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Crude Oil at $200

  • #1
  • First Post: May 21, 2008 9:46am May 21, 2008 9:46am
An analyst for Goldman Sachs is warning that crude oil prices could surge to $200 per barrel in the next two years. This is the same analyst who correctly predicted three years ago that the price would reach $100 per barrel.

This latest prediction follows last month's prediction by OPEC president Chakib Khelil who also said that crude oil prices could reach $200 per barrel.

In options trading, the number of contracts betting on crude oil hitting $200 a barrel by the end of 2008 has tripled since the start of this year.

In a completely opposite view on the market, there is a school of thought that says that peak oil is many decades away. These analysts believe that the current prices reflect a bubble waiting to burst. The fundamentals suggest that a weakening economy is leading to lower demand and prices will eventually fall. The higher prices rise, the harder the fall will be when the bubble bursts.

Michael Lynch, President of Strategic Energy & Economic Research Inc., said that oil has become "the mother of all bubbles." He is predicting that prices will fall as low as $80 per barrel this year and as low as $50 in the next several years as more supply comes on line.

The United States had better hope that the "Mother of all Bubbles" scenario happens. They have absolutely no energy policy in place to deal with $200 oil. Rather than a meaningful discussion of what $10 per gallon gas prices would mean, the country is fighting over an 18.4 cents-per-gallon tax holiday for several months. This gimmick may save the average driver $30. Yet as Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601087&sid=aza2XQB.kk0k&refer=home) reports, "More than 200 economists, including four Nobel prize winners, signed a letter rejecting proposals by presidential candidates Hillary Clinton and John McCain to offer a summertime gas-tax holiday."

Talk about not seeing the forest for the trees.

Which scenario is correct? Time will tell. My money says that peak oil and higher prices are with us for the long term. As I write this posting, crude oil prices are setting all-time records at $128.97 per barrel.
  • #2
  • May 21, 2008 10:21am May 21, 2008 10:21am
Problem is not if the bubble is gonna burst. Bubbles burst. Period.

The challenge is to figure out how much more they can inflate.

Feb-2007, even Greenspan was calling Chinese bubble to burst.

There was a "USDCAD trend reversal" thread all the way from 1.1100 to 0.9050 LOL...

"Euro will top $1.50" was in every commentary...
  • #3
  • May 21, 2008 10:35am May 21, 2008 10:35am
plenty more cesar,..i remember one about oil,...oil will go above 100, but it will not stay there,...and it went down test the S, and caboom above 100,...if euro will keep on climbing, oil will folow or the other way arround, ... still waiting for 100 euro per gallon, which is the next psihological number to break, if ofcourse,...then it should find support at 66 euros,...its euro not oil, just wait that the market start to price in the democratic victory, which is a bull dollar to me,..i dont know about u,...since no wars, no tensions, plenty of trade, ...then again cutting production will be the news story again...
its just money
  • #4
  • May 21, 2008 11:24am May 21, 2008 11:24am
Quoting de123
plenty more cesar,..i remember one about oil,...oil will go above 100, but it will not stay there,...and it went down test the S, and caboom above 100,...if euro will keep on climbing, oil will folow or the other way arround, ... still waiting for 100 euro per gallon, which is the next psihological number to break, if ofcourse,...then it should find support at 66 euros,...its euro not oil, just wait that the market start to price in the democratic victory, which is a bull dollar to me,..i dont know about u,...since no wars, no tensions, plenty of trade, ...then again cutting production will be the news story again...
Yup, the whole commodities bubble is mostly on the weak dollar. And this is one very well established multi-year trend (check any */USD weekly LOL).

Goes for metals, food, too...

