Crude Oil to surpass $150 per barrel: Jim Rogers

[Joanne98]

NEW YORK (Commodity Online): Crude Oil has turned out to be the hottest commodity these days. Along with gold, crude oil is driving up commodity prices these days. Legendary commodities investor Jim Rogers feels that crude oil price will surpass $150 per barrel thanks to the depleting reserves of oil around the world.

In an interview to Larry Kudlow for The Kudlow Report, Rogers who is a known authority on commodities, said: "It’s not going to $150 this week or this month, but the surprise is going to be how high the price of oil stays."

“We are running out of known reserves of oil. These are simple facts. We have not had a major elephant oil field discovery over 40 years,” Rogers who has penned famous books like Hot Commodities and A Bull in China said. Rogers does not agree agree with T. Boone Pickens that natural gas will replace oil anytime soon.

He said that the price of oil could surge above $200 a barrel, more than doubling from present levels.

http://www.commodityonline.com/news/Crude-Oil-to-surpass-$150-per-barrel-Jim-Rogers-36061-3-1.html

[DCBob]

1. This would send the world back into a recession..

Not sure how soon this is all going to happen but it will happen eventually... its inevitable... unless we can get serious about alternatives.

[HysteryDiagnosis]

2. Who is going to pay for this oil when everything is shut down because of the

high cost of crude oil??

[jwirr]

3. They always seem to forget the consumer when they are making

their big plans. When this happened at the end of boooooosh's term the economy collapsed.

[subterranean]

4. That's what they said in 2008.

Goldman Sachs was telling everyone who would listen that the price of oil would soar to $200 a barrel. And indeed the price almost tripled to $147 in 2008, even though there was little change in supply and demand. It was all driven by speculation in commodity index funds -- the largest of which is run by Goldman Sachs, of course.

[GliderGuider]

7. How do you know there was little difference in demand?

China's economy was booming, India was booming. What I saw was a limited global supply hitting rising global demand. I don't buy the speculation boogeyman.

We're on a Peak Oil production plateau, and have been for 5 years new. No matter how high the price rises, nobody is bringing new supplies to the market - in fact, world net exports of oil are falling:



This graph tells me the price fluctuations we see are not manipulated, but structural. I think prices are set for another major spike as global economies try to move out of recession - which will, of course, throw the world back into recession.

[subterranean]

8. Global demand actually fell before prices spiked.

According to the U.S. Energy Information Administration, in the six months before the price spike, global oil demand dropped slightly while the supply increased from 85.24 million barrels a day to 85.72 million. Yet the price of oil more than doubled from mid-2007 to mid-2008. That cannot be explained by the laws of supply and demand. If anything, prices should have fallen during that time. Clearly there was something else driving prices up.

Matt Taibbi explains how it worked in his book Griftopia, which I recommend.

[CRH]

12. Though I do agree with your structural supply and demand theory ...,

I don't agree that speculation has a small effect of peak prices.

Just as the structural supply chain comes to strain and causes an elevation in prices, so does the structural speculation within the unregulated capitalist casinos we call stock, bond, and commodity markets. Just the thought of a future tightening of supply, often triggers temporary speculative surges in the price of futures, beyond what the actual supply/demand condition requires. If this lasts for 3-6 months, the consumer sees these prices passed on, even before the commodity or downstream product is delivered.

It is this very speculation that allows stocks to rise above actual book value, P/E ratios to jump to 30 and above, and the ensuing crash when it is discovered the metrics of supply and demand are without basis or balance.

So where the supply/demand of oil might this day command a $125 barrel of oil, the futures and delivery contracts could be pricing in speculative future demand scenarios at $160 a barrel. In turn the farmer and supermarket alike, raise prices beyond what is justified by the actual market conditions. After a speculative surge, perhaps the prices come back in balance returning to previous levels, and sometimes, perhaps not.

After the last price spike in oil, food prices moved up before and in anticipation of the higher fuel costs, yet when the oil market deflated with resulting recession and demand destruction for fossil fuels, the food prices never returned to previous levels. Though fuel and transportation costs were much less at this point, the consumer then paid for the speculative values of consumer staple stocks and share holder profits. Though a barrel of oil retraced to $40; meat, potatoes, grains, perishable produce and dairy products, did not find a correlative price to that of oil

IMHO, speculation and capitalist profit prevented that, as it is intrinsic, within the very speculative capitalist structure by which it is governed. That structure to remain healthy, requires constant growth, and inflation. It is why the capitalist system must eventually fail in function, in a world of finite resources.

on edit: corrected my bad grammar

[A HERETIC I AM]

5. There is an upside to expensive oil...

and that is when it gets too expensive to ship goods across the Pacific, manufacturers will start once again to make much of those goods here. Containerization is only so efficient.

Off-shoring manufacturing only works when the numbers make sense. When the cost of shipping outweighs the low cost of making things, we'll start to see socks made in the Carolinas and steel made in Pennsylvania again.

Where that break even point is, I have no idea.

[JDPriestly]

6. Good point except that we need alternative energy in order

to produce products here in the US. And we don't have anything like the amount of alternative energy we need. Energy independence should have been the first and primary goal of the obama administration. Unfortunately . . . . .

