Many investors / traders are aware of the increasing demand for oil stemming form emerging markets economic growth. Vibrant, dynamic economies in China and India, but also in Australia and the Middle East, have been the biggest factor in oil's four-year bull market, which has brought oil prices to a record of over $140 per barrel.
Moreover, oil sector analysts, economists and executives are counting on continual, sizable oil production increases from non-OPEC nations to help contain oil prices in the quarters and years ahead, but now it appears there may be a problem related to that assumption.
Non-OPEC, OPEC output estimates lowered
The U.S. Energy Information Administration, the U.S. Department of Energy's statistical unit, has lowered its estimate for non-OPEC production in 2010 by 1.1 million barrels per day to 51.8 million barrels per day, from last year's forecast of 52.9 million. At the same time, the EIA lowered its 2010 OPEC production forecast by 400,000 barrels to 37.4 million.
Further, the EIA now sees 2010 global oil demand at 89.2 million -- in other words a statistical balance between daily global oil supply and demand.
Economist Glen Langan told BloggingStocks the projected production reduction is not good news for consumers in either the developed or developing worlds.
Traders have pushed prices through the $142 mark this morning, with the precious crude trading as high as $142.45, but have cooled off a bit and are now sitting at $141.06, which is $0.09 higher on the day. As Douglas McIntyre discussed earlier, typically such high oil prices are expected to put a crimp in demand, but this time around that may not be the case at all. Already many analysts are stating that demand may not fall too much, even with the record high gasoline prices.
We should get a slightly clearer picture on just how true that is later today when the Department of Energy releases the weekly inventory numbers. Last week inventories increased, but that is expected to reverse this week, and analysts are predicting this week's oil inventory numbers to actually show a decline of around 1.2 million barrels (compared with a 800,000 barrel increase that was reported last week).
It is reasonable to believe that as the cost of crude rises, demand will fall. It is in the Economics 101 textbooks. It has to to be true.
Not so, says The International Energy Agency. According toThe New York Times, the think tank says "the small decline in oil demand in the industrialized countries will be more than offset by an estimated increase in demand of 3.7 percent a year from 2008 to 2013 in developing countries, particularly in Asia, the Middle East and Latin America."
The argument has the benefit of making sense. Asia, especially China, cannot keep up its GDP growth without gas to drive its transportation industry. It has cut the amount it provides to underwrite the price of diesel and gas, but it has not eliminated the practice. Driving a car or truck on the mainland is still cheap.
In the Middle East and Latin America, many of the countries are net exporters of crude. Brazil recently claimed that it found one of the largest oil deposits ever discovered. The field are just off its coast in the ocean. Many of the nations with excess oil will keep some of that at home to build their own infrastructures.
Oil prices are staying high whether the US can afford that or not.
Douglas A. McIntyre is an editor at 247wallst.com.
Oil bulls were also motivated to hit the buy button after ABC News reported that Israel may attack Iran's nuclear facilities if Iran acquires enough uranium to build a nuclear weapon, citing a Pentagon source who spoke on condition he not be identified.
The other major energy commodities also vaulted higher Tuesday at mid-day on the news. Heating oil rose 8 cents to $3.97 per gallon, unleaded gasoline increased about 5 cents to $3.54 per gallon, and natural gas added 20 cents to $13.55 per million BTUs.
OPEC President Chalib Khelil predicted that oil will rise $170 per barrel by the end of 2008, due to the weak dollar and geopolitical tensions, Bloomberg News reported.
Khelil said that as "the dollar continues to weaken against the euro," it will push oil to the aforementioned level and that political pressure on Iran is boosting the price as well.
Oil rose $3.46 to a record $143.67 per barrel Monday morning before drifting back slightly to $142.67 on concern the dispute over Iran's nuclear program may disrupt supply from that OPEC nation, energy trader Jim Dietz said. Iran is OPEC's second largest producer.
Meanwhile, the dollar was virtually unchanged against the euro at $1.5739 in early Monday trading.
Oil's record price rise in 2007-2008 rivals price increases during the two previous oil shocks, in 1973-74 and 1979-80.
Moreover, while we'll leave for sector analysts and economists to declare if oil's 100% gain in 2008 and 400% gain since 2000 qualifies for an oil shock, those analysts and economists generally agree that the price rise has been driven by rising demand, particularly increased demand for oil in emerging markets, such as China and India.
However, that's not to say that the weak dollar and speculators / institutional investors have not affected the price of oil to the upside: they have, economists generally agree. Further, most analysts also believe oil's price contains a 'geopolitical / civil unrest risk' premium, as well. But all of the aforementioned does not blot-out the primary driver: the fact that about 1 billion new consumers of oil in emerging markets (in the form of car owners, factories, and commercial trucks) are being incorporated into the industrialized world, as the initial decade of globalization progresses.
Given the demand characteristics, and ignoring. for the moment, conservation / efficiency issues and alternative energy sources, a natural question concerns supply. Are there any nations that could increase supply by large amounts? Indeed there are three, but the answer is not as simple as 1-2-3.
