Listening to the cacophony and trying to make some sense

Everybody seems to have an opinion about where oil prices are headed and a rationalization for their prognostication.  Lee Raymond at Exxon keeps jawboning for $25/bbl oil.  John Browne at BP suggests oil prices will "settle" at around $40/bbl.  OPEC's acting secretary general recently stated that OPEC's target price is between $40 and $50 (Petroleum Intelligence Weekly, Nov. 21 edition - requires paid subscription.)  Oil pundits working for consulting companies, investment banks, the EIA etc. are predicting 2006 prices of about $58/bbl (average of 11 estimates ranging from $70 to $47/bbl - published in the Petroleum Intelligence Weekly Nov 14 edition.)  The NYMEX futures market is "predicting" $60 to $61 through 2007, with prices in the mid-$50's out through 2012.  Matt Simmons, on the other hand, made a $5000 bet that oil will be higher than $200/bbl by 2010.

Whose prediction is closer to the truth (as we know it today)?  What are these people's motivations?

First of all, let's look at the oil companies.  The leaders of BP and Exxon have complex roles here.  They know that if they publicly state that oil is going to go to $100/bbl or higher, there will be world-wide consequences.  I suspect that they have had numerous conferences with the US government, the British government, and other heads of state and have more or less got all their talking points together.  Everything is fine.  No reason to panic.  Keep shopping.  Keep buying cars. The world is not changing, etc. etc.

I also suspect (at the risk of being called part of the tinfoil-hat crowd) that a large part of the reason that our Veep Mr. Cheney (and President Bush) is so adamant about the need to stay the course in Iraq is that he wants our army smack-dab in the middle of Oil Country when the price goes through the roof.  Keeping the oil flowing west will become a major foreign-policy goal of the US (as if it is not already).

Ultimately you cannot believe what these two CEO's (Browne and Raymond) are saying to the public about the price of oil.  They will never tell you what they really think.  They have numerous responsibilities, but their main jobs are to make money for their shareholders (and keep themselves in power).  No part of their job descriptions involves leveling with the public.

What about the pundits?  These guys, for the most part, are a big herd of sheep.  It is no coincidence that the average of their predictions is almost identical to what the futures market is saying.  These guys are deeply entrenched in the business community, and they sell services for a living.  If they come out with radical predictions, businesses who buy their services will steer clear of them.  

How about the futures market itself?  The futures market is a very good tool for gauging where prices are headed in the near term.  Traders are very good at absorbing the near term supply and demand data and translating that into a price.   Beyond 6 months (3 months?) however, the predictive power of the futures market is poor, IMHO.  The futures market tends to predict a continuation of the status quo, unless a clear reason for a future change is evident.  For example, between March and April of 2006 the futures price for natural gas drops from $13/mmbtu to $10.6/mmbtu.  This is, of course, because a highly predictable drop in demand for natural gas as warmer weather arrives.  

Long term oil contracts are bought and sold by people mainly interested in securing long-term sales contracts or long-term supply contracts at known prices so that price risk in a particular venture is minimized.  The people/companies who are engaging in long term hedging are doing this, not because they are trying to predict the future price, but because they can "lock in" the profit of a particular risky venture by locking in a long-term price. If a mid-size independent can lock in a price for a particular deepwater venture at a price that guarantees a 20% rate of return, he will do that because it meets his investment hurdle, not because he thinks the price will be higher or lower than that in the future.  It basically allows him to go home and sleep at night and take his family on a vacation to the Bahamas without worrying about whether the price of oil will go up or down, completely out of his control, and cause him to lose his job.

What about OPEC?  First of all OPEC is comprised of a consortium of countries that have little in common except that they have oil to sell.  Each of these countries has it's own agenda.  Clearly Venezuela's agenda is different than Iraq's agenda, is different than Saudi Arabia's agenda.  However, all of them are primarily interested in maximizing cash flow to their individual countries.  So the main goal of OPEC is to keep the price for oil as high as possible without causing either demand destruction worldwide or causing the US government to get concerned enough that it starts moving its troops from Iraq into the already-established military bases in Saudi Arabia.  OPEC, like you and I, can look back over the last couple of years and see that the world can easily absorb $40 to $50/bbl oil without causing either of the two negative reactions above.  Consequently, that is their new target price.

