Forbes warns of oil bubble [price could return to $30-35]

Herald Sun (Australia) ^ | 31aug05 | James McCullough and Mandi Zonneveldt

[cloud8]

PUBLISHING billionaire Steve Forbes has predicted that soaring oil prices will lead to a crash that could make the hi-tech bust of 2000 "look like a picnic".

Mr Forbes, publisher of Forbes magazine, said the price of oil, which peaked at more than $US70 a barrel on Monday as Hurricane Katrina headed for the US Gulf Coast, was unsustainable.

He said factors such as inflation and increased demand for oil from China and India accounted for only a small part of the price hike from $US25-30 a barrel three years ago.

"The rest of it is sheer bubble speculation," he said.

Mr Forbes, who was speaking at the opening of the Forbes Global CEO Conference in Sydney yesterday, said the higher the oil price rose, the harder it would eventually crash, creating more pain for hedge fund managers and their clients.

"I don't think it's going to go to $US100 but if it does the crash is going to be even more spectacular," he said.

"It will make the hi-tech bubble look like a picnic -- this thing is not going to last."

He predicted that oil would fall to $US30-35 a barrel within a year.

Mr Forbes's comments came as the price of oil eased following US Government comments that it could release some of its Strategic Petroleum Reserve.

The 700 million barrel stockpile is set aside for emergency use and could be used to counter oil shortages caused by Katrina's impact on the Gulf of Mexico, which accounts for about a quarter of US output.

After leaping nearly $US5 a barrel to $US70.70 on Monday, US oil futures retreated more than $US1 a barrel yesterday.

more

[cloud8]

Sounds like good news. If energy speculators lose their shirts when the bubble bursts, even better. But at least someone is saying that high oil prices are only temporary.

[Zarro]

Sounds like good news. If energy speculators lose their shirts when the bubble bursts, even better.

Yeah, I tend to agree. Trouble is, the oil companies have already racked up huge profits. If you saw the last quarterly round of profit reports from the major oil companies, you know they made never-before-seen profit levels. And that was the last quarter. I'm very interested to see what their next reporting period brings. My prediction: record profits. So, the speculators who don't get out in time may lose it all, but many others will have done quite well. While the public has been told of all the disasters that caused the prices to rise.

[xkaydet65]

Just got an E mail from a friend who's in the oil futures business. His take is not good. The refineries have several problems. Physical damage is one, but work force is another. The homes of so many workers being totally destroyed makes a start up for the refineries very difficult. The major pipelines have begun ops but they are at less than 20% of capacity with only slow increases foreseen. Off shore production is back, but to only 15 to 20% of pre storm levels. The shortages of crude are affecting refineries as far north as the Conoco installation in Illinois. I don't see $30 bbl. anytime in the near future.

[upchuck]

FYI, your "more" link doesn't work. Looks like you left off the "http://herald" part.

I sincerely hope Mr. Forbes is right about this. Some how I doubt it. Given the world energy situation, I don't think we'll ever see oil for $35 again.

I do think it is over priced now. $40-50 seems about right to me. A drop to that level might bring the national average for gasoline to $2.20 or so. This is a SWAG (super-wild-assed-guess) on my part.

[pissant]

They are. There is no shortage of oil. Now the US better get busy and get some more refining capacity though!!

[snowsislander]

He predicted that oil would fall to $US30-35 a barrel within a year.

As I said in a previous incarnation of this story, Mr. Forbes' prediction would gain much more credibility with me if he were to announce that he is shorting oil -- he certainly has the financial resources to do so.

[The Great RJ]

I agree with Forbes, the $70 price level is not sustainable. These high price levels will stimulate new production whether from opening up old less efficient wells that were not profitable at $30 price levels to developing new sources like oil shales and tar sands. Consumers will respond by driving less and buying fewer gas guzzling vehicles. While I don't necessarily see $30 per barrel oil, I think prices in the $40-50 range are realistic in the near future. Markets work, governments don't.

[jwh_Denver]

If energy speculators lose their shirts when the bubble bursts, even better.

Why? You a communist or something? I'm profiting from the burst in oil prices but I didn't cause the price of oil to go up. I'm helping oil companies get more money so they can do more exploration to get more oil thus someday lowering the price.

I don't know enough details since the link does not work of why Forbes is saying $30 to $35 a barrel within a year but everything goes in cycles. We may be near the high before it drops back down some but everybody else is saying oil is going to go much higher. That $30-35 I believe is pure bull within a year.

[Tacis]

Forbes is such a little old lady! It is nothing like the 90s! If the oil bubble bursts, only the oil companyies will be hurt that vast bulk of the economy will surge, maybe, explode. $35 oil would effect so many industries, cars, vacations, airline, chemicals, power generation, that the immediate fear would be inflation as folks competed for goods and services.

[CharacterCounts]

The refineries have several problems.

Wouldn't lack of refining capacity tend to make oil prices decline?

Refining is the potential bottleneck in the system. If we have reduced capacity retail gas prices may climb at the same time a demand for oil decreases.

