Source: National Geographic
It seems to be déjà vieux all over again for oil. First the Globe & Mail announces that $100 oil is imminent, then Jeff Rubin pushes it a bit further, suggesting that triple-digit oil is inevitable (and it doesn't sound like he's talking about just $100). And finally, Richard Branson, speaking today at the climate talks in Cancun suggests the price might hit $200 per barrel.
So much for a crawling U.S. economy keeping a lid on things.
So, one at a time, what is their reasoning:
Taking a story from TheStreet.com (see Why $100 Crude is Imminent), the Globe & Mail points to three market conditions that point to $100 oil:
- While Brent oil normally experiences a discount over WTI, in recent weeks it has been maintaining a strong premium ($2.50) to WTI. It's suggested that this points to a general market move of "rare and incredible strength".
- The dollar has managed an impressive rally at the same time as oil prices have surged, contrary to the normal pattern in which the dollar moves in opposite direction to crude oil.
- There has been an historic flattening of the crude curve, "a rare but very powerful event we haven't seen in the crude market since 2007 ... , when oil rallied from $50 to over $90 dollars a barrel, on its way in 2008 to that acrophobic $147 dollar high price".
Jeff Rubin takes a bit longer outlook that focuses on the fundamentals and in particular China's growing demmand for oil (see What Will 2011 Bring? Triple-Digit Oil.), observing that:
- This past month has produced the strongest manufacturing numbers out of China in seven months;
- Refined oil stocks held by China's two largest oil companies have fallen for eight months in a row;
- 140 million gallons of oil inventories in floating storage on the high seas is all but gone;
- Saudi Arabia has served notice that, without triple-digit prices, there is little incentive for new oil exploration in the kingdom;
- IEA has finally recognized the reality of peak oil—at least insofar as affordable conventional oil is concerned.
And last but not least, there is Richard Branson (see Branson Says Oil Might Hit $200 Without New Policies.) who opines at the Cancun climate talks that are on this week:
- He sees risks associated with peak oil and the lack of alternatives;
- And suggests there is a need to move to a clean-energy economy as an insurance policy against $200 oil, i.e. a need to sort out an energy policy that incents energy conservation and encourages renewable energy.
Jeff Rubin and Richard Branson both pose the question, in different ways, about what's changed since the last spike. What have we done to insultate ourselves from the risk posed by too much demand and too little affordable oil?
A good question to which there are few answers.
