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Bears Smell Oil Bubble as Price Soars

Ann Davis and Neil King, Wall Street Journal
The higher oil soars, the louder the cries of bears that it can’t be justified.

Crude-oil prices hit an exchange record $89.47 a barrel yesterday in New York Mercantile Exchange trading — gaining more than $10 in 10 days. Some contrarians are starting to declare these price levels unsustainable and even a “bubble.”

…These skeptics claim prices are being driven not by the fundamentals of supply and demand, but by a blend of jitters and a flood of speculative cash.

Investors have poured into energy-futures contracts as they retreat from seemingly less-attractive bets in stocks, bonds and currencies, analysts say.

…Most bears see $45 to $65 a barrel as a more realistic price for oil. But even many of the most bearish bears say oil might not start to retreat until it first rises high enough to force a significant shift in demand — for instance, by changing people’s driving habits.

That price could be as high as $120 a barrel, according to Thomas Petrie, energy banker and Merrill Lynch & Co. vice chairman, speaking yesterday at the Houston conference of the Association for the Study of Peak Oil & Gas-USA, a group that contends oil production could peak between now and 2015.

…Speaking from the sidelines of the American Petroleum Institute’s annual meeting in New Orleans Monday, when oil was trading around $86, Exxon Mobil Corp. Chief Executive Rex Tillerson said the high price was “hard to explain.” He added: “As far as I know, nobody is having trouble getting crude oil today.”
(19 October 2007)

Saudi Aramco may miss production goals, says Simmons

Business Intelligence Middle East
SAUDI ARAMCO. Saudi Aramco, the world’s largest state oil company, probably isn’t on target to meet its oil production goals, said Matthew Simmons, Chairman of Simmons & Co International.

“I’m dubious they can hit their targets,” Simmons said today at a Houston conference sponsored by the Association for the Study of Peak Oil & Gas, a non-profit think tank. “If they had hit their targets, they would be more forthcoming.”

…Simmons, who has predicted crude will exceed US$200 a barrel or more, reiterated he believes today’s prices are cheap.

“At US$40, US$50 and US$60 they said it’s just traders and speculators,” he said. Light, sweet grades of oil in Malaysia were US$90 a barrel earlier this month, Simmons said.

“That to me is not speculation; that’s refiners struggling to find light, sweet crude,” Simmons said. “I don’t know what fundamentals they’re looking at. The fundamentals I’m looking at say fasten your seat belts.”

Critics of Simmons’ peak-oil assertions say it’s impossible to know when petroleum production has peaked, given uncertainties estimating global reserves, and point out that previous theories pegging a specific date for peak oil output have been wrong.
(19 October 2007)

Real Reasons for $88 a Barrel

Judy Dugan, Huffington Post
Oil briefly touched $88 a barrel today with Turkey poised to approve military raids inside Iraq against Kurdish rebels. Oh, what rubbish.

Every time the price of oil goes up $3 or $5 a barrel, analysts point with alarm to Iraq, Iran, Venezuela or Nigeria. In today’s case, no incursions have happened yet, Turkey is still subject to international pressure and the oilfields of Kirkuk are as far from the Turkish border as you can get inside Iraqi Kurdistan (even if Iraq was providing a dependable oil flow to the rest of the world, which it isn’t).

The finger-pointing at unrest here and a worker strike there is just avoidance of the fact that oil is far more expensive than market fundamentals can support. (I do credit the analysts who are finally saying this, if not getting to the root of it.)

So what is this upward race about?

Start with speculative trading.

During a Senate hearing on oil prices last year, the Senate Subcommittee on Investigations concluded that speculative energy trading drives up the price of oil, and a staff report endorsed analyst estimates that speculation may account for $20 of a $70-per-barrel oil price.

…Even more interesting is a theory I heard from Marc Cooper, the deep-digging energy analyst for the Consumer Federation of America: It’s also OPEC and the Big Oil oligarchy going back and forth over who’s taking whose profit.
(17 October 2007)
No mention of peak oil. -BA

UPDATE (Sept 21): Matt Picio points out that Senator Carl Levin is (D-MI), not (D-NY), as Dugan writes in her post. As a 28-year veteran of Congress and chairman of the Senate Armed Services Committee, arguably the most powerful committee in the government – Senator Levin is pretty important. This leads him to be suspicious of other facts in the article.

UPDATE (Sept 21) Reader John says the effects of energy prices are here now, as this article from AP shows:
Living paycheck to paycheck gets harder

Peak Oil Passnotes: $100, Here We Come!

Edward Tapamor, Resource Investor
PARIS ( — Who would have thought it? Oil at $9 per barrel. You could never have imagined the price would fall so low.

But just nine years ago in 1998, that is exactly where oil was: $9 per barrel. It is now trading at around 10 times that amount, and all bets are off as to where it will end up. We have had two quarters of draw-downs in stockpiles in the U.S. and around the globe. What is worse, there are no signs of any builds in crude stocks for the next four to five months. That is what the market is betting on, at least.

Alongside this continued level of consumption in the U.S., barely slackening in 2007, OPEC has stubbornly refused to add any extra production to the market. Partly because they cannot add any without risking damaging wells, partly because the oil they can add – maybe around 500,000 barrels per day, maybe around 1 million barrels per day – is the kind of heavy sulphurous oil no one really wants.
(19 October 2007)