Lastly we come to Mr. Simmons prediction.   The reason why I post here is that I, like most of you, are believers in the near-term onset of Peak Oil.  I must admit I am a little perplexed by what has happened to oil and gasoline prices since Katrina.   As a large chunk of the oil (and natural gas) from the GOM is still shut in, and the price was going up even before Katrina, I am wondering why the steep decline of price in the teeth of a significant drop in supply.   Presumably, before Katrina there was a very tight supply-demand balance.  If you take almost 1 MMBOPD out of the supply chain shouldn't that have the opposite effect.  I mean, how much oil was released out of the SPR?

Ultimately, I think Mr. Simmons will be closer than any of these other predictions.  Will the price be more than $200 in 5 years.  I sure hope not.  I fear for the future of our planet and my children if it does.

Bubba, nice post.

Where do you put these CERA (Daniel Yergin, etc.) in your list of price predictors? Whose ass are they kissing, anyway? Or, as is often the case with people, do they believe their own bullshit? Clearly, they are making money.
They believe what they are saying because they get paid for it. And because they get paid for it and the "extremists" don't get paid for "extreme" opinions, this is "market validation" of their opinion, hence making them correct in saying it again and again, for which they will get paid again and again, and hence validated again and again. The physical realities of the universe don't even register with these people. They live in an artificially created fish pond of dollars. Until those dollars dry up and blow away, they will refuse to look outside their pond.
I wish this wasn't true. God knows how much worse the hurricanes are going to be next year.
In February of 2004, CERA predicted 2004 average oil prices to be $30 per barrel, to drop to $28/bl in 2005. They have a pretty poor record that they don't seem to be held to.

I can't seem to find any CERA price predictions in the public domain.  This is probably because they have paying customers who pay for that forecast (as bad as it probably is).  However, this is one of their most recent articles on supply.

This was from their website, but unfortunately the link was taken off  about 2-3 months ago. They remove links as they get older. The link was to the summary of a report they published in Feb 2004, similar to the summary their recent report suggesting plenty of supply (you could then buy the full report for around $2500). I paid close attention at the time, and am confident that these were their numbers, but can't link to the original any more - perhaps conveniently for CERA. I guess I should download and keep those things, but at the time I wasn't involved in anything more than keeping myself up to date.

Keep looking in Feb, they may have a new outlook summary out.

As was stated at the end of Yesterday's House hearing(I'm not sure who answered the question, I think it was Rep. Bartlett, but it might have been Hirsch) - this is too complex an issue to be able to provide an answer. We simply won't know until it happens.

Almost any visitor to this site with decent math skills who has read and digested the available information on the subject would be able to venture a guess that would be as good as anybody's.

There are simply too many factors that influence the equation. If you can predict where all the variables will be and what the equation itself will be in a year, then surely you can predict the price. Good Luck.

I agree, it is simply too complex to predict - not that I'm trashing attempts to understand it.  There is too much bad data and missing data.  In the end, we are left with using our best judgment - as we always are, really.  I don't believe all the tales of new liquid sources will bear fruit in the near term, or some ever, and I don't think I want some of them to (environmental costs).   My guess at this point is that we'll have a rocky time of it the next 10yrs, but that we probably will not see catastrophic collapse.  But we will certainly see changes.  I see major changes in our society and economy since the 1970s, and at lest some of that is attributed to the changing oil picture.  

On the other hand there is always the possibility of a few major events that could change everything - attacking Iran, coup in Saudi Arabia, or more likely something no one has anticipated.  And I figure the GOM will be continually battered by hurricanes - maybe not every year, but if it got hit hard every 3 it would prevent it from truly recovering.  How could one possibly translate this into a price per barrel?  When I look at the realm of reasonable scenarios, I see far more reasons for it to go up than I do for it to go down.  

