Tuesday, May 06, 2008

Oil at $123 a barrel: Echoes of film "A Crude Awakening" and CNN's "We Were Warned"


There are many media stories today on the Goldman-Sachs prediction of $150-$200 a barrel in two years, perhaps much of that this year, leading to an average retail price of 87 octane gasoline of $5.60 in the US (already comparable to what Europe has had for years). I don’t know how that translates into air fares, but it could make low cost airlines and excursion fares almost impossible to operate in the future. (Right now, there are still some reasonable deals around.)

A typical story is on AP by Madlen Read, “Stocks lift even as oil prices soar near $123 a barrel,” link here. The title suggests the sense: the collapse of the subprime market, the movement into commodities, and investor speculation based on fears of overseas security problems leads to a higher price for commodities than a market normally bears. This is one reason for the calls for windfall profits taxes on oil companies.

Nevertheless, the analytical stories about the putative peaks in oil discovery and production are applicable. The were well outlined in the 2006 Netflix Red Envelope film “A Crude Awakening.” I discuss this film here
And I encourage the visitor to watch the seven minute video “World Without Oil” here.

A factor in the runup has been the litigation over socialist expropriation of oil resources from Venezuela by Hugo Chavez, covered in the upcoming LionsGate film “The War on Democracy”. (review). Unrest in Nigeria and attacks on oil facilities affect futures prices, but are probably more motivated by resentment against democratic changes underway since 1999. (CIA site. But obviously worse is the potential impact now of activity against the Saudi oil fields, as previously documented in a CNN documentary “We Were Warned” about a speculative 2009 event after another hurricane in the US Gulf.

Update: Friday May 9

Oil hit $126 today, and Jose De Cordoba and Jay Solomon report "Chávez Aided Colombia Rebels, Captured Computer Files Show," in the Wall Street Journal, link, with the possibility of US sanctions against one of our largest sources of imported oil.

A scary article from April 24 in the WSJ "Environmental Capital" was "Skyrocketing Oil: You Ain’t Seen Nothing Yet," by Keith Johnson, link here, and says that market fundamentals will lead to $225 oil by 2012 ($150 by 2010).

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