Oil Price Bubble May Have Started to Burst

Monday , April 11, 2005




NEW YORK — A 3-percent drop in crude oil prices Thursday could be the first sign that energy's bubble is losing air in recognition of swelling U.S. inventories, analysts said.

While some analysts insist that high oil prices are here to stay, many believe energy futures reached the point the stock market did in early 2000 when the technology bubble burst when investors had ignored overblown stock prices in relation to company profits.

"The sky is falling," said Tim Evans, analyst with IFR Energy Services (search). "Sell sky."

"This is it. This is the dam break," said Ed Silliere, analyst with Energy Merchant Intermarket Futures (search). "I'd have to say the bull market is done."

Spiking oil prices have attracted enough imports to the U.S. shores in recent months to build stockpile levels to their highest since 2002 when oil prices were around $20 a barrel, to counter lingering fears of an imminent global supply shortage.

Oil prices have gone up 25 percent since the year began and stand 50 percent higher than they were a year ago.

Many analysts have predicted an end to the frenzy, which last week brought oil to a record near $60 a barrel.

Others say high prices for oil could be here for the long-term.

"I don't think we're going to see any significant or meaningful change any time soon," said Fadel Gheit, analyst with Oppenheimer & Co (search). "Oil prices will hang at their current levels or even go higher."

Fears of inability to quench the thirst of growing Chinese demand and the potential for terror attacks in oil producing countries have kept crude prices higher than the underlying supply-and-demand factors, Gheit said.

"A bubble is an unsustainable price situation," Gheit said. "That doesn't mean the bubble has to disappear. A bubble can last for a very long time. It can last 20 to 30 years."

China's oil consumption is expected to grow by 12 percent to 7.4 million barrels per day this year, the U.S. government said. It has become the world's second largest consumer of oil behind the United States.

Last week, analysts at Goldman Sachs (search) raised the upper end of their self-named "super spike" potential for crude oil, to up to $105 a barrel by 2007.

This prediction, the analysts' said, is linked to the fact that gasoline prices are lower when adjusted for inflation than they were in 1981, and that gasoline spending is not as large a part of the economy.

But that prediction has drawn some doubts.

"Without a cataclysmic attack on oil infrastructure, we're not going to get (to $105)," said Jason Schenker, analyst with Wachovia Bank.

"Even stating that crude could go to $105 is akin to the statements we saw in the late 1990s that the Dow was going to reach 20,000," Schenker said. The Dow index reached a top in January 2000 when it hit 11,750.

The United States, which consumes a quarter of the world's 83 million barrels of oil burned daily, has built supply of crude oil and gasoline are above normal, the federal government said this week.

Federal Reserve Chairman Alan Greenspan (search) Tuesday said high oil prices could eventually correct themselves lower by cutting demand and encouraging stockpiling.

If the bubble starts to burst, it could take time to deflate back to fair fundamental levels some have pegged in the $30 a barrel range.

It will take "several months to wring out the excess," said Evans.




http://www.foxnews.com/story/0,2933,152912,00.html

(Financial intelligence report prediction)

Dear NewsMax Reader:

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http://www.newsmax.com/fir/oilbust.cfm#link#

my economics prof also mentioned the burst of energy bubble.

assuming it is true, + housing bubble burst in the near future..
now Bernanke's saying "interest rate hike near an end" suddenly makes sense

whether the current energy price is sustainable is the big question investors have to think about...

OPEC Head Predicts Oil Prices Will Fall
Apr 23 9:53 PM US/Eastern
Email this story

DOHA, Qatar


OPEC President Edmund Maduabebe Daukoru predicted Sunday that oil prices would fall from their current high of just over $75 a barrel to stabilize in the "upper fifties to lower sixties" as political tensions ease.

Daukoru, who is also Nigeria's petroleum minister, was in Doha for the three-day International Energy Forum that began on Saturday.



Crude-oil prices hit a new record Friday, fueled by concerns about Iran's nuclear ambitions and tight U.S. gasoline supplies.

The Organization of Petroleum Exporting Countries president said the solution to high prices lies in a calmer international environment and boosting refining capacity _ not increasing output which would only clog the market.

"If we do the right things by lowering international tensions, oil prices will definitely stabilize," he said.

Oil ministers from several countries are taking part in the event organized by Riyadh-based International Energy Agency.

"The important thing is that we should begin now (to increase refining capacity) so that we do not continue with these kinds of problem beyond the next three years," Daukoru said.

"When the capacity is tight, you get a wide fluctuation of prices _ up or down _ depending upon the particular circumstances."




http://www.breitbart.com/news/2006/04/23/D8H62V8O0.html

OPEC says powerless to drive down $75 oil

By Peg Mackey and Janet McBride

DOHA, April 24 (Reuters) - OPEC ministers conceded on Monday there was nothing they could do to halt surging oil prices that threaten consumer nations' economies and could trigger a collapse in demand disastrous to producer states.

