Oil = $50 a Barrel

Tuesday, September 28, 2004 | 06:19 AM

Oil broke a psychological barrier last night: $50.

As I have been lamenting for quite some time, this is not due to a "terror premium." Oil is rising in a response to demand from Asia, especially China.

Click for larger graphic
Terror_premium_
Graphic courtesy StockCHarts.com, RealMoney.com

As the chart above makes clear, after 9/11 there was brief plunge in oil prices. This reflected the expectation that the global economy would slow. It snapped back from that fairly quickly. Oil prices were then stable from April 2002 to January 2004 -- hardly a terror premium.

Here's a more recent history of oil prices relative to events:

Click for larger graphic
Infooilprices04
Graphic courtesy WSJ


The WSJ observed:

As oil topped $50 a barrel Monday, "one of the world's most important fuel gauges -- U.S. commercial inventories of crude oil -- signaled that the surge in prices may well continue. Inventories in the U.S. have plunged substantially below last year's level, confounding predictions by many analysts that stocks were building.

That may portend bigger jumps in the price as the Northern Hemisphere approaches winter, the season of peak oil use due to consumption of heating oil. To rebuild stocks and keep refineries humming, the actual users of oil -- rather than speculators -- are likely to snap up petroleum, keeping up the pressure on prices.

The decline in American inventories is roiling markets because the U.S., as the world's largest oil user by far, is the main setter of world prices. The fall in stockpiles was exacerbated by Hurricane Ivan's hammering of key producing and transport facilities in the oil-rich Gulf of Mexico. Oil output in the U.S. gulf is still running about 25% below normal, robbing U.S. refiners of needed supplies and prompting the Bush administration to make some emergency loans to buyers from the U.S. government's Strategic Petroleum Reserve. The government is considering making more such loans."

I suspect that $40-50 is a likely range for the next year or so. Look for events to conspire to create oil hitting $57 sometime in Q1 2005 . . .




Sources:
Market Challenged by Macro Concerns
Barry Ritholtz
RealMoney.com, 9/22/2004 3:37
http://www.thestreet.com/p/_rms/rmoney/barryritholtz/10184276.html

Low Oil Inventories in U.S. Signal High Prices May Stay a While
BHUSHAN BAHREE
THE WALL STREET JOURNAL, September 28, 2004; Page A1
http://online.wsj.com/article/0,,SB109631888189629185,00.html

Tuesday, September 28, 2004 | 06:19 AM | Permalink | Comments (9) | TrackBack (1)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00d83457090669e2

Listed below are links to weblogs that reference Oil = $50 a Barrel:

» Long-Term Oil Price - Higher Than Most Think from Different Opinion
crude-oil markets actually don't see prices to go back anytime soon. ...U.S. crude prices (WTI) for all deliveries (or actually cash settlement) before end of 2005 were above $40. Swap prices, indicating average price for oil over the contract's lifesp... [Read More]

Tracked on Sep 28, 2004 5:29:17 PM

Comments

Instead of a "terror premium," what about an instability premium? In other words a rise in direct proportion to prospects of regional stability?

Posted by: memer | Sep 28, 2004 4:33:35 PM

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner