T Nation

Oil Could Hit $80 a Barrel

KUWAIT - Oil prices may temporarily spike to $80 a barrel during the next two years if there is a major supply disruption, OPEC’s Acting Secretary-General, Adnan Shihab-Eldin, was quoted as saying by a newspaper on Thursday.

If that happens the USA should set wheat at $1000.00 a ton…

If the US set wheat that high we wouldn’t have a market

supply and demand my boy

We should just take it from them.

And force the caribou to cope while we take the oil in Alaska.

i hope this doesn’t happen

any idea what we pay in petrol (gas) prices.

if i said around 80 pence/litre

that is around 4?/gallon

in your dosh that is $7.20

could you afford to run your big fat trucks then?

[quote]Soco wrote:
If the US set wheat that high we wouldn’t have a market

supply and demand my boy [/quote]

We need to start Organization Of Food Producing Countries (OOFPC). We can do with groceries what they do with oil. We could strave them down to $2.00 a barrel.

What Opec does would be illegal in America. (At least it is supposed to be.) America has laws that prevents businesses getting together and setting prices. Capitalism only works with competition, and there is no real competition in oil.

Opec is weaker then most people believe, unfortunately they are made stronger by governments, and environmentalists.

America is very lucky because we have some of the lowest gas tax around. This is why it is so high in other countries, and why everybody tends to drive those little tiny cars.

I almost want oil prices to go up that much. If they do then people will finally get pissed off enough to actually do something about it. Regardless of what the government wants the car companies to do, they will fight it, but they will bend over backwards to do it if the consumer were to demand the same thing.

I am convinced that eventually the bottom will drop out, and prices will fall like a rock.

tiny little cars… damn right,

i saw a huge dodge twin wheeled pick uup and it would never get down most roads here.

i guess smaller cars coz smaller people.
Also makes our engineers get highe power from lower capacity. can you spell T U R B O.!! and S U S P E N S I O N!

The consumer (as a group) gets convinced about what is wanted if the concencus is good enough. I mean, SUV;s. waste of space. we never had them here and did ok. now loads of upper middle class get what is overpriced for the cars abilities (crap off road except Range Rover)and road footprint as they are marketed as “aspirational”.

Block the roads up at school pick up time.

the dodge truck WAS cool, though.

[quote]The Mage wrote:
What Opec does would be illegal in America. (At least it is supposed to be.) America has laws that prevents businesses getting together and setting prices. Capitalism only works with competition, and there is no real competition in oil.[/quote]

Funny thing, American antitrust laws generally apply outside the U.S. as well. In fact, I recently read that the federal district court in Alabama declared OPEC a cartel and said it must break up.

In other news, local priest tells Satan to “be a nice guy.”

OPEC is pumping nearly at full capacity. the $80 has little, if anything, to do with price gouging, and rather exponentially increasing demand with little increase in supply.

In other words, they aren’t withholding supply to inflate price, there just isn’t a supply.

[quote]RepubCarrier wrote:
OPEC is pumping nearly at full capacity. the $80 has little, if anything, to do with price gouging, and rather exponentially increasing demand with little increase in supply.

In other words, they aren’t withholding supply to inflate price, there just isn’t a supply.[/quote]

It’s not a supply problem, they’ve got Light Sweet Crude out the wazoo. They have it bottled up in the export end. That could be very easily remedied by building more outlets - spickets, if you will.

Alaska is looking better and better.

[quote]rainjack wrote:
RepubCarrier wrote:
OPEC is pumping nearly at full capacity. the $80 has little, if anything, to do with price gouging, and rather exponentially increasing demand with little increase in supply.

In other words, they aren’t withholding supply to inflate price, there just isn’t a supply.

It’s not a supply problem, they’ve got Light Sweet Crude out the wazoo. They have it bottled up in the export end. That could be very easily remedied by building more outlets - spickets, if you will.

Alaska is looking better and better.

[/quote]

I think that Alaska is on the table, but the loony left wing will scream: “ENVIRONMENT” if we touch it. I think we could be paying in the area of a quarter a gallon if we drilled in Alaska…just a guess.

Ok, they are already talking about cutting production. Their goal is to produce a situation where their production is behind the curve keeping the prices high. Then they can produce at high levels and make a lot of money, until things build back up.

It was great when they were unable to keep their promises, and nobody believed they would cut when they said they would.

Unfortunately there are a whole host of reasons that oil prices are so high. Russia, Vienna, the war, environmentalists, terrorists, and oil companies, and the low valued American dollar.

Now to piss off a few on the left, pumping oil out of Alaska would cause so little environmental impact that it is not even worth mentioning.

A lot of people, like the Mage here, don’t realize the vast environmental damage that would be caused by pumping oil out of Alaska. Allow me to elucidate:

You see, the walruses (walri? whatever…) need that oil to gas up their little scooters so they can zoom around and escape being eaten by great white sharks and shit. If we open Alaska to oil drilling, it will devastate the walrus population and then fuck it all up for the eskimos and whatnot.