The 3 major oil reserve nations
Iraq – The possessor of the third largest proved reserves (115 billion barrels), Iraq's oil production has been depressed by the Iraq War, and delays in massive required repairs to its infrastructure. By extension, a sustained increase in production assumes a cessation of hostilities and a political solution, and these are not on the immediate horizon. But the point here is that Iraq is capable of producing 6, 7, even 8 million barrels of oil per day, given investment and a stable government. Iraq's current output is about 2.5 million barrels per day, according to the Middle East Economic Survey.
Oil surged $4.27 to $136.20 per barrel Friday after the dollar fell and reports confirmed that Israel had conducted a military exercise that analysts say rehearsed a potential bombing attack on nuclear targets in Iran, Bloomberg News reported Friday.
The other major energy commodities also surged Friday on the news. Heating oil jumped 11 cents to $3.82 per gallon, unleaded gasoline gained 8 cents to $3.43 per gallon, and natural gas climbed 26 cents to $13.12 per million BTUs.
Short-circuited oil sell-off
Under most circumstances, oil rises when the dollar falls, as holders of oil, which is priced in dollars, raise their prices to compensate for the reduced purchasing power of the dollar. The dollar Friday was set to record 3-cent weekly declines against the euro and British pound.
Further, geopolitical events re-entered the oil stage. Israel undertook a major military exercise earlier this month that American officials say appeared to be a rehearsal for a potential bombing attack on Iran's nuclear facilities, The New York Times reported Friday.
"Putting stereotypes about risk aside, Israel offers a lot of interesting opportunities, even for fairly conservative investors. Cellcom Israel is a prime example. The company is Israel's largest mobile phone service provider, with sales of $1.6 billion in 2007.
"Since February 2007, the company has had a dual listing on both the New York and Tel Aviv stock exchanges. Discount Investment Corp. Ltd., one of Israel's largest business groups, owns just over 50% of the company.
"With 3.1 million subscribers, Cellcom has a 34% share of Israel's mobile telecom services market. Roughly three-quarters of Cellcom's subscribers are individuals, and the remaining 25% are corporate customers.
Oil briefly rose to a record $139.89 per barrel Monday before pulling back after a fire cut North Sea output, Bloomberg News reported Monday.
Oil traded briefly at $139.89 -- an all-time high -- before pulling back to trade up $1.73 to $136.60 per barrel in Monday afternoon trading.
An field off Norway's coast was shut down after a fire broke out Sunday. StatoilHydro ASA's 150,000 barrel-per-day Oseberg oil and gas field off Norway's coast accounts for about 5% of Norway's output.
The other major energy commodities also rallied Monday at midday on the news. Heating oil jumped about 7 cents to $3.90 per gallon, unleaded gasoline added about 3 cents to $3.49 per gallon, and natural gas climbed 29 cents to $12.91 per million BTUs. Oil market: Dueling arguments
Energy trader Jim Dietz told BloggingStocks Monday the oil market is "in a battle to define reality" between the oil bulls and bears.
It seems to me like the ultimate test of a tool lies not with its functionality, but with who uses it. This goes double for search tools, as their ability to access information vastly increases their popularity, and thus marketability. Personally, I firmly believe that most questions in the world can be answered by one of three sites. If it's a movie or TV question, I head to IMDB. If IMDB doesn't have the answer, I generally head over to Wikipedia. And if, for some reason, Wiki's answer doesn't suffice, I pull out the big guns and head over to Google (NASDAQ: GOOG). Of course, so does pretty much everyone else in the world.
This, of course, explains why the United States has begun investing heavily in Google Ads in foreign countries. While the government's online presence is pretty impressive, even the best website is only useful if it can generate hits; given the United States' overseas unpopularity right now, getting foreign nationals to visit its sites is an uphill battle. With this in mind, Google now displays ads for various United States government agencies when the user enters various key words and phrases. Currently, the terms that will generate an ad from the America.gov website include "terrorism," "Middle East peace," "human rights," "press freedom," and "U.S. elections."
The U.S. is paying Google based on the number of hits that its ads generate. Currently, that ranges from $25,000 to $30,000 per month for the America.gov website and a further $15,000 for other Middle-East oriented sites. Given that the $15,000 expenditure generates roughly 300,000 hits per month, it seems like a pretty good deal. For that matter, it's worth noting that an internet search platform has become the U.S. government's go-to guy for worldwide advertising. If Google can get people in Saudi Arabia to express an interest in the U.S.'s informational website, it seems like there's little that the company can't do!
You have to admit there's something ironic, almost comical, about this, but it's true: General Motors Corp. (NYSE: GM), whose domestic sales are in a major slump, said it plans to sell hybrid vehicles in the Persian Gulf. The Persian Gulf, where gasoline sells for anywhere between $0.78-$1.57 a gallon! Sell hybrids there. That almost sounds like a joke.
Well, it ain't no joke at all. The strategy, it seems, is to allow Middle Eastern buyers the choice of a bigger car. It's a plan cooked up by Terry Johnsson, president of GM's Middle East unit. Perhaps he's got a point. With their economies booming as a result of record-high oil prices, the region was responsible for 50% more GM SUV sales in May, the opposite of the trend seen in the company's U.S. sales.
