Is Oil Going to $80 a Barrel?

The bad thing about any economic recovery that comes either this year or next is that it is sure to be accompanied by some nasty surprises in the commodity markets.
Since shortly after the $147 peak for crude oil last July, about the only thing that's been done regarding our long-term energy problems is to stop drilling. If the economic recovery is anywhere as big as stock markets seem to think it will be, we'll go through the stockpiles in Cushing, Oklahoma like a hot knife through butter and it'll be early-2008 all over again.

Comments

[bindlepete:]

$80 a bbl was my call back about six months ago and I pegged the timing as before summer ends. Now I am not too sure as I see no real economic recovery until late 2010 and then a poopy doopi 1-2% growth from a very deep bottom.

What will push up oil prices is the international shortage as others who have reached the limit of elasticity and will likely start recovery before the US does. A run up to $80 will inhibit our recovery, indeed make it stall out.

I would now expect to see this price before the end of the year.

Disclosure: with the exception of energy stocks -mostly Canadian- I hold few equities.

May 10 09:56 AM

[sapereaude:]

And how do we propose to move our goods and ourselves, other than with internal combustion engines? We're heading for an Easter Island scenario where our energy policies are concerned. We should be pouring money into alternative energy sources and transmission infrastructure, population control, and local agriculture before we end up seeing both food and energy famines in the NE and SW, and anarchy in spreading circles around coastal urban areas. For example, how will we feed New York City when the Oglalla Aquifer and many lesser Texas, Arizona and California aquifers go dry, as they surely will in the next three decades? How will we heat rural New England homes when we run out of affordable oil over the same period? Do our economic gurus even know what the NAO and ENSO are, or what their long-term historic record of agricultural destruction is?

May 10 01:37 PM

[whoguess:]

While the market price of a commodity is supposed to be determined by the basic fundamental of supply and demand, it may not hold true in a lot of cases, in particular in this rapidly changing stock market landscape, due to such factors as the increasingly large and influential presence of the huge and manipulative hedge funds, the army of sophisticated individual amateur investors, etc. For the short term, it looks like to me that global oil prices can go either way, depending on whether the short sellers or the long-term bulls win out. So far as I am concerned, even though, my oil stock porfolio has dropped more than 60% in value, a mistake of getting carried away during the oil bubble, I continue to hold onto them, being confident that a few years from now, I should be able to recover all my paper losses and may even make some money, instead of selling out at this inopportune time.

May 10 01:38 PM

[jr007:]

Your analysis and positions in energy are very similar to my own. I am sure the USA will eventually be mostly powered by alternative sources, but for now I do not even know anyone who has an alternatively powered vehicle All mine are petroleum powered..sorry to say. It will probably be 20 years before a majority of USA vehicles are alternatively powered... if Obama survives and succedes in his efforts. I am comfortable with my 2 year wait for the return of $100 oil.

May 10 02:03 PM

[Harry Tuttle:]

Prices are going up...but so are inventories

tonto.eia.doe.gov/dnav...

May 10 06:53 PM

[Chris of NH:]

Let's hope not but the "cap and traitors" have one thing very much in common with the former Bush Administration and VP Big Dick Cheney... they absolutely want to see $80... in fact their goal is $147 again like last year, however, the difference this time around is they have so much power that they will ensure that $147 oil does not result in a boom in domestic development of petroleum reserves.

May 11 08:59 AM

[Jason Rines...:]

Best comment so far, but I like all the comments.


On May 10 07:23 PM Freya wrote:

> Inventories are going up because refinery runs are very low. Its
> going to be a Chicken/Egg scenario.
>
> There is a lot of Inventory, but distillate production is greatly
> reduced. As Inventories of Gasoline/Heating oil drop because of low
> production rates, prices of each will increase.
>
> It doesn't matter how many Chickens there are, what matters is their
> production rate.
>
> The sum of the parts will be used to determine the price of the source.

May 11 09:56 AM

[Ferdinand E...:]

I agree that oil can go either way, except down of course, but I'm a little uncertain about it going to $80/b soon. The OPEC countries don't need that price in order to eat, drink and be merry - despite what some people think - and if they are as smart as I hope they are, they will NOT allow an escalating oil price to cut the ground out from under a macroeconomic resusitation. Of course you can never be certain where these things are concerned.

May 11 10:14 AM

[5142152-337:]

When $147 oil is a reality (again), gold will be $1470, and silver $47. And if you think that is a play on numbers, you are in for a RUDE AWAKENING! Why, because that will ONLY be the BEGINNING, my friends!

Go buy some gold and silver! Now! Hell, I can't buy it ALL!!!!

May 11 12:35 PM

[Chris of NH:]

Our 'leaders' in DC know that this must happen in order to devalue the debt, so, I concur with your predictions. It's now just a matter of when... 2010 or 2011.

Interesting you push silver higher by a larger fraction (silver following oil's price increase). I do not disagree but I would like to understand the relationship better. I hold more silver than gold so I am all for this.


On May 11 12:35 PM 5142152-337 wrote:

> When $147 oil is a reality (again), gold will be $1470, and silver
> $47. And if you think that is a play on numbers, you are in for
> a RUDE AWAKENING! Why, because that will ONLY be the BEGINNING,
> my friends!
>
> Go buy some gold and silver! Now! Hell, I can't buy it ALL!!!!

May 11 01:38 PM

[wildfirexx:]

We probably could handle a $70-$80 per barrel increase in oil.....but anything above that threshold will no doubt hurt the economic recovery and pro-long the recession.

May 12 05:45 AM

[Chris of NH:]

sadly, the cap and traitors hope for a much higher price as they are thrilled with how the trashed economy reduced CO2 output and are determined to continue the economy's losing streak to hit their CO2 output reduction goals... even if it means a depression is in the cards.


On May 12 05:45 AM wildfirexx wrote:

> We probably could handle a $70-$80 per barrel increase in oil.....but
> anything above that threshold will no doubt hurt the economic recovery
> and pro-long the recession.

May 12 09:47 AM

[HardwoodFlo...:]

Tim- You have to fear the ol' trade of last year. Bet the dollar down and oil up. Then, because input costs climb, short the stock market predicated on the idea that the margin for companies producing products will shrink. Ultimately then the consumer will get hit on the back side (because of rising goods prices) increasing the likely hood of a prolonged recession whereby a consumer (now hit with wage issues- decreased hours and earning potential) will have to retreat further into their hole. It has the set up of a continued recession into the another depression.

It is one of the trade scenarios out there. One that we lived through last summer, that is why I believe their needs to be a raise in the margin requirements for commodities.

If it hand't been for this trade scenerio last summer 905 of hedge funds would have failed last year.

May 12 11:24 AM

[HardwoodFlo...:]

Not 905 but 90%

May 12 11:24 AM