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SUBJECT: Daniel Yergin ...... Wall Street Journal ........... oil to $150
Submitted by
Dollar from OKLAHOMA on
http://www.moneyweb.co.za/mw/view/mw/en/page94?oid=205935&sn=Detail
Wall Street Journal
Some see oil at $150 a barrel this year
Crude rose $1.87 to $121.84 a barrel, a surge that is prompting analysts to forecast prices of over $150 a barrel.
Neil King Jr. And Spencer Swartz, Wall Street Journal
Wed May 07 04:54:33 GMT+02:00 2008
A growing number of oil-market watchers say voters riled by soaring fuel costs may face far worse this summer, as factors ranging from unrest in Nigeria to slumping production in Russia could shove benchmark oil prices over $150 a barrel.
U.S. benchmark crude notched another record Tuesday, settling at $121.84 on the New York Mercantile Exchange. Nymex crude oil so far this year is up 27% and is now 17% above its previous inflation-adjusted record in April 1980. It is up 96% from a year ago.
Oil's seemingly unstoppable surge has led some analysts to issue gloomier price outlooks. Goldman Sachs Group Inc., which predicted the latest run-up, says the world may face a "super-spike" in which crude ranges from $150 to $200 a barrel as early as October, up from just over $120 now.
"That would put oil at unprecedented price levels, even going back to just after the Civil War," said Stephen Brown, an energy economist at the Dallas Federal Reserve Bank. A sustained price of $150 a barrel, he estimates, would shave around 1.8% percentage points off U.S. economic output in the first year, and a further 1.5% in the second year. The U.S. economy in the first quarter grew at an anemic 0.6% annual pace.
At the pump, $150 oil translates into gasoline prices of more than $4.50 a gallon, putting further strain on U.S. auto makers, airlines and utilities. It would also stoke the political debate in Washington. Regular grade gasoline in April averaged $3.46 a gallon.
Oil watchers say most signs point toward a continued increase in prices. Despite talk that speculators have driven up crude prices as a hedge against the slumping dollar, oil has rallied 10% since the first week in April while the dollar has risen about 2% against the euro.
Even more unusual is that oil has maintained its upward momentum in the face of sharply diminished U.S. demand, which fell in February to 19.7 million barrels a day. That was down a million barrels a day from the 2007 average. An increase in U.S. demand, perhaps driven by the $152 billion in government stimulus payments to consumers, could crimp an already tight international oil market.
The main factors that could send prices down, analysts say, would be a sharp downturn in global oil demand or some sudden flight from commodities among international investors.
"It's not that the genie is out of the bottle -- it's that 100 genies are out of the bottle," said Daniel Yergin, chairman of Cambridge Energy Research Associates. Normally known for optimistic forecasts of lowering oil prices, Mr. Yergin's firm now says the price could rise to $150 a barrel this year.
The world's diminished spare production capacity remains the strongest single catalyst for high prices, Mr. Yergin says. The world's safety cushion -- the amount of readily available oil that could be pumped in a moment of crisis -- is now around two million barrels a day, according to most estimates. That's just 2.3% of daily demand, and nearly all of the safety cushion is in one country, Saudi Arabia. Everyone else is pretty much pumping all they can, which makes the world vulnerable to political or other shocks.
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Fshfndr from KANSAS says Just goes to show you what the Dems
want they have held up every attempt to drill anywhere it could help us. Tree huggers and Dems should be happy they got what they wanted.
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Brad from CALIFORNIA says From your own Fox news network...
http://www.foxnews.com/story/0,2933,166038,00.html
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The Danger of Speculation
Commentary by Mike Norman for FOX Fan Central
It’s time to speak the truth. No more disingenuous questioning and wondering. No more exasperated resignation. We know the reason why oil prices are high, and it’s time to admit it and do something about it.
