Posted on 10/19/2004 6:52:31 PM PDT by Truth666
NEW YORK - Yesterday, in writing about the rise in oil prices--which have roughly doubled in a year--I noted, "No one saw it coming." (See: "Oil Hits $55 Alarm; Greenspan Hits Snooze.")
As it turns out, a few people did see it. And now some of those seers are saying the recent "spike" is no spike at all, but the start of a long-term trend. It may be that the price of a barrel of oil is heading for $100, if not higher, by the end of the decade.
To be sure, the conventional wisdom is that oil prices, which fell a bit yesterday to about $53 per barrel, are going no higher and will likely fall back. That seems to be the view of Wall Street firms, most of which say as much in their research reports. Bear Stearns (nyse: BSC - news - people ), for instance, last month forecast a $25 price in 2005. Even relative "bulls" like Goldman Sachs (nyse: GS - news - people ) are talking about whether prices in the high $30 range might be sustained.
That investors as a whole see the current price jump as a blip is shown by the fact that, while prices of shares in oil companies like Exxon-Mobil (nyse: XOM - news - people ) or BP (nyse: BP - news - people ), and oil services firms, like Schlumberger (nyse: SLB - news - people ) or Transocean (nyse: RIG - news - people ) have risen, they have not risen by anything like the price of the oil they drill and sell.
"To the best of my knowledge, not once [since 1998 when oil was around $11 per barrel] has any Wall Street firm forecast oil prices to be on a yearly uptrend," says Stephen Leeb, president of Leeb Capital Management, a New York investment manager and author of The Oil Factor (Warner Business 2004). Why has Wall Street missed it so badly? Leeb suggests that the answer lies not in economics, but in mass psychology, specifically studies of social conformity.
Leeb himself is forecasting higher, indeed skyrocketing, prices. He is not part of a crowd, but he is not all alone either. He is joined by, among others, Matthew Simmons, chairman of Simmons & Company International, an energy banking firm in Houston. Simmons speaks of a phenomenon called "Peak Oil" and says it is "as inevitable as death," though, like death, predicting its precise timing is not easy. Leeb and Simmons point out that, unlike the oil crisis of the late 1970s and early 1980s, which was a political phenomenon, the current price increases are fueled by supply and demand, which are less transitory than politics.
What is the scenario in which oil hits $100 per barrel in the next five or six years?
Just as the current price increases are said to be fueled in part by rising demand from China and India, those countries will also play a large role in the long term. Leeb says that China and India now consume energy (not just oil, but all forms of power) at a per capita rate that is one half the world average. Compared to the rich nations like the U.S. and Western Europe, their per capita consumption is one-seventh as large. If these two countries become wealthy, as everyone expects they will, and merely start to consume like the rest of the world (forget about their consuming like the U.S.), that rise in demand will have a dramatic impact on world energy markets.
Leeb estimates that if China and India continue to grow, the demand for oil will rise by 6.1% per year. To meet such demand, the world would have to raise output by 43% by 2010 and to triple it in 20 years.
Is such an increase plausible? Simmons points out that, while new discoveries are certainly possible, even likely, 70% of the world's daily supply comes from fields that have been drilled for 30 years or more. Leeb adds that even Saudi Arabia, despite a stagnant economy, consumes 24% of the oil it drills. In order for it to boost production, it will have to consume a higher percentage of what it makes. As for the world's second largest oil exporter, Russia, if its economy weren't a basket case, it might be using its entire output internally.
Leeb says that during the last oil crisis, the world was producing at 70% capacity. Now it's at 99%. Because there is no slack in the system, every time there is a trial in Russia, a strike in Venezuela, a hurricane off Louisiana or a surge in violence in the Middle East, the oil markets react dramatically. The good news is that we are more efficient than in the 1980s, and we spend a much smaller share of gross domestic product on energy. But while demand may slack off short term due to slower growth, the longer term is troubling regardless of new production technology or far better conservation.
Where have we heard this before? In the 1970s and 1980s, some prognosticators spoke about the world "running out of oil." That prospect is not what drives the current fears. It is the apparently inevitable supply-and-demand driven market movements that may force the price of oil to $100. And that's a lot scarier.
don't say that - the free traders will be trashing you if you mention offshoring and wage deflation, which they swear is not happening, so long as the compensation of the executive suite and government workers are included.
I work for a major oil company with major operations in the Gulf of Mexico, and I can tell you that it's far more than that. I get daily reports. I read them.