[databoss]

This is bad news actually...hedge funds are the new S&L's...the underlying basis for these speculative funds would have a deep impact on the current real estate boom....

[ChadGore]

I have to agree with Forbes on this.

[ChadGore]

FULL TEXT:

Forbes warns of oil bubble
James McCullough and Mandi Zonneveldt
31aug05

PUBLISHING billionaire Steve Forbes has predicted that soaring oil prices will lead to a crash that could make the hi-tech bust of 2000 "look like a picnic".

Mr Forbes, publisher of Forbes magazine, said the price of oil, which peaked at more than $US70 a barrel on Monday as Hurricane Katrina headed for the US Gulf Coast, was unsustainable.

He said factors such as inflation and increased demand for oil from China and India accounted for only a small part of the price hike from $US25-30 a barrel three years ago.

"The rest of it is sheer bubble speculation," he said.

Mr Forbes, who was speaking at the opening of the Forbes Global CEO Conference in Sydney yesterday, said the higher the oil price rose, the harder it would eventually crash, creating more pain for hedge fund managers and their clients.

"I don't think it's going to go to $US100 but if it does the crash is going to be even more spectacular," he said.

"It will make the hi-tech bubble look like a picnic -- this thing is not going to last."

He predicted that oil would fall to $US30-35 a barrel within a year.

Mr Forbes's comments came as the price of oil eased following US Government comments that it could release some of its Strategic Petroleum Reserve.

The 700 million barrel stockpile is set aside for emergency use and could be used to counter oil shortages caused by Katrina's impact on the Gulf of Mexico, which accounts for about a quarter of US output.

After leaping nearly $US5 a barrel to $US70.70 on Monday, US oil futures retreated more than $US1 a barrel yesterday.

On the physical market, Texas Intermediate was trading at $US67.40 while London Brent Crude was up $US1.88 a barrel at $US66.75.

Katrina crossed the United States coast yesterday after closing the Louisiana Offshore Oil Port, the biggest US oil import terminal, and halting 92 per cent of normal Gulf output.

The market was nervously awaiting news of the impact of the hurricane last night.

Royal Dutch Shell reported that its production platforms in the Gulf of Mexico may have been damaged.

BHP Billiton's operations were expected to remain suspended for the next few days, company spokeswoman Emma Meade said.

She said the impact of the storm would not be known for several days.

Petsec Energy said its two offshore platforms were not in Katrina's direct path.

In Australian trade yesterday shares in BHP Billiton bounced back 44 to $20.47. Petsec finished 4 higher at $1.60.

Oil heavyweights retreated on profit-taking and after Opec indicated it would increase production to deal with any supply shortages.

Woodside slid 41 to $32.94 while Santos fell 30 to $11.52.

with AFP

[Jazzman1]

the LIBERALS and tree-huggers will sue to stop them. No-win situation for consumers.

[Lessismore]

Not really. The S&Ls were directly involved with real estate mortgages, and repossessed real estate was flooded onto the market during the S&L clean-up.

The dot com boom collapse involved a lot of people losing jobs which were funded by so-called investments by which didn't result in any productive assets.

The hedge funds that are driving up the oil prices occupy a different position in the economy, one in the higher reaches of the financial system. Their collapse will resemble the Enron collapse times ten.

[HawaiianGecko]

	I'm not an economist or an oil executive. I have a hard time determining which pundit is correct, but I tend to believe Forbes. A doubling of the price of oil would seem correct if there was a doubling of the demand for oil (or something along those lines). It also seems that if $70 oil was thought to be sustainable, every oil company on the planet would be poking holes in your back yard. They aren't doing that, so common sense says it is speculation driving prices.

 

 

I'm not an economist or an oil executive. I have a hard time determining which pundit is correct, but I tend to believe Forbes. A doubling of the price of oil would seem correct if there was a doubling of the demand for oil (or something along those lines).

It also seems that if $70 oil was thought to be sustainable, every oil company on the planet would be poking holes in your back yard. They aren't doing that, so common sense says it is speculation driving prices.

 

[DaGman]

Irrational exhuberance.

I agree this is nothing more than the latest bubble. When I can drive around and see gas for $3.00 at one place and $2.79 at another that means there's not a lot of support for the $3.00 price. And, there's also a "terror premium" built into oil prices. Just like the tech bubble, this won't last.

[IronJack]

I'm profiting from the burst in oil prices but I didn't cause the price of oil to go up.

Oh, so you're just hitching a ride on the Gouger Express?

I'm helping oil companies get more money so they can do more exploration to get more oil thus someday lowering the price.

HAHAHAHAHA! So THAT'S what they're doing with the obscene profits they're making by exploiting this tragedy. Here and I thought they were using the money to flush their toilets with Perrier.

[nevergore]

Sounds like Forbes is trying to sell short on oil futures....

NeverGore :^)

[Felis_irritable]

"...developing new sources like oil shales and tar sands."

I'm going from memory here...oil shale becomes economically feasible at ~$50.00 bbl for crude. Why else would the Saudis open the spigot like they have? Oil shale technology isn't complete, but it will become so if oil stays over $50.00.