Oil Prices pass $70.00 per barrel

[briann]

http://www.breitbart.com/article.php?id=D98NAK080&show_article=1

Crude passes $70 but gas prices flatten     

Jun 9 01:29 PM US/Eastern
By JOHN PORRETTO
AP Energy Writer    
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Traders Storing Oil Off UK in Super Tankers

      HOUSTON (AP) - While crude passed $70 a barrel Tuesday, gasoline prices failed to rise overnight for the first time in 42 days, signaling a possible break for motorists as summer driving shifts into high gear.

Benchmark crude for July delivery rose $2.07 to $70.16 a barrel in trading on the New York Mercantile Exchange. It is only the second time this month that prices have risen above $70, levels that have not been seen since October.

On Tuesday, the government joined several banks that have revised their price expectations upward for the year.

Meanwhile, retail pump prices have risen steadily since late April to a national average of near $2.62 a gallon. The pace at which gasoline prices spiked throughout May caught many forecasters off guard. Still, compared with last summer, gasoline is a bargain.

This week last year, gas crossed the $4 barrier for the first time during crude's historic run toward $150 a barrel.

On Tuesday, the average national retail price flattened at $2.619, according to auto club AAA, Wright Express and the Oil Price Information Service. That marked the first time since April 28 prices haven't risen overnight.

In the past month alone, gas prices have jumped more than 40 cents a gallon.

Fred Rozell, retail pricing director at the Oil Price Information Service, said part of the run-up can be linked to signs of a stabilizing economy, but there's no ignoring that fuel demand remains weak. Demand fell again at the end of May, according to the Energy Department. Also, refiners have begun at least somewhat to crank up production in recent weeks after months of scaling back.

"We probably had a mini-bubble here and, like all bubbles, they tend to go beyond what they should," Rozell said. "That doesn't mean prices won't start marching up again this week, but a lot of people are scratching their heads about why we've seen prices run up as much as they have."

The Energy Department's Energy Information Administration said Tuesday it expects retail gasoline prices to hit their summer peak in July, with a monthly average near $2.70 a gallon. For the full year, the EIA now predicts an average retail price of $2.33 a gallon, up from its forecast of $2.12 a month ago.

In a monthly report, the EIA also said crude prices will likely average $67 a barrel in the second half of 2009, about $16 higher than the first six months of the year. A month ago, the EIA's price-per-barrel forecast for the second half of 2009 was $55.

Crude prices are rising because of an influx of money from Wall Street. Investors have used oil and other commodities as a hedge against a weak dollar. The dollar has fallen in large part because of the billions the government has spent on corporate bailouts, and that has attracted enormous sums of money to the oil markets.

The dollar, which fell further Tuesday against the pound and the euro, "seems to be driving the price of oil again," said Phil Flynn, an analyst at Alaron Trading Corp.

Crude touched above $70 a barrel last week, the highest since October. Just how long a weak dollar can support prices like that, with the economy still in recession, is questionable. Crude in storage remains near record highs and demand in the U.S., the world's largest consumer of oil, is sluggish.

But there are signs the global economy is improving. China's passenger car sales shot up nearly 47 percent in May from a year earlier, buoyed by tax cuts and other government incentives, the China Association of Automobile Manufacturers reported Tuesday.

Wednesday's release of petroleum inventory data from the Energy Information Administration could provide additional insight about crude demand. Analysts expect a rise of 800,000 barrels.

These days, "it's just a market that goes up easier than it goes down," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "It's the opposite of a few months ago when oil seemed to fall on any kind of news," he said.

In other Nymex trading, gasoline for July delivery rose 1.1 cents to $1.947 a gallon and heating oil rose 2.9 cents to $1.797. Natural gas for July delivery fell 3.1 cents to $3.70 per 1,000 cubic feet.

In London, Brent prices gained $1.30 to $69.18 a barrel on the ICE Futures exchange.

[Lewinsky Stinks, Dr. Brennan Rocks]

That's what happens when you have an oligopoly market that is controlled by a handful of companies, billionaire investors, and Middle Eastern jihadist overlords.

If any kind of "recovery" takes place, $150/barrel oil will look very cheap.

[Confederate Kahanist]

That's what happens when you have an oligopoly market that is controlled by a handful of companies, billionaire investors, and Middle Eastern jihadist overlords.

