Oil nears $123 on $200 oil prediction, supply...

[Steve Gardner]

...concerns

I don't even want to have to contemplate the impact $200 a barrel will have. It's £1.22 per litre of diesel for me at the pump right now. If the price per barrel:litre ratio remains constant, we're gonna be looking at £2.00 per litre if it does hit $200.

And imagine the impact that's going to have on food prices too.

Source: Yahoo

Tuesday May 6, 5:32 pm ET
By John Wilen, AP Business Writer

Oil prices rise to record near $123 a barrel on prediction of $200 oil, supply concerns

NEW YORK (AP) -- Oil futures blasted to a new record near $123 a barrel Tuesday, gaining momentum as investors bought on a forecast of much higher prices and on any news hinting at supply shortages. Retail gas prices edged lower, but appear poised to rise to new records of their own in coming weeks.

A new Goldman Sachs prediction that oil prices could rise to $150 to $200 within two years seemed to motivate much of Tuesday's buying, although a falling dollar and increasing concerns about declining crude production in Mexico and Russia contributed, analysts say.

The Energy Department raised its oil and gasoline price forecasts, but also predicted that high prices will cut demand more than previously thought.

Light, sweet crude for June delivery jumped to a new record of $122.73 a barrel before retreating to settle up $1.87 at a record $121.84 on the New York Mercantile Exchange.

Oil prices have nearly doubled from about $62 a barrel a year ago, which Goldman sees as a sign that the world is in the midst of a "super spike" in oil prices. Analyst Arjun Murti said in a research note released Monday that prices would ultimately force demand to fall sharply.

Not everyone shares Goldman's view. Tim Evans, an analyst at Citigroup Inc., countered Goldman's analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable.

James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com, said Goldman's prediction isn't necessarily new: "We've heard numbers like these out of Goldman Sachs, especially over the last 12 months."

Indeed, it's not the first time Murti has espoused a super spike theory; in an April 2005 note, he predicted the oil market was in the early stages of an unprecedented rally that would send prices from a then-record of about $57 a barrel to $105.

But some investors respond to such predictions by buying, Cordier said.

Meanwhile, in a monthly report, the Energy Department's Energy Information Administration predicted oil prices will average $110 a barrel this year, up $9 from last month's forecast. The EIA also said high prices will cut U.S. demand for petroleum products by 330,000 barrels a day this year; last month, the EIA predicted U.S. petroleum consumption would fall by 210,000 barrels a day.

But strong demand for oil from countries such as China, India, Russia, Brazil and in the Middle East will support high prices and keep global oil demand growing by about 1.2 million barrels a day this year, unchanged from last month's forecast, the EIA said.

A falling dollar on Tuesday also gave traders reason to buy. Investors often buy commodities such as oil as a hedge against inflation when the dollar falls, and a weaker greenback makes oil cheaper to investors overseas. Many analysts feel the dollar's protracted decline is the real reason oil prices have nearly doubled since last year.

Cordier said investors are also increasingly concerned about falling oil production in Russia and Mexico, which are major oil producers. And prices are still supported by concerns about supply disruptions in Nigeria, where production at a Royal Dutch Shell PLC facility was cut after a weekend attack, and in Iraq, where Kurdish rebels warned they could launch suicide attacks against American interests to punish the U.S. for sharing intelligence with Turkey after Turkey bombed rebel bases in Iraq on Friday.

At the pump, meanwhile, the national average price of a gallon of regular gas slipped 0.1 cent overnight to $3.61, according to AAA and the Oil Price Information Service. Analysts are split over how high gas will go; while prices have slipped lower since May 1, leading some analysts to say gas is close to peaking, others predict the fuel will follow oil's upward surge.

"You're going to see new highs for gas prices, probably for the weekend," said Cordier, who predicts an average price of $4 a gallon in the coming weeks.

In its report, the EIA said gas prices will peak at a monthly average of about $3.73 a gallon in June, about 13 cents higher than its previous forecast.

In other Nymex trading Tuesday, June gasoline futures rose 5.26 cents to settle at $3.1055 a gallon after earlier setting a new trading record of $3.126. June heating oil futures rose 4.7 cents to settle at $3.3535 a gallon after rising to their own trading record of $3.3712, and June natural gas futures fell 2.8 cents to settle at $11.15 per 1,000 cubic feet.

In London, June Brent crude futures rose $2.18 to settle at $120.31 a barrel on the ICE Futures exchange.

[Steve Gardner]

The $150-$200 barrel range is looking more and more realistic now - prices hit $135 today before closing at ~$135 (see BBC).

This is serious, deep and long-term, in my view. OPEC has absolutely no appetite to change things. Indeed, they argue inventories are, by and large, well-stocked.

Additionally, Iran and Venezuela now trade their oil in Euros, which will put further pressure on the USD. This in turn gives China cause for concern, since it is believed to hold some $1.4 trillion in currency reserves and $-denominated debt. With the value of its assets under threat, it's looking to either buy up tangible US assets or else diversify into debt denominated in another currency.

There seems little doubt to me that the maintenance of a wartime economy is the only way the US can avoid collapsing completely. Perhaps more worryingly, it may be the only way of preventing a global recession of unimaginable proportions.

[Viat]

I feel awful for the people outside of the US. We're still enjoying relatively cheap gasoline here (~$4.00/gallon). Even with that there's people outraged at the prices, I can't imagine what they'd be doing if they were paying what some other countries are paying.

[Steve Gardner]

It's creeping up daily here.

We did some shopping earlier - another soaring cost I might add - and, as we drove to the supermarket, we passed a number of petrol stations showing diesel priced between 126.9p and 129.3p per litre.

To save you doing the conversions, that's up to $11.64 per gallon, based on Friday's GBP/USD close.

I 'talk' to a lot of Americans in different forums and they are undoubtedly starting to feel very pessimistic about what's happening.

I think people realise this isn't a blip but just the start of what looks like being a really gloomy period.