How Much Worse Can It Get For Oil?

Not to be hawkish on oil prices, but how much worse can it get for oil in the short run? Let's count the new-ish things currently pushing prices higher:

1. The U.S. economy is stronger than expected, pushing up demand expectations
2. Goldman Sachs is out with a major report predicting a possible oil super-spike to $200
3. The U.S. and Iran are fighting about nuclear energy
4. Rebel attacks last weekend further curbed supplies from Nigeria
5. Mexico has newly seen supplies from a major fall faster than expected
6. Venezuelan production is off on strikes and Hugo Chavez has fired 20,000 oil workers
7. The U.S. summer driving season is set to begin
8. There is goofy election-year posturing in the U.S. about a gas windfall tax, and about a tax amnesty for gasoline

Of course, we still have the weak U.S. dollar, speculative fondness oil, worries about Iraq production, etc.

So, I'm not saying oil prices can't go higher from here, because they clearly can, but doesn't it seems as if there are an awful lot of things that can take crude oil prices down in the near term, but fewer to take it higher?

Where do folks come down on the balance of probabilities?

Comments

[User 189774:]

We screwed the pooch when we did not take care of this problem when the Arabs embargoed oil back in the mid 70's. Now we are paying the price of our foolishness and it seems that the price has not found a ceiling...

2008 May 06 06:59 PM

[lancekoz:]

What is this "article" saying? The second to last sentence needs translation into English. Please folks, take your time and proofread.

2008 May 06 07:33 PM

[relmor:]

User 189774, and how would that have gone? Taken "care of it". I think we have done as good a job as any country in taking "care" of our oil concerns. Are the 700 military bases throughout the world not enough for you? Would you like more bases in Saudi Arabia and Iraq? Why do you think they let us in there country? They dont have a choice, dummy. Our government WANTS high oil prices, the sooner you people realize that the better. If we wanted cheaper oil, we would have passed manditory laws forcing companies to produce alternative fuels or lose government subsities, and tax breaks. But this does not happen, and will never happen. Remember, people do what they want, and our country has never wanted to lessen its foreign oil demand, so we never have.This keeps demand low, and makes our reserves last longer, and we can continue longer with our oil driven machines and machines of destruction.

2008 May 06 08:24 PM

[TA:]

Sounds great except reality and oil especially(the most of all the commodities) parted ways a long time ago.

It's all hot hedge fund money and speculation.

The bubble can continue as long as there's more money to throw into it.

Either the central banks stop the lending to commodity traders like they did in the 80s or the dollar rises too much and scares them.

2008 May 06 08:40 PM

[stanvasic:]

From the window of a descending elevator all solid structures seem to be rising towards the sky. From the perspective of their prices expressed in a sinking paper currency, all tangible assets with solid values appear to rising to the sky as well. Oil, gold, copper, wheat, rice, potash, you name it. Any kid in Zimbabwe knows that much...

2008 May 06 08:54 PM

[MrMike1111:]

fredlee, I believe what User 189774 was referring to was that back in the Arab oil embargo/gas line fiasco of the 70's, we should have learned our lesson & the US govt. should have correctly researched & eventually passed a far-reaching, comprehensive plan of energy sustainability within our own hemisphere--drilling off of our own coasts (far enough offshore that the tree-huggers wouldn't get their knickers in a twist), drilling up in the Alaskan tundra, making much better use of our nuclear power plant technology (like our Socialist ally France), and making a firm commitment to research/use proven hydro, wind & solar power designs.
I do agree with you in one sense - that the US govt. has seen this coming since 87'-88' and has not had the political will to do anything about it due to the radical environmentalists controlling the Dems & the wealthy US oil corps. controlling the Repubs. The Dems placate their far lefty base by blocking all attempts @ domestic drilling & refinery construction & the Repubs. allow the oil companies to profit obscenely due to the increased demand and limited capasity to refine more then what we're pumping out right now. We are @ a cross-roads now people....say goodbye to the US that you once grew up in- I've always believed that once the European Union became a reality, that the Western Hemisphere was going to follow suit.....& to do that our economy/standard of living must be reduced to approx. equal Canada & Mexico so that we can all fall under a common currency (can everyone say 'Amero '?!??). That is why our fearless leaders will not tighten our borders- weakening the Dollar & raising energy/food costs for US families is the quickest way to bring down the US standard of living - which is why I laugh in disgust when I hear our 'politicians' (especially the Dems) railing about 'getting even' w/ 'Big Oil'! The last time that I checked, these companies were American companies, employing american workers! Oops, that's right, it's not politically correct to want good paying jobs for our own citizens....we now need to 'redistribute' the incomes of the producing citizens of our country, to give them to the 'takers' who wait for the govt. to provide for all of their needs....how sad & pathetic we've become as a nation.

