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17 June 2008

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Nicholas Weaver

The other thing, as CR keeps pointing out: Its easy to speculate in the futures market, its hard to speculate on the spot market, as there has to be some place to put that stuff.

My random speculation is average price over the month of december will be >$130, probably >$140.

William R. Cumming

Saudi's cannot produce in time this year. While demand drops in US world-wide take up results in $250 for barrel of Texas Sweet. At pump historic $5.50/gallon. Making energy the leading 08 issue and revealing the devastating inaction since 1979 pronouncements by President Carter. Fallout impacts both DEMS and Republicans with possible third-party vote determining election outcome. First candidate with hard-nosed realistic energy policy in face of 70-80% of reserves under domain of NOC's wins. Both McCain and Obama look for energy expertise in VP and thus Richardson as former Secretary of Energy gains VP nomination with Obama. Big oil admits to McCain that it cannot do anything and probably will withdraw from oil long term. Congress approves ANWAR exploration, and East Coast including Chesapeake Bay. Hey, just call me NOSTRODAMUS.

Mad Dogs

Alex, I'll take more bubble for $200.

Andy

My prediction: Oil will be about $100 at the end of this year if McCain is elected, $95 if Obama is elected.

rick

Are we talking maximum momentary price, or price at some point in time, say, new years?

J

Colonel,

i look for oil to move towards $200/barrel and gasoline around $5.75 or so at the pump.

sad thing is, it's all so unnecessary. there is no reason why oil should be over $50/barrel.

SubKommander Dred

It will go up, and there will be blood.

SubKommander Dred

Peter C

The money that flows into the hands of the Oil producers, and companies that pump, refine, and retail their oil, has become fully addicted to having to buy money counting machines by the gross, to keep up with the flow. As one of those sayings goes “once you are super rich, there is now way you are going back to lesser amounts, peacefully”. My bet is on 275 U.S. before a bubble popping.

JohnH

My bet? $175-180/barrel by the end of August, then averaging $125 in the two months before the election...unless Bush gets stupid with Iran again. Then it's $300 until he leaves office.

frogspawn

$80/bbl by Sept 15th

Farmer Don

Col. Lang here is a quote that rings true to me.
http://www.whiskeyandgunpowder.com/Archives/2008/20080616.html

Oil has become the “anti-dollar” of modern times. Oil is now serving as the source of global monetary discipline that gold used to perform.

Oil is the energy life-blood of all modern economies. So when a nation debauches its currency, the oil markets react instantly. And oil will not accept monetary malpractice, certainly not by the U.S. Federal Reserve. If traders perceive that the dollar is declining, this perception lights the fuse for oil prices to rise.

There is an old saying that “You can’t fight the Fed.” But oil is fighting the Fed. In fact, oil is scoring a knockout, like Muhammad Ali over Sonny Liston. Oil is floating like a butterfly and stinging like a bee — landing body blows and pinning the Fed against the ropes.

The Fed can no longer cheat with the money supply and get away with it. There is a new gold standard and it’s called “oil.” This may not be a monetary “fact” that central bankers would acknowledge publicly. But it is a monetary fact of life out in the trading pits.

Even the President himself is powerless to alter this new fact of life. He cannot simply fortify the dollar’s supremacy by seizing the world’s oil at $20.67 a barrel, like Franklin Roosevelt seized America’s privately held gold for $20.67 an ounce in 1933. And even if the President could confiscate the world’s oil at below-market prices, he might not understand how such a confiscation would influence the dollar’s value."

What this is saying is compared to the euro, gold, or silver, the price of oil has NOT gone up that much. The value of the US Dollar is the main thing that is going down.
Will the US slow down be enough to lower the price of oil?????
My guess is no.

JD

The explanations most often seen in the press are: a) the planet is running out of oil, b) developing economies, especially China, are creating rapidly increasing demand, c) oil producers are manipulating supply to increase prices, and d) global oil speculators are driving up the price. My first guess is that all these are plausible factors. My second guess is that speculation plays the biggest role. I think oil prices will be lower by the end of the year.

Mongoose

By Oct. or Nov., I'll say oil will be a $165 a barrel if there are no big hurricanes on the horizon; if a storm shuts down a couple of off-shore rigs, with a refinery or two thrown in to boot, all bets are off.

Brother,Can You Spare A Dime/Euro/Barrel?

155-160 at least.Major events(Iran,?) could cause who knows how much,200-?????????.

R.L.

Mindblowing sidenote:There are around 900 million cars/trucks in the world!