Oil prices are high because of speculation, pure and simple. That’s not an assertion, that’s a fact. Yet rather than attack the speculation and rid ourselves of the problem, we flail away at the symptoms. High gasoline prices? Oh, let’s use hybrid cars, or drill in the Rockies or off the California coast. How about doubling the use of ethanol, even though it costs more to produce than the energy you get out of it? Then again, we can go to Alaska, or build more refineries, or triple the number of nuclear power plants. Sound good?
Tune in to "The Cost of Freedom" business block, Saturday at 10am ET, for more with Mike Norman and the entire FNC business team.
What if we just stopped the speculation?
No, you can’t do that! That would be interfering with the “free” market.
Hey, the “free” market is starting to get awfully expensive.
Tell me, how is it free when speculators rule the roost? It’s one thing when they do what they do with pieces of paper called stocks, but it’s another when they do it with a vital commodity like oil. We saw the devastation their behavior wrought in the 1990s, and we’re witnessing it again right now.
Moreover, it would be one thing if they were right and buying oil for all the right reasons. But they’re not.
Recently we saw crude oil supplies rise to a six-year high. Gasoline stockpiles were at a three-year high. Distillates have come back from a steep deficit to inventory levels that are now above where they were last year. Natural gas inventories reside well above their five-year average.
Yet prices go up and up and up.
Still not satisfied?
Okay, OPEC is producing at levels not seen since the early 1970s — and that doesn’t even include Iraq, which is struggling to achieve pre-Gulf War production levels, but will soon be there. Furthermore, global production still outpaces consumption, even accounting for China’s unsustainable economic growth rates.
In short, there is nothing in that equation that says oil should cost what it costs today. Nothing! With one exception — speculation.
The New York Mercantile Exchange is the preeminent energy futures market in the world. It has become the price-setting mechanism for oil. Even OPEC refers to NYMEX when it sets its price targets. Right now it costs exactly $3,375 for anyone to control 1000 barrels of crude oil valued at roughly $67,000. Three grand to control nearly seventy!
The NYMEX sets that margin requirement, or “good faith” deposit, based on a number of factors like volatility and price. Yet despite the fact that crude and gasoline prices have doubled in the past year the exchange has only raised the margin requirement once, and by a token amount. I might add. The reason I remember it so well is because I think I had something to do with it.
Last August I happened to run into Senator Chuck Schumer (D-NY) outside my office here on Wall Street. I asked him why more pressure wasn’t being placed on the NYMEX to raise margin requirements given the high level of prices and the known fact that speculation was adding anywhere from $10 to $15 to the price of crude. His answer to me was, “That’s a good idea.”
One week later I ran into Speaker of the House Denny Hastert at FOX News. I posed the same question to the Speaker; he turned to his assistant and said, “We’ll have Snow make the call.” That was a reference to Treasury Secretary John Snow.
I followed both of these meetings up with a story that I wrote for the New York Post, which discussed the ambivalence of the NYMEX in the midst of surging oil prices.
Two weeks later, NYMEX raised margins by that token amount. There was a price pullback, but it didn’t last long.
Some might argue that higher margins don’t help, and in fact may even exacerbate the problem by not allowing price to ration supply, which is the normal function of markets. I say, hogwash. The problem is not with supply; it’s with demand — speculative demand.
If you don’t believe me check the most recent Commitment of Traders’ Report from the Commodity Futures Trading Commission. It shows large speculators net long crude oil and commercial hedgers net short. In the gasoline market this standoff is even more pronounced.
There have been many times in the past when exchanges used margin policy to impact prices. It’s within their mandates. In 1980 the Commodity Exchange Inc. in New York declared a “liquidation only” market in silver. This move was designed to break the back of a corner that was being engineered by a group of speculators. That policy worked. Prices eventually fell to $10 and the specs were ruined.
Moreover, the Federal Reserve can also raise margin requirements on stocks and it has, 23 times since 1934.