If any kind of "recovery" takes place, $150/barrel oil will look very cheap.

Exactly the source of Husseins support. 

[briann]

That's what happens when you have an oligopoly market that is controlled by a handful of companies, billionaire investors, and Middle Eastern jihadist overlords.

If any kind of "recovery" takes place, $150/barrel oil will look very cheap.

You may be right.  Inflation will push it over the top.

[takebackourtemple]

   Problem is that with or without inflation $150/barrel oil prices are going to put the breaks on production. When industry doesn't have the resources to produce, they fail. This is why companies are closing all over the place and people are losing their jobs. Hard to believe I heard someone on the radio today praising Jimmy Carter. Looks like the left has forgotten all the horrors that came out of his administration.

[Abben]

By next month gas will be over $3. Thanks obama

[takebackourtemple]

By next month gas will be over $3. Thanks obama

   I really hope not, but you are probably correct. We need to get off of this fishhook so it might actually be a good thing for things to go to hell over the next year so the republicans can take back congress. Right now the best thing to invest in might be education. Both secular studies and torah. At least Israel is not run by Barack Hussein. At least I hope he doesn't have that much power.

[Dr. Dan]

Briann, what's your prediction?

[briann]

Briann, what's your prediction?

I have no idea.  I honestly didn't think it would come back so quickly.... especially after the speculators lost their shirts when the oil bubble burst.... and it went down to $33.00 a barrell. (Which is really were it SHOULD be).    But 2 things have happened.  1)   Opec has predictably reduced supply.   2) Speculators are pushing up oil again... but for different reasons.  Everybody knows that there will be massive inflation in many countries... especially the U.S. so speculators are now looking to oil... as a hedge to that inflation.  Its weird... but these are weird times.

Now I CAN tell you (With 99% certainty) that there WILL be double digit inflation once our economy stabilizes...  So that WILL increase oil prices, and everything else... BUT NOT because they are worth more... BUT because the dollar is worth less.

[Lewinsky Stinks, Dr. Brennan Rocks]

I have no idea.  I honestly didn't think it would come back so quickly.... especially after the speculators lost their shirts when the oil bubble burst.... and it went down to $33.00 a barrell. (Which is really were it SHOULD be).    But 2 things have happened.  1)   Opec has predictably reduced supply.   2) Speculators are pushing up oil again... but for different reasons.  Everybody knows that there will be massive inflation in many countries... especially the U.S. so speculators are now looking to oil... as a hedge to that inflation.  Its weird... but these are weird times.

There is one very key point to bear in mind that is unique to the case of oil. You have to consider that a vital commodity like oil is a no-lose proposition for the billionaire speculators. It is virtually impossible for it to "tank" considering how much people all over the developed world need it to live. Even if demand is not increasing, people continue to spend, and spend more, on oil and gasoline simply because they have no choice but to. Thus the speculators still make their profits on crude no matter what and there is virtually no "market" restraint to get them to stop overvaluing it. Short of a return to the horse and buggy, prices will continue to spiral up.

I'm sure that if you would talk to these speculators today, they would tell you that last fall's sudden and sharp selloff on oil was panicky and unwarranted. I doubt we will ever see anything like that again in our time.

[briann]

I have no idea.  I honestly didn't think it would come back so quickly.... especially after the speculators lost their shirts when the oil bubble burst.... and it went down to $33.00 a barrell. (Which is really were it SHOULD be).    But 2 things have happened.  1)   Opec has predictably reduced supply.   2) Speculators are pushing up oil again... but for different reasons.  Everybody knows that there will be massive inflation in many countries... especially the U.S. so speculators are now looking to oil... as a hedge to that inflation.  Its weird... but these are weird times.

There is one very key point to bear in mind that is unique to the case of oil. You have to consider that a vital commodity like oil is a no-lose proposition for the billionaire speculators. It is virtually impossible for it to "tank" considering how much people all over the developed world need it to live. Even if demand is not increasing, people continue to spend, and spend more, on oil and gasoline simply because they have no choice but to. Thus the speculators still make their profits on crude no matter what and there is virtually no "market" restraint to get them to stop overvaluing it. Short of a return to the horse and buggy, prices will continue to spiral up.

