Japan’s second-largest trading company Mitsui & Co. have just published a forecast: oil may rise to a record $96 a barrel in August, when hurricanes typically cut U.S. output. Like all such forecasts, this is subject to a large margin of possible error. But the arguments are coherent and certainly plausible. At least there is food for thought.
“Oil reached a record $70.85 on Aug. 30 the day after Hurricane Katrina made landfall on the U.S. Gulf Coast, wrecking oil platforms, pipelines and refineries, and cutting production in the world’s largest energy market. Global oil demand may rise 2.2 percent this year, almost twice as fast as in 2005, the Paris-based International Agency said last month“.
“Global growth, led by China and the U.S., will quicken to about 4.5 percent in 2006, the International Monetary Fund’s Managing Director Rodrigo de Rato said on Jan. 30“.
“Oil on the New York Mercantile Exchange has risen 6.2 percent this year after Iran, the world’s fourth-largest producer, pressed ahead with its nuclear research program, defying the U.S. and European Union. Rebel attacks on oil facilities in Nigeria cut shipments from Africa’s top exporter“.
“Not all analysts agree prices will increase. Rising supply may cause oil to fall this year, the Royal Bank of Scotland, the U.K.’s second-largest lender, said last month. Oil in New York may average $52.50 this year as global output increases, it said“.
Pres. Bush:”America is addicted to oil.”
He is preparing the cure. Oil at 96 might do it. The nice thing about the man is that he does as he says. He may lack sophistication, but there you can’t blame him.
It is possible that the 2006 Atlantic hurricane season will be severe, although no one can be sure (the ferocity of the 2005 season took most forecasters by surprise), but there’s definitely no way of knowing whether the strong hurricanes which do form will target the Gulf oil facilities. Hurricane tracks generally cannot be predicted with any accuracy until after the storms have developed and strengthened.
Of course, there may well be other events which lead to sharp increases in oil prices.
Goldman Sachs also has a $100 target on oil, but that may be a function of the firms prop trading positions at the time of the press release. I dont think anyone has a good grasp on the shape of the demand curve those lofty price levels. International affairs will play a big role…great fodder for this blog.
“International affairs will play a big role… great fodder for this blog.”
I’m sure :). But not for the international financial system unfortunately. My guess is whether it goes off this year or next, we are headed up towards the lofty heights, and the reason for this has a name, and an address: Mahmoud Ahmadinejad, Teheran, Iran
The hurricanes would just be a straw to break the cammel’s back if they happen. I think the idea is that the high point will be around the hurricane season each year irrespective of the level of problems they actually cause.
I see CNN money mention a number of $130. I don’t think this is realistic, not because it wouldn’t be paid, but because growth would get gridlocked and consumption drop markedly a long time before we get there.
But I do think Iran means business, and that we are going towards the eye of the storm, even if this one won’t have a name like Kartina.
Throughout the late 1990s, I heard a number of estimates as to the price point where synthetic fuels, whether made from coal or from biomass, become viable alternatives to oil, and the numbers frequently clustered around $30.
Now, there’s going to be some conservatism in planning new capacity for this sort of operation, because it takes 3-4 years to plan and build, and who knows that by the time you’re ready to go on-stream, that it isn’t going to be 1991 again, with the world in global recession and oil around $20. Whether or not you think it’s likely, it’s something you worry about when a couple billion in plant capital are at stake.
The approach that a number of energy concerns seem to taking in the U.S., is to build coal-gasification plants for electrical power generation. If oil prices remain high, you’ve already built half of a coal-liquefaction plant, and if oil plummets, well, you can still sell electricity.
The downside to this is that these things still take 3-4 years to plan and build. I don’t see any of this capacity, even for electrical power generation, coming into operation until 2010-ish, and add another couple years for synthetic liquid fuel capacity to be constructed, if the market will support it at that time.
What it comes down to is, in the long run, I think oil or oil substitues are stable around $40, but it will take a decade to get there, and in the mean time, no one really knows what the demand curve looks like at $100 and beyond.
How are chances that this is considered a national security issue and all regulatory limits are waived?
Just like oil, coal etc. have gone up in price so while the price was $40 back then it isn’t anymore. Another problem with many $40 substitues is that many of them can only produce very small amounts compared with world oil production. There is also the small but real possibility of a dollar collapse so i would use Euro prices when predicting future oil prices.
I see the Swedes have issued more detail on their own policy: kick crude by 2020. They are looking at renewables+biomass+efficiency, and perhaps nukes if that don’t cut it.
“and perhaps nukes if that don’t cut it”.
Yep, nuclear energy is about to make a big rebound. I am only kicking myself I didn’t include something about this in my ‘Forecasts for 2006’ post. Still, I was pretty quick off the mark with this I think just as soon as Putin threw the gas tap :).
Incidentally, did anyone else see his “exterminate them like vermin” speech.
Nukes have a 10 year lead time and they cost an ungodly amount of money. Coal, for which there is no supply problem, is much cheaper and wind is much faster to build out
“The nice thing about the man is that he does as he says. ”
Examples being the extra money he promised for AIDS in Africa?
The way, in the 2000 election campaign he talked about the US being rather too interested in telling other countries how to run themselves?
The way he promised to vigorously investigate the Valerie Plame issue and fire anyone on his staff even remotely associated with it?
“I see the Swedes have issued more detail on their own policy: kick crude by 2020. They are looking at renewables+biomass+efficiency, and perhaps nukes if that don’t cut it.”
Seems at least one of my own 2006 predictions is on the right track then! 🙂
P.S
On future news and discussions of nuclear power, look for the term “P&T” (partitioning & transmutation). Something tells me we will be going to hear alot more about it later in the year.