Crude Oil = $120

Well, almost. The May 2008 Futures contract hit $119.90 — that’s the all time high for Crude Oil.

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Crude_oil_11990

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Here’s a quick excerpt from Bloomie:

"Crude oil rose to a record $119.90 a barrel in New York as the dollar dropped to an all-time low against the euro, prompting investors to purchase commodities as an inflation hedge.

The dollar touched $1.60 per euro for the first time after European Central Bank policy makers signaled they may raise interest rates because of inflation. Oil’s 24 percent surge this year has pulled gasoline and diesel fuel to records, weighing on an economy already reeling from a credit crisis.

Crude oil for May delivery advanced $1.69, or 1.4 percent,
to $119.17 a barrel at the 2:30 p.m. close of floor trading on
the New York Mercantile Exchange. Futures reached $119.90 today,
the highest since trading began in 1983. Prices are up 88
percent from a year ago.

The May contract expired today. The more-active June
futures contract rose $1.35, or 1.2 percent, to $117.98 a
barrel."

There is a huge contingent that simply refuses to believe in the rally in Oil — since around $40.

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Source:
Crude Oil Reaches All-Time High Above $119 on Record Euro
Mark Shenk
Bloomberg, April 22 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGASa6pCjCrs&

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  1. bdg123 commented on Apr 22

    I believe. I believe this is no different than any of the other messes Wall Street has helped create. There is underlying economic demand but even that is only marginally based on reality. Wall Street pushes because it realizes that additional economic demand has no other choice than to pay whatever it is. That is, until demand finally hits a wall. Some people believe this is demand-pull. Haha. The premium put in by massive changes in the participation level of futures market by ‘managed’ money is responsible. Finally it appears some in the government have realized there is a stench associated with this as well.

  2. SINGER commented on Apr 22

    As per your last sentence…

    HENCE, the Rally!!!!

  3. cinefoz commented on Apr 22

    Is the price rise from supply and demand for the commodity, money racing to the next hot thing, the falling dollar, or a combination?

    My solution: FOMC … raise rates next week by 1/4 percent and issue a strong statement about inflation. That is all it will take to reveal the facts of the situation. The economy won’t crumble over 1/4 percent, but it should scare the living crap out of people who are working on margin.

  4. michael schumacher commented on Apr 22

    With the way it’s done (been over that before) I’ll give you props and put down that oil should be about $80 even with the BS fear mongering that occurs daily.

    Strikes in Nigeria
    Mexican Pipeline troubles (that’s the best one yet!)
    Japanese Tanker Problems (close second)
    Rebels in Nigeria
    Fog in the Houston ship channel

    Any of these “incidents” have an effect on less than 3% of the total supply we are pricing in our “efficient markets”..

    IMO It is a bigger scam than our “elections”..

    Ciao
    MS

  5. Douglas Watts commented on Apr 22

    This is obviously the fault of those dirty hippies, I mean Jeb Bush, who doesn’t want oil drilling along the Atlantic coast continental shelf.

  6. BG commented on Apr 22

    Oil is the latest target of speculator’s money.

    As soon as Dick and Jane start getting in, the floor will drop out from under oil. This is classic speculation, nothing more.

    As always, there will be some people getting hurt in the end. Some times, sheep deserve what they get. Wake up!!

    In the backdrop of a slow down at least in the US, oil is WAY AHEAD of itself.

  7. Vermont Trader commented on Apr 22

    Nice call BR. You were right on about this one.

    Care to raise your price target?

  8. E commented on Apr 22

    If anyone here thinks that oil will pull back to $80 a bbl in the next few months, then you have a chance to double your money by buying DUG.

    This site is usually light on specific buy tips, so there’s one.

  9. Alfred commented on Apr 22

    It is odd to say the least that since the arrival of an oil friendly administration in the White house the world has allegedly changed. If we were to believe the commodity bulls it is only now that China and India have awakened to good food and combustion engine driven movement.

    The usual punditry of course supports the commodity bulls. Somebody once very astute called CNBC the Criminal Narrators Boosting Crude.

    Futures will go higher as long as the Fed chooses to not protect the dollar. When this changes the commodity boom is over and a barrel of oil can reverse to rest at 30-40 USD.

