$104 Oil Should be No Surprise
By Nick Hodge, Guest Contributor
When the family starts asking about oil, I know it must be on the minds of most others around the country.
Here's the e-mail I received from my sister this week:
What is going on with theses gas prices? What is your take on them?
Yes, I do know I'm going to get a long-winded explanation.
Yes, I do know I'm going to get a long-winded explanation.
And my response, which I thought was worth passing along...
In a nutshell: There's simply not enough
Gas is going up for several reasons.
It started with the unrest in Tunisia and Egypt last month and the month before.
But neither of those two countries produce much oil. Egypt is home to the Suez Canal though, through which lots of oil travels in ships. When they closed the canal because of the protests, the price of oil went up.
It's a supply and demand thing. Investors thought supply would be hindered because no oil would get through the Suez, so they bought more of it. And when everyone is buying oil (or any commodity), the price goes up.
Then Libya started rioting. And Libya actually produces a lot of oil — about 1.6 million barrels per day. (The world uses something like 86 million barrels per day.) Now that Libya is on the verge of civil war, their oil fields are being shut down. Not only that, but Gaddafi (the head of Libya) has threatened to bomb his own oil fields.
The threat of losing 1.6 million barrels per day of world supply has traders going crazy, buying all the oil they can. So the price has gone from $85 per barrel to over $100 per barrel in the past few weeks.
Gas prices follow oil prices, so they've risen as well.
It's like crack in the ghetto: When there's enough supply, prices are low. But if supply drops (or demand increases) the price goes up.
A few more things at play...
We're entering summer driving season, when oil refiners have to switch to a different, more expensive blend. In the winter they can use a cheaper blend because of EPA pollution laws; when they switch, they pass on the higher costs.
Also, we've basically been in an "oil crunch" for three decades, ever since the Carter administration.
The theory is that we're running out of oil. As I said, we use about 86 million barrels per day... If the world keeps growing at its current rate, forecasts say we'll be using over 110 million barrels per day by 2030.
Most oil engineers say we'll never be able to produce that much. That's basically the reason behind everything green and every time you hear someone talking about our 'foreign oil addiction'.
In a nutshell, supply is very tight. We barely produce enough to cover global oil demand as it is. So whenever there's a disruption — or even threat of a disruption — prices go up.
In one sentence: There's not enough oil.
It's not all bad if you know what's going on, though... You can buy oil stocks and funds that track the price so you're actually making money as the prices rise. http://www.wealthwire.com/news/energy/844
Nick Hodge is an editor for Energy and Capital.
+4Mideast Oil is Risky Business
By Keith Kohl, Wealth Wire contributor
It can't get much worse, can it?
That's how I first felt after watching crude top $111.85 per barrel today. It was hard to imagine Brent prices climbing much higher... and then the news hit my desk.
When I read half of Libya's oil production had been shut down after the latest unrest, I couldn't help but wonder how much further the volatility could take prices.
As you know, Libya is the 12th largest crude exporter in the world. The country usually pumps out 1.6 million barrels per day (bbls/d). Some have even suggested as much as one million bbls/d may have been disrupted – approximately 62% of total output.
Libya's oil exports aren't the only thing threatened; three-quarters of the country's energy consumption is from oil, and the rest from natural gas.
Of course, the IEA is expecting OPEC to make up the loss, yet Bloomberg recently reported that OPEC oil exports fell 2% in December. I'm guessing OPEC is "comfortable" with $111 a barrel. After all, that's their famous tagline, isn't it?
Brent bearing the brunt of risk
I've mentioned before how Brent is overtaking – or overtaken, for that matter – light, sweet Texas crude as the world's benchmark for crude prices.
With the latest volatility stemming out of North Africa and the Middle East, don't expect Brent crude to fall. Since much of Libya's oil exports flow through Europe, you can see the response on Brent prices:
Is big oil in big trouble?
And here are just some of the headlines over the last few years that tell their tale:
- Italy's Eni SPA is currently evacuating Libya as the unrest continues. What's at stake? Eni produces approximately 250,000 barrels per day in Libya, or roughly 14% of their total production.
- Equador is ordering Chevron to pay almost $9 billion and wants an apology for the environmental devastation it caused in the region. The decades-long court battle stems from Texaco, which was purchased by Chevron for $36 billion back in 2000. The country claims the company deliberately dumped billions of gallons of waste byproduct from oil drilling into the rivers and streams of the rain-forest.
- In 2007, Venezuela's Chavez ousted all International Oil Companies (IoCs) during his May Day takeover – a decision he'll soon regret considering how difficult it will be to extract the country's heavy resources located in the Orinoco Belt.
- We all know the fallout of BP's infamous oil spill in the Gulf of Mexico, which will cost the company billions; Not to mention the denigrating effect the disaster has had on the future of offshore drilling.
So, you think those IoCs have it tough?
Just imagine how their investors have felt over the last year:
As you can see, they haven't had much to smile about.
In fact, out of those investments above – if you can call them that – only Chevron has managed to sneak by with a gain. The others were about as depressing as Libya's oil output.