2008 May 06 08:59 PM

[nwgizmo:]

OMG, MrMike1111. You are dead on right. We are at a point that it will take a major change in our economy for this stalemate to break. We are all to happy with our present status. But, our markets make it almost impossible to change. The automakers are still unable to make fuel efficient cars in the US, and the imports can't keep up the demand. Last time I looked we have enough electricity for charging short trip vehicles; well maybe not in Alaska. We need companies, new ones if necessary to start making electric driven cars and stop making gas/diesel vehicles for commuting. All it would take is making available enough cars that were able to travel 100 miles round trip to cut a large segment of the populations daily use of gas. And if we need more Electricity, than more Solar, Wind and Nuclear, more efficient hydro upgrades. All are proven, and other than dams, can be quickly installed. Our oil use is not all for fuel, most of it is for construction, manufacturing, but at least we wont need to worry about not having enough money to get to work.

2008 May 06 09:55 PM

[relmor:]

MrMike, you give way too much credit to the inefficiencies of govenment, and the actual effect of environmentalitst. Trust me, if we wanted to drill the Alaskan Reserves, etc... we would. No environmentalist or democrat is going to stop them. You think the Republicans and the Democrats are on the opposite sides on this issue. O, they are on the same side. Big oil(what does that mean anyway) will get what they need(because our economy needs it). If theres was another industry that our country needed, our government would do whatever that company needed to be profitable and functional(look at what they are doing for banks right now). All your babble about this group and that group affecting this or that is not acknowledging the truth of the situation.

2008 May 06 10:10 PM

[Mmarrkk:]

You think things are bad? Wait until the "carbon tax" or some other wild hairy greenie weenie legislation gets passed, forcing industry to invest huge sums in reducing our carbon emissions. It will be the equivalent of $30/barrel. Lieberman/Warner will be worse. This is bad science followed by bad government.

2008 May 06 11:18 PM

[maher:]

It's the coming Iran war , stupid.

2008 May 07 01:22 AM

[TARP:]

Let us look at this oil thing with real eyes. Most oil producing nations are not increasing their output capacities. Iraq, Iran, England, USA, Venezuela and Nigeria to name a few. At the same time USA is buying oil off the open market. All the oil experts are saying demand is increasing - especially in China and India.

Does anyone remember back in Iraq war I when The Saudi increased their output capacity to 80% and keep oil prices down around $27 barrel? I do. And I wonder why it seemed so easy back then and now it's so difficult to increase capacity.

Another point is today we have so many alternatives to oil as a fuel back then we had none yet the Saudi were able to single handedly keep oil prices down to $27 a barrel while the oil fields in Kuwait were burning by the thousands. So much so that the sky was turning black and traveling across the Middle East and Europe and Africa. Yet the price of oil was $27 a barrel!!

Think!!! people this is all a ploy...

Any oil jerk can create a war in an oil producing nation and keep the oil from flowing. Any oil jerk can create a worker strike in a producing nation by taking oil worker rights away. Any oil jerk can start a war in another oil nation like Nigeria and keep further oil off the market.

And only an oil jerk would buy oil off the market to add oil to the world's largest reserve supplies.

But all that really doesn't bother me as much as the many oil jerks who follow the program by creating logical reasons to explain why oil prices should be at $200 a barrel.

Give me a break they want gas prices between $5 to $7 a gallon and natural gas prices to go higher because alternative means is upon us and their share will be much smaller very very soon.

2008 May 07 03:04 AM

[JREwing:]

This site is screwed up. There are more and more nutjobs writing comments, who seem to care more about political implications, than money.

THIS IS A FINANCIAL BLOG SITE. THE ONLY THING THAT MATTERS HERE IS TO MAKE MONEY OF ONE THING OR ANOTHER!

So please nutjobs, who think W is responsible for everything,(he's not that powerful!) PLEASE TAKE YOUR PROPAGANDA SOMEWHERE ELSE!

I BET THERE ARE A MILLION SITES WITH THAT KIND OF CONSPIRACY NONSENSE!

