Oil's tipping point: Where is it?

Houston Chronicle ^ | April 22, 2008, 9:56PM | KRISTEN HAYS

[thackney]

With crude approaching $120, experts look for hints of decline

With oil less than a buck away from $120 a barrel, analysts are growing weary at trying to anticipate the tipping point that will bring prices down.

Some say a six-score price could prompt developed countries to pressure the Organization of the Petroleum Exporting Countries to increase production whether or not the cartel sees a need to do so.

Others say it's folly to predict a tipping point until the weak dollar stabilizes and strengthens.

Either way, analysts say, it's reaching the point where something's got to give.

"I'm hopeful that we are in the grand finale of this 2008 event," said Tom Kloza, chief oil analyst at the Oil Price Information Service in Wall, N.J.

The side effect of high crude prices most visible to consumers, the price at the gasoline pump, also is setting records — and for the first time this week it surpassed its all-time inflation-adjusted high.

Oil crossed that threshold several months ago. The federal government says the average U.S. price per gallon of gasoline hit $3.508 on Monday, nearly a dime higher than the March 1981 high of $3.41 in today's dollars ($1.42 before adjustment for inflation.)

That continued push also prompted analysts to speculate that oil's run-up is reaching its last rally.

Kloza said attempting to identify the tipping point is "pretty much an exercise in abstract thought."

Earlier this year, though, he compared $100 oil to the pre-dot-com bust Nasdaq stock exchange rally in 1999 and 2000, though he wasn't clear on whether $100 oil represented Nasdaq at 4,000 or 5,000.

"It is now clear that it represented the former, and not the latter, which represented the last throes of the bubble," Kloza said. "I hope $120 a barrel is the equivalent of the Nasdaq 5,000, which would put us in the last inning."

Crude for May delivery came within a dime of $120 a barrel Tuesday before closing at a record $119.37 a barrel on the New York Mercantile Exchange. The push came amid the dollar's fall to another low against the euro, which makes oil a cheaper buy for foreign investors.

Demand in China, India and the Middle East remains strong, while U.S. demand is flat or falling, awash in worries about a recession fueled by the credit and housing crisis and negative jobs data.

Geopolitical factors that raised concerns about supply in recent days include militant attacks on Royal Dutch Shell's oil operations in Nigeria that shut down 169,000 barrels a day of production; a pirate attack on an oil tanker near Yemen; and revelations that oil production in Russia fell in January and February.

Dollar called driving force However, Addison Armstrong, director of market research for TFS Energy in Stamford, Conn., said the weak-and-weaker dollar is driving the ramp-up.

The Federal Reserve has slashed U.S. interest rates to aid efforts to stave off a recession.

The European Central Bank hasn't cut interest rates and hinted this week that it may raise rates to address inflation — which could widen the gap between the euro and the dollar.

"Until the dollar really stabilizes and turns, it's foolish to try to call a top in this market," he said. "This crude rally is all about the dollar."

Cushion of subsidies Also, consumers in emerging economies like China and India where demand is strong haven't felt the pressure of high prices prevalent in the U.S. because their governments subsidize their gasoline costs, Armstrong noted.

"I think the tipping point really has to come when we see more significant demand destruction here in the U.S.," he said.

"The longer and deeper the recession in the U.S. is, there is a chance that begins to impact China's economy and India's economy and some others where we get a lot of imports. In a slowdown, we wouldn't be buying as much, and that could impact what is happening overseas."

For now, however, demand in emerging economies is more than offsetting slower demand in the U.S. and other developed countries, said Brian Hicks, co-manager of the U.S. Global Investors Resource Fund in San Antonio.

An OPEC increase? And Hicks said $120 a barrel could prompt developed countries to pressure OPEC to "at least think about or consider" increasing production.

Top policymakers in Saudi Arabia, the world's biggest oil producer, have said recently the kingdom sees no need to increase output anytime soon. But International Energy Agency Executive Director Nobuo Tanaka said in a speech Sunday that OPEC should help boost oil inventories because prices are too high.

Hicks noted that OPEC has less spare capacity than in the past — now less than 2 million barrels a day — but there's room to talk about upping output with oil hitting its current level.