I'm sure that if you would talk to these speculators today, they would tell you that last fall's sudden and sharp selloff on oil was panicky and unwarranted. I doubt we will ever see anything like that again in our time.

Oil is actually VERY volatile... which is WHY speculators love it.  You are right... it has a combination of utility and scarcity... but its really just as volatile as gold... which has FAR less utility.  Its a VERY risky investment...which is why companies that need it... always have to protect themselves in the mid-term with large futures contracts.  I would have a tough time ever recommending it to anyone as a large portion of their portfolio in the long term. There are far better long term investments.

[Lewinsky Stinks, Dr. Brennan Rocks]

Times are rapidly changing. As much of Asia industrializes (thanks to all our jobs going there), there is an ever-growing demand for petroleum there, both in terms of factory operations and consumers (i.e. cars). Do you have any idea how much the Chinese and Indian middle classes have grown in the last decade? Granted, the leap has not been quite as big as the speculators have made it out to be, as the per-capita number of Chinese and Indians with personal cars is still quite low as opposed to Americans and Europeans, but they are not stupid. They know that time and numbers are on their side and that demand will not only keep rising in the long term, but (a) that even in recessions like this one, it will only diminish so much owing to Westerners needing gasoline to live and (b) that a very cooperative OPEC, with highly motivated member states, will do their part to make sure a dip in demand will not translate into increased supply.

Again, let me emphasize that oil becomes less and less "risky" each and every year--every day, actually, that there is not a replacement for it. The only thing that is holding us back from having permanent $200/barrel or higher oil is that the worldwide economy is still absolutely in the tank. TBOT is correct that it will be difficult for the economy to function with such obscene prices, but prices in the mid 120s are likely to be sustained in even a very mediocre market. (Do note that oil is rising faster this year than the last.)

[briann]

Times are rapidly changing. As much of Asia industrializes (thanks to all our jobs going there), there is an ever-growing demand for petroleum there, both in terms of factory operations and consumers (i.e. cars). Do you have any idea how much the Chinese and Indian middle classes have grown in the last decade? Granted, the leap has not been quite as big as the speculators have made it out to be, as the per-capita number of Chinese and Indians with personal cars is still quite low as opposed to Americans and Europeans, but they are not stupid. They know that time and numbers are on their side and that demand will not only keep rising in the long term, but (a) that even in recessions like this one, it will only diminish so much owing to Westerners needing gasoline to live and (b) that a very cooperative OPEC, with highly motivated member states, will do their part to make sure a dip in demand will not translate into increased supply.

Again, let me emphasize that oil becomes less and less "risky" each and every year--every day, actually, that there is not a replacement for it. The only thing that is holding us back from having permanent $200/barrel or higher oil is that the worldwide economy is still absolutely in the tank. TBOT is correct that it will be difficult for the economy to function with such obscene prices, but prices in the mid 120s are likely to be sustained in even a very mediocre market. (Do note that oil is rising faster this year than the last.)

Thats not true.  Oil used to be MUCH less risky than it is now... until we started seeing uncertainty and shocks in the 70's and that uncertainty was a HUGE draw for the speculators... and from then on... oil has been non-stop volitillity (IE risk).

Just to prove this point... here is a chart of oil (Adj for inflation).


Notice how little volitility (Risk) there was until we had our first oil shocks in the 70s.... and from then on... oil has completely changed from a SAFE asset to a HUGELY volitile/risky asset.  Why?  Because with the oil shocks, and the uncertainty... they have lured the speculators.

Again.. oil is NOT for the feint of heart... it is a VERY risky investment.

[Lewinsky Stinks, Dr. Brennan Rocks]

Look at the graph. Since 9/11, there has been a pretty unmitigated exponential upward curve, fueled by three things:

a--the terminal devaluation of the dollar, which oil is pinned to, because of the outflux of trillions of dollars in trade deficits with important nations (much of which goes to foreign oil), gargantuan debt spending (fueled by nothing except China's mass purchases of our bonds) and several obscene bailouts, starting with the airline industry in 2001

b--the burgeoning rise of the middle classes of massive Asian nations due to outsourcing, creating massive demand for cars

c--a much-more disciplined and resolute OPEC

Except for the short-lived selloff late last year, which is clearly over now (the gigantic run-up of the price of oil was unjustified, but so was the tremendous selloff, for real oil demand only shrunk by a couple percent between July 2008 and December), people have been waiting for the "oil bubble" to burst for five or six years now--no dice. More countries depend on imported oil than ever before, "real reserves" are shrinking (not sure that I buy that, but Wall Street does), and the affluence of formerly third-world nations is quickly rising. Even if demand were never to increase, investors would not lose a penny on oil so long as people keep buying it, which they basically have to; there is a baseline level of petroleum consumption in the world, and we are at it, and maintaining it, right now. Barring a great act by Hashem, getting screwed at the pump is a permanent way of life.

