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Discussion Starter · #1 ·
Wall Street Journal

Oil Prices Ready to Sink?
Some Big Names Think So
By GUY CHAZAN and NEIL KING JR.
June 4, 2008

Is there an oil bubble that is about to burst?

Some big voices on Wall Street think so, predicting the oil market could tilt sharply south soon if the U.S. dollar strengthens and demand for crude oil weakens in some key consuming countries. Tightness on the supply side could also ease, they say, as some big refineries and new oil fields come onstream over the next few months and the outlook for the Chinese economy clouds over.

But don't count on a price plunge just yet. While oil has eased off its record of just over $133 nearly two weeks ago, there are still strong reasons to believe that the benchmark U.S. crude could hover at about $120 a barrel well past summer.

At issue are deep disagreements over what is driving the run-up in oil prices.

In the search for scapegoats, many on Capitol Hill in the U.S. and elsewhere are now blaming oil-futures speculators, noting the vast cash inflows into commodity index funds. But those skeptical of a sharp price fall point to a raft of continued gloomy news on the fundamental supply-and-demand side, arguing that an already tight market isn't likely to loosen for months.

The bearish argument has grown increasingly loud over the past week. Lehman Brothers on Friday compared the rally to the one-upmanship of the dot-com boom: Wall Street analysts have repeatedly raised their price forecasts as oil prices have soared, driving new investor flows that have pushed prices to still-higher levels, leading to still-higher price forecasts. Lehman sees the "classic ingredients of an asset bubble," with financial investors driven by a "herd" instinct and chasing past performance.

Hedge-fund manager George Soros also has chimed in. "We are currently experiencing the bursting of a housing bubble and, at the same time, a rise in oil and other commodities which has some of the earmarks of a bubble," he said Tuesday in prepared testimony before the U.S. Senate. Mr. Soros cautioned, though, that a crash in oil markets was "not imminent."

Economists who have cited the dollar's fall as a key factor in the rising price of oil now argue that that linkage is set to reverse. With the dollar now showing signs of strength, and the fears of inflation ebbing, oil prices also should fall, they say. Federal Reserve Chairman Ben Bernanke's comment Tuesday that further interest-rate cuts are unlikely gave the dollar another upward jolt.

To back its dot-com analogy, Lehman Brothers cites evidence that institutional investors, including sovereign-wealth funds, have been increasing their exposure to commodities. The investment house calculates that from January 2006 to mid-April 2008, more than $90 billion of incremental investor flows was devoted to assets under management by commodity indexes. It said for every $100 million in new inflows, the price of West Texas Intermediate, the U.S. benchmark, increased by 1.6%.

Yet others dispute the view that the run-up in crude oil is investor-driven. "This is the price you get if supply doesn't expand for five years and demand continues to grow as it has done for the last four to five years," says Paul Horsnell, an analyst with Barclays Capital in London. Prices will "continue testing upward" unless the supply-and-demand picture changes substantially, he says.

Others have also disputed the evidence that investors are driving up the price of crude.

In written testimony to the U.S. Senate last month, Jeffrey Harris, chief economist of the Commodity Futures Trading Commission, said that while futures-contract prices for WTI have more than doubled during the past 14 months, managed-money positions, as a fraction of the overall market, have changed very little.

"Speculative position changes have not amplified crude-oil futures price changes," he wrote. "More specifically, the recent crude-oil price increases have occurred with no significant change in net speculative positions." He also said there was no evidence that position changes by speculators "precede price changes" for crude-oil-futures contracts.

Mr. Horsnell and others contend that after their precipitous rise to $133, oil prices are now seeking a new equilibrium. Even the normally bearish U.S. Energy Department doesn't see prices falling far anytime soon. Guy Caruso, head of the department's Energy Information Administration, cited continued tight global supplies Monday when he predicted that oil will stay above $100 a barrel through 2009.

The main factor cited for sustained high prices is the surprisingly steep fall so far this year in production from some of the world's key exporters, particularly Mexico, Russia and Venezuela. The big producers within the Organization of Petroleum Exporting Countries have largely held their output steady since late last year.

Despite declining demand in the U.S., the thirst for petroleum products -- above all diesel -- continues apace in much of the developing world.

Rocked by the recent earthquake, China is now scrounging for all available sources of diesel to power thousands of generators that have taken the place of downed power plants. Surging domestic demand among Persian Gulf countries also continues to nibble away at available oil exports.

"What will turn this around is a real change in what has pushed this up in the first place, which would be a notable shift on the supply-demand front," said Mr. Horsnell. "So far, we aren't seeing that."

Lehman is in the camp that expects the supply-demand balance to change in the coming months. New Saudi oil production should come onstream soon, as well as big new refineries that will ease bottlenecks and bring greater competition in oil-products markets. Russia is enacting tax breaks that many hope will lift stagnant oil production.

Meanwhile, oil-demand growth is expected to ease in fuel-hungry China, as the economic slowdown in its Western export markets takes hold. China also has been stockpiling fuel in the run-up to the Olympics, and with the Games over, imports might slow.

All this could "set the stage for a significant correction" in the oil price, says Michael Waldron, an analyst with Lehman. Yet even he predicts that may not happen before the end of the year.
 

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hey, i saved 2 cents a gallon at the pump after memorial day weekend YiPpeeeee
 

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This is gonna sound funny, I hope it stays up a bit longer. We need to start tapping our resources we have right here. From natural gas, crude, whatever... Then we need to get on these other alternate forms of energy. Self-efficiency.