"That's probably at the point where you start to see global leaders maybe get involved," Hicks said. "It's becoming more and more of a headwind to the economy."

Kloza said $120 oil doesn't change his prediction that the average U.S. price for gasoline will range from $3.50 to $3.75 a gallon with exceptions in some areas, such as California.

He has said $4 per gallon gasoline isn't reasonable given the sluggish economy and underlying fundamentals of supply and demand.

"Let's hope so," he said Tuesday.

[thackney]

Down about a buck in morning trading...

[thackney]

[VRWCmember]

The more appropriate question is “How HIGH does the price of oil and gasoline have to go before the democrats will allow domestic production to proceed?”

We have enough oil reserves untapped that we could influence world supply and drive prices down — while still providing VERY profitable investment and jobs here at home and reducing our dependency on foreign (especially middle eastern) oil.

[11th Commandment]

The more appropriate question is “How HIGH does the price of oil and gasoline have to go before the democrats will allow domestic production to proceed?”

Not just the RATS not allowing domestic drilling; however, your point is dubiously missing from this article.

[VRWCmember]

Not just the RATS not allowing domestic drilling; however, your point is dubiously missing from this article.

The GOP congress passed legislation that would have allowed development in ANWR, but clinton VETOED it.

W would have signed similar legislation that would have passed in his first term, but democrats in the senate filibustered it and would not allow it to come to a vote. So, even though some repubics join the dems in their opposition to domestic drilling, the DEMS have obstructed and blocked it.

[thackney]

even though some repubics join the dems in their opposition to domestic drilling

Sadly, one of those is our Republican Candidate for President.

[blu]

I have questions. Why is the US allowing another entity to dictate prices and production? Doesn’t OPEC have, basically, a monopoly on the oil that we need to run our economy? And why are the oil companies making record profits? Aren’t we, in effect, allowing ourselves to be held up at the gas pump?

[Red Badger]

"This crude rally is all about the dollar."

Exactly. Even if oil production was uncreased, the falling dollar would make it more expensive..........

[thackney]

Why is the US allowing another entity to dictate prices and production?

Because the US doesn't allow exploration and production in many of our most promising resources, forcing us to depend on other sources for our petroleum.

Doesn’t OPEC have, basically, a monopoly on the oil that we need to run our economy?

They control about 40%. Not technically a monopoly but certainly big enough to greatly impact prices and supply. Most of our imported Crude Oil Comes from OPEC.

And why are the oil companies making record profits?

Record profits along with record taxes and record expenses. Profit Margins remain near average historical levels.

[alloysteel]

It will tip when price resistance sets in. So far, the higher price has not been broadly resisted. Resistance happens when the consumer begins using LESS of the product, or changes to alternative sources.

What the price of a liter of motor fuel in Germany in 1944? How did that compare to the price in 1939? It may be a little difficult to determine these indices, but the situation was, that by 1944, virtually all sources of petroleum were being denied to Germany, and they had to be using the Fischer-Tropsch process to produce enough fuel to support their war machine, and for the (comparatively) minuscule civiliam demand. One adaptation I was aware of was a small trailer pulled behind the motor vehicle, that used a charcoal brazier, a water spray, and a collector for the fumes from the brazier, that provided a mixture of hydrogen gas and carbon monoxide, used as fuel for the engine of the vehicle.

[silverleaf]

More approiate than waiting for democrat Congress (which WANTS Americans to be in pain befoe the election)is to take action as individuals.

Stop driving except for absolute essentials. Energy purchase boycott to the extent possible.

Personally I thank Hugo Chavez and the terror-supporting Saudis every time I begin to pump gas. It helps me hold the line on my purchases. When I run low on gas I stop driving except when I have to.

[unixfox]

Just when will the “Oil Bubble” is burst?