TomB

Now this is fun.

Assuming pig-ignorant guesses are allowed, I'd say it'll max out at about $150 a barrel by about the end of summer (which also predicts no attack on Iran), and then (further predicting McCain loses to Obama) gradually fall back to maybe $100 or so by the end of the year.

After that, I'd bet the Saudis esp. but other producers as well are worried like hell and want it down a lot lower. I've heard that the Saudis in particular like it best at about $30-$35 per barrel. More than that they worry about it spurring new inventions/innovations or etc. such as cheaply extracting oil from tar sands or training cows to fart into methane cars and etc. Plus, predicting that Bush don't carry out a coup and McCain loses, with no more big wars as possible then in the ME....

Don't know that I'd go buying a fleet of Escalades right now, but I don't think the present bubble can continue for long if no big war is threatening.

Colonel: If you remember and aren't otherwise busy you should re-post all the replies you get to this in January. To paraphrase Churchill, there's few things that concentrate the mind so much as the possibility of being proven wrong in print.

Cheers,

J

Colonel,

we the u.s. are sitting on so much oil and gas that it makes your eyes water. there are still so many of the 'early' oil wells that still have gushers underneath that are still lying dormant after the natural pressure ran out and they filled the hole with ragged up telephone poles to fill the drilling hole.

there are so many dormant wells just waiting to be tapped again, with rivers of oil running underneath their holes just waiting to be injected to the surface.

Paul

My bet is $60 by the end of the year/first of 2009.

Cloned Poster

It will stay at $135 for the rest of the year.

Martin K

155-160 sounds about right unless trouble with Iran, Nigeria or Venezuela kicks in heavily. If Iran & Venezuela decides on unilateral trading agreements with Russia and China/South AMerica, then expect 200+.

Cieran

I'm with Farmer Don: the price of oil has been going up because the value of the dollar has been going down. So the question is less about Saudi Arabia pumping more or Americans driving less than it is about the Federal Reserve debasing the currency.

And since all the members of the Fed are now Bush appointees, the only outcome we can guarantee is chaos, e.g., a whole flock of Nassim Taleb's black swans.

You know you're in trouble when Middle Eastern commodity intrigues look infinitely more predictable than U.S. government policies...

Cold War Zoomie

Assuming pig-ignorant guesses are allowed...

Uh,...I've been allowed to continue commenting here for over a year now. What does that tell you!

My SWAG is $90 bbl by 31 Dec 08.

lina

I have no idea about the price of oil, but I'll bet by October I'll be able to sell my 2007 Prius for more than what I paid for it brand new.

A Smart Car(TM) in every pot!

londanium

I'd be surprised if the oil price doesn't moderate somewhat later in the year, assuming no major supply disruptions due to war or weather - back down to $95-115 per barrel.


TomB

The last 5 years have been an exemplary demonstration of "what the market will bear" - in 2003 the OPEC price target was $22-28 per barrel, in 2004 it was $30-35 per barrel, in 2005 it was $50 per barrel, today the price band has been abandoned; the conventional wisdom, accumulated over many, many years, was that sustained price levels above $30 per barrel would be recessionary. That conventional wisdom has now been decisively repudiated - oil prices in the $60-80 price bracket are eminently sustainable without damaging the global economy, and will now define the new market floor for the foreseeable future.

All the major ME oil exporters are basing their budgetary projections on these price levels, and they have the ability to maintain them with very, very marginal decreases in production.

Sidney O. Smith III

If oil is a traditional bubble asset, then the price of oil will fall as supply increases against demand. The rate of decline is related to the degree of speculation that has driven the price upwards. Tulip mania. Hedge fund manager mania. It is the same.

The question is whether or not oil is solely a traditional bubble asset. So it is worthwhile to at least explore that question. One fact that jumps out, at least in my view, is that the price of oil is not increasing as much against other currencies and other commodities, particularly gold.

As a telling example, at least in my view, when the Saudis announced their intention to increase oil supply, I was expecting repercussions on the gold spot market, with some kind of dip. So far, nada. In fact, gold spot prices have increased.

One therefore can make a preliminary, albeit reasonable, conclusion that as long as the dollar continues to fall against other currencies and gold, then the price of oil will remain high in dollars. If the dollar were stronger (or strengthened), the price of oil in dollars would be much less.

