Oil briefly broke over $92 this morning.
In real terms, Crude remains below its all-time inflation-adjusted high of $101.70 from April 1980. However, Crude has climbed 47.3% over the past 52 weeks, and since 2001, it is up ~511%, from $18 to $92. (So much for the transitory, self-limiting nature of these price increases).
It's time again to have a quick look at how and why it got here. It doesn't take a genius to identify several obvious factors:
1. Increasing Global Demand:
Booming growth in China and along the Pacific rim is only the beginning of the global story. India, Korea, Russia, Brazil, and Australia are expanding. Even "old Europe" has experienced a spurt in growth. This may be an old story, but it has yet to fully run its course.
2. Falling U.S. Dollar:
The dollar is at 15 year lows versus a basket of currencies. Blame the Federal Reserve for failing to protect the currency, and forcing capital to go where it's treated better.
US DOLLAR INDEX
Fun thought of the day: Imagine if every time Treasury Secretary Hank Paulson said "We have a strong dollar policy" -- and the dollar dropped yet further, his nose grew another inch, Pinocchio-style. I originally was going to suggest a college drinking game where you do a shot each time, but I wouldn't want all those alcohol-related deaths on my conscience.
3. Wars in Iraq, Afghanistan:
Its why I flipped bullish on Crude way back in 2002. The two hot wars in the Middle East have increased tensions, reduced Iraq's oil output, and generally led to higher terror premiums for Crude Oil. Future administrations should take note of this simple formula: Mid-East War = Higher Crude Prices.
4. Supply constraints:
US crude oil stocks unexpectedly fell by 5.3 million barrels last week, and we have a variety of infra-structure issues contributing to this factor. Globally, there is a tight supply of ships, refineries, pipelines, and storage facilities. This contributes to a minimum amount of reserve -- no buffer -- which means Crude Oil Futures fluctuate even more than they might otherwise.
5. Saber-rattling against Iran:
The increased jaw-boning against Tehran in general and the Revolutionary Guard in particular. A variety of analysts have noted that threats of US sanctions against Iran and tension on the Iraqi border had also helped fuel the oil rally.
Although I am not a fan of this White House, I guess I owe them a debt of gratitude: Their tone deaf saber rattling is definitely helping my positions in energy stocks and commodities.
Who ever would have guessed that actions have repercussions?
There are plenty of pixels being spilled on the subject; here's a typical excerpt:
"Oil futures rallied to a new record high on Friday, with worries about U.S. inventories and Middle Eastern tensions combining to send the benchmark energy contract past $92 a barrel. Crude for December delivery rose as high as $92.22 a barrel in electronic trading, a day after the U.S. slapped new economic sanctions on Iran. The gains were also driven by worries about potential conflict between Turkey and the Kurds in the north of Iraq.
At 5:30 a.m. Eastern, crude had settled back a bit. It was up 82 cents to $91.28 a barrel. Oil prices have been lifted by data, released Wednesday, showing a much higher-than-expected decline of 5.3 million barrels in crude supplies. Some believe the $100 a-barrel level is just around the corner.
"An unexpected drop in U.S. stockpiles has added to ongoing concern that supply from the Middle East may be disrupted," said analysts from Saxo Bank in Copenhagen on Friday. Gold futures also rose to a 28-year high on Friday. Commodities across the board are getting a lift from expectations that further U.S. interest rate cuts could come as early as next week, and could fuel inflation."
Hey, at least the core is contained . . . $100 Oil, here we come!
Supply fears push oil above $92
BBC, Friday, 26 October 2007, 07:01 GMT 08:01 UK
Crude rallies past $92 to new record
MarketWatchLast Update: 5:50 AM ET Oct 26, 2007
U.S. slaps new sanctions on Iran
Reuters, Fri Oct 26, 2007 6:58am BST
Crude Hits $92 on Supply Fears
By YEE KAI PIN
October 26, 2007 4:56 a.m.