Crude Oil Back to $80 a Barrel

[brewerbruce]

Here we go again. Can somebody explain to me, in the midst of a global recession, how the price of crude escalate from $30 to $80 a barrel in the space of 8 months? They have not curbed the speculation in the commodity markets. It is too easy for the traders to run up the prices. There was a big panel that was discussing the return to limits on pure speculation in oil and as always no action. Every so called expert says the recent up tick in oil has nothing to do with fundamentals, i.e. supply and demand. The last I heard there are over 6 million out of work and not driving to work. Demand will not increase with so many out of work. Until our government decides that speculators don't belong in the oil market you better hold on tight to your wallets.

[amoeba15]

"The impact of the U.S. currency became abundantly clear midmorning when crude prices fell by 1% as soon as the dollar went into positive territory against the euro.

Crude prices have risen swiftly this month, moving in the opposite direction of the dollar. When the dollar loses value, crude becomes very attractive as an investment. Crude is traded in dollars, so it essentially gets cheaper when the U.S. currency is weak."

www.usatoday.com/money/industries/energy/2009-10-20-oil-tuesday_N.htm

"The industry is seen constraining fuel supply, which is underpinning the market."

www.cbc.ca/money/story/2009/10/21/oil-crosses-80-dollars.html

"The run-up in prices came within minutes of a government report showing that crude supplies in the United States are growing and that refiners are producing very little gasoline because consumers aren't using as much.

"The dollar obviously is the overriding factor," PFGBest analyst Phil Flynn said. "It's not about demand I can tell you that."

Refiners are shutting down plants, a combination of little demand and rising crude prices that wipe out profit margins."

www.google.com/hostednews/ap/article/ALeqM5i4_q7DtiEHvUTVNlJoaJ9ufkd1kgD9BFK8QO0

[brewerbruce]

Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010).

Why are gasoline prices going up so much? I suppose I should be happy I am paying only $2.69 a gallon for mid-grade, instead of the $4.10 I paid in 2008. But it seems like the economy is not booming and oil supply exceeds demand, which would suggest oil prices -- and hence gasoline prices -- should be dropping. But they're not. And the reason is the same as last year -- speculators.

How much are gasoline prices up? CNN reports they popped 18 cents in the last two weeks. Self-serve regular was $2.655 as of October 23 -- up 17.82 cents since the last Lundberg Survey on October 9. Naturally, there are wide variations in price around the country -- CNN notes that the price is $2.67 in the Midwest; $2.62 on the East Coast; $2.52 for the Gulf Coast; $2.51 in the Rockies. Anchorage, Alaska, at $3.25 per gallon, has the highest price and Tucson, Arizona, the lowest at $2.24.

The fundamentals of supply and demand suggest that oil prices should be falling. On the exploration front, BusinessWeek reports that exploration is down 27.8 percent from 2008 with 309 rigs actively drilling, compared with 428 last year. Overseas there are eight percent fewer rigs drilling than there were in 2008 -- 764, down from 831.

BusinessWeek also reveals that crude inventories are bulging. U.S. crude inventories, at 339 million barrels, are up 27.7 from last year and at 725 million barrels, the strategic petroleum reserve stands at a 27-year record. There is no where to store the crude on land, so 125 million barrels' worth is sitting on tankers -- normally that amount is close to zero.

Moreover, demand is down so much that refineries are operating with significant excess capacity. BusinessWeek reports that at 80 percent, U.S. refineries are operating at their lowest rates in two decades.

But despite supply exceeding demand, oil prices are rising -- up 152 percent since the $32 a barrel it traded at in January to $80.50 on Friday, reports BusinessWeek.

So why are oil and gasoline prices rising? Speculators. As I posted last year, 81 percent of oil trading volume is handled by Wall Street speculators -- like Goldman Sachs Group (GS), which will pay $23 billion in bonuses after its near-death experience 13 months ago.

Speculators borrow money to sell the dollar short and buy futures in commodities such as oil. Since oil is traded in dollars, the first bet almost ensures that the second bet will win. Fundamentals of supply and demand are overwhelmed by the role of the speculators.

So 175,000 Wall Streeters keep getting a return on their $5 billion investment in Washington lobbying fees and campaign contributions over the last decade.

The other 99.943 percent of Americans in a deep recession are out of luck when it comes to saving money on gasoline.

[TW]

[Deleted]

It is very frustrating to see these prices come up again. Lots of people really hurting right now and this does not help.

[packerconvert]

Think fuel prices are bad now, wait until you see the brilliance of Cap and Trade.