[BGHater]

Crude Oil Imports (Top 15 Countries)
(Thousand Barrels per Day)

Country	Feb-08	Jan-08	YTD 2008	Feb-07	YTD 2007
CANADA	1,888	1,944	1,917	1,840	1,848
SAUDI ARABIA	1,614	1,479	1,544	1,185	1,382
MEXICO	1,231	1,198	1,214	1,358	1,398
NIGERIA	982	1,163	1,075	1,061	1,085
VENEZUELA	927	1,135	1,034	1,115	1,031
IRAQ	780	543	658	325	433
ANGOLA	341	566	458	451	504
KUWAIT	261	239	249	158	165
COLOMBIA	220	171	194	73	106
ECUADOR	169	247	209	178	226
BRAZIL	169	169	169	103	156
ALGERIA	149	366	261	392	474
CONGO (BRAZZAVILLE)	97	91	94	41	48
CHAD	89	117	103	87	78
RUSSIA	80	16	47	49	40

Total Imports of Petroleum (Top 15 Countries) (Thousand Barrels per Day)
Country	Feb-08	Jan-08	YTD 2008	Feb-07	YTD 2007
CANADA	2,419	2,586	2,505	2,448	2,460
SAUDI ARABIA	1,627	1,503	1,563	1,207	1,394
MEXICO	1,324	1,307	1,315	1,507	1,538
VENEZUELA	1,112	1,290	1,204	1,359	1,273
NIGERIA	1,025	1,191	1,110	1,102	1,120
IRAQ	780	543	658	325	433
RUSSIA	451	392	421	241	297
VIRGIN ISLANDS	351	380	366	312	371
ANGOLA	350	578	468	464	522
ALGERIA	343	636	494	555	672
KUWAIT	261	239	249	168	170
COLOMBIA	240	198	218	85	118
ECUADOR	186	260	224	185	231
BRAZIL	172	225	200	151	203
BELGIUM	164	115	139	53	60

Note: The data in the tables above exclude oil imports into the U.S. territories.

[11th Commandment]

The GOP congress passed legislation that would have allowed development in ANWR, but clinton VETOED it.

True, but when ANWAR can up again under Bush it could not get out out of the RINO congress. McCain being the Chief RINO.

[MrB]

They won’t allow domestic production until there’s a “pitchfork and torch” mob on the steps of the capitol.

[Eagle of Liberty]

The more appropriate question is “How HIGH does the price of oil and gasoline have to go before the democrats will allow domestic production to proceed?”

I am sick of being held captive by OUR OWN politicians! I would say the time to FORCE an increase in domestic oil production is now! I am actually a little confused here. The last attempt to open up ANWR was thwarted in 2005 by the DEMs on the Appropriations bill. Why is the government funding the drilling? Can't they just vote on a bill to okay the drilling and then private companies fund the drilling? Why did it need to go through Appropriations?

Any who, this would be a great time to force the DEMs hand into allowing for more domestic drilling. If there is any way for the Republicans to bring a new vote to allow for drilling in ANWR, the chance is there. This is becoming a very hot potato (using Billy Boy's words), and I don't think the DEMs will want to be seen as damaging the poor in this country in an election year by forcing them to pay more for gas when all the DEMs need to do is allow for more domestic drilling. They are in fact in control of Congress....

[Tatze]

10 years ago, actually longer than that, the Democrats reasons for denying ANWR was because we needed relief then, not 10 years from then (10 years to get drilling operations up to speed).

Well, its past that 10 years and we needed ANWR approved 10 YEARS AGO! We would be getting oil from there right now! F&*!ing RATS!

[gathersnomoss]

And where are the “missing” Bush and the Republicans? Why are they not on TV, and on the hill daily beating the drum for domestic production? I say the fix is in. This is a global economy, and the citizens of the US are getting the high hard one. Enjoy the ride, because you aren’t getting off any time soon.

[PrairieRoot]

I’m just waiting for the oil leases to go up and a well to hit within a mile of my spread. I’m sitting out here in rural ND smack dab on top of the center of the Bakken Formation.

[gathersnomoss]

Bingo, Blu. When you say "we", I assume that you mean we the people of the United States. It's leaders have gone global, and America no longer is of any interest to the politicians.

As a society becomes subservient to it's government, the people loose all control. But hey, who wants to be held responsible for their own actions anymore? American Idol is providing a candidate for the Democrats to thrust forth during the election. And McCain is leaning left. So, what are the options? Not good.