  10. DL commented on Apr 22

    “There is a huge contingent that simply refuses to believe in the rally in Oil — since around $40”.

    This is true… and it’s not just about oil. Many people are blaming all of the rally in agricultural commodities on the corn/ethanol fiasco. Some blame the rally in commodities as being due simply to the creation of ETF’s and ETN’s. Then of course there are the evil hedge funds causing commodities to rise.

    There are others who argue that as soon as the Fed stops cutting the Fed funds rate, commodities will plummet.

    I’m going to bet with Jim Rogers on this one.

  11. John Wellman commented on Apr 22

    It seems that once again truths have begat another circular logic positive feedback loop with oil, gold, etc. Though much of this scenario is fluff, I doubt this trend will abate until consumer demand is broken and the dollar rebounds. Until then, hedge your exposure, economize your life and ride out the storm.

  12. Ross commented on Apr 22

    Seems like the folks objecting to the high price of oil are the ones not owning any.

    Price is reality no matter the ’cause’. But I guess we are ‘entitled’ to cheap oil and the sinister evil-doers must be brought to justice.

    Alfred, 30-40 USD oil? It can happen. Markets……….fluctuate.

  13. michael schumacher commented on Apr 22

    DL-

    Not alone in the thinking that ETF’s are the enabler of all this speculation. They grew like weeds in ’06 and ’07 and since the type of buying that is necessary to fuel this is not something you can hide very easily over at the CBOT…it makes perfect sense.

    Now coming up with an energy strategy that uses a current food source????

    Well only the mind of the truly delusional could come up with that…

    OT: anyone thinking that real estate is going to fuel a recovery anytime soon should have a look at the recent dataquick numbers on foreclosures in one of the largest economies in the world…

    Ciao
    MS

  14. Ed Miller commented on Apr 22

    Wow. After all this time I am surprised to see that so many think this is all a conspiracy by greedy oilmen and their associates. Oil has a long way to run.

    Of course, corrections (usually due to WS shorting) come and go. Demand for crude will not abate.

    The US is not driving this.

    The US is no longer in the driver’s seat for the world economic growth.

  15. Mind commented on Apr 22

    There may be a current premium based on speculation, geopolitical issues, etc. But even though demand may slacken somewhat over the short term and price may fall from current level, especially during this recession – the impact of flat and then declining world production versus very stubborn demand will create tremendous price rises into the long-term future. In our lifetimes, we will see a revolution from the impact of the decline of availability of this fundamental driver of world economy.

  16. BG commented on Apr 22

    I don’t know where this thing goes; but, it is not based on fundamentals. It is nothing but hot money. If it were not in commodities, it would be showing up somewhere else. Even though it affects us all directly, recognize it for what it is…speculation among the future traders. (They are loving this!!)

    I am still curious as to whether Wall Street trashes the markets if a Dem wins the election. I think we are witnessing the last great money grab. Anything that can be exploited is fair game. Get it while you can before the party (the Republican party) ends.

    The Party currently in power is throwing in their cards (capitulating if you will) knowing full well that they are going to feel the wrath of the voters in November. They see a tidal wave and are scrugging their shoulders saying “Oh well…What the hell!”

    Mark my words, oil will go down after the election.

  17. DL commented on Apr 22

    Michael Schumacher – –

    ETF’s may be the “enabler”, but not the cause. (The ETF’s merely let the “little guy” in on the action).

    As for the corn/ethanol fiasco, it’s just about politics. States like Nebraska and Kansas each get two senators, even though nobody but farmers live there. And Iowa is the first caucus/primary in the presidential race. Farmers have us by the (insert relevant appendage), and that’s not going to change anytime soon.

  18. Francois commented on Apr 22

    You can’t put online economies representing close to 2 billion people (China and India) and expect demand to stay quiet and placid as if nothing happened, can’t you?

    That said, if we had been a little more generous in the use of our common sense, we would have listened more carefully to Jimmy Carter in the 70’s, then Al Gore during the 2000 election not to mention the true experts (that would be those who are not beholden to the various don’t-think-tanks) who all told us the same thing: no matter how efficient we become at the margins it won’t make any difference until we learn to address the core problem a.k.a. conservation.

