Crude futures moved further into uncharted territory, with oil gaining momentum in defiance of a decline in other commodities.
Light, sweet crude for April delivery rose $2.75, or 2.6%, to $107.90 a barrel on the New York Mercantile Exchange, a settlement record. The front-month contract hit an intraday high of $108.21, marking the ninth out of the last 10 sessions in which a record was set.
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Crude Oil April 2008 Futures
Source:
Crude-Oil Futures Soar To Another High, $107.90
BRIAN BASKIN
WSJ, March 11, 2008
http://online.wsj.com/article/SB120515816176724241.html
Ground control to Major Tom……….
109$ now
How do commodity futures and leverage work?
Amaranth busted up because it made some wrong bets in natural gas. Afterwards, the price of natural gas went into the high $4.00 range and stayed there for a while before bubbling up again.
This is obviously a speculative bubble. Realistically, and from someone who understands how this market works, can someone provide some education here?
About $20 a barrel ago, I understood the oil market somewhat. Now it is a bubble factory.
I suppose the dumb housing money has moved here because it is another sure thing that can’t ever go down.
To me the price of oil screams “No severe reccession”. I don’t feel the same way but that’s how I read the chart.
From AFP
(quote)
In Paris on Tuesday, meanwhile, the International Energy Agency warned that high prices were here to stay.
“We are in an era of higher oil prices,” the IEA said in a monthly market report.
The IEA trimmed its monthly estimate for world oil demand this year to 87.5 million barrels per day “with downward pressures from weaker economic growth in the OECD mostly offset by stronger former Soviet Union (FSU) projections.”
Oil was forecast to increase by 1.7 million barrels per day in 2008 or 2.0 percent from demand in 2007, which grew by 1.1 percent.
(end quote)
The IEA predicted that oil demand would drop 100,000 barrels a day due to slowing demand–that was the headline most saw.
But the reality is, is that IEA still is predicting a growth in demand from the ROW to the tune of 2%.
The fundamentals say we are approaching, if not peak oil, at least the temporary point at which current supply is insufficent for current demand.
What happens on the day that the supply curve crosses the demand curve?
Neal,
Price increases at this rate would imply $500 a barrel or more at peak oil. Clearly, this is ridiculous. Based on what you said about the IEA, it would seem they are industry and bubble cheerleaders, and not an objective source of information on all aspects of oil.
At one point in my life, I was interested in the economics of oil and learned a fair bit about it.
What we are looking at today is garden variety bubble economics as applied to the oil patch. This is not to say the ultimate trend for oil isn’t going to remain up. Rather, the price shouldn’t be this high at this time.
So I repeat me request. How does bubble economics work in the oil patch? At what point will the credit entering the arena create unsustainable interest payments and/or margin problems?
With todays Fed announcement (Fed to Lend $200 Billion, Take on Mortgage Securities), expect some weakness in commodities as the dollar gains some strength.
Parabolic Commodities: The End is in Sight
Maybe it is really a short term bubble which just waits to pop into a 20% correction, but does anybody by any means expects oil to fall to 50$ again?
My estimate in the long term (2020) is that we see oil at 1000$ (2020 dollars..). Peak Oil in the near future or present, is not at all reflected by a current oil price of less than 1 $ a liter. Only about 50 Euro Cent the liter oil!
Thanks, Ben. Do you know about the mechanics of speculative commodity trading at the professional level?
For example, the idiot Carlyle people leveraged 32 to 1 and got their nuts cut off. How does this market differ from the one they defined stupid in? What would be the mechanics that would cause a death spiral in oil or other commodities at this time? Or is this market different in some way so that different rules apply before you get to a death spiral?
“To me the price of oil screams “No severe reccession”. I don’t feel the same way but that’s how I read the chart.”
I would agree with Vermont Trader if we were in the 80’s or 90’s.
Now, I’m not so sure. After all, India and China have come on line, Russia and Brazil are working hard to develop their economies. Last time I checked, they’re using oil to do so.
Me think that has to has an impact on consumption, although the magnitude of said impact remains an open discussion.
Quit using natural gas to generate electricity, and start converting the auto fleet to use natural gas. Replace the natural gas power plants with nuclear power plants the way the French have.
Between now and then, drive less.
Problem solved.
We have people that know nothing about oil telling us we’ve reached a peak. Matt Simmons, self appointed bodhisattva, has no scientific training yet he’s bamboozled everyone simply because he wrote a book of fiction. For God’s sake, he’s a banker. We see their intelligence this cycle. The last business cycle oil was $10 and now we are told we are running out of oil? With money supply growth in emerging markets at 20-70%? Open interest in oil futures by noncommercial traders has almost tripled. There’s no demand for money people. And, we have a new quantitative genius on Wall Street telling us commodities are the new great investment. So, where does it go? In the inflation trade.
$1000 oil? That is hilarious. I’ll take that bet all day long. Malthusians galore. Even if we were to ever see peak oil, and that is debatable, it would be in more than 50 years. Since when did Wall Street ever think about anything 50 years out? What, are we running out of copper, steel, etc as well? They can’t even get a forecast right that’s 30 days out. And, just because it would peak doesn’t mean it would drop precipitously. In 50 years, we can cut our oil consumption by 75%. People on here generally believe nothing of what Wall Street says but they believe Wall Street’s explanation of oil action.
We didn’t end the stone age because we ran out of stones……
Don’t worry. The price of oil will magically fall precipitously on the eve of the upcoming November elections.