Posted on 05/24/2008 9:24:38 AM PDT by BenLurkin
Oil is up 30 percent in three months after peaking above $135 today following this week's ho-hum report on U.S. supplies. The general sentiment among investors, even in commodity pits, is that there may still be room to rise, with analysts predicting oil could top $200 a barrel over the next couple of years--if not earlier. But just as there is a seller for every buyer, there is a bear case for every bull case. So here are a few scenarios that could push prices back down:
1. Investors pull back.
Institutional investors--pension funds, hedge funds, sovereign wealth funds--could decide commodities are a less attractive proposition and take profits after a year of record-breaking price increases. "The market could fall under its own weight in the near term. You've got to question how much more money can come into these markets at this point in time," says Eric Wittenauer, an energy futures analyst at A.G. Edwards.
Probability: Unconvincing. The argument could have been made at $100 a barrel too, Wittenauer says. Or $110, or $120...
2. The dollar gains.
The greenback recovery is far from assured, but for now it has managed to bounce off mid-March lows. The U.S. Dollar Index hit a yearly low of 70.96 on March 14 and has since recovered to a bit above 72. But that improvement hasn't been enough to stop crude's rise, even as hopes for a bottom to the dollar's decline improve as the Federal Reserve decides to end two years of rate cutting. It might take a move by the G-7 countries to support the dollar. G-7 officials "talked up" the currency a bit after their April 11 meeting following the blowup of Bear Stearns. It's not clear they'll do more talking soon. "We're going to have to see some strength in the dollar to pull some of this investment money out of oil," says Darin Newsom, a commodity analyst at DTN.
Probability: Possible.
3. The Olympics end.
This may sound strange, but once the torch is extinguished following the Beijing games, crude could get a break. That's because in the run-up to the games, China has continued to demand an ever growing flow of diesel fuel. That in turn puts upward pressure on the cost of other distillates like heating oil and jet fuel. "The most important thing we could see is foreign diesel demand begins to slow. If that happens, it'll kick out one of the major supports underneath the crude market at this time," Newsom says.
Probability: Moderate. There are signs the superheated Chinese economy may be cooling ever so slightly, though its long-term expansion probably means more strident competition for almost all commodities.
4. Production increases.
OPEC could boost production, but not by much. It blames the falling dollar and speculators for the surge in prices. President Bush urged production hikes in his recent visit to the Middle East, but analysts warn a short-term fix by turning on the tap won't correct the demand side of the equation. Saudi Arabia, home to the world's largest reserves, is pumping at full capacity. A big new find like the one off the coast of Brazil could help, but those are long-term worries because of billions of necessary investment in order to extract a single barrel. "OPEC is operating with little or no spare capacity," Wittenauer says.
Probability: Unlikely.
5. Domestic demand declines.
Americans are heading into the summer driving season. High prices mean that, compared with a year ago, Americans have pumped 1.4 percent less gasoline in 2008. But that's not enough to bring costs down, according to a weekly consumption survey by MasterCard Advisors. A seasonal pullback could come after a normal two-week rally in prices leading up to Memorial Day, but they'd be likely to rebound ahead of the July 4 holiday. Conservation efforts--rather than gas tax holiday schemes offered by Sens. John McCain and Hillary Clinton--would have to be stepped up substantially to really help dampen crude prices.
Probability: Unlikely.
6. Other markets calm down.
Right now, most analysts agree oil is out of synch with supply-and-demand fundamentals (though they disagree on just how much). Investors are scouring the globe for yield at a time when stocks are floundering, bond yields are paltry, and the American economy is uncertain at best. In times like these, everything from gold to oil looks both attractive and safe. To be coaxed back into the broader market, traders still need to see an end to the credit crunch and regain some faith in both the global financial system and the health of the U.S. consumer before abandoning one of the few profitable corners of the market.
Probability: Moderate. Markets seem to believe that the Federal Reserve has headed off the worst of the financial crisis. Equities have recovered a bit, though slower consumer spending and falling home prices are still the biggest unanswered questions.
The bad news, however, is that most analysts believe that crude moving higher is the most likely outcome, and even if any of the above breaks are supplied, the pullback in price could be 15 to 20 percent at the most. That would still leave oil at well over $100 a barrel. Most analysts are solidly bullish on the price of crude through what could be a long summer for American drivers.
Leni
Your word to God’s ear.