The group, already pumping as much as refiners can handle, concluded at talks here that raising its 28 million barrels per day output ceiling would not rein in runaway prices.

"The market determines the oil price," Saudi Oil Minister Ali Al-Naimi, OPEC's most influential voice, told reporters.

"You know and I know that the reason the price is where it is is not from a shortage of (crude oil) supply," he said.

Oil raced to an all-time high above $75 last week as Iran continued to defy world pressure to halt its nuclear programme, a quarter of Nigeria's output lay idle after rebel attacks and Iraq's once considerable oil industry was mired in crisis.

Consuming nations -- from top energy user the United States to poor African nations -- are afraid high energy costs will snuff out economic growth. Producers fear a price collapse.

OPEC ministers, meeting on the final day of global energy talks here, had little enthusiasm for a Kuwait proposal to offer up all the organization's spare capacity of two million bpd as they did in September when oil spiked above $70 a barrel.

Then, as now, a lack of motor fuel in the United States, consumer of over 40 percent of the world's gasoline, was partly to blame for the price surge. At that time hurricanes had damaged U.S. refineries. Now the introduction of new, cleaner U.S. gasoline may disrupt supplies in the short term.

Some OPEC delegates also blame U.S. foreign policy.

Libya's top oil official said fears of a U.S. strike on Iran, the world's fourth biggest crude exporter, had added $15 to the cost of a barrel of oil. Kuwait's oil minister reckoned another $7 had been added by consumers' sense of vulnerability.

Top exporter Saudi Arabia, a close U.S. ally, also spoke of international tension. "There is nothing that can be done about the tension that has been created and until that tension abates the price will continue to be high," Naimi said.

Investors agreed OPEC, supplier of a third of the world's oil, could do nothing to steer oil from its highest level in real terms since 1980, the year after the Iranian revolution.

"OPEC can't do anything about the upside to the market. They don't have much scope left for managing," said Michael Coleman, managing director of hedge fund Aisling Analytics.


DIVISIONS

Energy consumers and producers here for the International Energy Forum agreed there was an urgent need to bring down prices. But they were split over how to do it.

Consumers want greater access to oil and gas in the Middle East, Russia and Africa. Producers want to be sure investing in new fields will pay off. Both sides criticise major oil firms for failing to build new refineries.

"The objectives are different. Nobody is sharing anything," said a delegate who declined to be named.

The meeting brought together ministers from 59 countries and the chief executives of major oil companies.

OPEC members point out they have raised oil output by over 10 percent since 1999. Saudi Arabia alone will spend $50 billion over the next five years on new fields and refineries.

In contrast, the United States, which uses a quarter of the world's oil, has not built a refinery on its soil for decades.

A conciliatory U.S. Energy Secretary Sam Bodman said he would not ask OPEC to pump more even though U.S. gasoline has reached $3 a gallon

"We have encouraged producing nations to keep oil markets well supplied -- I think they've done that," he said.

An OPEC statement after Monday's talks said "crude volumes entering the market are currently well in excess of actual demand, as levels of stocks in OECD countries demonstrate."

hey thanx for updating!!!

I guess high oil price is here to stay~~

:-)

Maybe it won't saty above $75 longer... ，but it'll come back for sure!!!
I'll keep buying...

The following is a good article for reference



5 things to watch in energy
From Iran to refineries to record earnings, here's what's moving the market over the next few weeks.
By Steve Hargreaves, CNNMoney.com staff writer
April 24, 2006: 5:32 PM EDT


NEW YORK (CNNMoney.com) - With oil and gasoline prices near record highs, every word from leaders of oil-rich nations and every government energy report can push prices further into the stratosphere or provide some relief to wary consumers.

Here are five things to watch in the coming weeks, and they don't look good for those feeling pinched at the pump.


Iran

The standoff between Iran and the West over that country's nuclear program has fueled rising geopolitical tensions - and helped drive oil to record highs above $75 last week.

Nauman Barakat, an energy trader at the investment bank Macquarie, said Friday, April 28, was a day when crude prices could spike, since that's the deadline for Iran to comply with a United Nations Security Council resolution calling on the country to stop enriching uranium.

"Clearly, Iran will say no," said Barakat. "You can make a case for crude going to $80 a barrel."

Iran, the worlds fourth-largest oil exporter, has threatened an oil embargo if the Security Council imposes sanctions on the country over its nuclear program, which Iran says is for peaceful power generation but which many countries suspect is intended to produce a weapon.

Tensions could escalate further. President Bush has refused to rule out a pre-emptive nuclear strike on the country and talk has swirled about Iran's ability to blow up oil tankers passing through the Persian Gulf.

Nationalization

Venezuela is most often in the news with plans to nationalize oil industries, a move many say discourages international investment in that country's infrastructure, hurting production.