    But noooooooooo! Conservation is for those damned libruls, tree-huggers, weed-inhalers potheads idiots. Cheap oil is a political thing dude! It’s our God-given right, ‘no watta’m sayin’ man?

    On top of that, this stuff called petroleum derivatives and compadres such as Nat gas are used quite a bit in agriculture, which has had a rather good run of its own…if you were long on them, of course.

    Right now, the Ag market is getting rather screwed up, to the point of impeding price discovery. ( http://tinyurl.com/3feym9 ) And that can’t be good for anyone.

    We live in interesting times, no doubt about that.

  19. Ross commented on Apr 22

    WoW,
    Flax seed prices went from $15.7 in February to $17.50 in March! Evil ETF’s.

    Break up the flaxseed cartel!

  20. bk commented on Apr 22

    Jubak has a great article on this today. The countries who most need the income do not have the cash to increase production. Actually, lack of funds (Nigeria and Mexico), governmental policies restricting US involvement (Mexico) and government taxation of oil profits (Russia) will lead to DECREASED production by these countries. The countries which could increase production have no incentive to do so, as they are receiving a gazillion dollars for the oil that they are providing.

    There is not an oil shortage per se, but if access to known oil supplies and increased use by emerging market countries is considered, we have a very tight and probably increasingly tight market for oil. Oil future were recently running at over $110 a barrel through 2016. Ugly.

  21. bk commented on Apr 22

    Jubak has a great article on this today. The countries who most need the income do not have the cash to increase production. Actually, lack of funds (Nigeria and Mexico), governmental policies restricting US involvement (Mexico) and government taxation of oil profits (Russia) will lead to DECREASED production by these countries. The countries which could increase production have no incentive to do so, as they are receiving a gazillion dollars for the oil that they are providing.

    There is not an oil shortage per se, but if access to known oil supplies and increased use by emerging market countries is considered, we have a very tight and probably increasingly tight market for oil. Oil future were recently running at over $110 a barrel through 2016. Ugly.

  22. rickrude commented on Apr 22

    eat my dust…. i am holding oil stocks
    and some gold stocks.
    Barry is right, all you guys are laughing at
    the oil rally. Go ahead and laugh while
    my portfolio gets bigger.

    There will be a top/bubble one day, maybe in 10yrs
    when posters here like KEN H start buying oil futures.

  23. Ross commented on Apr 22

    Rampant shorting by hedge funds has caused the price of scrap stainless steel to plunge YoY from $3914 to $3369 per ton. There ought to be an investigation!

    Commodities ‘experts’ are kindly asked to follow the signs to see the egress. This may be your last chance to see this almost extinct species. The DEC calls on egress are at an all time high.

  24. DonKei commented on Apr 22

    History lesson–the last great run in oil, from 73 ’til about ’82 saw similarly high prices plummet in short order to the low $20’s by the mid-1980’s–all because the dumbass fed woke up and realized it was all about the dollars. The only difference between now and then is that we have such a sophisticated financial system today until any moron w/ that knows how to point and click can get in on a rally. I just hope the fed doesn’t socialize their losses, too, when they inevitably come.

    Reminds me of an old joke at the time: Know the difference between a seagull and a Houston oilman? The seagulls are still making deposits on BMW’s.

  25. DownSouth commented on Apr 22

    ☺☺”The US is no longer in the driver’s seat for the world economic growth.”–Posted by: Ed Miller | Apr 22, 2008 4:26:01 PM

    It’s called rationing, and price is the mechanism being used. Those who have money will have oil. Those who don’t will not.

    The 2% of the world’s population that lives in the U.S. currently consumes 25% of the world’s oil. As the weary Titan begins to stumble, that number will fall to 20%, then 15%, then 10%.

    The U.S. no longer has the military or economic might to make it otherwise.

  26. AGG commented on Apr 22

    Hemingway described it:

    “The first panacea of a mismanaged government is inflation of the currency. The second is war. Both bring a temporary prosperity; both bring more permanent ruin.”

    rickrude,
    We are SO not impressed. No one here is in the market for used cars.

