LA_MERC_Sabre
July 25th, 2007, 12:26 PM
Read this artical......$100/bbl?????
Mikaila Adams
Editor, The Financial Update
According to a recent Goldman Sachs report on oil prices, it was supply and demand fundamentals driving oil price increases and not geopolitical concerns. The report by Goldman Sachs managing director Arjun Murti reported a possible "super spike" in oil prices to $95 a barrel and beyond.
While Americans shake their fists at oil companies when they hear such predictions, demand does not slide. A not too distant comparison would be the market in 1980-1981, when, according to the report, gasoline spending in the US corresponded to an average 6.2% of personal disposable income.
The newest predictions of $50-$105 per barrel puts the average American spending an average of 5% of his or her personal disposable income on gasoline. While it sounds ominous, it isn't enough to destroy demand. The report said that the price for New York crude would have to jump to an estimated $135 per barrel, an estimated $4 per gallon of gasoline, to force consumers to alter their behavior.
"Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives," Murti stated.
Even before the Goldberg report came out, Murti suggested that oil prices might have to reach $80 for demand to slow. "At $80 oil, we might expect some negative reaction on the demand side," he said. "We think we're going to need changes in consumer behavior, and it's going to take higher prices to do that. It's going to take a lot to change consumer behavior."
Until consumer trends change and alternative fuels are more commonplace, the bottom line remains that the world is in danger of a shortfall. In Ruppel's review of OPEC's Monthly Oil Market Report, he noted that "even using their more optimistic numbers than the IEA, in 4Q2007 the world will be short 1 MMb/d of production."
People are increasingly looking to OPEC to make up the shortfall. Would an increase in supply by OPEC lower prices? OPEC ministers are skeptical. "We could do a goodwill gesture, but it doesn't mean anything in terms of reducing the price," the Algerian minister, Chakib Khelil, said. He mentioned the slowing of economic growth as an important factor.
According to the Goldman report, global oil production is down about 1 million bpd from that of a year ago, but the global demand is up by 1 million bpd.
"Our estimates show that keeping OPEC production at current levels and assuming normal weather this coming winter, total petroleum inventories would fall by over 150 million barrels or 6.5% by the end of the year, which would push prices to $95 a barrel without a demand response," estimated the report.
If OPEC were to supply some of the oil sitting idle in reserves, prices could drop by $5 to $10, but probably won't change much. "Such a pullback would likely prove temporary as long as global economic growth remains strong, and the consequent reduction in oil spare capacity would increase the market vulnerability to unexpected oil supply disruptions," according to the report.
One problem is disruption in supplies from some producers as the demand keeps rising. Norwegian North Sea output has been coming in consistently under 2 MMb/d and on a global basis new projects are not coming on as rapidly as expected. Additionally, oil production growth in Russia, the second-largest oil exporter, this year will be the lowest rate since 1999.
"We believe an increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer is critical to avoid prices spiking above $90 a barrel this autumn," the report stated. The prediction going forward stretches prices all the way to $100+ per barrel.
Christopher D. Ruppel, senior geopolitical analyst at John S. Herold agrees. "The big question is what will OPEC—and in particular the Saudis—do at their next meeting in September to avoid price shocks that could jeopardize their desired "security of demand," he questioned.
Ruppel agreed that this year's oil price increase was due to supply and demand fundamentals as opposed to the geopolitical concerns (Israel in Lebanon, Iran nuclear stand off, etc.) that dominated the summer of 2006.
However, he says that despite this, the geopolitical situation has actually gotten worse since last year. The difference? The market has gotten used to it. "The US has several carrier battle groups in the Persian Gulf and the Iranians are digging tunnels into the mountain behind their main nuclear facility at Natanz–not encouraging signs for a peaceful resolution of the situation," he warned.
He also cites the recent pipeline attacks in Mexico could be a sign of things to come as far as energy terrorism on the North American continent.
Regardless of the views, the report seemed to have an impact on the market. It was part of the reason the most active crude futures for May delivery jumped to $55.40 a barrel, up 2.6%, or $1.41, at the New York Mercantile Exchange. On the year, prices are up 28%.
Energy prices have fluctuated dramatically over the years. Crude fell below $11 a barrel in late 1998. Less than a decade later, prices climbed above a staggering $77 a barrel last year. Predicting oil prices seems more and more to me like predicting a hurricane season – an educated guess at best. However, as demand continues to rise, I'd be willing to bet that high energy prices are, more than likely, here for the long haul.