Lastly, when I look at the energy, environmental, economic, and political situations both separately and in combination, it gives me no comfort in what our future holds.  And a collapse in one area could improve the situation in another, making prediction that much harder.

It most definitely is too complex to predict. Yet this is exactly why we should be doing risk management on the issue. Right now there appears to be zero risk management under consideration. Maybe someone should put a bug in Lloyds of London's ear about this. It might make a new insurance market and if that happened, then people might just sit up and take notice before we go gurgling down the drain.
Crude supply and refiners (the real consumers) declined together following K/R, so no change in supply/demand. Meanwhile, product was pulled from storage and "loaned" to the US, so less demand for both product and crude. THere is a real case that refiners did not keep up with crude supply over the past year or so, explaining why crude supplies are rising and price is soft. Product is likely to increase now that the loans have stopped coming (and are supposed to be returned.) Refinery margins look set to rise.
bubba, you said above:

  ..."As a large chunk of the oil (and natural gas) from the GOM is still shut in, and the price was going up even before Katrina, I am wondering why the steep decline of price in the teeth of a significant drop in supply...."

but if you look at your link, the supply hasn't gone down...stocks are at 320 mbbls compared with 294 mbbls last year at this time. in fact, the next chart down shows a consistant oversupply above average levels since may, in spite of katrina, etc... thats 9% higher than last year. i'm sure that demand isn't proportionally higher... there are all sorts of reasons why price is what it is, but i'm thinking ..there is a peak oil fear factor that ebbs and flows built into price,irrespective of supply and demand characteristics. supply and demand price balance will ultimately win out.


Oil is priced in a worldwide market.  Crude stock in the US may be up, but the fact is that relative to worldwide supply, 1 million barrels a day (average) has been off production for the past 3 months.  That is a hell of a lot of crude.  If supply was tight before, where did the extra 1 MMBOPD come from?  It had to come from 1 of three places, - a drop in demand, extra supply elsewhere, or a loan from the SPR.  My question is what is happening to overall worldwide supply and demand.

If supply was tight before, where did the extra 1 MMBOPD come from?

That really a good question! but was the supply really tight before? or the current situation is more a consequence of strong demand and refinery bottlenecks. It's really hard to make sense of what's going on.
what we know from the supply side:
  • there is growing evidence that both conventional oil and light seet crude may have peaked last year.
  • The new supply is mainly coming from offshore, tar sands and heavy/sour crude supply.
  • from different studies (CERA, Koppelaar), new projects will come online in the next few years.
What we observed:
  • crude oil inventories are above the 5 years historical levels.
  • gasoline stocks were in the lower range
  • prices are up since 2003 and are still above their 200 days moving average (~$60).
Possible explanations:
  • the fraction of sour crude has increased in inventories
  • refineries in the US are mainly equipped to process light sweet crude
  • demand for oil is more elastic than previously thought
My bet would be a drop in demand.  Everything from less used for driving now that summer's over to commercial users in the Gulf region shut down due to hurricanes to high prices pricing Third World customers right out of the market.
I could add that IMO there was some sort of bubble in oil prices up until Katrina. There were rising fears for the future supply that boosted demand for futures so price rose quite above what would have rather been. What happens now is a normal "correction" of the markets like the ones we constantly see in Forex. Except that in a much less speculative market like the oil such "waves" have much higher time span.

In addition 1mln.bpd (somewhere I read that it is even less now) is a mere 1.2% of the world production. I can see a lot more of "fat" demand (and not just in the US) dropping to accommodate such shortages. Another important factor is the perception that these 1 mln.bpd. will come online sometime in the future, which stops speculators from being too bullish in the short to medium term.

1.2% of world supply is a huge amount when supply is already tight.  Moreover, much of this is relatively light oil that is desired by refiners. On top of that, some of this oil won't be back on stream until the next hurricane season.  Some of it will never come back on.