Maybe some dollar frenzy by early new presidency...
  • #5
  • May 23, 2008 1:14am May 23, 2008 1:14am
While crude is finding new predictions to 150-200$ the chart shows its near the upper end of a 6 year channel at 131$ and in the final legs of wave 5 of 5 since 2002. This puts it at the end of a long bull run and not the beginning. The higher targets for crude might be a few years away. Before that a larger degree 4th wave correction below the 100$ mark again is due. A 50% retracement even would mean 73$ from here.
  • #6
  • May 23, 2008 7:58am May 23, 2008 7:58am
Quoting forexlion
Which scenario is correct? Time will tell. My money says that peak oil and higher prices are with us for the long term. As I write this posting, crude oil prices are setting all-time records at $128.97 per barrel.
Agree. Any of us would be kidding ourselves trying to predict the various ups and downs and their timing, but the end result is undeniable. China and India (and the world in general) have a lot more growing to do, and with that, a growing hunger for energy. I sincerely doubt any new oil projects could even massage a dent into that fact. Bubble? Yes. Only suggests a temporary collapse though. There'll be 'cheaper' oil again. But the end is nigh.

I gets my goat when an analyst, Nostradamus like, sets a target. The $100 was a no brainer. The $200 target's just a matter of who can guess the timing. Pure ass.
Bundy's status today: "Waiting..."
  • #7
  • May 23, 2008 8:19am May 23, 2008 8:19am
Quoting forexlion
This puts it at the end of a long bull run and not the beginning.
Finally someone with clear perspective!! Thank you!

The $200/barrell forecast is a bit apocalyptic at this stage in my opinion. And when the market goes these directions, the doomsdayers come out of the woodwork like crazy. The devasting effect $200/barrell would have on the global economy would spiral us into a "Mad Max" society and I seriously doubt it would be allowed to happen before a cap was enforced.

That forecast also stated that gas would cost $12 gallon at $200 a barrell. That being said, costs must be passed to the consumer....so is a gallon of milk now $8.90 and eggs $5.25?

Independant truckers wouldn't be able to run contracts with the cost of diesel being over $12 and still break even.

The cost of crude affects everything in varying proportion, yet we have only been concentrating on gas. Food and energy will skyrocket in response as well and the overall quality of life in ALL countries would drop drastically.

I say, with utmost certainty (please market, don't make me eat my words!) that steady crude @ $200 is not in the foreseablie future.

If we do go Mad Max, at least we'll get to drive cool cars again and dress in leather!
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Capital Preservation is key to long term wealth accumulation
  • #8
  • May 23, 2008 2:53pm May 23, 2008 2:53pm
Quoting MuddBuddha
If we do go Mad Max, at least we'll get to drive cool cars again and dress in leather!
I'll go ahead and say that I'm willing to bet that at some point in my lifetime (I'm young, 22), I think Mad Max will happen. That's also partly because I'd want it to happen. Tired of this retarded society we have. A diesel Land Cruiser is my apocolyptic ride of choice.

Beyond that: The Fed has kind of made this whole commodities run validated by easing out on their monetary policy. They have made it cheaper to make commodities more expensive, if that makes sense. If you check the statistics, out of the rise in the CPI, the actual labor cost increase was only something like 0.2%, whereas the total rise in cost was 4%? I work for Ameriprise and read this all in an economic outlook file that they sent out, but I'm not sure I'm allowed to distribute it, so hence I won't for the time being.

Secondly, for the point of gas prices going back down: they won't. Why? Simple. They know people will already pay for $3.80/gal gas (in the U.S. obviously), so why would they lower their price? It may suck, but they know that we'll pay it, so they know they can charge that price. We might get a break back down to $3.50 or so, but I wouldn't expect $2.50/gal gas anymore.

