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Analysts at Goldman and CIBC say $100
oil may be just months away.
The $100-a-barrel oil that Goldman Sachs Group Inc. said would prevail by
2009 may be only a few months away.
Jeffrey Currie, a London-based commodity analyst at the world's biggest
securities firm, says $95 crude is likely this year unless OPEC unexpectedly
increases production, and declining inventories are raising the chances for
$100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon
as next year.
Higher prices will increase revenue for energy producers from Exxon Mobil
Corp. to PetroChina Co., while eroding profit at airlines including EasyJet
Plc and railroads such as Union Pacific Corp. The U.S. and other oil-importing
nations risk accelerating inflation, while higher energy costs threaten to
restrain growth.
Benchmark crude oil futures ended last week at $75.57 a barrel on the New
York Mercantile Exchange, up 51 percent since mid- January and twice the
level of early 2003. A record number of options have been sold that give
the buyer the right to buy crude oil at $100. The contracts, covering 50
million barrels, only pay off should oil go above the target price.
A National Petroleum Council study led by former Exxon Mobil chairman Lee
Raymond, released last week, predicted a growing gap between production and
demand for oil and gas during the next two decades. As recently as 2005,
Raymond said oil prices had probably peaked and dismissed the possibility
that supply and demand could not be brought back into balance.
"There are questions about whether the oil industry can keep up with demand," U.S.
Energy Secretary Samuel Bodman said last week, commenting on the Petroleum
Council report.
Oil prices could triple in three months to more than $200 a barrel, given
the right circumstances, according to Matthew Simmons, chairman of Simmons & Co.,
a Houston investment bank.
Gasoline pump prices averaging more than $3 a gallon across the U.S., the
consumer of 25 percent of the world's oil, haven't dented sales. Deliveries
of gasoline were a record 9.23 million barrels a day in the first half of
this year, according to a July 18 report from the American Petroleum Institute
in Washington.
"It appears that high prices are acceptable to the American consumer," said
Robert Ebel, chairman of the energy program at the Center for Strategic and
International Studies in Washington. "People want the house with a yard and
white-picket fence so they are moving further and further out of the cities.
They have to just get up earlier and drive further."
A pullout from Iraq may be the event that pushes oil to $100 a barrel, according
to Boone Pickens, the Dallas hedge fund manager who has joined Forbes Magazine's
list of billionaires because of his bullish bets on energy prices. Pickens
predicted a year ago that $100 oil would probably occur by now. Today he
is looking for $80 within six months, and he says growing chaos in Iraq would
be a bad sign. "That could run prices pretty high," he said.
Goldman Sachs's Currie also notes similarities to a year ago, with global
inventories at about the same level and U.S. government data showing an increasing
bet on higher prices.
"At face value this market is strikingly similar to a year ago," Currie
said. "What is different? Supply is down a million barrels a day, demand
is up a million barrels a day. The market is in a deficit."
If Bush is dumb enough to invade Iran, $200 could come in a hurry. But the
idea that oil surges on a U.S. pullback from Iraq is debatable. The sooner
we leave Iraq, the sooner Iraq will recover (I might add just as Vietnam did),
and the less jet fuel we will be wasting on needless missions.
Could there be a short term spike when we leave Iraq? Perhaps, but the long
term benefits of us getting the hell out will be enormous.
Gasoline Demand Is Inelastic
It's not so much that "high prices are acceptable to the American consumer" as
opposed to the fact that the demand for gasoline is relatively inelastic. Consider
the plight of taxi drivers and the Chicago Tribune article Pinched
taxi drivers hope to fare better by organizing.
His fares for the last two days were dismal and now halfway through the
day, Khalid al Hag had only $20 in his pocket.
At this rate, he figured he would have to dip into savings to make his $520
weekly payment to the cab company for use of the car.
"I'm going to have to work at least 12 or 14 hours today and still I won't
get by," he said, gulping down a meal so he could get back into his cab,
which lately he has been driving seven days a week.
Other cabbies -- independents who have to pay out of their pockets for gasoline
and other expenses and benefits -- flitted through the restaurant with the
same laments. At $3.46 for a gallon of regular gas, high fuel prices are
swallowing their thin profit margins.
The drivers' distress is why Sampat thinks an effort to organize many of
Chicago's nearly 11,000 cab drivers, including 2,500 who own their own cabs,
will succeed. Similar efforts are ongoing across the country.
The organizing efforts are more of a cry for rights and recognition waged
largely on behalf of thousands of immigrants who have quietly slipped behind
the steering wheels of most the nation's cabs.
Why are cabbies the focus of organizing efforts? Taxis are today's Ellis
Island for many immigrants, statistics show. And cab driver is the first
line of work in the U.S. for many without good language skills and without
credentials to land easier, safer and better-paying jobs.
The last fare hike in Chicago was in 2005. Soon after that, Chicago ranked
18th out of 23 cities in the U.S. for the price of an average cab ride, according
to an industry study that city officials said still is relevant.
The organizers presented figures compiled from a handful of drivers, showing
that the drivers were spending an average $44 a day on gas last month and
were earning $6 an hour when all of their expenses were deducted.
But Ald. Thomas Allen (38th), chairman of the Committee on Transportation
and Public Way, said he doesn't sense any support within the City Council
or from city officials for a surcharge. "Gas prices have kind of settled," he
added.
"Every day when I go home, I ask myself the same question, 'When am I going
to stop being a cab driver?' And every day I say I'm going find something
better, but I can't," grumbled Omar Shire, 29, a Somali refugee, who has
been driving for the last three years in Chicago.
"I work 14 hours a day, seven days a week. That's all I do," he said, his
voice rising in anger, his eyes wide. The city does not limit how many hours
cabbies can drive.
Is there a real choice here? The bottom line is you have to drive and you
have to eat. While one can cut back eating expenses by switching from steak
to hot dogs, there is no cheaper substitute for gasoline.
Monthly Crude Trendline Still Intact
The weekly chart has had a few busted trendlines but the monthly still looks
great. But there is a looming US recession and liquidity crunch that is likely
to bust an enormous number of trendlines and test the resolve of more than
a few energy bulls.
Those watching crude may also we watching the US$ index and the Yen vs. the
Dollar.
Let's take a look.
US$ Index
Yen / US Dollar
Forex traders will note that the chart of the Yen vs. the dollar is inverse
of normal trading pairs.
It's now do or die for both the US$ index and the Yen vs. the US dollar. Both
currencies have been anemic lately compared to anything else. The US$ is on
the verge of collapse, and the Yen is at lows compared to the British Pound
and the Euro.
With trillions in carry trade bets riding on the outcome, the impact of a
major breakdown in either currency could be very significant. Out and out disasters
are most often in the direction of the prevailing trend. Here, two competing
losers also are going head to head. Resolution should come soon. The US dollar
is going to eventually break hard but one must be on the lookout for a major
headfake with all the stops in too obvious places.
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