  27. Alfred commented on Apr 22

    In January 2007 oil shortly dipped below $50. What did OPEC do? Cut production by 2 million barrels, and the price stabilized and eventually moved slightly higher. Today the same barrel touched $120. What happened during the last 14 month? As many in this forum believe we are in a recession. Somebody has to explain to me how these two things go together.

    There is only one reason for $120 oil, the same as for $1000 gold and DX below 71: Fed dropped inflation fighting mandate in September 07 meeting. If the Fed would have stayed the course oil would be between $60-70.

  28. Ross commented on Apr 22

    Down on the farm

    Interesting anecdote about a farmer friend here in East Texas.

    This family has owned a goodly chunk of land since before the War Of Northern Aggression. They farm about 1,000 acres. Like any good asset manager, they have a diversified portfolio consisting of hay meadows, pasture, plow ground for the grain de jure, five kinds of livestock , if you don‘t count the kids(four edible and one rideable) and a few acres for truck farming.

    I noticed last Fall that they plowed and disked their pasture (about 270 acres) and planted winter wheat. As a consequence they were forced to sell over 200 head of cattle. These people are conservative farmers and do not make rash decisions. I talked with Bill, the owner, at the volunteer fire dept. bar b que and he had some interesting observations about the ag markets. He is a sophisticated ’investor’ and has used the futures markets to hedge exposures in the past.

    It is his opinion that there has been a fundamental change in the ag markets that he has not seen in 40 years.
    I’ll paraphrase. Energy prices, diesel, nat gas, lpg and as he calls it elec-atrocity has killed the margins on every commodity he produces. Recent price increases for grains are only now catching up to his input costs. As higher prices slowly move through the system, people will freak and he is afraid there may be some form of price controls on the horizon. He ordered a new Deere tractor in January but won’t get delivery til mid 09. The price he paid was double the price he paid for essentially the same machine 12 years ago and he admits not reserving enough to replace it.

    His bottom line is this. It will take 3 to 5 years at these prices to restore his profit margins to where they were in 1999. If prices decline significantly from here, especially grain and vegetables, he will simply quit planting. He completely understands that ag is a cyclical business but since farming is so capital intensive and he is under reserved to replace equipment, he is afraid he’ll go broke while showing a profit. He also stated that the bank has tightened credit standards and his brother who farms down the road a few miles had to borrow money from him since the bank rejected his loan app for the first time in 20 years. He truly believes that grain prices may double from here in the next 3 to 5 years.

    Oh, he got rid of the cattle because he was losing $145 a head.

  29. Owner Earnings commented on Apr 22

    Oil prices do go down. Crash of 1986?

    If oil prices were so stable they why would the OPEC cartel still exist?

    Didn’t natural gas go up to $15 per unit until a $7 billion dollar hedge fund blew up? Then went to $5. Just now back to $10.

  30. Max commented on Apr 22

    We have a guy at the Fed who promised to throw money out of helicopters. He kept his promise.

    Forget about investing and all the high-minded things. You know what’s the best investment for many of you personally? Run to the nearest Costco and load up on rice, macaroni, and canned meat/vegetables – the best return on investment for years to come. Here, in Mountain View rice has disappeared from the shelves, and is rationed one bag per person.

  31. VJ commented on Apr 22

    Every month or two, the Saudi Minister of Oil holds a press conference and patiently explains that there is no shortage of crude oil, that the globe is awash with crude oil, that the Saudis have large inventories of crude oil available for immediate delivery.

    ~~

    Let us rid ourselves of the fiction that low oil prices are somehow good for the United States.

    Rep. Dick Cheney (R-Wyoming)
    October 1996
    .

  32. t commented on Apr 22

    Am I the only one who thinks oil is cheap here?

    Petrodollar recycling is the last remaining leg of the stool the dollar sits upon. Lower oil means lower dollar, mean higher oil. It will continue until there is serious demand destruction – which is a long way off.

