August 09, 2004
Oil Hits $45 ... Half Way to $50
Iran lowered it's petroleum output today, sending crude up to within three cents of $45/bbl. I'm predicting $50/bbl. oil on or before the election in November. When does $44/bbl. oil start driving gas back up over $2/gal.?
A few things happened yesterday to send crude up. Iran was one. There was also an announcement that Iraq was shutting production and shipping from Basra terminal for fear of terrorist sabotage. There was also some media coverage of U.S. administration intentions to continue to fill strategic reserve (using domestically produced crude in lieu of payment for use of public land from producers, but still, that's oil that could be on the open market).
$50 is the new buzz on the market. I think a lot of folks are expecting it sooner rather than later, especially as we head into cooler months, closer to increased heating demand. (We've been extremely lucky to have had such a mild summer; imagine what it would have been like if it had been as brutal as it could have been!) We're taking a breather on crude prices today on news that, actually, Basra is not shut.
Nevertheless, that supply/demand thread is stretched so incredibly tight right now. $50 before the election is very realistic; I'd even say well before the election (like, in the next few weeks).
Gasoline prices is a whole 'nother issue. Yes, of course there's a connection to crude, ultimately, but there's a lot of latency built in. There's distillate storage; there's crude storage; there's refining capacity; and, of course, there's demand and legislation. Very complex. Ultimately, I think we'll probably see gasoline prices edge back up, but it looks like slightly reduced demand in recent weeks, combined with distillate storage, crude storage (at refinery) and refining capacity, the movement will be slow. If it's slow enough for prices to stay down for another couple of months, then they may never reach the $2 mark again this year. Hard to say; wait and see.
This URL (from a mutual fund that assumes oil will become more expensive, and invests both in oil search/production and alternative energy sources) has an interesting graphs of crude prices adjusted for inflation. Around 1981, crude prices were the equivalent to $100+/barrel. They touched $50 in the '91 Gulf war, and $60 in the embargo of '73.
Remember the early '80s? From '80 to '85 or '86, oil was $40-$100 (mostly slowly dropping; it plunged around '86 to $20). Remember when people bought small, light, fuel-efficient cars like CRX's?
http://www.gafunds.com/futureofenergy.pdf