Oil price over $147 for the first time-now above $80

[Ed Mahmoud]

I work for a small oil company, $100+ oil is job security (I was laid off in 1998 when oil hit $10). But I filled up the wife's minivan for Spring Break road trip (and may be away, depending on access, for Monday's severe outbreak in DFW) to visit my Mom, Grandma Nancy, and it was over $70. Ouch.

[gtalum]

Again, you can thank the idiots in charge of fiscal policy for much of this. Worldwide, oil is no more expensive than it was a year ago. The entire difference in price can be traced to the collapse of the US Dollar.

I still look for a burst of the oil bubble. The speculation is driving so fast it looks like housing in 2005.

[Stephanie]

I just wonder if and when the bubble bursts (and I believe it will too) will we see the high gas prices fall as dramatically? Probably not, as usual.

It's a vicious cycle too. Inflation will grow as various industries take it on the chin again for higher transportation costs and thus higher prices. Something has to give and it won't be a pretty sight.

[LSU2001]

Again, you can thank the idiots in charge of fiscal policy for much of this. Worldwide, oil is no more expensive than it was a year ago. The entire difference in price can be traced to the collapse of the US Dollar.

I still look for a burst of the oil bubble. The speculation is driving so fast it looks like housing in 2005.

I tend to agree with your points about the collapse of the dollar and the corresponding run to commodities as a hedge but I don't really think this run up in oil prices is a "bubble" in the classic sense. There are some fundamentals that explain part of the run up. OPEC either can't or won't increase production, China and India are increasing demand very fast and even at $110.00 production globally is not really increasing much if at all.
I really believe that this current run up in oil price is reflecting some serious supply and demand issues.

Good Article on some of the above:
http://tinyurl.com/yqjejw

[Cryomaniac]

Agreed, I think the dollar is part of it, but there are other issues. In my opinion it's naive to think that oil will fall to $60 any time soon, I'm guessing it will reach $120 pretty soon.

[gtalum]

No offense, but those are precisely the same arguments that were made about the housing bubble in 2004-05, and of course the tech bubble in 1999-2000.

At some price, alternative energy sources will be released to the world market, which will cause the bubble to burst. Also, worldwide demand is actually likely down and shrinking in the short term, since US demand is significantly down.

[Stephanie]

Unfortunately, alternative energy will not be released any time soon because countries are still way too dependant on oil. Sure, there has been some progress with solar and wind energy, some cities are using hybrid vehicles for public transportation, hybrid cars in the US are $4,000 - $5,000 higher than regular automobiles so the payback on the hybrid is almost non-existent. Some nations are further along with alternative sources of energy than others. Until there's a change in the mentality that alternative energy can actually be PROFITABLE in the long term and GOOD for the country in the long term, alternative energy will still be on the backburner.

I've read that the gasoline demand has not decreased in the US significantly and that the so called breaking point is at $3.50 per gallon.

[Cyclone1]

More than likely, we won't be changing fuel sources until we are forced too. Sad. However, looks like some car companies are taking initiative. A few electric car models are floating around.

Well, ... It's a start.

[Stephanie]

I agree Cyclone1.

The tech bubble burst when tech company's price/earnings ratios were way over valued. People started to take their profits and run.

The housing bubble was due to the sub-prime lending mess, equally shared by the mortgage companies and the people that bought into them. When they couldn't pay the increase in their mortgage payments, the mortgage companies started to foreclose on the properties. The cash flow into their coffers has dropped and the values of the properties have dropped as well, creating other investment losses.

I don't believe that OPEC was wrong in not increasing output to help the economy. It's not the supply and demand that is necessarily causing this run up in oil prices but the fact that oil is valued by the dollar which is weak and is driving up the price per barrel. It's trying to recoup the value it has lost due to the weak dollar and the speculation that is feeding this animal. I think that we will need to see the dollar bottom out before things turn the corner.

[LSU2001]

No offense, but those are precisely the same arguments that were made about the housing bubble in 2004-05, and of course the tech bubble in 1999-2000.

At some price, alternative energy sources will be released to the world market, which will cause the bubble to burst. Also, worldwide demand is actually likely down and shrinking in the short term, since US demand is significantly down.

