Oil Hits New Record - Is $125 Next, or $100?

Is there anyone out there who's not long oil and short the dollar? With that in mind, OHAR (oil hit another record) today, this time touching $117.76, largely on the back of all the fondness for the stuff among traders. (Click chart to enlarge.)

So, what's next: $100 or $125? I have no objection to the idea that we are on a sawtooth higher as oil heads toward its inevitable peak, but I have a hard time believing that there isn't a major price break between now and then.

Thoughts? Musings? Nihilistic proclamations? Share them if you've got them.

Comments

[crowdofcheerleaders]

i predict oil will go to 100 in May, then go crazy again most of the Summer. there will probably be riots and social unrest related to US supply chains and eventually Kurt Russel w/his eyepatch will be spot in LA doing various rogue-ish things.

[GrapeApe]

I believe that oil with make it to $120/barrel then begin a slow (probably very slow) drop over the next few years. The reasons will be due to the following:

1. The US economic troubles are beginning to affect other nations' economies as well, cause global demand for oil to go down.
2. Oil is becoming the "get rich quick" item and small-shop oil derrick owners, etc. are starting to bring back online oil gathering equipment not used in years. The amount of oil any one can contribute is minimal, but the sum total could notably drive up supplies, thus lowering prices.
3. New oil reserves are being found now that there is such an economic benefit to spending the capital to look for them, and we could soon have much more oil reserves available to drill for that we have had in history.

I think the prices will eventually (again, very slowly) settle at around $85 then begin another multi-year bull run.

[crowdofcheerleaders]

no Kurt Russell?

[1option]

It will hit $125 long before it goes back down to $100. Global demand will continue to increase as other economies continue to grow.

[billddrummer]

Since demand in the emerging economies is outstripping demand in the US, oil will continue to ratchet higher despite a slowdown in growth domestically. $150 wouldn't be out of the question by midsummer, in my opinion.

[multitrader]

The thesis for going long oil at these levels is predicated on two arguments: (i) falling USD and (ii) continued emerging markets growth. Dollar bearish bets could continue to build, but there are few catalysts remaining to support further dollar shorting, unless the US economy materially weakens from here. If further weakening occurs, domestic demand for crude will not fall just 1% YoY as it has already, it will fall much farther and much faster.

But oil bulls posit that emerging markets demand growth will more than compensate for any further US crude demand slackening (basic decoupling argument). While I am a believer in emerging economies being slightly less dependent on US demand than in previous cycles, I still am of the opinion that a material deceleration in US economic activity will have a disproportionate impact on emerging economies, and this impact would adversely impact on their demand for crude.

Who knows the final outcome, but oil bulls should proceed here with caution. Long-term trends can have significant deviations. We have already seen a mild one this year. I am of the opinion that the dollar will strengthen as Euro Zone growth falters, causing a sharp reversal in the dollar. If that happens, I believe there will be a massive and quick unwinding by commercials and, most especially, financial participants in the crude futures market. It will be imperative that you do not have trades vulnerable in a reversal situation of this sort.

I see a return to $100 before a return to $125, and I believe it will coincide with a break down of other inflation ("dollar hedge") trades.

[surgcare]

Forget 100 dollar oil . The reason : If the usage goes down ,production will go down : why, the easy oil is gone .It will now take much more money to drill for oil that is very deep and very dificult to get . If the price is not right , that is high, very high , there won't be any oil at all .Get used to high gas price ,its here to stay

[zenalgorithm]

$124.99.

If it goes higher, Americans will want the Chinese to start exporting to us all those old, bicycles they use to use.

[freewilly]

Since they are not allowed to buy companies like Unocal, China is exchanging its central bank dollars for oil futures. The process can continue for quite some time. Do not expect relief anytime soon....

[OilBaron]

The price of oil continues to be driven ( in part ) by acts of violence against production and distibution infrastructure and by the decline of the dollar. If other acts of violence occur expect to see the price continue its upward climb. Additionally, while the U.S. at the pump consumption is down, emerging nation consumption continues its rapid growth, this combined with the decrease is production will combine to push prices higher, my bet it for $125 around May 10th.

[SailDog]

Oil has lurched up in a series of steps over the last ten years, during which there have also been some big drops. I am not aware of any reason why this pattern should change.

[TN Jim]

multitrader,

I respect your viewpoint and appreciate your well thought out and well written post, but I disagree with your implicit thesis that the rise in crude oils prices is fundamentally a trading phenomena.
Although sovereign nations make it difficult to obtain reliable production and reserve data, there is increasingly little doubt that depletion from existing production fields nearly equals new production being brought on stream each year. Further, since it takes several years to begin production at a new discovery, the rate of new production which will be brought on stream over the next several years is somewhat predictable.

What we have is a Malthusian situation in which new production must exceed the combination of production depletion plus increased demand from emerging economies and others before any relief appears in the supply-demand balance.

I concede your point that the plummeting dollar and the flight to commodities is aggravating the problem, but the price of crude is on a long-term uptrend until the world becomes serious about energy conservation (incandescent light bulbs, for example) and alternative sources of energy, most likely beginning with nuclear.

I whole heartedly recommend Jim Kingsdale's excellent site on Energy Investment Strategies to anyone who wants to follow up on peak oil news. www.energyinvestmentst.../

[John Egan]

Geesus! It just showed at $119.50 on the CNBC ticker... I'm going to pack in trading and gas up both of my cars before they change the price at the local station again .... I think they should hire a guy to sit on a ladder next to the sign and move prices up hourly!

Thx jegan ;-0

[Ames Tiedeman]

We are very close to a short term price break. Oil is behaving like an over bought stock at this point. It will pull back hard at any moment. It could be tomorrow or next week. We are due for a sharp 20 dollar pull back soon. I suspect max, we see 125 or 126 and then watch out...

[Szilard]

For me the question is how long oil can be the ultimate hedge alternative for the dollar.

In a world full of fiat currencies, I believe, sooner or later gold should replace oil.

[us oil]

Oil shale reserves in Montana will become an economically feasible alternative to $125 OPEC oil, also, Alaska will open up in the next few months, (with the usual enviromentalist wacko objections). Take: oil down to 80 by Dec 08.

[mikel2]

Oil shale in Montana (Bakken formation) has been hot for about 3 years. My cousin said about 70 drill rigs in Richland County 2 years ago. News is now percolating to the public.


My royalties (a very small piece of grandpa's mineral rights in a half section (and it takes 2 sections for a horizontal well)) have been in decline.

Kind of sad that they are excited about a 800 barrel per day wells. Spindletop in Texas, in the day, tested at about 140,000 barrels per day. (Production is lower than the initial test of course.)