Posted on 04/23/2008 6:47:43 AM PDT by 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.
Northwest and Delta reported 10.9 BILLION loss this qtr. 4 airlines went broke in last 3 weeks. The ripple effect of these prices is ruining our economy. Summer tourism season will be a diasaster IMHO. To hell with global warming, we are at the brink here ,no matter what the talking heads on CNBC and the Fed reserve tell us. Without cheap energy, our economy cannot prosper. We are selling our future to the Chinese and the Saudis, and when they realize our currency is worthless, the gig is up.
Record profits along with record taxes and record expenses. Profit Margins remain near average historical levels.
Record Taxes!!!! Hmmm, and those rascally Republicans want lower taxes? BS!
The European Central Bank hasn’t cut interest rates and hinted this week that it may raise rates to address inflation ...”
If that happens, the dollar will fall somewhere down around the peso, and crude will hit...what?...$150?
The fix is in, with or without McCain at the helm.
My bet, the Republicans will do nothing before the general election.
The answer is couage with resolve. The President should declare a national emergencey and mandate drilling in Anwar (sp?) inasmuch as the access to and price of oil constitute a clear and present danger to the country. When the Dems or Greeenpeace, etc. inevivetably go to Federal Court, direct the Solicitor General to tell the Court it is none of their business, this is a national defence order from the President. Also, include, shale oil, the deposits recently estimated in North Dakota, etc. Drill off California and Florida by Executive Order. Next problem?
Bush takes a complete hands off approach to just about everything and never pushes back against dems.
The other night listened to Michael Savage for a few minutes as I was driving out of range of local stations. He was ranting that the cause of the high price of crude oil was corrupt American contractors in Iraq and elsewhere. What a complete nutcase he is; no wonder Mark Levin calls that show “Wiener Nation.”
The question is, who do you trust? Newt should never be given a spot on any Fox programming, that is until he fully explains his bent over stance.
Americans are angry, at their government!
Exactly. You want to fix the oil problem, defend the dollar and get interest rates back up to a reasonable level. It will hasten the mortgage bloodbath, but that’s coming anyway.
OPEC has not decided to do so; a couple members of OPEC, Iran and Venezuela, have suggested it.
The price of oil is not all about oil. Jorge can disingenuously state that it is the policy of the United States to support the dollar and have a strong dollar. But the government’s policies and behaviors reflect the opposite. The weakness of the dollar has consequences, some of the consequences may be good. But the factor of a weak dollar plays a significant part in that 120 dollar price of oil.
The bubble will not burst. Oil reserves are essentially a determined finite resource.
Yes, it is true that exploration continues,but easily accessible oil is rarely found and the adddition to reserves is miniscule.
Where there is oil being discovered and added to reserves is somewhat limited in it’s impact as the oil found is either expensive to obtain (Alberta, CA), or is politically infeasible (ANWAR), or is impractical to obtain due to technology not being currently available (Pacific Basin).
Given those facts and that developing nations such as China and India are continually increasing their consumption, the price of oil is likely to increase until the day it runs out.
Like it or not the only technological and currently viable options for the world’s enery needs (next 25 to 50 years) is either coal fired or nuclear power plants.
Before one jumps onto the so-called ‘Alternative’ fuels bandwagon one needs to try and understand the laws of thermodynamics and the relationship of energy and matter.
Not to mention that ethanol is now being recognized as a significant contributor to world hunger (no corn meal to feed people) and that hydrogen comes from three primary sources - oil refineries, SMR’s (Steam Methane Reformers) and Electrolysis - regardless of the source it is taking more energy to make a fuel (efficiencies) that is more costly than oil, coal or nuclear energy production.
Rather than turn this into a dissertation on enrgy, suffice it to say that if you are waiting for the price of oil to go down - don’t hold your breath.
We need a Manhattan Project on fusion. We should nullify every damn earmark put in place in the past 4 years and put the money into research.
Thanks for the clarification.
I don't believe that is a true statement. Reserves on average grow faster than the worlds growing demand.
In 1980 those estimates said we had 27 years left.
In 1990 those estimates said we had 41 years left.
In 2000 those estimates said we had 36 years left.
In 2005 those estimates said we had 41 years left.
In 2007 those estimates said we had 43 years left.
On average, the petroleum industry meets the rising demand and still adds more to the proved reserves.
http://www.eia.doe.gov/pub/international/iealf/crudeoilreserves.xls
http://www.eia.doe.gov/emeu/ipsr/t44.xls
-—or is politically infeasible (ANWAR), or is impractical to obtain due to technology not being currently available (Pacific Basin).——
Those are not (yet) counted in the reserves. Proved reserves are only fields that have been drilled and wells flow tested. ANWR and the like are in addition to the world's proved reserves.
-—Rather than turn this into a dissertation on enrgy, suffice it to say that if you are waiting for the price of oil to go down - don’t hold your breath.-—
If you believe the boom and bust cycle of the oil industry has ended forever, I believe you are mistaken.
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