Oil & Gas Financial Journal January 01, 1900
volume 0, issue 0
Mikaila Adams
Editor, The Financial Update
According to a recent Goldman Sachs report on oil prices, it was supply and demand fundamentals driving oil price increases and not geopolitical concerns. The report by Goldman Sachs managing director Arjun Murti reported a possible "super spike" in oil prices to $95 a barrel and beyond.
While Americans shake their fists at oil companies when they hear such predictions, demand does not slide. A not too distant comparison would be the market in 1980-1981, when, according to the report, gasoline spending in the US corresponded to an average 6.2% of personal disposable income.
The newest predictions of $50-$105 per barrel puts the average American spending an average of 5% of his or her personal disposable income on gasoline. While it sounds ominous, it isn't enough to destroy demand. The report said that the price for New York crude would have to jump to an estimated $135 per barrel, an estimated $4 per gallon of gasoline, to force consumers to alter their behavior.
"Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives," Murti stated.
Even before the Goldberg report came out, Murti suggested that oil prices might have to reach $80 for demand to slow. "At $80 oil, we might expect some negative reaction on the demand side," he said. "We think we're going to need changes in consumer behavior, and it's going to take higher prices to do that. It's going to take a lot to change consumer behavior."
Until consumer trends change and alternative fuels are more commonplace, the bottom line remains that the world is in danger of a shortfall. In Ruppel's review of OPEC's Monthly Oil Market Report, he noted that "even using their more optimistic numbers than the IEA, in 4Q2007 the world will be short 1 MMb/d of production."
People are increasingly looking to OPEC to make up the shortfall. Would an increase in supply by OPEC lower prices? OPEC ministers are skeptical. "We could do a goodwill gesture, but it doesn't mean anything in terms of reducing the price," the Algerian minister, Chakib Khelil, said. He mentioned the slowing of economic growth as an important factor.
According to the Goldman report, global oil production is down about 1 million bpd from that of a year ago, but the global demand is up by 1 million bpd.
"Our estimates show that keeping OPEC production at current levels and assuming normal weather this coming winter, total petroleum inventories would fall by over 150 million barrels or 6.5% by the end of the year, which would push prices to $95 a barrel without a demand response," estimated the report.
If OPEC were to supply some of the oil sitting idle in reserves, prices could drop by $5 to $10, but probably won't change much. "Such a pullback would likely prove temporary as long as global economic growth remains strong, and the consequent reduction in oil spare capacity would increase the market vulnerability to unexpected oil supply disruptions," according to the report.
One problem is disruption in supplies from some producers as the demand keeps rising. Norwegian North Sea output has been coming in consistently under 2 MMb/d and on a global basis new projects are not coming on as rapidly as expected. Additionally, oil production growth in Russia, the second-largest oil exporter, this year will be the lowest rate since 1999.
"We believe an increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer is critical to avoid prices spiking above $90 a barrel this autumn," the report stated. The prediction going forward stretches prices all the way to $100+ per barrel.
Christopher D. Ruppel, senior geopolitical analyst at John S. Herold agrees. "The big question is what will OPEC—and in particular the Saudis—do at their next meeting in September to avoid price shocks that could jeopardize their desired "security of demand," he questioned.
Ruppel agreed that this year's oil price increase was due to supply and demand fundamentals as opposed to the geopolitical concerns (Israel in Lebanon, Iran nuclear stand off, etc.) that dominated the summer of 2006.
However, he says that despite this, the geopolitical situation has actually gotten worse since last year. The difference? The market has gotten used to it. "The US has several carrier battle groups in the Persian Gulf and the Iranians are digging tunnels into the mountain behind their main nuclear facility at Natanz–not encouraging signs for a peaceful resolution of the situation," he warned.
He also cites the recent pipeline attacks in Mexico could be a sign of things to come as far as energy terrorism on the North American continent.
Regardless of the views, the report seemed to have an impact on the market. It was part of the reason the most active crude futures for May delivery jumped to $55.40 a barrel, up 2.6%, or $1.41, at the New York Mercantile Exchange. On the year, prices are up 28%.
Energy prices have fluctuated dramatically over the years. Crude fell below $11 a barrel in late 1998. Less than a decade later, prices climbed above a staggering $77 a barrel last year. Predicting oil prices seems more and more to me like predicting a hurricane season – an educated guess at best. However, as demand continues to rise, I'd be willing to bet that high energy prices are, more than likely, here for the long haul.
Oil & Gas Financial Journal January 01, 1900
volume 0, issue 0