  33. Greg0658 commented on Apr 22

    BG writes “Some times, sheep deserve what they get”

    I’m proud of the tough it outs .. holding back their anger … anarchy would be worse

    say goodbye to black gold, say hello to yellow gold ethanol and transparent wind … the new powers

    free markets need to be reigned in tho

    ps – and grain for fuel is a shame when its in short supply too

  34. Greg0658 commented on Apr 22

    thanks for the story Ross

    your neighbor – maybe a couple wind generators and an electric Deere or manure gas to electric … but all thats more money to borrow

    if he can pay his property taxes on horse power production – wrangle up some working animals – screw feeding the east coast – and sorry we have a society of leaches feeding off the producers

  35. Ross commented on Apr 22

    Thanks Greg,
    I related that story to show that sometimes high prices don’t mean someone is getting rich. Ole Bill is tickled he’s going to get $10 wheat and get out of a $29,000 deficit on cattle. He’ll probably net $140,000 on the wheat. And yes, he has a wind turbine and taxes on ag property in Texas are not so bad.

    He kept about 15 steers for personal consumption and knows meat protein prices will surge but with a lag. He just needed the wheat income now.

  36. DownSouth commented on Apr 22

    Ross,

    I don’t see oil company profits growing wildly either, at least not any oil company of significant size.

    Take Exxon/Mobil for instance. Back in 2000 oil was selling for about $20/barrel and XOM was about $40 or $45 per share. Now oil is $120/barrel, 6 times what it was in 2000, but XOM is only selling for about $95 per share, slightly more than double. Just imagine, if profits went up as fast as the price of oil, the stock would be fetching $250 per share.

    But production costs go up 15% to 20% per year. Drilling and development costs go up 15% to 20% per year.

    But the biggest problem facing oil companies is that, if they want to stay in business, every year they have to replace the reserves they produced. And that is extremely expensive. I live in Mexico and I remember Pemex commissioned a study a few years back that analyzed the exploration costs for the trailing three years of the world’s largest publicly traded oil companies. At that time the cost to find a barrel of conventional oil reserves averaged something like $60 per barrel.

    Then there are the resourse plays like the Athabasca Oil Sands in Canada. I suppose the reserves are massive and the oil is there, so there’s no risk of drilling a dry hole. But the capital costs are huge, I think on the order of $150,000 to $200,000 per BOPD of production capacity. And the operating costs are extremely high, $50 to $70 per barrel (also increasing 15% to 20% every year).

    I think that Conoco/Phillips perhaps made the right decision. They said they are going to cancel or delay some projects that are just too expensive, buy back stock with the money instead. And I am in total agreement. What’s the logic in spending $100 per barrel to find new reserves and another $30 per barrel to get it out of the ground in order to sell it for $120? That only works if you believe the price of oil will continue to go up. There are plenty of oil producers out there playing that game, especially independents, but that is pure speculation.

  37. wunsacon commented on Apr 22

    Welcome to reversion to the mean:
    – Oil is too cheap.
    – Or Americans are overpaid selling homes to each other.
    – Or both.

    Hard to swallow? Yep. Fear not though, because the relative reduction of living standards won’t go on forever. Eventually, “reversion” will be “complete”.

    And there’s always hope, of course. The world is constantly improving and sharing its technology, regardless of who’s in office. Hopefully, we won’t kill ourselves with genetically-engineered _____. And, after we exhaust other alternatives, we’ll always do the right thing. (We’ve got that going for us, which is nice.)

    Glad to see cinefoz back. See cine-haterz? The foz-man *does* trade both ways, er, sides.

    My money’s on Ross (though I freely admit to being the world’s worst trader).

    Back to my lurking…

  38. wunsacon commented on Apr 22

    In the short run, we’d love for other countries to send us their finite natural resources on the cheap… But, I don’t think that’s a good long-term plan — for anyone.

  39. sglover commented on Apr 22

    The 2% of the world’s population that lives in the U.S. currently consumes 25% of the world’s oil. As the weary Titan begins to stumble, that number will fall to 20%, then 15%, then 10%.

    The U.S. no longer has the military or economic might to make it otherwise.

    Yep. It’s amusing to see people insisting that oil prices are the result of financial gimmickry, rather than physical and political realities that are pretty inescapable to any sentient being.

  40. Francois commented on Apr 22

    Down South wrote:

    “The U.S. no longer has the military or economic might to make it otherwise.”

    Hmmm! That may be true. But you know what? I think we are forgetting the biggest might we have around here: innovation.

