$100/barrel oil on the horizon

[SnowRidge]

Perhaps the price of oil is influenced by supply of oil vs. demand for oil? Or is that too simple an explanation?

Yes.

 

[Hootie]

Thinking about riding the horse to work and to Wal Mart and such. Tie up on a handicapped sign.

 

[SkyPup]

With oil flirting with $100 a barrel, there seems to be no stopping the dizzying ascent of black gold. In such a frothy market, it may seem old-fashioned to talk about supply and demand. But they and other fundamentals give a clear message: The price is too high to be sustainable.

There are 10 solid reasons why:

1. Supply above ground is abundant. The amount of oil in storage tanks around the world is near all-time highs -- 4.2 billion barrels at the end of June in the industrialized countries of the Organization for Economic Cooperation and Development alone, according to the U.S. Energy Information Administration.

Falling inventories in the U.S. have received a lot of attention, and the EIA does predict slightly lower stocks by year-end. But this has more to do with inventory management than a lack of supply.
[Oil complex in Iran, and the OECD parley]
Oil complex in Iran, and the OECD parley

2. Supply below ground is abundant. The world's proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years, according to BP.

That's not even counting the estimated 1.7 trillion barrels of oil locked in Venezuela's Orinoco tar sands. Combined, that comes to a century of production at the current rate.

3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago. New rigs are more productive than old ones and new technology is helping to squeeze more oil out of old fields.

4. The cost of production is much less than $100 a barrel. Even with oil-services costs soaring, Royal Dutch Shell's lifting cost per barrel of oil equivalent in 2006 was about $9, according to energy research firm John S. Herold. Extracting oil costs Saudi Aramco, the Saudi Arabian producer, an estimated $4 to $5 a barrel.

The full cost of new production -- including both capital and operating-cost components -- in the most challenging oil fields, for example in Canada's oil sands, is perhaps $30 a barrel. Oil prices can fall heavily without making any of this production uneconomic.

5. Iranian exports aren't likely to be cut. The U.S. is in practice unlikely to take military action against an adversary three times the size of Iraq. And with oil exports accounting for 50% of Iran's gross domestic product and 90% of its hard-currency earnings, a self-imposed cut in exports would be self-destructive.

In any event, the world has the equivalent of nearly three years of Iranian production in storage, according to research from Oppenheimer. This risk shouldn't be a big factor in oil prices.

6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew a measly 0.6%, according to BP.

World-wide, demand this year is expected to be flat compared with last year. Exxon Mobil cut its long-term forecast for oil-consumption growth this week.

7. High prices are forcing governments to cut subsidies. Iran is rationing gasoline, and last week China ordered a 10% increase in oil-product prices. That should curb demand growth, too.

8. Energy from oil is looking expensive compared with energy from gas. Oil by the barrel has usually traded at six to 10 times the price of natural gas (measured per million British thermal units). It is currently at 13 times.

9. The weak dollar is a poor excuse for high oil prices. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.

10. Speculation is artificially boosting prices. A speculator needs to put down only $4 per barrel as margin to bet on the oil price in futures markets. The net volume of open crude-oil contracts held by financial players is up 50% since August, when the credit crunch made it harder to make leveraged bets in some other markets.

 

[riptides]

10. Speculation is artificially boosting prices. A speculator needs to put down only $4 per barrel as margin to bet on the oil price in futures markets. The net volume of open crude-oil contracts held by financial players is up 50% since August, when the credit crunch made it harder to make leveraged bets in some other markets.

Yep. Investors are looking for the next sure thing, since the housing spiggot has collapsed, the credit card spiggot is under scrutiny, and well everyone needs a car, truck or tractor.


Too bad for us.

-Mike Z.

 

[SkyPup]

Most of it is just pure rip-off speculation, and sooner or later the speculators themselves will all get ripped off too......

However, I would not be surprised if one of the mega-fund movers and shakers hired some lowlife Al Queda squids for a couple of 'thou and blew out a port facility or ship to capitalize on the ensuring run up either........

 

[scott_vt]

Afternoon Skypup,
Thankyou for your post #63, very interesting read, and hopefully your on the mark !

