Posted on 06/20/2005 8:00:46 AM PDT by ex-Texan
A SUMMER of soaring oil prices is threatening to hit motorists and pile more pressure on the beleaguered manufacturing sector.
Light sweet crude hit a fresh record high of $59.18 a barrel in Far East markets today amid fears of future supply shortages and a lack of spare refinery capacity.
Analysts believe prices will reach further highs within days. 'We expect $60 to be breached in pretty short order,' said Kevin Norrish at Barclays Capital.
Experts warn this could cast a shadow over an economy already floundering as higher petrol prices bite into motorists' income and companies spend more on fuel.
Doug Godden, head of economic analysis at the CBI, said firms are getting concerned. 'Business is being squeezed,' he said.
'Not only is the oil price pushing up costs, weakening demand both at home and overseas is making it harder to pass them on.'
While oil is undoubtedly inflicting pain, comparisons with the price shocks of the 1970s and the crippling recessions that followed, are wide of the mark.
First, the increase in oil looks less worrying when you take inflation into account. If you adjust for changes in US inflation, oil needs to rise to about $80 to be as expensive today in real terms as it was in 1979. If you adjust for UK inflation, that figure is nearer $120.
Follow the Footsie's response to oil prices with our hourly-updated Market report or get all the share-price information on oil companies in the Oil & Gas section of Market Data.
Another mitigating factor is that the economy is much less energy intensive than it was 30 years ago, while petrol is influenced more by Gordon Brown's fuel duties - some 75% of the pump price - than the vagaries of the oil market.
Steve Andrew, economist at F&C Asset Management, said: 'The economy has plenty more serious things to worry about than oil. Manufacturing's concerns about energy prices are swamped by worries about weak demand in the eurozone. However, in an economy where consumer spending is slowing, it is clearly not helpful.'
Royal Bank of Scotland's Ross Walker agreed. 'Recent experience has been that Britain has weathered the oil price rise relatively well.
'In itself it is not a major concern but, coming alongside the sharp slowdown in the domestic economy, it could be a bigger problem.'
Philip Shaw at Investec said an oil-induced slowdown in the US economy, which tends to be more sensitive to energy costs, could have a knock-on effect in Britain.
'We're getting into uncharted territory,' he said. 'If oil gets up to $65, it could hit the economy hard.'
Last night local news reports featured a story about a man that has a 2002 Diesel Volkswagen. He paid local mechanics to convert his little car to allow it burn used french fry oil. The conversion cost him about $ 1,200. The mechanics installed a handle inside his car so he can switch back and forth between diesel and home made biodiesel. This guy does not even have to pay for fuel anymore. He fills up ten gallon plastic containers with used cooking oil he gets from a local restaurant. Free fuel for life and he is getting over 40 mpg.
Almost time to start shorting oil.
I wonder why when it went up last time to the high 50's gas was about $2.20+ a gallon here and it went up like a ROCKET, now it is holding pretty steady at $2.01 a gallon or thereabouts with oil at new highs. guess who is getting the screw job out of this?
TLR
While you are selling oil futures short, I will be hunting to find a conversion kit for my own diesel. There must be a kit out there selling for less than $ 250. The idea of not paying for fuel really impressed me. Biodiesel sells for about $ 2.96 per gallon locally. Oregon is ripping people off every way from Sunday.
Won't do much good if a bear eats your car:
http://www.dcexaminer.com/articles/2005/06/03/columns/sprawl_and_crawl/85sprawl05.txt
LOL, LOL, LOL ! Good find ! The guy who converted his VW even said that his car " always smells like french fries."
It does not matter how much oil they pull from the ground, our refineries are running at max capacity.
Yes I know .. but we've had that problem for the last 20+ years
It is somewhat of a problem for consumers... but the oil companies are turning record profits. By oil stocks.
Yep. Weird ain't it?
So I guess buying oil by the quarts for an "investment" is out the window, too? ;)
i wonder how that would work on my 401K? LOL
TLR
There's a lot of potential long-side money on the sidelines out there.
Grunts on the ground in the "hands on" side of the oil biz know plenty of cheap oil is & always will be flowing under the MSM propaganda mills.
But don't tell anyone, wouldn't want to upset the myth market.
Right now, there is a largely irrational fear component, presumably fear of major supply disruption(s), in the price of crude. I make it to be something on the order of $14-17/bbl.
Yes, Nigerian supply is not exactly the steadiest in the world, yes, the Norwegian oil workers seem about to strike, yes, Chavez is and has been running down his production infrastructure, yes, the external terrorists in Iraq will blow up some small amount of capacity and transmission infrastructure...and, yes, US and Japanese supplies on hand are well higher than 1-2-3 years ago. However, mkt fear persists just as long as it's profitable for someone (or a lot of someones) to encourage it, and so it will here, too.
It's just like cards in one sense; one simply has to play out the hand.
Keep me posted on your oil futures thoughts.
Just printed out and am reading about a dozen articles on the topic, to consider the trading possibilities...
There will be a time and a place to short oil, but I am not sure if this is it. There is some underlying fundamentals support the oil price:
- demand for 'sweet crude' higher than supply.
- supply increases have a several year lag time, so the price cycle is a long cycle (20 years!)
OTOH, there is a speculation premium in the price today, OPEC wants a lower price because they know higher prices means more supply which could lead to a price crash, so they want it under $50.
... If I were to guess a this time, the price should regress to about $45-50 by fall if there is demand dampening, with occasional speculative spike-ups ... then fall further in the 2007 timeframe, and we will never see sub-$30 in the next 5 years.
Check out http://www.veggieavenger.com/ - there's a message board there where you can find some tips on do-it-yourself conversions. My brother put a heating coil in the main fuel tank of one diesel, and used the auxilary tank for dinosaur diesel. The advantage of the GreaseCar or Greasel kits is that it saves a lot of work and headache over trying to fashion your own heated tank and oil delivery system.
This market seems to be getting overheated and this latest rally is partly driven by the recent dip to $47.50 that cleared out a lot of potential sellers and less bullish holders of long-side contracts. But the sellers should return in the next two weeks or so. I don't touch the oil commodity markets because a single oil contract for 1,000 barrels is a $55,000+ trade right now. Man that's dangerous and I'll stick to stocks and bonds!
You might be interested in post #18. Some of this rally is just technical chart-pattern trading.
"I could be wrong .. but haven't they been increasing he amount of barrels of oil .. meaning there is more oil being produced?"
actually you can blame Envirowhackos for this one. Problem is the refinery capacity cannot keep up with the output that is produced. Techinically there is a glut being pumped but kind of gets stuck in the refinery process.
We have not built a new refinery since the late 70s thanks to Envirotypes
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