the North Slope of Alaska was opened up to production and the North Sea ramped up in a big way and prices plummted. We've had a sustained upwrad march in oi prices now four 9 years and there are no large projects out there that are coming online that can calm prices. there are no large discoveries being made. In fact, plotted the history of oil exploration and discovery shows a peak in the 60s and terminal decline afterwards.

http://www.grinningplanet.com/2005/06-14/3-global-oil-discoveries-vs-demand.gif

As you can see, when demand constantly rises and discovery constantly falls, it's a losing proposition. Eventually it will catch up to you.

In favor of midstream oil services. Great move.


They just cut gasoline. (Okay a tiny increase in brent crude, but nothing significant).

That is a completely normal state of affairs for non-perishable commodities. Google contango.
Don't need to, I know exactly what it is, but the switch from backwardization to c.....


Oh, here:

Normally when a market switches from temporary backwardation back to contango, it is a result of the short-term supply problem that caused backwardation being resolved--that is, the spot price decreases. The interesting point from a Peak Oil perspective is this: a shift in fundamentals, such as a steady decline in world oil production, will make the commodity increasingly expensive in the future and will cause a market in backwardation to shift to contango without a decline in the spot price. Interestingly, that is exactly what may be unfolding in oil--compare the two graphs below, the first (from Bank of England), showing the crude oil markets in classic backwardation as of Feb. 15th, 2006, and the second showing a potential reversal in backwardation as of Mar. 21st, 2006, especially in the 2009 and 2010 contracts: http://www.theoildrum.com/story/2006/3/23/31547/4509

As you can see, when demand constantly rises and discovery constantly falls, it's a losing proposition. Eventually it will catch up to you.

I agree with that bit. And I think the long term average price will continue to rise (for the foreseeable future).

All I'm saying is that over a hundred dollars a barrel this year (which I said yesterday I believe can happen), is more a reflection of the volatility of oil prices and won't be permanent.

Moreover supply shock could lead to significantly reduced demand, in the form of global recession and such.

They just cut gasoline. (Okay a tiny increase in brent crude, but nothing significant).

yes. And invested in pipeline builders and piefittings makers and drilling companies, etc... great move. No one knew our refinery utilization would fall below 90% last year. If it hadn't, gasoline wouldn't have made it's bull run. Everyone knew that pipelines were being built and holes were being drilled.

I agree with that bit. And I think the long term average price will continue to rise (for the foreseeable future).

All I'm saying is that over a hundred dollars a barrel this year (which I said yesterday I believe can happen), is more a reflection of the volatility of oil prices and won't be permanent.

Moreover supply shock could lead to significantly reduced demand, in the form of global recession and such.

You said it "wasn't a peak oil thing" and there's no way you can know that. If we aren't at Peak now, I can tell you what - watch how the markets behave now because that's axactly how they'll behave when we are there. by the way, the world oil production graph also screams peak...

http://wolf.readinglitho.co.uk/chartimages/a/a1oilprod.gif


By the way, to show you how unusual the current contango is for oil, here's it on a graph:
http://i78.photobucket.com/albums/j100/subtr4ct/oil.jpg

Don't need to, I know exactly what it is, but the switch from backwardization to c.....


I don't think you can make the case that because the spot price doesn't fall, there is some form of long term supply crunch. I think softwood lumber did this a few years ago,

I don't think you can make the case that because the spot price doesn't fall, there is some form of long term supply crunch. I think softwood lumber did this a few years ago,

Sure.

In isloation that wouldn't be enough. But taken in context you can place a good bet. Check out Saudi Arabia:

http://seekingalpha.com/wp-content/seekingalpha/images/20070326_SaudiOilProduction.png

And their drilling:

http://www.econbrowser.com/archives/2006/07/saudi_prod_rigs.jpg

Looks to me like a frantic, massive drilling attempt to maintain output while their kingpin field, Gahwar, declines at 14% year over year. Doesn't look like they're succeeding.

You said it "wasn't a peak oil thing" and there's no way you can know that. If we aren't at Peak now, I can tell you what - watch how the markets behave now because that's axactly how they'll behave when we are there. by the way, the world oil production graph also screams peak...


It sounds like calling the top of a bubble to me. You can really only be sure after it has happened.

Anyway, surely if prices are driven up to the point where it dramatically effects the infra-structure of society, eventually production will decline because people are doing other things. Thus resulting in peak oil and making it a self-fulfilling prophesy. A bit like with coal output.

It sounds like calling the top of a bubble to me. You can really only be sure after it has happened.

Anyway, surely if prices are driven up to the point where it dramatically effects the infra-structure of society, eventually production will decline because people are doing other things. Thus resulting in peak oil and making it a self-fulfilling prophesy. A bit like with coal output.