No offense what so ever,

However, I keep hearing that at some future price that alternative sources will step in and "save the day". I would like to know what alternative source can supply the concentrated energy needed for our transportation intensive lifestyle. Solar, wind, hydro, geothermal, and nuclear are good options for electrical generation but what about cars, trucks, rail, air travel, etc. There simply is no good option out there IMHO.
We can liquify coal and NG into fuels but at what price and is the EROEI high enough to justify doing it??
Ethanol will not save us, it will probably end up killing many people worldwide because we are burning our food supplies in our vehicles not to mention the huge increase in food prices that are currently being seen mainly due to farmers jumping to corn in order to cash in on the ethanol boom.

Not trying to be a doomer but it seems to me that with the current state of the US economy and the run up in crude prices we are in for a very rocky future.
Tim

[gtalum]

Long term, there is only one solution with only small advances on today's technology. That solution is lots of nuclear power (supplemented by solar, wind geothermal as desired) and electrical transportation. Electrifying the rail corridors would be relatively easy, but convincing people to use electric cars would be much more difficult (but practical given some minor advances in battery technology). Short to mid-term, converting coal into natural gas and gasoline is a good solution that is very close to becoming economically viable.

For air transit, I'm not sure what the solution is. I suspect people would be very leery about flying in an electric battery-powered airplane for a long time to come, even after adopting electric cars...

[HURAKAN]

Oil jumps to record near $112
Investors seek shelter in commodities after the Fed cuts discount rate by 25 basis points.

March 17, 2008: 6:02 AM EDT
SINGAPORE (AP) -- Oil prices jumped to an all-time trading high near $112 a barrel Monday in Asia as the tumbling U.S. dollar and plunging stock markets prompted investors to seek shelter in commodities.

Investors fled the dollar after a surprise move by the Federal Reserve on Sunday to provide cash to financially squeezed Wall Street investment houses pushed the battered greenback deeper into multiyear lows against the yen.

"The Fed's move overall will help the liquidity of the U.S. dollar, and that will really further soften the dollar," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "Meanwhile, investors seem to be just following the mantra of buying oil and commodities to hedge against the falling dollar and inflation."

Light, sweet crude for April delivery spiked to a record $111.80 a barrel - up $1.59 from Friday's close - in electronic trading on the New York Mercantile Exchange, midafternoon in Singapore. It later slipped back to $111.61 a barrel.

The contract's previous trading high was set earlier Monday at $111.42 a barrel. On Friday, the contract fell 12 cents to settle at $110.21 a barrel.

Analysts blame the weak dollar for oil's recent rally. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.

Interest rate cuts in the U.S. further weaken the dollar and have helped drive oil's rise. In an extraordinary weekend move, the Fed cut its discount rate on Sunday by 25 basis points to 3.25%. The Fed is also expected to cut the benchmark federal funds rate at its regularly scheduled monetary policy meeting on Tuesday.

"The inverse link between the dollar and oil prices seem to be strengthening. While we have new records for oil almost daily now, we're also seeing daily new record lows for the dollar," Shum said.

The same dynamic has sent gold, another prime destination for investors worried about the falling dollar and rising inflation, to record prices. On Monday, gold rose 3%, or nearly $30, to a record $1,032.35 an ounce.

Shum said the surge in investor demand for commodities as a hedge against inflation has created a self-fulfilling cycle that causes prices to keep rising.

"When there is more liquidity, it will raise inflation. So investors pump more money into oil as a hedge, and that further fuels inflation," he said. "It points to the risk in the oil market that the fundamentals don't really support such continual strengthening in pricing."

Equities investors also sought refuge from Asian stocks, which declined sharply Monday after the stunning collapse of Bear Stearns Cos (BSC, Fortune 500)., one of the world's largest investment banks.

JPMorgan Chase & Co (JPM, Fortune 500). agreed Sunday to buy Bear Stearns for $236.2 million in a deal aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.

But investors chose to see the move as a sign that fallout from problems in the U.S. housing market is far from over.

On Monday in Tokyo, Japan's benchmark Nikkei stock index plunged nearly 4%, while in Hong Kong the Hang Seng fell nearly 5%. Markets in South Korea, Singapore, Australia and New Zealand also fell.

In other Nymex trading, heating oil futures rose 3.71 cents to $3.1836 a gallon while gasoline futures jumped 4.03 cents to $2.7297 a gallon. Natural gas prices added 22.2 cents to $10.09 per 1,000 cubic feet.

In London, Brent crude futures rose $1.38 to $107.58 a barrel on the ICE futures exchange.