2008 May 07 05:31 AM

[User 189961:]

Goldman called $100/bbl two years ago. No one factor is responsible for $122/bbl., but together they create a swell mix for speculators. We have China/India, Helicopter Ben and the Bailout Boys, political cowardice, greenie-weenie, the fat, dumb and happy American sheeple, and geopolitics-as-usual. $200/bbl? Why not? As for the eurozone, Trichet has the right idea--fight inflation first. As for China/India, America's difficulty is their opportunity. CrossingtheT, if you want to make money, buy oil futures. The famous collapse-to-$40 ain't gonna happen.

2008 May 07 07:23 AM

[JREwing:]

i know

2008 May 07 08:01 AM

[oilman65:]

We reduced consumption by almost 20% in the 1974 gas lines/embargo. That is the only option we have to control demand. Supply changes are not an option as we have peaked. Reduce speed limit back to 55, make more fuel efficient cars (2/3 of our useage is in transportation) and stop wasting - turn off your lights when yopu leave home!
Long term, buy oil and coal with a mix of producers, services and etf commodities. Oil may go back to $90 but it is more likely that it will go to $150 perhaps by the end of the summer

2008 May 07 08:06 AM

[sikarskie:]

With these threshhold being met now and oil being traded at 3-4 actual value....their needs to be adjustments made or grave consequences will happen next winter. we would never have the utilities run up at 3-4 times their values...would we..we need to managethe commodity markets so that profit cannot be replaced by people dying in mass amounts due to no ability to heat their homes..You may have to break up the oil companies to before 8 years ago or just re-vamp the classifacation of oil on the futures markets...whatever is done needs to happen..oil valuations should be consistent aroud the 40.00 bbl range even OPEC uses those numbers
Lawrence

2008 May 07 09:16 AM

[benisanidiot:]

crude oil prices are being manipulated ... and the bloody authorities are not doing anything about it

how do you explain this constant run-up and the underlying volumes and big trades, and all the suspicious going-ons?

see below:

www.atimes.com/atimes/...

news.yahoo.com/s/ap/20...

2008 May 07 09:29 AM

[mrdunes:]

You forgot the biggest, and most important factor: INFLATION. That is, the government's (especially, but not exclusively, the U.S. government) printing of money. When there's more dollars in curculation chasing the same amount of goods and services, the prices of those goods and services rise. It's real simple. People always ignore it because of the government's propaganda surrounding it. They blame price increases on everything from speculation, to civil unrest, to bad weather. You name it. But they almost never tell the truth, because they don't want people to know what's really going on, which is COUNTERFEITTING!!!

2008 May 07 11:10 AM

[pharma:]

Why will commodities prices go down if the US Treasury and Feds as well as EU central banks are printing money like crazy?

Too bad, nobody in the US Treasury and Feds learned how to print oil, gas, gold, copper, etc.,

2008 May 07 11:32 AM

[martin12:]

The americans have the solution in their own hands. When they start using less oil the price increase will halt.

Clearly, the supply side in the world, at present seem to be at a halt point. At the same time the developing world (India, China) uses more oil, as are the oil producing countries(Russia, Saudi Arabia), which are in a boom-state inspired by the high oil-prices.

Clearly, in this situation, it is not reasonable, that the US will manage to increase its oil consumtion.

The price need to rise sufficiently in order for demand
to be destoyed in the US. $120 per barrel oil obviously does not adress the problem, since americans still are consuming more oil then they did one year ago.

The signal to the market is that the american consumer obviously still find oil cheap, and accordingly it must rise further.

Perhaps $ 150 will help, but I´m sure that $200 will.

2008 May 07 12:01 PM

[silver-bullet:]

Peak Oil is here:
www.google.com/search?...

Use knowledge to your advantage. Leave politics and emotions out.

2008 May 07 12:57 PM

[silver-bullet:]

I sense that many folks are looking at the issue from the US centric point of view. The world is much, much, much larger than USA.

Consider future growth of Asia - especially China and India.

For every barrel of oil we are willing to give up, it will be sucked up in Asia - plus 10 more barrels!

I honestly think we will go to war for oil. In this case, commodities will rise, stocks and bonds will trade side ways or even fall relative to hard assets.

2008 May 07 01:05 PM

[fedup in Ca...:]

It is all about the dollar! Tax cuts for the rich, corporate welfare, and the resulting transfer of a surplus budget to a deficit spending economy is the underlying issue. Why in the world would anyone want to buy US Treasuries, or the US dollar when there is no full faith and credit existing to back it up. The banking system no longer runs on a policy of having assets to back up lending! It is no wonder investment is going after hard assets commidities like gold, corn, and oil. Sorry but the theory of Trickle down Economics just does not work folks!... We can drill all we want in Anwar but until we turn our US deficit around this thing will just get worse!