You guys need to watch the discovery channel some more, and then I wouldn’t have to keep telling you this all the time. Honestly.

Don’t give me that crap lothario1132, walrus’ use ethanol in their scooters.

“Support the Eskimos, buy them a club with a spike on the end.”

[quote]The Mage wrote:
Don’t give me that crap lothario1132, walrus’ use ethanol in their scooters.

“Support the Eskimos, buy them a club with a spike on the end.”[/quote]

Dude! I just found out that if you send your money to support the eskimos with the “Buy a Frozen Dude a Spiked Club” charity, they give you a Teyko sports watch™ as a FREE GIFT!!!

Dammit! Where’s that telephone number???

Kudlow’s pretty sharp – former chief economist for Bear Sterns – and I think this analysis of the oil market is a good one:

http://www.nationalreview.com/kudlow/kudlow200503111239.asp

March 11, 2005, 12:39 p.m.
$55 Oil Won?t Last
More production and less speculation will mean lower barrel prices ahead

When I put a $55 barrel of oil on the table and look at it from all angles, there?s no way the current price can be justified. As a free-market disciple, I am compelled to accept the market?s verdict: $55 a barrel. But that doesn?t mean it?s going to last.

Today?s oil episode is demand-driven, quite unlike the supply shocks of 25 years ago. Back then, OPEC withheld oil because they disagreed with the U.S. policy-tilt towards Israel. Additionally, under Presidents Ford and Carter, U.S. energy policy generated strict price controls and supply allocations, a most bizarre policy combination that kept oil from those population centers most in need of it.

Oil is certainly flowing today, but at much higher prices. In fact, in real inflation-adjusted terms, today?s oil price is the highest since 1983. To a certain extent, we owe this to a favorable development: the global spread of market capitalism in emerging economies such as China, India, and Eastern Europe. At the margin, the increasing oil demands of these countries have undoubtedly boosted the barrel price.

It is instructive to note how much higher oil prices have jumped in comparison to other commodities. From the 2001 low, oil has increased 214 percent. Over the same period, an index of metals ? equally in demand from the emerging economies ? has risen 122 percent. Seemingly along for the ride, gold prices have increased 73 percent. Meanwhile, the S&P 500 stock index has rallied 55 percent from its late 2002 low point while the broader Wilshire 5000 has gained 62 percent.

The fact that oil has increased so much more than these commodity and financial-asset prices is important. It suggests that the oil sector is way out of line. Increased China demand cannot alone explain it ? over-speculation is also a culprit.

It is rumored that hedge funds have used low interest rates to leverage and borrow for the purchase of oil market contracts. Big oil companies may also be speculating on higher future oil prices, with or without leveraged borrowing. It may also be that tanker companies have slowed down their deliveries as they wait for still higher prices.

Fortunately, the U.S. economy is much less susceptible nowadays to the tax-hike impact of higher oil prices. Numerous studies have shown that greater efficiencies in oil and energy usage have lowered our vulnerability to energy shocks by roughly 50 percent in relation to 25 years ago. Rather than stagflating, today?s economy is quite healthy.

So, what to do?

Ultimately, the answer to high oil prices is a lot more production. That?s exactly what the Bush administration intends to do. New Energy Secretary Sam Bodman has been put in place to implement Bush policies for greater nuclear energy use, increased use of clean coal, the development of a free-trade national electricity grid, and the foreign coordination of liquid natural gas. Also in the policy mix is new oil and gas drilling in the Arctic National Wildlife Refuge (ANWR).

Is Bodman the right man for this job? Absolutely. Bodman, a chemical engineering scientist who has taught at MIT, was the chief operating officer of the super-sized Fidelity mutual fund company and is a former venture capitalist. This is a guy who will quietly manage the U.S. effort to break out of the current OPEC-reliant paradigm and shift to the development of multiple new energy sources.

We?re already seeing signs of progress. The Excelon utility company has just received an early site permit for nuclear power, and Duke Power has nearly completed its combined operating license permit, which includes a pre-approved reactor design.

Meanwhile, there?s still a lot of oil out there. Hard Green author Peter Huber has suggested that there are 3 trillion barrels of oil buried in Venezuela and Alberta, Canada. Washington policy analyst James Lucier also notes that individual states are taking matters into their own hands by exercising states? rights to drill on the outer continental shelf. In Virginia, Democratic governor Mark Warner is expected to sign an OCS drilling bill from his legislature to do exactly that.

The key point is to let markets work. Free-market pricing will best allocate the shifts in both demand and supply. Spiking energy prices will reduce consumption. They will also attract capital investment leading to much greater production. That is, if government policies allow markets to work.

In the meantime, small investors thinking about jumping on the gravy train of higher oil prices should beware. Bubbles happen. And a major oil bubble could be on the verge of bursting.

? Larry Kudlow, NRO?s Economics Editor, is host of CNBC?s Kudlow & Company and author of the daily web blog, Kudlow?s Money Politic$.