If you layer this on a 2% to 5% worldwide decline, and the fact that other projects (Thunderhorse for example) continue to be delayed, one starts to wonder where the extra supply is coming from.

Thrid-world countries, and the reserves that were built just like the oil was over years.

 Give it another bad year and all bets are off, the demand destruction has to take center stage.

 Gvien that the Thrid-world will be almost as low as it can go, and the reserve Owners will not want to part with stocks, you will see demand distruction in the bigger countries.  The USA comes first, especially if price goes up too.

This gets at the heart of the Peak Oil problem. Oil is priced at the marginal barrel. If we have 1 trillion barrels left and production and consumption are roughly equal at 84mbpd, we have $60 oil. If that same trillion barrels is somehow able to be pumped twice as fast, which means we'll be totally out in half the time, oil prices would actually plummet due to the current large excess of production over demand. A worldwide system based on an abstraction (money) and not on energy itself, will change its signal too fast to give proper warning. Because of this idiosyncracy in the market, I expect we will see both $30 and $200 in the next few years. What if (and of course its a big if) US reduces its per capita oil consumption to that of Europeans in a period of an undulating plateau? Were that the case, priced at the marginal barrel we'd go to $10-$15.

As a former (current) trader, I let the market tell me where oil is going. At some point in the next few years, we will have an asymptotic rise, which after a period of months will cause such knee-breaking demand destruction that the price will then crash, as economies swoon and people retrench. Then after a period of years it will happen again, though this time on the Hubbert downslope - thats when it will go sky high and never come back down. We are aways away from that day methinks. 2015?

I'm wondering why the price would remain sky high after the second (price) peak. Why would that not cause another recession and thus drop prices again?

The worst case scenario is that a series of price spikes and crashes are attributed to other factors than peak oil in the mind of the public. That might mean it would be years past the peak before we have a meaningful discussion among policy setters and mainstream media.

There were three recessions in the seventies. The average price of oil never declined yoy.
Relative prices

Relative pricing can provide a clue. Austria as part of the European union is obliged to add 5% biodiesel to its diesel consumption by 2007. I am living in a sparsely populated, wood rich region, which is a significant paper producer. Our politicians wanted a biodiesel plant badly, but couldn´t find investors. Value added in paper production is just a vastly better use of our biomass. So Austria´s paper production is expanding, and our biodiesel plants are built along the danube . They are supplied with imported rapesseed. My conclusion: OIL IS STILL RELATIVELY CHEAP

Yesterday I proposed "Agric's Law" here:
this is the relevant bit:

'I expect an average price for WTI of $71 for 2006. Last December when the price was $42 I predicted spikes of $60 in April 2005 and $75 in Oct 2005 - only a little high for both and 2 months late for second.

Interestingly the average price for the last 2 years has been very close to their prior year's highest spike, I expect that to continue. Now we are about at the turn of the oil age it may be a useful hypothesis - Agric's Law: "The average US$ price of a barrel of WTI oil for a calendar year will be determined by and within 5% of the prior calendar year's highest end of day price."

In the short term I guess a price of $66 at Dec 31st 2005 which will be 50% higher than it was exactly one year before.'

The estimates above assume no major geopolitical shock relating to any major oil producer. Should any such happen I expect the price to spike to $150 at least; I expect a spike to $100 in 2006 (and hence an average price of near $100 in 2007) anyway.

Matt Simmons is being very cautious with his $200 bet IMO. I will be astonished if oil has not spiked above $500 bbl WTI by 2010.

Interesting theory.  A little light on the cause and effect though.  As far as Matt Simmons goes, he was trying to make a point.  $5000 is chump change to him.  He picked a number large enough to get attention, but not so large as to cause people to think him a whacko.  Moreover, his bet is that the price will be OVER $200/bbl.  
Any gut feelings on why oil price will be around $66 on Dec 31st than $61 now?
It's winter, the release of stocks from Europe etc to US in wake of hurricanes has stopped and worked its way through, US oil stocks will trend down, there is still significant production offline in the GOM, those who released reserves to the US will seek to replenish them when they can, the Chinese will be trying to build their own SPR, the US$ has failed at its 92% index level and the signs are that it's making a top at that with some pull back likely.