Sorry Environmentalists, you've been shoving the "Green Preach" down our throats long enough now. Preaching it to our kids in school. Forced fed your beliefs... Necessity will override your cause. The pendulum will swing back the other way and especially when such a short time ago it was right to jump on your bandwagon... Ahh, until people start understanding the cost of an endeavor such as yours. Moderation, baby steps, more would have followed your newly found religion of Environmentalism :lol3:

If you don't believe in that pendulum swing... Remember that Crying Indian commercial from the 70's? Oh, it swings, the problem is it never stops in the middle. No happy medium.
 

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A simple solution.

Drill domestically for the short term. Montana's ready. They've got the reserves and the state population supports it. The White House and environmentalists are the only blockade. An executive order by a president with guts gets past that. A portion of the profits will go directly to alternative energy development to sustain the independence from foreign sources and gradually wean us from fossil fuels. What's the problem?:thumbsup
 

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This is gonna sound funny, I hope it stays up a bit longer. We need to start tapping our resources we have right here. From natural gas, crude, whatever... Then we need to get on these other alternate forms of energy. Self-efficiency.

Sorry Environmentalists, you've been shoving the "Green Preach" down our throats long enough now. Preaching it to our kids in school. Forced fed your beliefs... Necessity will override your cause. The pendulum will swing back the other way and especially when such a short time ago it was right to jump on your bandwagon... Ahh, until people start understanding the cost of an endeavor such as yours. Moderation, baby steps, more would have followed your newly found religion of Environmentalism :lol3:
AMEN!!! I'm hoping for 10.00 gas... that's when the Al Gores of the world get run out of town.:popcorn:
 

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One of the largest contributing factors of why the price of oil is so high is our own government! I agree alot of the problem lies with the left wing tree huggers and the oil companies, but has anyone ever taken into consideration how much monery from each gallon sold goes to our own government in the form of TAXES!! Why should they do something about the price, it is a huge source of revenue for them!! They are going to ride this thing out as long as they can.

Okay I feel better, I'll get off my soap box now.
 

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Discussion Starter · #10 ·
ill believe it when i see it.

:thumbsup
Well many people obviously never believed housing prices would go down, and look what happened there.
 

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On the tax thing, tax is a set amount for a gal. , like maybe .50 a gal. its not set on percentage of a gal. in other words if a gal. sells for say $2.00 a gal and the tax is $.50 a gal. If it sells for $10.00 a gal the tax is still $.50 a gal. If tax was on a percentage, gas at $2.00 and tax at $.50= 25% so now if gas is $10.00 gal and 25%= $2.50 tax on a gal. We are lucky the goverment doesn't do it like that!!!!
 

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Discussion Starter · #12 ·
Thats the ticket!

On the tax thing, tax is a set amount for a gal. , like maybe .50 a gal. its not set on percentage of a gal. in other words if a gal. sells for say $2.00 a gal and the tax is $.50 a gal. If it sells for $10.00 a gal the tax is still $.50 a gal. If tax was on a percentage, gas at $2.00 and tax at $.50= 25% so now if gas is $10.00 gal and 25%= $2.50 tax on a gal. We are lucky the goverment doesn't do it like that!!!!

Good for you Hockeyman, you understand the tax.

Actually I think it's .67 a gallon. Could be wrong, not sure, but it's not a per centage.

Better times are a'comin'!

Say your prayers!
 

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Hehe I belive it, 3 days ago Diesel was 4.999 a gallon, now when i went back to check it fell down to 4.779, I wonder if the currency is going back up or whatever.
:peelout:peeloutEither way KICKA$$ AND BLOW SMOKE:peelout:peelout
 

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I am showing my age but when I was young gas stations would give you free glasses and other gifts trying to get you to buy from them. Gas was .38 a gallon then. Oh well......
 

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Discussion Starter · #17 ·
Wall Street Journal


Oil Settles Near a One-Month Low
By BRIAN BASKIN
June 4, 2008 3:43 p.m.

Crude-oil futures settled at their lowest price in nearly a month, as U.S. gasoline inventory data backed up views that demand is weakening.

Light, sweet crude for July delivery settled $2.01, or 1.6%, lower at $122.30 a barrel on the New York Mercantile Exchange. Oil prices have fallen 8% from the all-time settlement high of $133.17, set May 21, and have not settled this low since May 6. July Brent crude on the ICE futures exchange settled $2.48 lower at $122.10 a barrel.
 

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Hehe I belive it, 3 days ago Diesel was 4.999 a gallon, now when i went back to check it fell down to 4.779, I wonder if the currency is going back up or whatever.
The fed said that it was not going to cut interest, fed funds or the discount rate anymore. A sign maybe the dollar will start to rebound.

Actually I think it's .67 a gallon. Could be wrong, not sure, but it's not a per centage.
I dunno what the federal tax is, I think it is close to .25 per gallon and the rest is a state tax where varies from state to state. Then some states will have a percentage sales or other tax on top of that!

New York, Wisconsin and Rhode Island all have diesel taxes around .30 cents a gallon!:thud:
 

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WHOA!!! Dont get me wrong, I want to drill here as much as everyone else, but $10 a gallon means my truck is parked, and I drive my little car (40mpg) only to and from work, might as well sell the boat and quad, cant afford to take them anywhere.:thud:
 
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