The US as a Nebt Debtor: The Sustainability of US External Imbalances
You have stumbled upon the truth. The real danger to the American way of life....life as we have come to know it, is that the dollar has been destroyed by Alan Greenspan's easy money policy. He took fed rates to 1% while the treasury sold fiat money to Japan,Swiss, and any other entity that the Fed could coerce into buying essentially diminishing in value dollars. Once he got to 1% he was, in essence, paying banks who borrow from the fed to borrow money. This is in addition to the profligate spending of the US government. Then at low interest rates everyone and his dog borrowed money for cars, refinancing already paid for homes, credit card buying, and now the time is rapidly approaching to pay the piper. The USDX (dollar) is beginning a rapid decay and today was about 88. The price of gold has a direct inverse relationship to the dollar. I suggest you releive yourself of as much paper as possible and get physical gold. The dollar, I fear, at this time next year will cease to be the world's reserve currency. Conditions today do no mimick 1973 in that today there is not an oil shortage but rather an oil access shortage...more demand from China and India and others. If alqaeda were to stop the flow of oil by blowing a tanker in the Strait of Hormuz, the Panama canl, the Suez Canal,the Strait of Gabralta oil will immediately go to well over 125 dollars per barrel. But most importantly your way of life, your job, the American existance would cease to exist. We (USA) need to drill in ANWAR, develope nuclear facilities, and even put some wind mills off of the shore of Martha's Vinyard just to spite Kerry and Moma T. We are in one hell of a spot and the day of reconing is here. God help us if Kerry gets into the White House. Now we stand at the precipice of inflation like in 1980 when we saw 18% interest rates. I don't know about you but I will not buy anything on time with high interest rates. There goes the jobs. The only way to get out of it is hyperinflation. The government cannot lower interest rates. It went to 1% and was in essence giveing federal reserve notes away. Do you think the government will lower the tax rate and adjust your tax bill as you are paid in less and less valuable dollars. I don't think so. So here we are... you and me and the poverty pimps screaming ant the elected officials to give us a break. If I were taking bets, I'd go with the pimps because there are more votes. Remember what a great thinker once said, "When the electorate realizes they can vote themselves a raise from the public largess, this consitutional republic is over."
Time to kick the envirowackos the hell out of every legislature in the country and drill for oil HERE!
and on and on---all pointing to the Bibical Prophecies of 'end times' and the world turmoil that will take place--God still Rules in the affairs of men!--no one has to believe but it will take place (and right on the Lords timetable)
and on and on---all pointing to the Bibical Prophecies of 'end times' and the world turmoil that will take place--God still Rules in the affairs of men!--no one has to believe but it will take place (and right on the Lords timetable)
``Higher oil prices are certainly inflationary,'' said Stephen Leeb, who manages $100 million at New York-based Leeb Capital Management, ...
That may be the SMALLEST 'Capital Management' firm outside of Spokane I've ever heard of. And in Spokane it would be small, very, very small. With 8 staffers - http://www.leeb.net/our_people.html - and maybe a million a year in gross revenues, how much does he make for himself?
``Higher oil prices are certainly inflationary,'' said Stephen Leeb, who manages $100 million at New York-based Leeb Capital Management, ...
That may be the SMALLEST 'Capital Management' firm outside of Spokane I've ever heard of. And in Spokane it would be small, very, very small. With 8 staffers - http://www.leeb.net/our_people.html - and maybe a million a year in gross revenues, how much does he make for himself?
"...all pointing to the Bibical Prophecies of 'end times' and the world turmoil that will take place--God still Rules in the affairs of men!--no one has to believe but it will take place (and right on the Lords timetable)"
Thanks "44". I really needed that reminder tonight. Appreciate it!
Eh, maybe they have comfortable long lasting jobs.
Otherwise, most skilled tech people with a job (or without one) will experience severe wage deflation.
I'm seeing stuff down to $10/hr now, without benefits, which used to be $25/hr with benefits. Now you're lucky to get $10/hr without benefits.
The break even on that is around $60/barrel. With Efficiencies, that may be possible at $50, but $60 is the magic number.
I'll also just add that Saudi Arabia is maxxed out on the sweet crude...their extra production is sour crude. That doesn't help anything. There simply aren't enough refineries that can deal with the high sulfer crude out of SA or even Iraq for that matter. We really need to get back to coal/steam and solar to ween ourselves off of oil imports.
jinx jinx jinx
Maybe he only manages $100 million out of a much larger account. Otherwise I know many dweebs who manage more than that in a bank trust department. Some are pretty sharp. Some are something less than dweebs.
Greenspan manages quite a chunk and he remains a first rate dweeb in my book. That SOB created the smoke screen that blinded us while we were raped.
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