Posted on 05/06/2008 8:11:08 PM PDT by Fred
Oil prices threaten to hit $200 a barrel in a final "super-spike" over coming months as producers fail to keep pace with blistering demand from China and the Middle East, according to a controversial report by Goldman Sachs.
An oil rig extracting petroleum in California: Oil could hit $200 in 'super-spike' US crude prices rose to a new high of $122.35 a barrel yesterday
"We believe the current energy crisis may be coming to a head. A 'super-spike' end game may be in the early stages of playing out," said Arjun Murti, the bank's energy strategist.
Goldman Sachs said a chronic lack of supply would lead to a "dramatic and continuous rise in oil prices", followed at some point by a sharp fall in oil demand as consumers retrench.
US crude prices hit a fresh high of $122.35 a barrel yesterday as rebel attacks on Shell installations in Nigeria and tensions in northern Iraq continued to strain markets already caught in a crunch.
Prices have doubled over the last year in what amounts to a massive transfer of wealth from the Atlantic region to the rising commodity powers.
This week's jump in prices comes despite the partial recovery of the dollar against the euro, suggesting that alleged investor appetite for oil as a sort of "anti-dollar" is no longer driving the market - if it ever was. advertisement
Prices have now surged by more than $50 a barrel since the credit crisis began.
The market has shrugged off the effects of a housing slump in the United States, Canada, Britain and Spain.
The oil boom has revealed just how much the world has changed from the days when the OECD club of rich countries invariably dictated the oil price.
Petrol prices in China and most Mid-East countries are held down by state controls, insulating demand from the effect of the global downturn. Between them, they account for the lion's share of extra oil use over the last two years. OECD consumption has been flat since 2004.
Goldman Sachs said the spare capacity of the OPEC cartel is already near "minimal" levels. There is a risk that Saudi Arabia will fail to meet output targets, suffering the same sorts of setbacks that have plagued Western oil companies. # More on oil # Read more by Ambrose Evans Pritchard
Non-OPEC producers have lurched from one disappointment to another. Russia's output fell 150,000 barrels per day in April compared to a year earlier, confirming warnings from industry leaders that Russia's oil infrastructure is woefully deficient.
"The possibility of $150-$200 per barrel seems increasingly likely over the next six to 24 months. A gradual rally in prices is likely to be longer-lasting than a sharp sudden spike," said Goldman Sachs.
The bank recommended buying Chevron, ConocoPhillips (Conviction buy), the oil service group Halliburton and explorers such as Apache and Cabot Oil.
Not all analysts believe oil prices can defy the global economic slowdown for much longer.
Citigroup said prices may fall to $40 a barrel within two years as the cycle turns in time-honoured fashion and fresh supply emerges.
Lehman Brothers said this week that crude prices had surged far ahead of rise in the underlying cost structure of the industry - typically a warning sign at the end of a cycle.
The drilling cost for oil and gas wells has actually fallen slightly over the last two years, and even deepwater rig rates have been flat after jumping five-fold since 2004. Some 65 deepwater rigs are coming on stream over the next two years, compared to 10 from 2002 to 2007.
Brent crude $ per barrel
"We believe the energy sector is about to see the explosion in the availability of rigs to explore and develop petroleum in deep waters," said Lehman Brothers, citing fields in the Atlantic Basin, the Gulf of Mexico, the northwest shelves off Alaska and Norway and new discoveries off the coast of Brazil.
Data on futures contracts from America's CFTC show that speculative "short" positions on oil jumped 11pc last week, suggesting that at least some hedge funds suspect the boom is overdone and ripe for a fall.
The picture is contradictory, however. Futures prices as far out as December 2016 have been rocketing to fresh highs, in some cases vaulting at an even faster rate than spot prices. This is unprecedented.
"We think these moves are very important as they signify the extent to which medium and long-term perceptions are anchoring values," said Barclays Capital.
The bank said Gordon Brown and President George Bush were whistling in the wind by blaming OPEC for the latest price surge. The cartel no longer has the capacity to crank up production even if it wanted to do so, said the bank.
The bloc's president, Chakib Khelil, said last month that there was very little that producers could do to stop oil reaching $200, if that is where the market wants to go.
I didn’t think Obama could beat McCain, but if we have $200 oil by late October, that might do it.
Andy why should they?
The irony is that OPEC throughout its history failed to constrict supply and now is simply riding they wave of every increasing demand.
Great advice from the folks who have lost so much on bad investments already!
Maybe $40/barrel oil after all dollars are recalled and one "Amero" exchanged for each ten US dollars?
Shoot fire.
Now you can make that same investment at the pump! ;-)
I wonder when the pinheads living in the country are going to stand up to the moronic enviroloonies and their “judges” and say, “Enough is enough. We’re drilling and we’re building new refineries.”
starting to look a little toppy here
I can already hear the Dims screaming for price controls and a government takeover of the oil industry. And of course there will be no war with Iran because we don’t want to see $300/barrel. Obama and Hillary will be licking Imanutjob’s jackboots like there’s no tomorrow.
I have listened to all the excuses over the last couple of years. Each time prices start jumping, there is an excuse. Supply and demand has been bantered around a lot. Yet when the truth comes out, the excuse then becomes the value of the US $. So in the last week or so, the dollar has made some gains. And the price of oil took a couple of small drops, and has shot right back into record-breaking territory.
I won’t deny that world demand is up. But seeing how every hang-nail of a sheik in the middle east causes the price of oil to jump, every sneeze by a 3rd world dictator causes spikes, and rumors can make for record prices, something is amiss.
And now we have politicians arguing over 18 cents per gallon of federal highway tax, while the government is irresponsibly spending the tax dollars they already collect.