The other thing to think about regarding the gas market is that the high price is already demonstrably affecting consumer spending and habits in this regard, so I expect everyone to start using less and less gas/fuel and eventually move away from it altogether as the alternatives become available. While some people may come out and cry conspiracy from the point of the oil companies (some of which is founded, I do agree), you can't stop everyone, and so the march of progress will go on, whether or not they like it.
Never underestimate the powers of the Force.
  • #9
  • May 23, 2008 6:57pm May 23, 2008 6:57pm
Quoting The Jedi
Secondly, for the point of gas prices going back down: they won't. Why? Simple. They know people will already pay for $3.80/gal gas (in the U.S. obviously), so why would they lower their price? It may suck, but they know that we'll pay it, so they know they can charge that price. We might get a break back down to $3.50 or so, but I wouldn't expect $2.50/gal gas anymore.
That's not true. Competition will always bring it back down in line with input cost changes. As a fuel station owner, you have to keep prices attractive relative to the guy down the road. This is how a free market operates, unless there is mass collusion (which always gets found out.) You may get a little bit of price gouging, but that's it
Bundy's status today: "Waiting..."
  • #10
  • May 23, 2008 9:29pm May 23, 2008 9:29pm
Quoting bundyraider
That's not true. Competition will always bring it back down in line with input cost changes. As a fuel station owner, you have to keep prices attractive relative to the guy down the road. This is how a free market operates, unless there is mass collusion (which always gets found out.) You may get a little bit of price gouging, but that's it
So bringing prices down 3c a gallon against the competitors is amazing competition?
Never underestimate the powers of the Force.
  • #11
  • May 27, 2008 3:46pm May 27, 2008 3:46pm
Quoting MuddBuddha
The devasting effect $200/barrell would have on the global economy would spiral us into a "Mad Max" society and I seriously doubt it would be allowed to happen before a cap was enforced.
a cap from who? price ceilings are an economic disaster!

the only reason i dont think we are going to 200 is because the rage for alternatives would be so strong that opec would take drastic precautions to bring it down.

btw, great to see ya Mudd!
Relax and be happy.
  • #12
  • May 27, 2008 5:30pm May 27, 2008 5:30pm
"btw, great to see ya Mudd!"

Thanks! Appreciate it.

There was discussion on CNBC as to at what level crude would have to reach before the adminstration stepped in and took control of the situation. There was immediate outcry on the interviewing panel that if the government stepped in to control the free market, we should immediately replace the stars on the flag with a hammer and sickle. But the thought remains, would the government get involved if the price continued to rise? Would they let the price snowball before enacting some type of cap? Of course, the whole idea of a market gone mad pratically turns the stomach. I wouldn't think it possible, but you never know. And what would we do to cap the cost? A reverse embargo on OPEC? Anything else would seem ineffective.

I, for one, think this problem was a long time coming and we had plenty of forewarning, but have done little to offset its effect as in responsibly drilling in the wilderness reserves of Alaska as well as upgrading and building new efficient refineries. Rather than fining the current handful of US refineries for EPA violations, it would seem to make more sense to give them some type of economic incentive to upgrade current facilities and more incentivesto build new ones. It helps the local economies as well as stimulates the Nations economy in the form of more domestic production.
My time in Wyoming showed me that mankind really can drill in varying locations without destroying the local eco systems and environmental balance. But while working at the local refineries, I saw first hand how run down, dangerous, and un-efficient they are in comparison to the high tech facilities of Dubai and Saudi Arabia.

Paulson claimed that the price of crude was not the fault of speculators, but supply and demand, whereas Soros this last week said, "blame speculators!". If causes you to wonder if anyone truely knows the driving force behind crude, or if someone is just not being honest.

"the only reason i dont think we are going to 200 is because the rage for alternatives would be so strong that opec would take drastic precautions to bring it down."

While this is probably true, when a society collectively agrees to use it's domestic food supply to fuel it's vehicles, that is just priming the pump of an economic crash. It may have worked for Brazil, but they have a much smaller population base. Ethanol is, by far, the worst idea to come out of this whole thing. It sounds great, "Hey! burn clean, efficient corn!"; until another dustbowl or string of bad growing seasons as well as an ever increasing population puts us right back in the same boat....dependant on foreign corn, beets, and whatever else we can get our hands on to produce ethacrawl.

Personally, I feel the blame completely lies with OPEC. No one wants this to last. It hurts all in the end, just the small guy more than anyone else who is forced to change a lifestyle to accomodate higher costs of living while undriven SUV's sit in the driveways of America with 4-sale signs taped to the glass.

I'll be on the watch for overturned petrol semis' on the freeway myself.
Capital Preservation is key to long term wealth accumulation
  • #13
  • May 28, 2008 1:32am May 28, 2008 1:32am
I view this "200$ Oil" banter as identical to the 1.7 EURUSD calls as we reached 1.6 => an indicator the nearest next move very well could be opposite to it.
Down.