I had an Ask JTF about this a few weeks ago; did you hear it and Chaim's response?

[briann]

Look at the graph. Since 9/11, there has been a pretty unmitigated exponential upward curve, fueled by three things:

a--the terminal devaluation of the dollar, which oil is pinned to, because of the outflux of trillions of dollars in trade deficits with important nations (much of which goes to foreign oil), gargantuan debt spending (fueled by nothing except China's mass purchases of our bonds) and several obscene bailouts, starting with the airline industry in 2001

b--the burgeoning rise of the middle classes of massive Asian nations due to outsourcing, creating massive demand for cars

c--a much-more disciplined and resolute OPEC

Except for the short-lived selloff late last year, which is clearly over now (the gigantic run-up of the price of oil was unjustified, but so was the tremendous selloff, for real oil demand only shrunk by a couple percent between July 2008 and December), people have been waiting for the "oil bubble" to burst for five or six years now--no dice. More countries depend on imported oil than ever before, "real reserves" are shrinking (not sure that I buy that, but Wall Street does), and the affluence of formerly third-world nations is quickly rising. Even if demand were never to increase, investors would not lose a penny on oil so long as people keep buying it, which they basically have to; there is a baseline level of petroleum consumption in the world, and we are at it, and maintaining it, right now. Barring a great act by Hashem, getting screwed at the pump is a permanent way of life.

I had an Ask JTF about this a few weeks ago; did you hear it and Chaim's response?

While you may be right about the price staying high (I havent the foggiest idea and am not arguing that I think it will go down), I can predict with absolute certainty that it is NOT a safe investment and will continue to be the focus of wild speculation and huge volatility swings for years to come.  It has become a gambling/speculative tool.. which explains why it has the capacity to jump up 400% in one year, and collapse 300% in a few months (Something unheard of before 1975).  Its getting MORE volitile... not less.

Yes,... I already spoke of inflation and the devaluing of the dollar which will come into full swing in the next year.  It will make oil and everything else rise in price... and there are far better, less risky ways to protect yourself from this devaluation.

Chaim's response had nothing to do with the risk/volatility of oil. 

[Lewinsky Stinks, Dr. Brennan Rocks]

While you may be right about the price staying high (I havent the foggiest idea and am not arguing that I think it will go down), I can predict with absolute certainty that it is NOT a safe investment and will continue to be the focus of wild speculation and huge volatility swings for years to come.  It has become a gambling/speculative tool.. which explains why it has the capacity to jump up 400% in one year, and collapse 300% in a few months (Something unheard of before 1975).  Its getting MORE volitile... not less.

Before 1975, our country was a lot less dependent on OPEC and there was far less global demand. The investors panicked last fall when the banks started failing (a psychological reaction to general bad news, not based on any changes in the oil market), but it did not take long for them to realize that it was unfounded and that even in a recession, people need and will buy gas.

Yes,... I already spoke of inflation and the devaluing of the dollar which will come into full swing in the next year.  It will make oil and everything else rise in price... and there are far better, less risky ways to protect yourself from this devaluation.

You have a point, but up until last year's very short-lived crash, oil had been very consistently increasing in price since 2001. Can you name another high-value investment field that has had that long of an uninterrupted successful run? Computer chips? Corn? Cell phones? Gold? Aerospace?

Chaim's response had nothing to do with the risk/volatility of oil. 

No, but he argued that such a highly oligopolistic market that is so subject to control by a few very wealthy producers and investors is almost immune to the normal boundaries of supply and demand.

[briann]

Yes, obviously, the 75 oil shock was OPEC's doing, The two are one in the same.   And no, there wasnt a sudden increase in global demand in 1975... it was all fudged by OPEC...and their fake shortage... and was magnified by a new breed of speculators.