[dd2003]

9. This sucks

And I cant stand to watch that noise on cnbc on how great it is oil is going up. No, NO it is not. However, I dont have bloomberg to get my financial news. Kudlow is awful too...He would probably give bush a bj if he could

[pa28]

10. Bubble language.

I really like Jim Rogers but when you start hearing about how high prices are sustainable and it's 'different' this time you might as well fasten your seatbelts for rocket ride followed by a crash.

Oil prices are very sensitive to demand and once the ripple effect of $150 oil in production and transportation takes hold that demand is going to crash. JR knows this but he's in the money making business. Not the truth telling business.

[NickB79]

11. You are assuming that oil supplies remain constant

In the supply and demand equation.

That is far from assured, as global oil production has been flatlined for several years now despite price spikes, and discoveries of new oil deposits have been falling short for decades now.

If we are truly at Peak Oil, all bets are off on where oil prices wind up and where they maintain.

[GliderGuider]

13. The state of the world oil market between now and 2020

I posted this on E/E, but I thought the third "E" might find it interesting as well. It's the result of a little analysis project I did today.

-------------------------------------

I’m very concerned about the potential effects of the Export Land Model and the decline in the world's net oil exports on both oil prices and global economic activity. In order to investigate the potential near-term effects further, I decided to look at the recent oil production and consumption trends in the world’s top exporters and importers.

The Market Today

The world oil market currently moves about 2.3 billion tonnes of oil a year. At the moment there is a surplus of around 100 million tonnes per year, or a 4% export surplus. The market has generally been in a such surplus position since 1965, with the only notable exception being the period from 1981 to 1984 when the market operated at an average deficit of 9%.

The world’s top 15 net exporting nations in order of size are: Russia, Saudi Arabia, Iraq, Iran, Kuwait, Nigeria, UAE, Norway, Venezuela, Angola, Libya, Kazakhstan, Mexico, Algeria and Canada. Together they export about 80% of the oil on the world market.

The top 15 oil importers in order of size are: USA, China, Japan, Germany, India, South Korea, France, Spain, Italy, Singapore, Netherlands, Taiwan, Benelux , Thailand and Turkey. Together they import about 80% of the oil on the world market.

Technique

I used the BP Statistical Review of World Energy 2010 as my database. It’s pretty good, but for this exercise I also consulted EIA data to fill in a few missing pieces regarding oil consumption in some countries.

I used the production and consumption data from each of the 30 countries given above for the period 1990 to 2009. For each country I fitted Excel trend lines to both the production and consumption curves, using the type of trending that either had the best r-squared fit or appeared to track the more recent data the best. The bit of eyeballing was necessary for cases like Iraq and Russia, where there were significant variations in the data due to known above-ground events. The trend lines I used were generally linear, exponential or second-order polynomials.

I extended each trend line out to 2020. This meant that I was projecting out 11 years, based on 19 years of history, giving a glimpse into what I think is going to be a very significant period in world oil production.

I then summed the production and consumption numbers of the exporters and the importers today and in 2020. This gave me the current market balance and the projected balance in 2020.

Results

Exporters

There weren’t many surprises in this group for anyone who has been following the oil news. The big gainers were Nigeria, Angola and Kazakhstan, whose exports grew between 30% and 40%. Overall the group lost about 6.5% of their aggregate net exports by 2020, dropping from 1.8 billion tonnes per year to 1.68 billion tonnes. In the process, both Mexico and Norway dropped out altogether, becoming net importers in the second half of the decade. The other big loser was Venezuela, whose net exports fell by 85%.

Importers

Again, there weren’t many surprises. The big gainer in 2020 was China (no surprise at all), whose imports increased by 140%. Singapore and India followed with 50% increases. The counties showing the greatest percentage drop in imports were Italy (-50%) and Taiwan (-20%). The USA decreased its imports by 13%.

The Market in 2020

Over the decade from 2010 to 2020 the top 15 exporters decreased their exports by 120 million tonnes (6.5%), while the demand from the top 15 importers increased by 330 million tonnes (19%).

If the other 20% of the market stays approximately the same, this change will result in the market shifting from a 4% surplus to a 14% deficit – a swing of 18% over the next decade. This is worse than the 11% deficit we saw in 1983.

Comment

The fact that world oil production has been on a plateau for the last 5 or 6 years even during the price spike hints that we are at Peak Oil. Net exports have been dropping in the last three years. This analysis has confirmed my belief that we are on the brink of an ongoing decline in the world oil market. We should expect higher prices – with both structural and speculative causes – which will present the global economy with some serious challenges over the next decade.

[CRH]

14. Your research has just been proven spot on, ...

By the wikileaks story.

I just posted this over in the EE forum in the wikileaks thread and thought you would get a kick out of the graph at the following link.

Note the supply of supposed available oil until 2035. Then from 2011 look at the portion of undeveloped oil (light blue) that keeps the graph elevated up to 68 million barrels a day through 2015, then look at the appearance of the turquoise wedge that keeps us bobbling at that 68 million level for another twenty years, oil listed as not having been discovered yet. Remove the non discovered oil and the graph plummets to about 55 million a day.

How long does it take to bring a well on line? This graph pretends it can happen at the snap of a finger.

~~ link ~~ http://green.blogs.nytimes.com/2010/11/14/is-peak-oil-b...