We've had this discussion before - once every Jack and Jill turns bullish(or mainstream media, covers and headlines), that's roughly when things turn around for a while first.

I'm not saying 200$ may not come - I'm just saying once the big figures get bandied around, it's usually good timing(back when 80$ or what it was was kicked around by Jim Rogers or who the first reaction was a two figure fall back then I believe as well..I've already forgotten again, I puzzled together a few articles and a chart about it once on FF..it's in one of my posts ;p).

So as it's been pointed out - it's not hard to say prices might go higher in an uptrend; it's the when. Because knowing when to do what => that's trading.
Trust price. Know yourself.
  • #14
  • May 28, 2008 7:49pm May 28, 2008 7:49pm
I know the mainstream answer for the climb in oil prices is simple supply and demand, but if this was the case why the recent crazy spike? I don't buy into that. Investors are hedging their dough in commodities, especially oil and food. This makes sense to me, but it seems like doing this would defeat the purpose of hedging in the long run, and it is destroying big oil. I've seen lots of reports on the US demand for oil dropping off, and if prices stay where they are this will only continue. If demand continues to drop and oil prices then weaken and profits are taken out, gas will be back to 2.89 and everyone will be driving hybrids anyways; demand will never be the same. These high prices will provide the motivation to develop cheaper means of transport. I think the days of black gold are limited, the old barrel is becoming grayed and withered. Yes china will take her, but where will they be when the well runs dry? What will this do to the middle east? We will be the winners in the long run, just wait and see. Sick of high gas prices, buy an electric car. Defeat them fundamentally. I can't wait for the days of the hydrogen hot rods. I like going fast and burning cheap fuel.

Scotty B
  • #15
  • Jun 4, 2008 6:03pm Jun 4, 2008 6:03pm
Quoting merlin
a cap from who? price ceilings are an economic disaster!

the only reason i dont think we are going to 200 is because the rage for alternatives would be so strong that opec would take drastic precautions to bring it down.

btw, great to see ya Mudd!
I'm assuming you heard Soros and the other members of the panel testify other day about removing transparency from the futures and commodities market and penalizing those who hoard crude futures in an effort to drive up market costs. If you didn't, you can find the video on CNBC.com. It was an interesting testimony.

George Soros Testimony (http://www.cnbc.com/id/15840232?video=759707326)

Paulson had been touting, "Blame the speculators" whereas Soros had been sticking to his guns that it was not the specs and definitely not supply and demand. So it was an interesting watch as he explained why the cost of crude is really rising.

Let me know what you think.
Capital Preservation is key to long term wealth accumulation
  • #16
  • Jun 4, 2008 10:26pm Jun 4, 2008 10:26pm
Quoting George Soros
The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality
BRILLIANTLY worded. This confirms my beliefs, I just didn't know how to put it into words.
  • #17
  • Jun 8, 2008 3:28pm Jun 8, 2008 3:28pm
Oil spiked to $139 what next.

forecast is $150 within the next 3 months and $200 within 18 months, until something drastic is done about the us $
  • #18
  • Jun 8, 2008 5:16pm Jun 8, 2008 5:16pm
Next three months...???

How about today !!!

Quoting forexlion
Oil spiked to $139 what next.

forecast is $150 within the next 3 months and $200 within 18 months, until something drastic is done about the us $
  • #19
  • Jun 8, 2008 5:18pm Jun 8, 2008 5:18pm
I think it's going to hit $ 200. so fast.. no one will have time to even start to think about alternatives... !!!

Quoting merlin
a cap from who? price ceilings are an economic disaster!

the only reason i dont think we are going to 200 is because the rage for alternatives would be so strong that opec would take drastic precautions to bring it down.

btw, great to see ya Mudd!
  • #20
  • Jun 13, 2008 2:57pm Jun 13, 2008 2:57pm
Quoting Tiki Trader
I think it's going to hit $ 200. so fast.. no one will have time to even start to think about alternatives... !!!
where did you get long?

i still think its possible we see a huge selloff in the next 6 months, but thats a long shot i would only play with options.
Relax and be happy.
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