Will $150 Oil Be a Reality?
There has been a lull in the discussion around peak oil. Towards the beginning of this year, there was much talk about oil reaching prices as high as $200. Well, the discussion continues, and stock analysts have been predicting $150 oil recently. Its going to take some time to get there, but this report by Gene Epstein, is pretty convincing.
…The continued short-term easing of oil prices should benefit the economy over the summer, only to exact a much larger payback later. The projected oil shock of spring 2012 will hurt the economic expansion, but not kill it, pruning about 1.5 percentage points from quarterly growth in real gross domestic product…
…The $110 price estimate comes from taking the midpoint between the market price on West Texas Intermediate oil traded on the New York Mercantile Exchange in New York and on Brent crude traded on the Intercontinental Exchange in London. While the recent unusual 10%-15% premium of Brent over WTI, which actually is of higher quality, has puzzled many analysts, those Barron’s polled agree that the lower price on WTI is potentially misleading…
…Still, even a $40 rise, to $150, by next spring differs by several country miles from the oil market’s own implied price outlook. Last week, futures contracts for June 2012 delivery of WTI crude were trading around $99, while Brent crude for June 2012 delivery was commanding just $112…
…Cornerstone Analytics oil analyst Michael Rothman, with more than 25 years’ experience calling the market, foresees an extended price plateau of $170. In support of his view, Rothman cites a comment made by Nobuo Tanaka, executive director of the International Energy Agency, the Paris-based organization that represents oil-consuming nations. Tanaka spoke on June 23, when the IEA helped cause a selloff in the petroleum market by announcing that 60 million barrels were being released from strategic reserves held by the U.S. and 27 other countries…
…THERE ARE FOUR MAIN PLAYERS in the global oil drama.
On the demand side are the nations of the Organization for Economic Cooperation and Development, which includes the U.S., Canada, Japan, Australia, New Zealand and most of Europe. And there are the non-OECD nations, which include India and China, currently in a phase of rapid economic growth.
On the supply side is OPEC, which includes Libya, Iraq and Saudi Arabia, and non-OPEC nations, including Norway, Mexico and the former Soviet Union…
…WORRIES OVER SPARE CAPACITY have been exacerbated by the civil war in Libya, which has taken 1.5 million barrels a day out of the supply stream. On the other hand, the OPEC meeting that broke up early last month with no formal deal to increase quotas was of no great concern in itself, because OPEC members had been openly exceeding quotas already. More importantly, the Saudis signaled their willingness to boost output from nine million barrels a day to more than 10 million this summer.
Assuming that the Saudis can meet their commitment on a timely basis, OPEC’s spare capacity will still continue to decline. Result: higher oil prices.
One reason the U.S. is less susceptible to an oil shock than it used to be is that, for every dollar of nominal GDP, it consumes less oil than it once did…
…Oil at $150 a barrel would, of course, hurt businesses, too. As the cost of jet fuel soars, airlines will boost fares. That could reduce passenger traffic, leading the companies to cut flights, reducing economic activity. And, as San Diego’s Hamilton notes, there is the added risk that companies, anticipating shortfalls in consumer spending, will reduce hiring, causing a multiplier effect that could worsen a bad situation…
IS THE WORLD RUNNING OUT OF OIL?
Probably not. Libya can eventually bring 1.5 million barrels back on stream. There is huge potential from Iraq, even greater potential from Saudi Arabia itself — and closer to home, more supply could come from ending the de facto moratorium on drilling in the Gulf, and from tapping Alaska’s wildlife reserve…
I hope this information gets you excited for the future. Oil has great potential for the future, and I think that we will begin hearing more and more about the expected rising prices of oil. As an oil investor, I sure hope this type of talk continues.
Quotes taken from report by Greg Epstein, Read the entire article here.
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