 

[mjfox6]

Well I think they are going to stay up, so I'm trading in the wife's 2001 Jimmy for the new 50 state diesel VW Jetta that is coming in April 2008...

If they are still making them in Mexico, I hope they are more reliable than the 2000 models. German engineering only gets you so far when you use cheap components and cheap labor to fabricate them.

 

[SkyPup]

We've been running a '98 VW NB TDI and a '99 VW Jetta TDI for many hundreds of thousands of miles now with zero problems and they were both produced in Mexico.

With the ULSD available now I am waiting for the AUDI TDI in '08 that puts down over 400 pounds of twist to the tarmac. So far, our '08 Mercedes CDI has been flawless.

 

[Ductape]

With oil flirting with $100 a barrel, there seems to be no stopping the dizzying ascent of black gold. In such a frothy market, it may seem old-fashioned to talk about supply and demand. But they and other fundamentals give a clear message: The price is too high to be sustainable.

There are 10 solid reasons why:

1. Supply above ground is abundant. The amount of oil in storage tanks around the world is near all-time highs -- 4.2 billion barrels at the end of June in the industrialized countries of the Organization for Economic Cooperation and Development alone, according to the U.S. Energy Information Administration.

Falling inventories in the U.S. have received a lot of attention, and the EIA does predict slightly lower stocks by year-end. But this has more to do with inventory management than a lack of supply.
[Oil complex in Iran, and the OECD parley]
Oil complex in Iran, and the OECD parley

2. Supply below ground is abundant. The world's proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years, according to BP.

That's not even counting the estimated 1.7 trillion barrels of oil locked in Venezuela's Orinoco tar sands. Combined, that comes to a century of production at the current rate.

3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago. New rigs are more productive than old ones and new technology is helping to squeeze more oil out of old fields.

4. The cost of production is much less than $100 a barrel. Even with oil-services costs soaring, Royal Dutch Shell's lifting cost per barrel of oil equivalent in 2006 was about $9, according to energy research firm John S. Herold. Extracting oil costs Saudi Aramco, the Saudi Arabian producer, an estimated $4 to $5 a barrel.

The full cost of new production -- including both capital and operating-cost components -- in the most challenging oil fields, for example in Canada's oil sands, is perhaps $30 a barrel. Oil prices can fall heavily without making any of this production uneconomic.

5. Iranian exports aren't likely to be cut. The U.S. is in practice unlikely to take military action against an adversary three times the size of Iraq. And with oil exports accounting for 50% of Iran's gross domestic product and 90% of its hard-currency earnings, a self-imposed cut in exports would be self-destructive.

In any event, the world has the equivalent of nearly three years of Iranian production in storage, according to research from Oppenheimer. This risk shouldn't be a big factor in oil prices.

6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew a measly 0.6%, according to BP.

World-wide, demand this year is expected to be flat compared with last year. Exxon Mobil cut its long-term forecast for oil-consumption growth this week.

7. High prices are forcing governments to cut subsidies. Iran is rationing gasoline, and last week China ordered a 10% increase in oil-product prices. That should curb demand growth, too.

8. Energy from oil is looking expensive compared with energy from gas. Oil by the barrel has usually traded at six to 10 times the price of natural gas (measured per million British thermal units). It is currently at 13 times.

9. The weak dollar is a poor excuse for high oil prices. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.

10. Speculation is artificially boosting prices. A speculator needs to put down only $4 per barrel as margin to bet on the oil price in futures markets. The net volume of open crude-oil contracts held by financial players is up 50% since August, when the credit crunch made it harder to make leveraged bets in some other markets.

Once again i say its nothing more than the fleecing of the hard working American middle class. Why? Because they can ! A big thank you to Washington D.C. !

 

[Reg]

Anyone changing their driving patterns?

The vast MAJORITY seem to be as heavy footed as ever, maybe even more so.
Perhaps it is resentment at how much they had to pay for the stuff that they figure it might as well burn up some rubber at the same time.
Brakes too as they stomp on those for the next red light, then another drag strip start.
Kinda Puzzlin'