So despite the Middle East being a small market in terms of global sales, GM plans to capitalize on its wealth. If the concept of hybrids in Bahrain (starting in the fourth quarter) still strikes you as odd, you may want to consider that the region is becoming increasingly environmentally friendly, says Johnsson. Considering that most countries in the Gulf rely on oil as a source of revenue and income, that's ironic too, isn't it?
While the American consumer for years preferred the bigger car, ignoring environmental and oil supply concerns, oil-rich countries have planned for the day it runs out, trying to get into other industries, such as tourism. Not to mention that the consumers there are also considering the environment. So in one more twist of the fate, GM, who has been pushing the big cars, is now feeling the consequences. How can so many have suffered from such poor foresight?
United Nations Secretary-General Ban Ki-moon called for a 50% increase in global food production by 2030, saying that a failure to meet the world's expanding need for food will create civil unrest and starvation, Bloomberg News reported Tuesday. Ban said food prices and production is tantamount to a global security issue, and will remain so for many years.
Prices for staples such as wheat, rice, and corn have increased more than 100% amid a global economic expansion. Part of the increased grain cost, particularly regarding corn (ethanol), can be attributed to the diversion of corn for energy production use. Most of the price increases for other staples, however, stems from the fact that -- for the first time in human history -- all regions of the world are embracing free markets and developing economically, at the same time.
Moreover, the U.N. said it expects large price increases to continue for at least the next several years, due to rising demand. The UN called even moderate 10-20% food price increases disruptive for poor households, which spend a disproportionate percentage of their income on food.
The man who heads the Federal government unit that handles oil price forecasts says oil will be above $100 for a long, long time, certainly into 2009.
"You've got this global market still operating at very low spare (oil production) capacity, all of which is in Saudi Arabia," Guy Caruso, head of the Energy Information Administration said at a Reuters-sponsoredmeeting.
Mr. Caruso may be a bit late in telling the markets something that almost all experts have figured out already.
It is now fairly clear that oil demand in China, India and much of the rest of the developing world is not going to drop. They need crude to fuel their rapidly expanding economies. At the same time, older oil fields in places like Mexico and Russia are not producing at the levels that they did just a few years ago. OPEC is not raising production, perhaps because it likes the income from high oil too much.
It is a shame that government experts have estimates that are so far behind the times, but anyone with a brain is not listening to information that is months past what the real world already knows.
Nevertheless, the advisor explains, "I believe the emergence of Africa is an important development that should be represented in your portfolio." Here he looks at two opportunities in the resource-rich region.
"The richest remaining deposits of natural resources on earth are in Africa. And a resource race is starting as America and China are in a quiet struggle in Africa to secure the resources they must have to keep their industrial economies running.
"Many African resources are untapped because most developers have been unwilling to sink billions of dollars into the region's many unstable countries.
"But with natural resource prices soaring, however, Africa's risks are now worth taking. Since 2006, publicly-listed oil companies have tripled their spending in the region.
"And few investors have yet to realize Africa's potential. However, if mainstream investors discover the region, prices could go up very quickly. Either way, I believe Africa will deliver excellent profits for at least a decade, and probably far longer.
Reuters reports that Treasury Secretary Hank Paulson is in the middle of oil country -- Qatar -- talking about how a strong dollar is in the U.S. interest. With the dollar down 72% since January 2001, it would be nice if Paulson would use his power to strengthen the dollar.
Unfortunately, he doesn't have enough power or chooses not to use it. The power to influence the strength of the dollar resides in the Oval Office. With a $410 billion budget deficit, $9.4 trillion in government borrowing, and interest rates that have dropped from 5.25% to 2% since August, it's not a big surprise that the dollar is so weak.
And since oil is denominated in those ever-weaker dollars, the price of gasoline tops $4 a gallon -- a big "surprise" to the Oval Office occupant. Nevertheless, this is great news for Qatar and its neighboring countries. Our leaders are protecting the interests of those Middle Eastern countries -- both through military policies and economic ones -- while talking about a strong dollar.
Those countries have outsourced their military defense to the U.S. And the rest of us are paying the price.
Oil continued to remain strong with prices 
Oil prices rose above $142 on a lowered supply estimate and tension between Israel and Iran over Iran's nuclear program. 
Oil's record price rise in 2007-2008 rivals price increases during the two previous oil shocks, in 
Oil surged $4.27 to $136.20 per barrel Friday after the dollar fell and reports confirmed that Israel had conducted a military exercise that analysts say rehearsed a potential bombing attack on nuclear targets in Iran, 
Oil briefly rose to a record $139.89 per barrel Monday before pulling back after a fire cut North Sea output, 
It seems to me like the ultimate test of a tool lies not with its functionality, but with who uses it. This goes double for search tools, as their ability to access information vastly increases their popularity, and thus marketability. Personally, I firmly believe that most questions in the world can be answered by one of three sites. If it's a movie or TV question, I head to IMDB. If IMDB doesn't have the answer, I generally head over to 
You have to admit there's something ironic, almost comical, about this, but it's true: 
The man who heads the Federal government unit that handles oil price forecasts says oil will be above $100 for a long, long time, certainly into 2009.
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