$66 oil on 31st December 2005 may well be a low guess. I expect oil to be back to $70 in March but could go as high as $80 round then. It will take a US recession to get oil back to $50 or below.

Great post Bubba,

Too many people with too many interests to ever get an accurate prediction.  People make money off of uncertainty.

At present you could probably consider the U.S. government and  large oil corporations as one entity.  Their fall-back plan is probably to try to militarily take oil for the U.S.  Won't work, because like iraq shows, you need the acquiesence of the people to keep a complicated industry like oil running.

As for the oil majors and their associated pundits, the only financial scenario for them better than $100/bbl oil in a couple of years would be convincing everyone that $20/bbl is coming and then getting $100/bbl anyways.  Anything they say should be taken with a grain of salt.

The easiest way to get oil is to steal it.


 The oil tanker headed for Port Y gets diverted to the LOOP.

 That is an easy way.  Though the fall out would be almost world war.  But in the Short run it would work, or other simular NAVY SEAL and CIA run operations.

IMO all these so-called expert predictions are inferior to what we can find out simply by looking at the futures market. Sure, the markets can be and have been wrong; but so are the experts! How many of them have a spotless prediction record? And even when you manage to find an expert who got one right, chances are it was just luck.

Any time someone makes a prediction that disagrees with the market, my bet would be on the market. If someone predicts oil will be $25 or $40/bbl, I can in fact make them an even-odds bet that oil will be higher than that, and offset my position in the futures market so that I can make a guaranteed profit! Likewise if someone says oil will be $100/bbl I can make them the same even-odds bet, take an offseting position and again make a guaranteed profit.

In other words, if everyone making those predictions really had the courage of their convictions and took bets on what they said, and if they made the best possible predictions they could, so that they thought there was a 50-50 chance the actual price would come out above or below what they predicted, such a person is a sucker. They are a money-losing machine.

That's why, for the most part, these people won't take bets on what they predict. Simmons did take that one bet last year, but it was just a publicity stunt since he could have gotten something like 30 to 1 odds in his favor in the markets, compared to the even odds he accepted.

I don't think most of these so-called experts even believe what they are saying - not the lowballers, not the Peak Oilers. If someone did, he would put his money where his mouth is.

I'm going to say something pretty radical here. Most of what I write is Economics 101 and is extremely elementary and obvious if you have studied the field at all. But here is an advanced topic.

It is impossible for a rational person to disagree with the markets. I know, it sounds crazy, but it's true. It's called the "no bet theorem". Rational people will not make bets, because in a nutshell the mere fact that the other guy is so convinced of his position that he is willing to bet with you will by itself convince you that he is as likely to be right as you are. And the same thing happens in spades with a futures market where the price is set as the consensus of many, many traders who are serious about their bets and who hate losing money.

Now, this is an idealized result and can only be applied to the real world with caution. Obviously, people do bet and they do have disagreements that get expressed in markets (among other places!). Nevertheless a case can be made that this behavior represents a cognitive error, and I believe it is so in most cases. I personally try to follow the principles of rationality as I understand them, and part of those principles are to accept the wisdom of markets over my own judgement. I believe that for almost all people, almost all of the time, they would do better not to try to form their own opinions about topics but to let the markets decide for them.

Few are willing to follow this path. Actually, I'm not aware of anyone else who does. As I said, this is an advanced topic. I think of it as "advanced rationality". But I thought I would share it in order to shed light on my apparent intransigence with regard to evidence for a serious and destructive near-term Peak Oil scenario.

In a funny way, your argument reminds me of a Dr Who episode.  The Daleks and some other nasty robots were warring, but stalemated, and so they called upon the Master for a winning strategy.  The Doctor, of course, got in the middle of it.  The Doctor and Master agreed that the robot races were so rational, hence so predictable, that doing anything unexpected would probably carry the day.