2008 May 07 01:40 PM

[Commodity B...:]

This is a bubble that defies any notion of rational behavior. We have plenty of supply, no shortage of oil, no shortage of diesel, and demand is overstated by the government.

This is an unregulated game for Wall Street that will eventually negatively impact the real economy and even Asian demand.

2008 May 07 03:18 PM

[coaster:]

All I know is that I'm making enough money from USO to drive my hybrid around the world - several times! And that's after it covers my green energy losses. Who's to blame - the pusher or the addict? I figure it's symbiotic, or codependent.

2008 May 07 04:49 PM

[blu:]

I recommend a book by Matt Simons called "Twilight in the Desert".

It will make oil prices make more sense to those who are asking "Why?".

2008 May 07 05:31 PM

[jimbo11:]

We can and should drill our way out of this mess. Leave the damn oil companies alone and encourage them to drill like hell in the Bakken. In two to three years we can tell the Arabs and Hugo to screw themselves. Everyone needs to pound on these stupid ass politicians tell them to get the hell out of the way and let us drill our way out of this. I email them everyday with this message. As long as you're e-mailing them tell them what a dumb idea ethanol is. It's econ 101 simple supply and demand.

2008 May 07 06:41 PM

[ari5000:]

gotta be demand:

gold and copper have stalled out recently. It's really just oil that keeps going up.

Maybe when all those SUVs are sitting in junkyards we might get a little relief. I doubt it.

2008 May 07 08:11 PM

[Indyphil:]

Plan for the worst and hope for the best.
Maybe that wont make you much money, but if we blame this on the speculative bubble, or the weak dollar being the sole cause of this, we ignor the fundamentals of peak oil. By ignoring the fundamentals and finding excuses to keep doing business as usual - the pain will be worse.

Ive read Twighlight in the desert, great book - written almost 4 years ago - before the dollar dived off a cliff. My opinion is that the supply/demand fundamentals <u>coupled</u... with the weak dollar supports this price. Its a double whammy, and one thats not going away soon.

For those that think its just the weak dollar: Prices are at record levels regardless of currency. Euro's, Australian dollars. Its doesnt matter where you are in the world, oil is expensive.

2008 May 07 09:23 PM

[relmor:]

I refuse to debate people anymore on price manipulations. Its like trying to teach an old person how to use a vcr. If you stuck in your rose colored non conspircacy glasses, then you will never see them, because it takes an open mind to see things. Look at diesel prices vs. gasoline prices. You can buy diesel in Mexico cheaper than here, and we make it here, and ship it there. This is on purpose, so Mexican and big company trucking can eliminate the small business owners. I am a small moving company owner, and I employ 10 people. There are a million of mes. Guess whats going to happen to those 10 people I hired if diesel prices keep going up. Well, im going to have to cut there pay, raise my prices(on a service industry, in this economy, good luck with that, all the while I get ever increasing price competition by large company diesel purchases I can never tap), or cut there wages, or I can choose to make less profit. So if I make any less profit, I will be called a hobby by the FEd Gov.(dont make money by the 5th year). I will lose all tax benefits, and be treated differently. But Sirius can lose money since its inception, and there not treated as a hobby.

2008 May 08 11:18 AM

[fedup in Ca...:]

The price of Oil is quoted, traded, speculated in US Dollars! This is a big problem with our devalued currency and the resulting escalation in world markets. This is why the rest of the world wants to get Oil off the dollar and on a more valued exchange: IE the Euro.. in order to stem the speculation of investors wanting to get away from the US PESO ($dollar)

2008 May 08 02:03 PM

[Mr. Math:]

drill in North America

2008 May 08 05:59 PM

[insideoil:]

You all loved it when it went your way - all ups and no risk. Bitching is not going to solve the present mess - only concerted action to get demand down and supply up, and will get the present fuel price to level out (assuming the $ stays constant). To the extent that none of the easy solutions are still available - sorry - you are going to wind up paying the price. Now please someone tell me the investment strategy that allows me just to hold value - never mind lose my shirt !!!
Oh - and by the way - just watch out for that Iran war thing. Ever since time began it is the big wild card that really makes the difference. Hezbollah making coup in Lebanon is just getting a bit too close to absolute mayhem for financial comfort.

2008 May 11 07:01 AM