Correspondent:: König Prüß, GfbAEV
Date: Tue, 19 Oct 2004 20:13:21 GMT
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Is Oil Heading For $100?
Oct. 19, 2004
Dan Ackman
Forbes
NEW YORK - Yesterday, in writing about the rise in oil prices--which
have roughly doubled in a year--I noted, "No one saw it coming."
As it turns out, a few people did see it. And now some of those seers
are saying the recent "spike" is no spike at all, but the start of a
long-term trend. It may be that the price of a barrel of oil is heading
for $100, if not higher, by the end of the decade.
To be sure, the conventional wisdom is that oil prices, which fell a bit
yesterday to about $53 per barrel, are going no higher and will likely
fall back. That seems to be the view of Wall Street firms, most of which
say as much in their research reports. Bear Stearns, for instance, last
month forecast a $25 price in 2005. Even relative "bulls" like Goldman
Sachs are talking about whether prices in the high $30 range might be
sustained.
That investors as a whole see the current price jump as a blip is shown
by the fact that, while prices of shares in oil companies like
Exxon-Mobil or BP, and oil services firms, like Schlumberger or
Transocean have risen, they have not risen by anything like the price of
the oil they drill and sell.
"To the best of my knowledge, not once [since 1998 when oil was around
$11 per barrel] has any Wall Street firm forecast oil prices to be on a
yearly uptrend," says Stephen Leeb, president of Leeb Capital
Management, a New York investment manager and author of The Oil Factor
(Warner Business 2004). Why has Wall Street missed it so badly? Leeb
suggests that the answer lies not in economics, but in mass psychology,
specifically studies of social conformity.
Leeb himself is forecasting higher, indeed skyrocketing, prices. He is
not part of a crowd, but he is not all alone either. He is joined by,
among others, Matthew Simmons, chairman of Simmons & Company
International, an energy banking firm in Houston. Simmons speaks of a
phenomenon called "Peak Oil" and says it is "as inevitable as death,"
though, like death, predicting its precise timing is not easy. Leeb and
Simmons point out that, unlike the oil crisis of the late 1970s and
early 1980s, which was a political phenomenon, the current price
increases are fueled by supply and demand, which are less transitory
than politics.
What is the scenario in which oil hits $100 per barrel in the next five
or six years?
Just as the current price increases are said to be fueled in part by
rising demand from China and India, those countries will also play a
large role in the long term. Leeb says that China and India now consume
energy (not just oil, but all forms of power) at a per capita rate that
is one half the world average. Compared to the rich nations like the
U.S. and Western Europe, their per capita consumption is one-seventh as
large. If these two countries become wealthy, as everyone expects they
will, and merely start to consume like the rest of the world (forget
about their consuming like the U.S.), that rise in demand will have a
dramatic impact on world energy markets.
Leeb estimates that if China and India continue to grow, the demand for
oil will rise by 6.1% per year. To meet such demand, the world would
have to raise output by 43% by 2010 and to triple it in 20 years.
Is such an increase plausible? Simmons points out that, while new
discoveries are certainly possible, even likely, 70% of the world's
daily supply comes from fields that have been drilled for 30 years or
more. Leeb adds that even Saudi Arabia, despite a stagnant economy,
consumes 24% of the oil it drills. In order for it to boost production,
it will have to consume a higher percentage of what it makes. As for the
world's second largest oil exporter, Russia, if its economy weren't a
basket case, it might be using its entire output internally.
Leeb says that during the last oil crisis, the world was producing at
70% capacity. Now it's at 99%. Because there is no slack in the system,
every time there is a trial in Russia, a strike in Venezuela, a
hurricane off Louisiana or a surge in violence in the Middle East, the
oil markets react dramatically. The good news is that we are more
efficient than in the 1980s, and we spend a much smaller share of gross
domestic product on energy. But while demand may slack off short term
due to slower growth, the longer term is troubling regardless of new
production technology or far better conservation.
Where have we heard this before? In the 1970s and 1980s, some
prognosticators spoke about the world "running out of oil." That
prospect is not what drives the current fears. It is the apparently
inevitable supply-and-demand driven market movements that may force the
price of oil to $100. And that's a lot scarier.
Correspondent:: polar bear
Date: Tue, 19 Oct 2004 13:33:55 -0700
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In article , "paco"
wrote:
> When will the price of a barrel of oil reach $60 ?
The fact that you're asking tells me it will go down.
> Just after the Americans Nov. elections?
Yup. Down.
> Should I sell now or wait till after the draft begins?
Definitely now
> BTW the futures market on beheadings is where the smart money is at.
That market is rigged. You'll only get your head handed to you.
> And why is it called sweet crude?
Lower sulphur content = easier to refine = higher price.
See? I CAN be serious.
> It tastes pretty much like oil and not like candy.
You're supposed to burn it, not eat it.
pb
Correspondent:: Cardinal Vertigo
Date: Wed, 20 Oct 2004 04:54:22 GMT
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polar bear wrote:
> In article , "paco"
> wrote:
>
>> When will the price of a barrel of oil reach $60 ?
>
> The fact that you're asking tells me it will go down.
I just hope the sheep don't jump headfirst into the oil futures market
like they did with tech stocks back when they were told that those would
go nowhere but up.
It won't be a steady climb; not in the short term, anyway, and
definitely not if every middle manager with a few hundred grand burning
a hole in an IRA decides it's time to get into the futures game.