Now I doubt that works in the markets, but your rational actors sound like chess players locked in a vast, intricate positional match.  Somewhere there must be intuitive players that see many, many moves ahead.

I do bet the markets, using online spread betting facilities; mostly currencies, commodities and US stock indices. It's my main source of income but my needs are not great, nor am I greedy.

Short term market behavior is remarkably stupid and dismissive of fundamentals and news, more dependent on sentiment and timetables of the main market players (eg bonuses, accounting periods). It is amusing to see the attempts of pundits to explain market behavior in terms of the news that they try to suppose caused the behavior.

Currently I expect the next month WTI futures contract to steadily bobble up to maybe $75 by late March 2006. Thereafter it will probably decline by up to $10 over 3 or 4 months, then bob up as the hurricane season unfolds. Geopolitical events are quite likely to intervene and drive it higher at times.

I am most in a quandry about gold and $. I think gold should correct by more than $50 soon, but as the US Overseas Profits Repatriation Freebie bill (or whatever its correct name is) unwinds I expect the $ to decline quite significantly (there is scope for up to 3 months of further $ improvement or stability first), which would probably send the $ price of gold up.

I'd be happy to bet with you on markets but it's not worth exchanging money - I can make more for less effort elsewhere. But if you fancy predicting some prices a month or quarter hence I'm up for it.

Absolutely Simmons bet was for publicity, and of course he could have done much better in the markets.  I suspect the other party was well aware of just how good (unfair) his deal was.
Nevertheless, the futures markets are mostly played by businesses hedging their situation - many E&P's are actually forced to sell all or part of their future production by their banking covenants to guarantee they can meet interest payments. Of course, some also sell because of their own personal experience, say from 1998 when oil dropped to $10, tells them to be conservative, and meanwhile most executives are approaching retirement - this is no time for gambles. (Some, like PXP, sold too much for too little, and are now hurt by rising costs.) Buyers have obvious reasons to buy on the futures market to protect themselves from future price increases; these, like Southwest, have been amply rewarded. Other players are hedge funds, whose great brains and computers try to capitalize on continued trends, both up and down, but their net effect is usually neutral.

I think most players who believe in peak oil, large and small, prefer to purchase E&P stocks, thinking if oil goes up, or just stays at this level, the companies will continue to be very profitable, and if oil declines, a substantial portion of the investment remains. The risk/reward in futures markets is simply not as good for most investors as stocks. Consider that, while oil is up 50%, many small E&P's have doubled or tripled over the past year. Futures players can get more leverage, but leverage is a two-edged sword that cuts both ways.

I couldn't have said it better myself.
I view the efficient markets hypothesis as a sometimes-useful approximation.

People are not rational decisionmakers. Psychologists and neuroscientists have studied the matter at great length, and emotions are central to decisionmaking. People with neural damage that prevents them from having normal emotional responses completely lose all good judgement and ability to function in normal life. See, eg Descartes Error, by Damasio for a good introduction to this subject. Since we are social animals and emotions are infectious, it is possible for collective emotional currents to roil markets, as happens every now and then. This is not well accounted for in the efficient markets hypothesis.

Additionally, faced with the same pieces of information, not all traders have equally good judgement about how to act. Some people are Warren Buffett's and beat the market year after year. Others, well, don't.

Finally, with "I don't think most of these so-called experts even believe what they are saying - not the lowballers, not the Peak Oilers. If someone did, he would put his money where his mouth is." I think you miss an important point. Many folks are not in the business of trading in the markets, wouldn't know how to go about it, and wouldn't be motivated to do so even if they might make some money. Many people derive meaning in their lives from other things than making money, or would rather make their living a different way than trading energy. It doesn't mean their judgements are necessarily without value or not deeply felt. Even in twenty-first century America, materialism does not hold complete sway over everyone.

I don't think Matt Simmons' prediction will come true for one reason.  When oil gets X amount in price the demand MUST drop off. and then the price will go down a bit.