And yes of course, OPEC is the definition of a cartel.  They control most of the worlds oil supply... and they can cause fake shortages... like they did in the 70s and like they are doing now.

Can you name another high-value investment field that has had that long of an uninterrupted successful run? Computer chips? Corn? Cell phones? Gold? Aerospace?

There are several.... I dont know where to start honestly. the Real Estate boom comes to mind, and its the largest boom in human history (in terms of total value).  And Gold has actually had lower volatility during the last 8 years because it DIDNT tank last year. However, I am NOT suggesting Gold or Real Estate as a good investment.  Honestly... If its between the 3, I'm guessing oil would do better... but thats just a guess.

OK, I better at least give an alternative to your advice. Honestly... the best investment in MY opinion will be long term bonds...not now, but once the inflation kicks in.   Once we hit double digit inflation coupled with rising interest rates from our perceived risk, there will be a very nice opportunity for double digit interest rates.  There will be an inverted yield curve (SHort terms will have even HIGHER rates) but the point is to get locked in to these bonds.

[Lewinsky Stinks, Dr. Brennan Rocks]

and was magnified by a new breed of speculators.

If enough other investors (particularly huge ones) are on board with pouring money into something, and it is a product that is tightly controlled/limited and everybody needs in order to survive, you are guaranteed at a minimum not to lose on it barring a mass psychological panic on the part of other investors (until/unless they figure out that they have no reason to panic on it).

And yes of course, OPEC is the definition of a cartel.  They control most of the worlds oil supply... and they can cause fake shortages... like they did in the 70s and like they are doing now.

Don't forget one other thing--most world governments today are directly in collusion with OPEC in limiting supply and promoting phony price increases (i.e. by issuing lying reports of fuel-stock drawdowns and the like).

There are several.... I dont know where to start honestly. the Real Estate boom comes to mind, and its the largest boom in human history (in terms of total value).

That is a good analogy and it is a similar one because it is of finite amount (there is only so much land on planet earth that is habitable, and so many trees for lumber, etc.) and everybody needs it, but it falls short in one key way: it is not a perpetually-needed item within the lifetime of each human. A person buys a house, and that's pretty much it. People don't need to buy a new house every day, week, or year in order to keep living and going to work. After a while the demand will just be satiated within each generation and/or people will decide that living with their parents, renting studio apartments, finding roommates, etc. is smarter than paying 3X what a building is actually worth. Finally, even with the absurd building and zoning codes that exist today, there is not a central worldwide cartel that completely controls the number of new houses that exist or who is allowed to sell existing property. That is why the housing market could not be sustained and why it is still way down. Oil experienced a similar sudden crash, but it rebounded just as fast because of all the factors I have explained above and earlier in this thread.

And Gold has actually had lower volatility during the last 8 years because it DIDNT tank last year.

Gold may be more stable in the purest sense than oil but it is unlikely to ever experience a meteoric one-way rise either (unless inflation across the entire developed world reaches Weimar Germany or current Zimbabwean levels, which is not altogether impossible, but is not that likely), simply because it is not immediately vital to sustained modern human existence.

I'm guessing oil would do better... but thats just a guess.

Oil is more than holding its own right now, when the world economy has still not yet hit rock bottom, and when it improves by any significant degree, hold onto your pants.

OK, I better at least give an alternative to your advice. Honestly... the best investment in MY opinion will be long term bonds...not now, but once the inflation kicks in.   Once we hit double digit inflation coupled with rising interest rates from our perceived risk, there will be a very nice opportunity for double digit interest rates.  There will be an inverted yield curve (SHort terms will have even HIGHER rates) but the point is to get locked in to these bonds.

I don't mean to urge regular "little guys" on the JTF forum to invest in oil (actually I mean the opposite, it can only make gas prices worse, even if we are peons next to the real speculators), but rather to explain why oil prices are unlikely to ever significantly go down again from the consumer standpoint. The huge players on the market, for a variety of reasons, are unlikely to ever get burned by pouring money into oil, and even if they do somehow (i.e. the unlikely event that a significant conversion is made in the near future to mass transit, or mileage standards are exponentially raised, or people decide to convert to bicycles for commuting), they have more than enough money and patience to weather it out until the energy market readjusts to them.