A boom worth the buck
There's another reason for the discount between WTI and Brent crude, and it's also why some investors have made a small fortune.
Now I've talked before about the surge in production from the Midwest, specifically the now-famous Bakken oil formation, as well as increasing imports from Canada.
But no matter what your stance on the U.S. oil industry, you have to see the boom taking place...
Three weeks ago, I pitted those Bakken producers against the supermajors. Now compare their success with those holding onto those IoCs (from above) with blind faith that big oil will pull it together. How are they performing compared to those IoCs over the same period?
I'll let their success speak for itself...
As you can see, it doesn't take much to know where you'd rather place your bets. And once you recognize where those profits are coming from, you'll see an even greater opportunity in taking those investments to the next level.
Take those shale plays above, for example.
Increasing efficiency will inevitably boost production. One of the technologies used today, known as hydraulic-fracturing, is coming under harsher scrutiny with each passing day. My readers are already one step ahead of the game after discovering one company perfecting it's new 'petro-frac' technology.
Keith Kohl. http://www.wealthwire.com/news/global/795Editor, Energy and Capital
The Fed Coiled the Oil Price Spring
Unrest in the Middle East is taking most of the blame for spiking oil prices. But the Fed's trillions played an undeniable role, as well.
Rising crude oil prices are great if you own energy stocks. Oil stocks that our colleagues over at Energy and Capital have been screaming about, like CVX and BEXP (a favorite of my friend Keith Kohl) are all big over the last few months.
But it's also important to consider the overall economic effect, as well.
Remember, each $1 rise in a barrel of crude equals roughly $100 billion wiped from U.S. GDP. Yes we are that dependent on crude. $200 oil would likely turn this current double-dip into a full-blown depression.
The Fed certainly isn't helping things by monetizing the debt, and sloshing trillions of liquidity into every market it can.
It's a little encouraging to see the Fed playing a lot of defense lately. This is just the beginning of the heat coming their way. First it was spiking commodities that wouldn't go away, and now concerns about spiking oil prices.
Here's Fed bigwig Jeffrey Lacker's latest spin on oil prices, via the WSJ.
Rising oil prices are a "manageable risk" for the U.S. economy, a veteran Federal Reserve official said Friday.
"I think that the oil price increase we've seen so far doesn't pose a risk to the recovery," Federal Reserve Bank of Richmond President Jeffrey Lacker said. But he also warned "oil price changes could have the potential, if they were very large, for slowing the economy."
Oil prices have been on a tear of late amid political unrest that has spread across the Middle East. Increases in energy prices are particularly problematic because they have the potential to both drive up inflationary pressure while at the same time sapping consumers' spending ability.
Retirees will get paid nothing on their retirements (if they're lucky). And everyone will have their purchasing power erased, as wages stagnate and prices keep rising. If they keep going, and they do seem quite determined to make QE6 happen."I think that the oil price increase we've seen so far doesn't pose a risk to the recovery," Federal Reserve Bank of Richmond President Jeffrey Lacker said. But he also warned "oil price changes could have the potential, if they were very large, for slowing the economy."
Oil prices have been on a tear of late amid political unrest that has spread across the Middle East. Increases in energy prices are particularly problematic because they have the potential to both drive up inflationary pressure while at the same time sapping consumers' spending ability.
Eventually, interest rates simply must rise. Low interest rates (loose monetary policy) and QE artificially goose demand and spur reckless investments.
But the banksters are going to fight it every step of the way. That's why, for now, we still like energy, commodities, and precious metals. The "global financiers" are not done printing yet. Not even close, I'd say.
It will take a new President, maybe a new congress, along with a complete attitude shift at the Fed as a whole, to make them stop the economic madness that is QE Infinitum.
Today, even Fed "hawks" like Hoenig and Fisher are dangerously dovish, and extremely reluctant to rock the boat. http://www.wealthwire.com/news/inflation/806
+7Smells Like Stagflation
Those concerned about stagflation have mostly been laughed off for the past few years. But we're starting to see spiking consumer prices, and wages are definitely stagnant.
Research and graphs by Gluskin Sheff's David Rosenberg begin to paint the picture.
Now, contrast that with the percent of companies planning price hikes:
Combine stagnant wages with high unemployment and rising prices, and you get... Stagflation, biflation, or whatever you wish to call it.
Inflation is popping up in some ugly areas, like energy and food. But other assets are struggling, like housing and equity returns (real after inflation/cost). The unfortunate thing about increasing the money supply and credit is: you never know where the cash is going to pop up.
Speculators with cash to burn and no skin in the game will always find another bubble to blow, of course.
I've been a subscriber to Mr. Rosenberg's letter for over a year, and he continues to impress with data and content. Here the former chief economist at Merrill Lynch is in a recent letter, dishing on his former banking colleagues.
Either the bankers aren’t telling the truth or the demand for credit, especially on the part of households, is still in contraction mode. http://www.wealthwire.com/news/economy/756
Agreed. Loans are going to elites, missing small business for the most part. +23 
Tidak ada komentar:
Posting Komentar