 Unless as stated someone were to put RPG in a few key spots, and even then a price of 200 would only be there till the demand was destoryed.

Always worth reading a post from you, Bubba. Keep on contributing your opinions. I have much to learn from the various Oil Drum participants.
One of the things I was trying to address with this post was the idea, expressed by many people both at TOD and elsewhere, that oil must be overpriced because Exxon, Shell, BP etc. keep saying that their investment price forecasts for oil long term was $25 (or perhaps a little bit higher).  I am surprised to see no comments about that.  
Hi all....this is my first posting here, so please - if I've trodden on anyone's toes, "etiquette wise" I apologise.

As you can tell from my username, I'm a complete Cynic, so I felt I must comment on the remarks about "why did the price of oil fall after Hurricane Rita?"

Simple: a certain hedge Fund, called Refco, had died. Reading between the lines, Refco had bet that the Price of Oil wouldn't get above US$60 per barrel. Note: this is only my interpretation of the news articles about Refco, but it makes sense.

Refco had "hedged" that the Price of Oil would rise, but stop around US$60. Thus when the Price of Oil got to US$70 per barrel, Refco haemorraged so much money, it collapsed.

It didn't help that it's CEO had stolen nearly US$500 million from Refco's own coffers. When Refco (which had been trading heavily on Oil Futures) collapsed, it took the Oil Futures market with it.

Then everything went deathly quiet, which tells us all that the Powers That Be were stitching up a Rescue Fund, because to allow Refco to fully collapse would have wrecked the market.

Luckily for Refco, and Refco's potential buyers, everyone got distracted by what was happening in New Orleans, so they could cover up their corrupt practices nicely.

Now, when the other traders discovered that Refco was more hot air than anything else, they started dumping Oil Furtures desperately, as they realised they were over-exposed to Refco. Please recall Refco traded on Oil futures, and seems to have been a fair percentage of the Oil Future Market.

No, I haven't been able to discover how much of a percentage, because all of the News Stories reporting Refco's collapse seem strangely quiet on this. In any case, it tells one how really really tight the Oil Market is - if one of the biggest traders dies on any other commodity, that commodity would have precipitously fallen, by now. Instead Oil's gone up, and expect to see further rises.

I think Simmon's prediction is going to come true. Why?

The reasoning's easy: The Price Of Oil has been increasing at 164%, averaged over 7 years. Please remember that the First Oil Shock saw the Oil price rise by 254% in 8 hours, supposedly theoretically impossible on today's markets, just like the share-price of the Dot Cons would always go ever upwards. Note my cynicism.

Add the 164% to the 254% and one gets a price rise of 418%.

418% of US$70 per barrel of Oil = US$292.60 per barrel.

And all it will take is some really really cold weather in the North-Eastern US, (as is starting now) and then add some nut with a bomb in the Middle East. Note: this can be a state-sanctioned nut, too - if Israel bombs Iran, then the price really will get to US$300 or above.

Once again, please note this is my first posting, here, and if I've trodden on anyone's pet theories too hard, I apologise.

Welcome to the funny farm, ubercynic, and thanks for the elucidation of the Refco demise's part in suppressing the oil price after Katrina.

There did seem to be significant monkey business going on at that time in the oil markets. Rumours had it that several of the Fed's proxies were somewhat short on the oil price at that time and that big hands were put in bigger pockets to get them partly out of a hole. Several people who should know were very, very suspicious at the time. I was not amused cos it cost me a couple of grand.

From your other comments your perception of the likely risks and their magnitude are much like mine, we're probably a mite extreme for many here, for now, at least ;)

I chucked a few more spikes into the Iran bombing scenario and got a 700% rise in the oil price over 3 months, heheh.

I appologize for necroposting on this matter, but US Energy Department's release of a new projection yesterday (12/12/05), saying that "oil prices will remain well above $50 USD/bbl for years to come, resulting in  agreater shift to more fuel-efficient vehicles and alternative energy sources."

So much for pie in the sky $25/bbl or even $40/bbl.