Is the Fed doing anything to make the dollar depreciate? Apparently it is printing money 24/7. It is difficult to find hard data but the consensus is that the Fed is printing money like it’s a mad, mad, mad world. The Fed is having to accelerate money and credit growth to prevent the economy from seizing up and coming to a complete stand still. This fed action, in my opinion, is in response to the Greenspan induced asset inflation (speculation) in the real estate market bubble, And now that the real estate (tulip) market has burst, it has led to yet to another problem -- debt deflation. It’s a mind bender.

So the question , at least in my mind, is whether or not the price of oil in some way reflects the demise of a credit system based upon fiat currency. And during a credit crisis, people search for safe havens. Traditionally cash. But as the dollar devalues, people will look for other safe havens, with some converting their cash into oil.

If so, then it would suggest that the price of oil is playing, to a certain degree, the traditional role not of a speculative asset but as a hard currency -- a safe haven away from a global monetary system based on paper.

And just today, according to an article in the UK Telegraph, the Royal Bank of Scotland “has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.” From what I can tell, they are suggesting that the run on the stock and credit markets will be similar to the run on banks in the late 1920’s. Not good. (Morgan Stanley has also warned of a financial catastrophe).

But, fascinatingly, RBS analysts expect the price of oil to simply “subside”. Perhaps this conclusion incorporates the idea that demand will decrease as a world economy locks up and supply increases, offsetting the speculative flow of money into oil.

In other words, the price of oil may reflect two functions that oil is playing in the world market today. One is as a currency replacement for the dollar. The other is the more traditional role of a commodity responding to supply and demand as well as the roller coaster ride of speculators.

Another factor that undoubtedly is affecting the price of oil: the probability that the US and/or Israel will launch a pre-emptive attack on Iran. Just a few days ago, the mere mention by the GOI of a military strike sent the market soaring. So the effect of a possible war on the oil market is undeniable.

I am working under the assumption that elements of both the GOI and USG under the Bush administration desire such a pre-emptive strike. So I cannot help but inquire as to whether or not they would try to drive up the price of oil as much as possible before a strike, to offset a catastrophic rise to 300 dollars or so a barrel. Regardless, as long as an Iranian crisis remains, the oil market will see uncertainty because of it.

Preliminary conclusion: Price will subside or fall but I don’t see it falling below, say, $110 dollars a barrel until Iran crisis resolved. If Iran crisis is resolved than odds increase greatly that it will plummet. As for an upward price? Depends if the Cheney Iran plan materializes. But I would not invest in oil (assuming I had the money which is a grossly false assumption.) Oil does not play the same role as a currency as the price responds to a certain degree upon supply-demand equations in the world economy and the impact of hedge fund managers.

If there is a plummet in the price of oil, it will be damn interesting to see where the money will flow. Back into the dollar? Into gold? Into another currency?

Gee…a dark thought just came to mind. I wonder if those hedge fund managers -- aka the barbarians at the gate -- would want a war against Iran to see a return on their investment.

In any event, I reserve the right to change my opinion, of course.

Fred

The November surprise price will be $60 a barrel. After that a slow decline as China's new Cuban oil feild leases make news. No need to drill offshore of Florida; Lost of noise from the minority Republicans in congress who loudly complain of the threat from the other Castro in Cuba and do thier darndest to keep thier lock on Miami. If Fidel dies before then there is a good chance of easing relations, which would drop prices to the $35 - $45 range.

TomB

londanium wrote:

"The last 5 years have been an exemplary demonstration of "what the market will bear" - ...."

Yeah but are you also meaning this vis a vis my point about the Saudis esp. but probably all the producers worrying that too high prices will stimulate some innovation that will make 'em—so to speak—premature ejaculators?

E.g., you think they've just concluded this don't matter anymore, or that your $60 per barrel won't do this? Or that the Saudis who seem to have been most concerned about this just don't control enough of the market to be able to dictate anything lower?

I dunno. As I said, total ignorance on this is my forte. (Though I don't reserve it for this exclusively.)

(On the other hand, belly up to the guessing bar dude: What say you about the price come Dec. 31st?)

Cold War Zoomie:

CinC CinC CinC.


Cheers,

londanium

TomB

I'm sure that the Saudis would be more than satisfied with oil at $80-100 per barrel or so. At current price levels, uncomfortable questions get posed.

The first uncomfortable question is whether the Saudis really are the "swing" producers of conventional wisdom - they were certainly able to step up to the plate after the production disasters in the wake of Katrina/Rita. My best guess is that those days are over, but the mystique has such political utility that they're not going to give up the appearance without one hell of a fight.