    This is the 3rd time since January that I listen to a Science Friday segment* on NPR dedicated to the Energies of the Future. Let me tell you that what these guys and gals in white coats are cooking in their labs and industrial prototypes is nothing short of mind-blowing.

    In some cases, oil companies have invested and partnered with these startups, and for good reason IMO.

    *”Scientists Seek New Ways to Produce Biofuel” 04/11/08

    “The Potential of Solar Power” 03/14/08

    “Biodiesel Hits the Big Screen in ‘Fields of Fuel'” 01/18/08

    Worth listening to me say. If only to be reminded that creativity if always a force to be reckon with, and that Scientists do not merely talk about energy independence; they’re doing something about it!

  41. DownSouth commented on Apr 22

    Francois,

    Well technological advance has always worked in the past. Let’s hope it works as well in the future.

  42. Ritchie commented on Apr 23

    US population: ~300,000,000

    World population: ~6,000,000,000

    “The 2% of the world’s population that lives in the U.S. currently”

    No wonder people can’t figure out what’s going on with the economy.

  43. Ritchie commented on Apr 23

    BG: “I am still curious as to whether Wall Street trashes the markets if a Dem wins the election. ”

    Don’t worry–things are likely to get better.

    “Since 1900, Democratic presidents have produced a 12.3% annual return on the S&P 500, Republicans only 8%. GDP growth since 1930 is 5.4% for Democratic presidents and 1.6% for Republicans.”

    http://tinyurl.com/6a92ab

  44. Greg0658 commented on Apr 23

    Posted by Greg0658 08:00 AM on 04/23/2008 on Huffington Blog

    Here’s another one everybody is running with.

    55% Clinton 45% Obama = 10%
    NOT
    Thats 5%. If 5% of the Clinton voters had voted for Obama it would be a TIE.

    The MSM needs to advertise a double digit win. I don’t know if its
    for the ad revenue by keeping this primary going or they need a
    proven globalist in the White House.

    I saw this in a movie “you know when you put a stamp on that and put
    it in a mail box its called mail fraud, punishable by 5 to 10 years
    and $50,000 each offence”.

  45. me commented on Apr 23

    “Oil is the latest target of speculator’s money.”

    That’s a good one.

    The Saudis say they are not raising exploration because the US is making oil from corn and they don’t want ti get burned investing in what isn’t needed.

    Today, Chine, here comes that word, get ready, SURPRISINGLY, is importing “crude oil imports up by almost a quarter to 4.07m barrels a day in March, compared with the same month last year. For the first quarter, crude imports rose by 14 per cent compared with the same period last year.”

    Yeah, bet on it going down, maybe $20 by June. What are you people smoking?

  46. Ken H. commented on Apr 23

    No rick, I’m out of oil now because it’s pretty much a joke. I think its pretty obvious. Never look back. I got out of real estate early too. Too early, yes but I’m fine with that.

    Your argument reminds me of real estate speculators getting on blogs to refute the obvious. “Your just a jealous renter who is going to be priced out forever!” Guess Not.

    The problem with oil is that I get dragged into it whether I like it or not. I run a business and every aspect of our economy is going to be affected going forward. the other is how unregulated speculators continue this madness using taxpayors money.

    “me” What a load of crap. First of all, why don’t you use the whole quote from the article you used.

    “Chinese demand for oil is accelerating ahead of the Olympics with crude oil imports up by almost a quarter to 4.07m barrels a day in March, compared with the same month last year. For the first quarter, crude imports rose by 14 per cent compared with the same period last year.”

    source: http://royaldutchshellplc.com/2008/04/23/oil-nears-120-as-demand-from-china-increases/

    The article also goes on to state how opec ministers believe the run up to be….caused by speculators and a weak dollar which I agree with. They also state that they are going to increase production to help bring down prices.

    I will point out how the strength of the dollar has been pretty stagnant and oil has gone up from 104 to 120 a barrel since oh,.. March 14th. Gee, isnt that the day the fed opened the discount window to investment banks? HMMM. WTF are you smoking!

  47. me commented on Apr 23

    So short oil Ken H. Put you money where your mouth is. Tin today way up, shortage. Sam’s Club limits the amount of rice you can buy. Smoke some more, free oil on the way. Dream on. WTF are smoking?

Read this next.

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