I honestly believe that our own government is the primary reason oil/fuel prices are so high. Between the devaluation of the dollar (intentional), the practically unlimited illegal immigration (failure to secure our borders, thus depressing wages and standard of living further), and generally poor spending and borrowing habits, our “leaders” have put us in a hole I just don’t know how we can get out of. And to top it all off, for the last decade +, the need for energy independence has received lots of lip service, but no REAL and MEANINGFUL action. Instead, those same leaders have allowed the frauds in the enviro-nazi extreme dictate our energy policy - no exploration, no drilling, no refining capacity...no alternative energy research except those that directly line the pockets of their biggest donors... and we have manipulation that I believe goes very deep (or high up, whichever angle you choose to look at it).
Longterm. Big oil, NG, and energy production will pay you beautifully. You haven’t missed the boat.
If I’m going to get BOHICA’d at the gas pump and every other way these prices will effect me, I’m going to turn around and make my money back and more by investing in those doing the BOHICA. Nice hedge against it all.
One of my primary investments in my 401K for a few years now:
http://personal.fidelity.com/products/funds/mfl_frame.shtml?316390491
You almost ain't kidding. The last time I filled up my truck it cost me 80 bucks and the my wife's rig cost me 100.
What crisis? I don't see lines at gas stations. You can get as much motor fuels as you want. Prices have to get high enough to attract more investors. Lots of people left the oil & gas industry after the 1986 price collapse.
It's 2008 for G-d's sakes.
You mean the same OPECKERS who made bold statements not all that long ago that $70 per barrel was not sustainable and they wanted a $60 price point?
It’s only a crisis because it’s draining money from other purchases.
$200 is depression territory. Our economy can’t take that.
It’s certainly big time inflation territory.
Well the 1986 oil market collapse was a crisis for my father.
I remember back in the day (68 or so), when diesel was so cheap that most station didn’t carry it except along the long haul highways.
OPEC, as an organization has lost its ability to constrict the supply of oil.
Texas, right? I saw what happened first hand.
Trouble is, the kind of spike mentioned can push the entire economy over the edge.
What do you suggest be done?
Goldman Sachs said———Stopped reading right there.
Neither can China, and so they won't. The downturn after the Olympics in China will drop the price of oil globally. (And create social unrest in China)
So the price of a barrel of oil has risen $70 since the Democrats took control of congress. Damn them!! And they want to raise prices even more by raising taxes!! Damn them again!
and, I can always get back in, can't I?
Nobody ever went broke taking a profit.
A giant three toed sloth could destroy Tokyo
McCain could turn out to be ok
Women from Venus could send an asteroid to destroy civilization
A new virus could kill all the gullible people
I could find a lottery ticket on the side walk and win the biggest jackpot in history!
Would a sizable release from the Strategic Oil Reserve put an end to the speculative bubble?
We all agree there is no shortage of oil. But this out of control futures trading by oil market speculators will bankrupt all of us.
And to any DUmmies or lefties visiting, since all our wars since 1990 have been fought for oil, WHERE THE HELL IS MY CHEAP OIL?
I'm just planning on staying in the natural resources fund for the long run right now. Longterm, its going to be great because not only do you have your oil plays in there, but you got NG, infrastructure, precious metals and jewels mining. Nicely diversified. I'm also in the Fidelity Canada (lots of great energy companies in there as well) and South East Asia funds. Emerging markets will continue to outperform.
and one other really telling sign. The Top 5 performing Fidelity sector funds over the past 3 years are all Natural Resources: Energy Service, Natural Resources, Gold, Energy, and Natural Gas.
No other investment category comes close to those returns.
Yep, energy is still working.........
All McCain has to do is tie the higher price of oil to the Democrats taking over Congress in 2006...after all, the price of a barrel was $58 at the time. I don't think he will bring it up, as some of the House Republican members have...
I’ve loved Prudential’s Jennison Natural Resources fund. Wish I could have had more money in it these past few years.
I also just bought into Fidelity’s Select Natural Gas fund as a way to put a little inherited money to work. Certainly not buying it low, but will hold long-term.
I would also recommend investing in companies that are in the defense industry, such as Northrup Grumman and Ratheyon.
That would be a plug-in hybrid. Coming your way soon.
And in related news, the hottest new MSM cause du jour is shutting down the ethanol option.
I am heavily into the Canada Fund at Fidelity....it had hit $70 in October, but I’ve been adding to it when its been down and I think I am going to make out with the dollar cost averaging bit...and, I BELIEVE absolutely in this fund....
Canada has become the biggest energy supplier to the US. And their banks and financials are very well run organizations. Rodgers communications, their biggest wireless provider, is a great company as well.
Canada is going to be booming for years to come.
Defense and aerospace will continue to be strong. Boeing is in the right place in the right time with the right products for what is going to end up being one of the biggest upgrade and buying cycles for commercial jets we have ever witnessed. All those suppliers of materials and components for those planes will be along for the ride as well. Honeywell and United Technologies comes to mind as well.
I have a friend who works for NG and its a great company.
My only worry would be if Hildabeast or Hussien Obama becomes president what that means for the defense industry. Remember what Billary did to the US military in the 1990s? I can’t even imagine what that fool Obama will do to it.
Defense and aerospace will continue to be strong. Boeing is in the right place in the right time with the right products for what is going to end up being one of the biggest upgrade and buying cycles for commercial jets we have ever witnessed. All those suppliers of materials and components for those planes will be along for the ride as well. Honeywell and United Technologies comes to mind as well.
I have a friend who works for NG and its a great company.
My only worry would be if Hildabeast or Hussien Obama becomes president what that means for the defense industry. Remember what Billary did to the US military in the 1990s? I can’t even imagine what that fool Obama will do to it.
...and prices at the pump will drop to $3.45
Maybe they remember how badly the collapse in oil prices during the 80s hurt.
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