8. All Alternative energy production sources encouraged.
9. Corruption and obstruction (while secretly moving US technology offshore) at the US Patent Office ends.
10. Additional nuclear reactors planned
11. ANWAR drilling begins
Incorrect. Saudi Arabia is 2,000,000 barrels under their daily capacity.
Their "increase" of 300,000 barrels daily several months ago was a proverbial drop in the bucket compared to their capacity under-run, and likely simply accounted for the overage they were already pumping.
Why stop there? We have untapped oil in the Gulf of Mexico we could be extracting, oil in Colorado's mountain ranges that we know how to extract now (drilling sideways without damaging the environment) and our own shale oil reserves we could be exploiting using underground extraction which doesn't disrupt the surface.
So why don't we do it?
Oh yeah, that's right - an environmentalist-nazi controlled Democrat party, and a bunch of spineless Republicans who don't force daily votes on drilling off our own shores or in our own waters.
Don't just toss out the Dim's, toss out the spineless Pubbies too this election!!!
Demand Energy Independence, and demand it NOW!
Call me crazy, but how about stopping the "speculator driven" hedge-funds that have unnecessarily driving up the price of oil?
In a consumer-driven free-market economy that we live in, why do we allow market manipulation like this to occur?
8. All Alternative energy production sources encouraged.
Probability: Unlikely. Any increase in production won’t offset growth in demand.
9. Corruption and obstruction (while secretly moving US technology offshore) at the US Patent Office ends.
Probability: Unlikely. It hurts when coffee gets spit out my nose.
10. Additional nuclear reactors planned.
Probability: Unlikely. Brainwashed lefties will never allow anything meaningful in this regard.
11. ANWAR drilling begins
Probability: Unlikely. See #10.
7. China and India, feeling sympathetic to the plight of suffering SUV-driving Americans, abandon their 3 cylinder, 1200 pound automobiles and return to bicycles and rickshaws for transportation.
The price of oil will plunge when environmentalist freakos run out of cash to buy our treacherous politicians who deny us the right to pump our own oil.
# 7....it’s getting closer to election.
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This gambit was discussed in the last election. There was very little movement in the oil and gas prices back then.
My dad has been talking for months about tulip mania, both with regards to housing and now commodities, including oil. That said, far too many folks now believe the price of oil and other commodities will increase forever, which is exactly what the speculators predicated their moves on during the housing insanity two years ago...and we all know how that one ended!
1) ANWR holds at most 2.7 years of US consumption, more likely < 2 yrs. Possibly as little as 1. More importantly, that’s about 3 months of world consumption.
2) Alternative Energy has been sought with funding for 31 years now. The DOE was created in 1977. Oil remains the primary fuel source for transportation. There is no proof or law of the universe that says acceptable alternatives can be found.
3) Cities are not farms. Food gets to cities on trucks, usually over large distances. Trucks use diesel. Nuclear power provides electricity, but the power required for trucks to carry food to cities is beyond practical electrical designs. The horsepower/watt conversion would dictate battery size/weight so large that little payload room would remain in the equations. There is much talk of cars for alternative fuels, but from the perspective of sheer survival of civilization, it is trucks that matter, not cars.
4) The Democrats are being entirely political when they say “you can’t drill your way out of the problem”, but from a long term perspective this is right. New supply would lower prices temporarily, and there’s nothing wrong with a temporary reduction in price, but the truth is that there is no reliable evidence behind “oil is replenishing itself” theories. If there was, private landowners with old wells on their land would restore their revenue flow now that prices are so high. They don’t because empty means empty. There is a finite planetary supply of oil and when it’s gone, it’s gone. (Note, however, that Saturn is made of methane)
I’m not counting on this. We need and energy independence moonshot. Give oil a competitor. Competition works.
On second thought, nevermind. The Globalist oligarchy that runs our current government must know what is best for us.
I can think of another reason.
Using oil as a fuel source in itself will be obsolete, when the big oil companies find out they no longer have the cojones of the world in their hands because in some lab right now there is people developing processes that will be a historical turning point for the human race.
And the Saudis know it and are afraid, they will make as much as they can any way they can before the bubble bursts.
I agree with all your points but doubt they'll be popular on this forum. Drilling ANWR is akin to putting a band-aid on a gushing wound.
Our energy crisis is going to call for a complete restructuring of American society. We got a taste of the future back in the 1970s and we adapted temporarily. However, we squandered the opportunity to change our habits and now we are paying the price. Change will be forced upon us.
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