As more and more speculative funds buy into the crude, gasoline, and heating oil markets, their price structures are getting distorted. Deferred contract months are selling for big premiums over spot or nearby contracts. Normally that would not be the case in situations of tight supply, as so many say we are in. This tidal wave of speculative buying is fostering the artificial hoarding of oil. It is dangerous, and it should be stopped.
History has shown that sometimes markets can be distorted by manipulation and mania. In my opinion, those times justify intervention. The New York Mercantile Exchange has not shown any responsibility in this regard, but we shouldn’t expect it to: It makes its money off the trading of oil contracts listed on its exchange.
However, pressure should be put on the NYMEX to raise margins high enough to significantly reduce the amount of speculation going on in their markets. Leave the bona-fide hedgers (those who produce or sell the stuff) alone, but for the good of the economy, and for the long-term integrity of the markets, we must make it too costly for funds to play the spec game.
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This is a CONSERVATIVE commentator and even he gets it! When are you going to admmit that your appologist song is entirely out of sync with the current reality?
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Larry-Southern Indiana from INDIANA says Interesting article Brad
too bad it will fall on deaf ears around here and bush isn't going to do one frickin thing about it either. He's made it pretty clear his administration doesn't give a damn about the American consumer unless their screwing them out of their money.
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Bender, MS Gulf Coast from ALABAMA says But Brad!
You have been telling us that it was all because of Bush and Cheney!
Now it is Market Speculation? It has always been Market Speculation. The same with Pork Bellies and Corn. Did you no see Les Nessman on WKRP in Cinncinati?
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Dollar from OKLAHOMA says How many times Brad ............no one argues that speculation is part of the price
Again and again and again ............. its part of the price, but even this article you quote here, says its $10 to $15 per bbl.
Hey ......... oil closed at $125 yesterday.
No, its you and Larry from somewhere who don't get it.
And there's valid reasons for the speculation. There's a multitude of events that could send oil over $200 per bbl. There's not anything I know of that would send it to $40.
Your problem Brad, is that you've laid the blame on greedy on oil men and that did not pan out, so now you've shifted to greedy speculators, and I can tell you now your wrong again ...... junior.
You and Larry think you know something when you don't know what you don't know.
And I've told you numerous times, and I've said this for the past two or three years, that the problem lies with the excess production capacity of the oil producing nations. And only one nation has excess capacity, that being Saudi Arabia, and those folks are really really good at keeping secrets. No one knows what their oil production outlook really is.
You and every Tom, Dick, and Harry walking the streets are in denial. You refuse to accept reality. You and your ilk will drag this country into oblivion, if allowed to do so.
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Dollar from OKLAHOMA says And for my usual addendum ............
Why would Brad think I watch or read the Fox News Network ???
I'm far more apt to read the New York Times or Washington Post. And this is my computer's start up page .......
http://news.google.com/news?ned=us
There's a whole lot of news sources there, from many different perspectives.
Kinda tough to pigeon hole this issue, huh Bradley ?? Exactly where does the left end and the right begin or vice versa .......
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Big D #10419 from NEBRASKA says Baghdad, this is a straight question, so google it and cut and paste a straight answer
How do speculators drive up the price of oil and how do they take their profits?
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Early Cuyler from GEORGIA says This is funny
Big and Dollar, in a tag team match against Baghdad Brad and Larrroooo.......Hard to beat someone down when they are too stupid to know it
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CoonAss (68.212.49.32) from LOUISIANA says Here you go brad, from YOUR own CNN.....
http://money.cnn.com/2008/05/07/news/economy/120_oil/index.htm?cnn=yes
Pretty much exactly what Dollar has been saying.......
Why $120 oil is good
Speculators are often blamed for artificially inflating crude prices, but some experts say high prices are needed to cut demand and develop new resources.
By Steve Hargreaves, CNNMoney.com staff writer
May 8, 2008: 10:24 AM EDT
NEW YORK (CNNMoney.com) -- With $120 oil not seeming to follow the fundamental law of supply and demand many are wondering if the market is broken.