[Stephanie]

I personally think that we need to leave the interest rates alone and let the market correct itself. As the article stated, there's an inverse relationship between the value of the dollar and the cost of oil. We keep lowering the interest rate and the dollar gets weaker and oil goes higher driving inflation. The price of just about everything is going up because it's more expensive to transport the product. IT'S NOT WORKING ANYMORE.

[Nimbus]

Over 150 banks failed in the 1991 real estate bubble burst. The Federal Reserve took an unusual approach Sunday with Bear Stearns the 5th largest investment bank in the US. I'm thinking as these banks that had a lot of real estate exposure run into trouble the government is going to encourage buyouts (like the JP Morgan buyout of Bear Stearns) to reduce the volume of currency they have to replace from write downs.

The more solvent banks are willing to help when they get a bargain price on the takeover target and a guarantee from the Federal Reserve.

Lets see what happens tommorrow, the rumor is that the fed funds rate will be cut by 1%.

[Stephanie]

Yeah, they certainly don't want a repeat of the Savings and Loan bank failures. What's the saying, only the strong survive? This is what happens when greed takes over.

I think 1% is way too much. We'll be seeing $4.00 per gallon gasoline in no time.

[Rainband]

something has got to give.......

[HURAKAN]

Oil Steady Above $106 After Steep Fall
By GILLIAN WONG – 2 hours ago

SINGAPORE (AP) — Oil prices steadied Tuesday in Asia after falling more than $4 a barrel overnight as investors worried that the sale of Bear Stearns Cos. is a sign of deep economic trouble in the United States.

JPMorgan on Sunday agreed to bail out Bear Stearns by buying the investment bank in a U.S. Federal Reserve-backed deal worth $236.2 million — or $2 a share — just a fraction of the investment bank's book value last week.

The deal, while averting a bankruptcy filing for Bear Stearns, showed the severity of the fallout from the country's credit problems. Prices of oil and other commodities plunged as investors mulled the next round of financial woes following the Bear Stearns sale.

"It was a broad based drop of commodities last night, and oil got caught up in that," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "It mainly reflected concerns about the U.S. economic outlook given the stresses in the U.S. financial system."

Light, sweet crude for April delivery added 43 cents to $106.11 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.

The contract dropped $4.53 to settle at $105.68 a barrel Monday, hours after crude futures reached a new trading high of $111.80.

Traders were focusing on the Federal Reserve's meeting later Tuesday. The bank is expected to aggressively cut a key interest rate even lower as it races to contain spreading financial fires that threaten an economic meltdown.

"Traders are more or less catching their breath after last night," Moore said. "They're now waiting to see what action the Fed will take."

Many economists believe the Fed will deliver another three-quarter-point cut or perhaps even a full one-point reduction at Tuesday's meetings. If a large enough cut materializes, analysts expect oil prices to rally in the following days.

"If recent history is a guide, a 100 basis point reduction by the Fed (Tuesday) could result in oil rising to the $114 to $116 range over the course of the next weeks," wrote Platts Chief Economist Larry G. Chorn in a research note.

In the past several months, Fed rate cuts have fed rallies in oil prices. Interest rate cuts, and even the prospect of future cuts, tend to weaken the dollar further, drawing fresh investing into oil futures.

Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is down.

But "just the opposite is also possible, if the market pays more attention to (an) economic slowdown," said Koichi Murakami, a broker at Daiichi Shohin. "It's hard to predict, as prices these days have moved totally unconnected with the crude's fundamentals."

Other energy futures also gained.

Heating oil rose 0.66 cent to $3.075 a gallon while gasoline prices added 1.23 cents to $2.5165 a gallon. Natural gas futures gained 3.7 cents to $9.137 per 1,000 cubic feet.

In London, Brent crude futures advanced 46 cents to $102.21 a barrel on the ICE Futures exchange.

[Nimbus]

The Federal Reserve lowered interest rates by .75 percent which was below expectations for stock traders but above expectations for oil traders.



It looks like they are leaving the door open for future rate cuts this summer instead of making one last huge rate cut now. Unfortunately that effects investor sentiment in the oil markets. The summer month oil contracts are looking attractive.

[coriolis]

I don't see these high gas prices hurting the teen agers much. They are still driving around on their impulses as much as ever.

[gtalum]

Oil has dropped nearly 12% in two days, down to around $100/bbl. Gold has dropped similarly. Bubble pop, anyone?