Coal output declined for years because we substituted a higher quality energy - namely oil. Look for coal to make a big comeback.

Coal output declined for years because we substituted a higher quality energy - namely oil. Look for coal to make a big comeback.

I know that. I'm just saying you can get an output peak regardless of the relative abundance of the underlying resource. My point is, know one will know for certain that peak oil has been reached until sometime after it happens. Nor is the price of a given commodity a really good indicator of how scarce it actually is. It's more just a reflection of what everyone thinks everyone thinks it is worth.

Thus $100 a barrel oil is not really connected to a peaking event.

I know that. I'm just saying you can get an output peak regardless of the relative abundance of the underlying resource. My point is, know one will know for certain that peak oil has been reached until sometime after it happens. Nor is the price of a given commodity a really good indicator of how scarce it actually is. It's more just a reflection of what everyone thinks everyone thinks it is worth.

It's equally possible that output will peak with oil at $10 simply because new alternatives have come out that are superior to petroleum at any price. Oil's monopoly won't last forever; OPEC's already afraid of biofuels, and we can only wonder what will happen when PHEVs and electric cars start hitting the market in commercial quantities.

It's equally possible that output will peak with oil at $10 simply because new alternatives have come out that are superior to petroleum at any price. Oil's monopoly won't last forever; OPEC's already afraid of biofuels, and we can only wonder what will happen when PHEVs and electric cars start hitting the market in commercial quantities.

Exactly my thinking. Which is why I disconnect the $100 dollar price target from any type of peak event.

Again, taken by itself I would agree, but there's a lot more context here than just the price. Look at declining output in major producers while oil stands near an all time high. Look at OPEC's statement the other day where they said they may release more supply on the market because oil prices were too high. The market laughed and resumed it's upward trend. The market doesn't believe OPEC can increase supply. The market, by the way, is made up mostly, at least in capitalization, of people who pour over production reports, satalite images, new projects, etc... These people obviously believe that supply will not increase to match demand if they can laugh off a statement by OPEC that it intends to cool th market. This isn't the first time they've done that either. OPEC has said similar things over the last three or four years and the market has barely budged. In 1995 if OPEC says they're gonna pump more, the bottom falls out of the price of oil. Now no one pays any attention. Look at production charts, look at the failure of major oil comapnies to replace reserves - it's not just $100/barrel oil. It's $100/barrel oil in context.

Its not just the oil price rising; its that the USD is falling.

Its not just the oil price rising; its that the USD is falling.

That is true too.

Its not just the oil price rising; its that the USD is falling.

That plays a big role in it; the overall value of the dollar has depreciated for 30% since its peak in 2002. Were the dollar at its 2002 level, oil that costs $70 today would cost $49 instead. That's equal to almost all of the increase since late 2004, not including inflation. Interestingly enough, oil prices only started rising when the dollar started to tank in 2004. I think that plays a far bigger role in it than we take in to account.

It does go to show that spending money like water and printing reams of currency does have real world negative effects...I wonder what the "deficits don't matter" crowd has to say about it.

That plays a big role in it; the overall value of the dollar has depreciated for 30% since its peak in 2002. Were the dollar at its 2002 level, oil that costs $70 today would cost $49 instead. That's equal to almost all of the increase since late 2004, not including inflation. Interestingly enough, oil prices only started rising when the dollar started to tank in 2004. I think that plays a far bigger role in it than we take in to account.

Conventional wisdom seems to be that if the dollar breaks 80 on the USDX, look out below. Something to do with the carry trades having to unwind at that level. So potentially you could see the $100 barrel from that I imagine. (Though I think foreign governments would step in, like they did in 2004, and stabilize the dollar).

It does go to show that spending money like water and printing reams of currency does have real world negative effects...I wonder what the "deficits don't matter" crowd has to say about it.

It's more the trade deficit than the government deficit. (And the consumer borrowing fueling it - which, has been, in large part funded by asia's dollar surplus. Still the chinese said they aren't going to buy any more CMOs, so I guess that's over now).

Interestingly enough, oil prices only started rising when the dollar started to tank in 2004.

that's not true.

http://www.fundsupermart.com/main/articleFiles/webarticles/1641/SG/OilPriceHistory.gif

http://www.usagold.com/goldenchalkboard/images/resist-dol-eur.gif

The price of oil was clearly in an uptrend years before that.

that's not true.

The price of oil was clearly in an uptrend years before that.

But it did not break $50 until late 2004, the same time that the dollar began its aggregate decline against multiple major currencies. Even if it was declining against the Euro as early as 2000, the major overall decline did not happen until 2004. In strictly dollar-exchange terms, the price of oil has not increased significantly since 2004.

I do not believe that that is the sole reason for the price increase, but I do believe it plays a significant role that should not be overlooked.