The Federal Reserve has been cutting interest rates, saving Wall Street but sinking the dollar and driving up food and fuel prices. Investors, also called "speculators" by some, have been pouring money into commodities of all sorts, artificially driving prices higher in an attempt to squeak out healthy profits in the face of falling stock values.
But to many, all the financial voodoo is merely a distraction. The fundamental reality of oil - and the thing that makes it so attractive to investors in the first place - is that we are using ever more and finding ever less. High prices are necessary if we are to reduce demand, find new oil, and develop alternative technologies.
"The market is starting to send a signal: You got to get your alternative in line," said Robert Kaufmann, director of Boston University's Center for Energy and Environmental Studies. "Societies that ignore this kind of signal do so at their own peril."
Kaufmann isn't promoting the so-called "peak oil" theory - he doesn't think the world is quickly running out of oil.
The problem, he says, is new discoveries of crude in non-OPEC areas like the U.S., the North Sea, and Russia have not kept pace with the oil being removed from those places. OPEC, which holds two thirds of the world's crude oil reserves, has seen no drop in global demand despite $120 oil and has little incentive to increase output.
It's this supply problem that prompted analysts at Goldman Sachs to reaffirm their prediction of a so-called "super spike" in oil prices - which could usher in $200-a-barrel crude in the next 6 to 24 months.
"We believe the current energy crisis may be coming to a head, as a lack of adequate supply growth is becoming apparent," Goldman analysts wrote in a research note Tuesday.
That's the supply-side of the equation. The demand side is a familiar story - developing regions like China, India and the Middle East are using more and more oil. It's not that this wasn't known last year - when oil was half as expensive as it is now - it's just that the world is moving closer to that tipping point where demand will exceed supply.
'It's a finite resource," said Brian Hicks, Co-manager of the Global Resources Fund at U.S. Global Investors, a San Antonio-based mutual fund. "The rest of the world wants to live like we do, and there aren't enough resources to keep everyone happy."
It's become popular to blame speculators - which would include mutual funds, pension funds, some banks, and anyone else who doesn't ultimately take delivery of a barrel of oil - for the run up in price. Congressman have recently spoken of an "orgy of speculation" in the commodities markets, and have held hearings into the matter.
But most analysts say investors are simply looking at these underlying supply and demand trends and buying oil because they see it going up on its own accord.
After all, they can't really be influencing the price of crude, the argument goes, as they generally don't take delivery of the oil and must sell whatever contracts they have at the end of each month. Ultimately, they don't take any oil off the market.
"Nobody at Goldman Sachs wants to see a fuel truck pull up and say "Ok, here's your 60,000 gallons of gasoline,'" said Micheal Cosgrove, president of the commodities brokerage Amerex Brokers, which handles transactions for both banks and end users of oil like refineries. "Ultimately, it's the consumer."
Which is one reason why $120 oil is necessary - to limit demand in a supply-constrained world.
"I think the market is working," said Joseph Stanislaw, an independent energy adviser at the consulting firm Deloitte & Touche. "It forces us to make decisions as induvidual consumers that will change our behavior. It needs to be done."
Government regulators at the Commodity Futures Trading Commission have also said their studies have produced no evidence that oil speculators are significantly driving up the price of crude.
The argument that speculators aren't unduly influencing oil prices is by no means universally accepted.
"I think the market is totally insane," said Fadel Gheit, a senior energy analyst at the investment firm Oppenheimer. "Somebody is playing a game, and we're all paying for it."
Gheit said demand has fallen in developed countries, and there is plenty of energy supply -mostly in the form of natural gas - available right here in the U.S.,if only the oil companies had access to it.
Some analysts and politicians have called for increasing the nations oil production by drilling in areas that are currently off limits - like the Arctic National Wildlife Refuge, sections of the Rocky Mountains and off the east and west coasts.
"If we opened access to gas in this country, we wouldn't need oil in five years," he said.
Both sides in this debate make concessions.