A news report Monday said that Venezuela's left-leaning president, Hugo Chavez, is making plans to sharply raise taxes and royalties on foreign oil operations in the country.

Analysts fully expect the trend toward nationalization to continue for the foreseeable future and say its happening in not just Venezuela but across most of South America and in Russia as well.

And you can add another country to the list: Mexico.

"The front runner in the Mexican election is a left-wing socialist," said Dan Lippe, an energy industry consultant. "Most of the things people are nervous about will still be with us a year from now. We aren't looking for crude prices to come down until maybe 2008."
Mexico, with presidential elections set for July, is the world's seventh largest oil producer.

The ethanol switch

One thing that should be only a short-term problem and could have a happy ending for consumers is the switch to an ethanol-based additive in gasoline.

Concerns about there not being enough supply of ethanol and the logistical kinks that must be worked out as the switch is made have helped drive gas prices to near record levels over the last few weeks. Gasoline hit an average of $2.91 across the country Monday, according to AAA, and prices are above $3 on average in California, Hawaii, New York and Washington DC last week.

But Lippe said any problems or spot shortages caused by the switch should be worked out by midsummer, and gas prices should cool off.

Oil profits

While high oil and gas prices aren't usually good for consumers, they are very good for oil companies and those who invest in them.

Later this week the big three American oil companies are due to post earnings. No one expects them to be meager.

Last year Exxon Mobil (Research) recorded the fattest profits on record for an American corporation. The company said it made $10.7 billion just in the fourth quarter, while for all of 2005 it earned $36.1 billion, or about $1,146 a second.

Analyst expect quarterly profits to soar when it reports earnings Thursday.

Other oil companies reporting this week include ConocoPhillips (Research), due Wednesday and Chevron (Research) due early Friday.

Windfall profit taxes

With reports of record profits come calls for profit taxes and other attempts by lawmakers to tame prices.

Last week Sen. Charles Schumer (D-N.Y.) called for an investigation to see wether oil companies were deliberately withholding gas supplies in an attempt to bid up prices.

And Sunday the idea of a so-called "windfall profits tax," long championed by some Democrats but rarely mentioned by Republicans, got some traction from Sen. Arlen Specter (R-Penn.), who said on CNN that it was "something worth considering among other options."

But observers say the sabre-rattling by lawmakers is nothing more than political posturing in an election year.

"Price gouging, windfall profits, OPEC-bashing, that isn't going to change the price of fuel," said Bill Wicker, a Democratic staffer on the Senate Energy Committee. "That just makes people feel better."

Bush plans to tackle petrol price

US President George W Bush has unveiled plans, including an inquiry into price fixing, to lower the cost of oil and cut climbing petrol prices.
Mr Bush told the Renewable Fuels Association that the US needs to "get off its dependency on oil" as crude costs have moved towards record levels.

The US will also stop topping up the strategic oil reserve, boost domestic output and promote alternative fuels.

Mr Bush said that oil and petrol prices were a matter of national security

'Fairly treated'

He said that the main problem facing the US is that it now gets 60% of its crude from foreign suppliers, many of whom have unstable governments and anti-American policies.

As a result, the US had to step up its efforts to become energy independent, especially when consumers were bearing the brunt of oil market problems by having to pay more for their petrol, he explained.

Long-term we need to power our automobiles with something other than oil

President George W Bush


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Calling high petrol prices a hidden tax that hurts consumers and companies, Mr Bush said a main worry was that corporate and retail spending will decline as gasoline prices top $3 a gallon.

Mr Bush said that he is asking the Federal Trade Commission and the Department of Justice to look into whether the higher price of petrol was being caused by market manipulation.

Consumers need to be "treated fairly at the gas pumps", he added.

In an effort to get more crude oil and petrol onto the market, Mr Bush said the US would not top up the strategic petroleum reserve over the summer.

"By deferring deposits until the fall, we'll leave a little more oil on the market. Every little bit helps," he said.

Different views

However, Mr Bush warned that any steps he introduced would simply be short-term measures that needed to be backed up by a shift in mentality among US consumers and companies.

"Long-term we need to power our automobiles with something other than oil," Mr Bush said in Washington.

What the US now needs to do is step up its efforts to conserve energy, and invest in new, environmentally friendlier sources of fuel such as ethanol, he explained.
Voters expected oil companies to spend more on developing alternative energy sources, especially as they were making massive profits, Mr Bush said.

To help promote the use of more fuel efficient cars, Mr Bush called on lawmakers to give greater tax breaks for hybrid vehicles that use electricity as well as petrol.

His comments took some of the steam out of the oil market, and crude dipped in both London and New York.

Prices are still near record levels, however, and are unlikely to tumble while concerns exist about Iran's nuclear programme and demand remains strong in developing nations including China and India, analysts said.