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Thursday, January 3, 2008

It's Official - $100/barrel Oil

Yesterday, a single contract (1,000 barrels) of oil was traded at $100/barrel. That said, the word from the pits was that a particular trader wanted to make history and that this trade was somewhat suspect. I'm sure he's one of those Italian body-building trader types that wanted to have the biggest boast at the pub in Manhattan where these boys go to drink off the stress of trading and pick up chicks.

Today, however, $100/barrel oil crossed the electronic trading ticker, and that means it is for real. Still, all the talking heads on CNBC and other media keep saying that oil must fall back to $40/barrel or some other ludicrous level which they feel Americans are entitled to.

For year end tax reasons, the large integrated oil companies do let inventories dwindle, as today's EIA report showed (4 million barrel draw down). So, it would not be a surprise to see oil come down a bit in the next couple months as they increase inventories to prepare to ramp up gasoline refining for spring. Remember, last year there was a huge shakeout (oil dropped to $50/barrel in the first few months of 2007) in which the faint of heart got rung out and then oil ran toward $100/barrel the rest of the year. All this said, prepare for $4.00 gasoline this spring as worldwide oil inventories are below the 5 year average, especially in the US & Japan, while worldwide demand continues to be strong.

The talking heads on CNBC seem to be pinning their hopes on the new Saudi field which is expected to produce 500,000 barrels a day and start in the first quarter this year. However, folks like myself who believe in peak oil wonder if this new production will be able to make up for the declining production in the 2 or 3 huge reservoirs in Saudi Arabia that have apparently reached peak production and now are in precipitous decline. Remember, Saudi production peaked in 2005 and they were not able to match that level in 2006 or 2007 despite a huge drilling initiative. Perhaps they can in 2008 it sure will be very interesting to keep an eye on. Of course the next question is, even if they do introduce some "spare capacity", will China and India buy up the oil as quickly as it fills up the tankers?

Meanwhile, oil & gold stocks continue to rally and the dollar continues to weaken. This trend should continue when the Fed cuts interest rates yet again to bail out the sub-primers on Wall Street.

1 comment:

Anonymous said...

Hey fitzy,
I just discovered a monster herd of dead dinos in my backyard (I was shootin at some food). Sorry to throw a wrench in your peak oil theory :)

-minnesota phats