The "market-is-working" types agree that the discovery of oil as an investment class is probably driving up prices somewhat - perhaps by as much as $30 a barrel - although they maintain the long-term price trend would be little changed absent these speculators.
And Gheit agrees that higher prices do provide much-needed incentive to limit demand.
"I've long said maybe the best thing that could happen to this country is to have $6 gasoline," he said.
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Dollar from OKLAHOMA says I'm waitin for Brad's answer to BigD's question also
For the life of me, I can't think of a good reason why Bradley should be avoiding this question.
Other than he's frantically Googling and he can't find an answer that would support his statements.
Its time for Bradley to put up or shut up.
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Brad from CALIFORNIA says dang i hate when that happens
i just told some guy to put up or shut up before i read your post.
:)
if d wants to know how the scheme works, he should ask Mike Norman, the guy who wrote the article for fox news...
btw, i don't watch cnn.
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Dollar from OKLAHOMA says Yeah Bradley, here's how the scheme works, they all gettin rich
http://www.smartmoney.com/news/ON/index.cfm?story=ON-20080501-000915-1721&
DOW JONES NEWSWIRES
UPDATE:Chesapeake Energy Swings To 1Q Loss On Hedging Losses
Chesapeake Energy Corp. (CHK) swung to a first-quarter loss on an unrealized loss related to hedging activities.
The company announced that it would sell assets with proved reserves for $623 million and retain drilling rights on the properties. That sale was expected to close Thursday. It also said it intends to sell all of its remaining Arkoma Basin Woodford Shale properties, about 85,000 acres in Oklahoma, for $1.5 billion.
The independent oil-and-natural-gas producer reported a net loss of $132 million, or 29 cents a share, compared with net income of $258 million, or 50 cents a share, a year earlier.
The latest results included an unrealized after-tax mark-to-market loss of $704 million from the company's oil, gas and interest rate hedging program, primarily the result of higher oil and natural gas prices. Excluding items, earnings were $1.09 a share.
Revenue rose 2% to $1.61 billion.
Analysts' mean estimates were for per-share earnings of 93 cents on revenue of $2.12 billion, according to a poll by Thomson Reuters.
Chesapeake said average daily production jumped 31% with total natural gas up 33% to 187.8 billion cubic feet and oil production growing 28% to 2.746 million barrels. In February, the company predicted production of 2.68 million barrels of oil and 198 billion to 202 billion cubic feet of natural gas in the first quarter.
Average realized price for gas fell 2.3% but climbed 22% for oil.
Natural-gas prices in the U.S. have nearly doubled in the past eight months because of global demand for the fuel, but they are low as half the level of some overseas markets, suggesting U.S. prices have further to rise.
Chesapeake's reserves ended the quarter with 11.48 trillion cubic feet per natural gas equivalent, up 5.5%. Natural gas was 92% of the company's total production, and Chesapeake is on track to become the largest U.S. natural-gas producer later this year. But the company has been moving more into oil production as the price of crude has climbed to record levels.
Chesapeake's shares were at $50.10, down 83 cents, or 1.6%, in after-hours trading. The stock price has climbed 25% since the beginning of the year.
-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975; Kathy.Shwiff@dowjones.com
(END) Dow Jones Newswires
05-01-08 1721ET
Copyright (c) 2008 Dow Jones & Company, Inc.
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Big D #10419 from NEBRASKA says Baghdad Brad doesn't know and doesn't know how to find out.
I do know, and more importantly, I know how to find out.
If Baghdad Brad would ever try to find out the truth, his head would explode.
He doesn't know how the futures markets or commodities markets work, he doesn't know what an "Enron Loophole" is, and he doesn't understand how investing in equities allow all American an opportunity to participate in the growth and prosperity of the country.
Why would I expect him to answer a more complex question when he can't decide how to answer a yes-no question?
By the way, I once fished 8000 NM off the coast of Japan for more than a year. I know about being out to sea.
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