It seems to me that the current price level is "forcing" the issue over "discovery" of Saudi potential to up production by a meaningful amount that can move the market downwards; I suspect that it's this that is making the Saudis nervous, rather than the prospect of being shot in the foot as alternative sources become viable, largely because there are no realistic supply-side alternatives to the current predicament. This, however, is more of a problem for the US, as in the absence of a supply-side solution, one must begin to embrace the virtues of conservation.

Given the floods in the US Mid-West, the ethanol mandate isn't going to provide much relief this year.

$95-115 for the year end.

Bill Wade, NH

You could get locked into $2.68 a gallon heating oil last winter here in NH. Today's price is $4.58 a gallon. We'll be burning a lot more wood this winter. We've already done all we can do to reduce our gasoline consumption, can't afford a new hybrid right now. My elderly but active next-door neighbor used to drive 7 miles to the beach every morning and use her metal detector to find loose change, all of which she donated to charity, can no longer afford the gas to go.

$140. per barrel at end of year, any higher than that will produce mucho anger.

Michael Torpey

Dec. 2008. $300.00/barrel $9.00/gal.

Fred

londanium, I for one don't live in the 'world' economy, I live in the US, Michigan in particular. While the 'world economy' might be doing great, the US government policies should not focus on the 'world's' interests but on the US national interest. And that ethanol mandate is a $0.50 gallon subsidy we tax payers foot the bill for.

zanzibar

OK. What do I know? I got out of my oil longs when WTI hit $105/bbl. I even sold 85% of my energy sector stocks then. Now, WTI is trading at $134/bbl. Duh!

In any case I've learned through bitter experience to stay away from parabolic price curves. With supply and demand balanced around 85-87 mbpd - price on any given day will be like a weather vane.

When the herd moves on this it will be a waterfall! Unless of course it pauses and forms a much stronger base for the next leg up.

Mark

I'd look for oil to increase as long as the current administration is in the White House. At least part of the futures price includes the perceived possibility of military action against Iran. That threat remains viable until January, 2009, and beyond if McCain is elected. Expect to see periodic surges in $10 or $15 increments monthly based on a potential "trigger" event up to $200 by December.

TomB

londanium wrote:

"today the price band has been abandoned...."

londanium, could you tell me what the price "band" is? Never heard of this before. Just a target range? A range that the cartel tries to keep its members within?

Cheers,

Cold War Zoomie

CinC CinC CinC.

ARRRRGGHHHH

Curious

Where the price is going? well that's easy.. up. Dollar has no fundamental, while geopolitical events that causes unpredictable energy price are still there.

so the fun part: how much? (not, this is just empty speculating)

each of these event will cause oil price to go up $1-5/barrel

- major hurricane hitting oil facilities in the gulf

- August Iranian war rumor

- Israel hostility

- post Olympic trade/currency war with China

- disappointing third quarter result (flight from equity to commodity)

- October (anything in october. The usual october surprise. election)


so somewhere in $150 - $170 on regular "clown show".

The story will be entirely different if the dollar collapses. (it is now somewhat likely) ...

Than oil price will be at $200-300 range at least. By fall it doesn't take much to collapse US dollar and the entire economy.

Dick

Will stabilize due to elections and BushCo manipulating to try and ensure Republican victory in December. Remember the gasoline price drop to under $2/gallon in Fall of '04? Then back up again the following several months. It will happen again this year. That's why he won't attack Iran until after the election, if at all. The only caveat to all this is a big crisis or two happening beyond BushCo's control, like Israel forcing the Iran issue. But that probably won't happen either, until next year. In summary, oil price to stabilize at around $110 for rest of year.

londanium

Tom B

In the wake of the oil price collapse in 1999, Venezuela and Iran knocked OPEC heads together and instituted a target-pricing overlay on the quota system. Previously, OPEC quotas had been set on the basis of reserves and production without any regard to pricing.

Collectively, OPEC had gotten sucked into a nasty quota-busting, overproduction spiral that was wrecking revenues and state budgets - the more they produced, the more the price went down, leading to more production to make-up for their revenue losses, leading to further price declines.

Great for consumers in low tax environments, but lousy for OPEC ( and all the other producers that got caught up in the wake of this ).

TomB

Cold War Zoomie wrote (in hypertext, linking to a self-portrait apparently, which I don't know how to do):

"ARRRRGGHHHH"

Ah well the hair gives you away Zoomie, or should I say ... Calvin. Now your anarchic tendencies make perfect sense. But where's Hobbes?

londanium:

Ah, thanks. Where did you get that smart?

Cheers,

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