Large emerging market countries will use more crude oil than the US for the first time ever. According to Bloomberg, "China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year."
While OPEC says that higher oil prices are the result of a weak dollar and speculation, that viewpoint is clearly wrong. Demand for oil is moving up and moving up quickly. At the same time there is evidence that supply may drop. Saudi Arabia has indicated that it will soon stop investing in more oil production facilities. The Wall Street Journal says that "After 2009, the kingdom is putting a brake on new projects, because it fears rising output and consumption of biofuels and other non-fossil fuels will erode crude-oil demand."
Anyone who believes the Saudi excuse for cutting investment is a oil production is a fool. By dropping capital expenditures on new facilities, the country can increase the tens of billions of dollars in profits it makes on $116 oil.
The war between consuming nations and producing nations is entering a new and more dangerous phase. Oil needs to rise 30% to hit $150. Based on the price increase over the last year, that number is not beyond the realm of possibility. Nor is the idea that gas prices could top $5 a gallon.
Oil. More consumption and less supply. Ugly results.
Douglas A. McIntyre is an editor at 247wallst.com.
Starbucks: The next McDonald's
Wal-Mart's launch of $20 slimming jeans will be a huge success
Why I spent some of my stimulus check on GE
Reader Comments (Page 1 of 1)
4-21-2008 @ 5:55AM
B. Harrison said...
So, what has George Bush or Congress done in response to these problems?
I do not see where Congress (Bill Nelso, D-FL; Mel martinez, R-Fl, or Lincoln Diaz-Balart R-21; have done a single substantive thing about these dire economic problems. We need to elect people to Congress who WILL serve the best interests of the people and the nation.
The last that I heard, Lincoln Diaz-Balart (R-21) was still "pondering the issues" . . . well perhaps we should strongly ponder whether we need him in Congress come this next election.
4-21-2008 @ 6:42AM
al coholic said...
It's lucicrous to blame one president, one party, or Congress for the energy problems we face. National energy self sufficiency cannot be attained by legislation alone.
Because we exist in a market where we are free to choose our life styles we, as a nation, have chosen to ignore the impending price increases we now face for oil just like we have shunned nuclear energy, which provides, for example 80% of France's energy.
European governments have forced a lot of people in theri countries to conserve gas by keeping the cost high. That would have been political suicide here.
Folks, it's not because Americans are stupid, the energy options we have now are just stopgap measures. How many of you believe that in 20 years biodiesel or E-85 will be the solution? Of course not.
For that matter anyone who wants to can, this week spend about $25,000 and detach himself from the local power grid altogether. Most people won't do that because the numbers just don't work no matter how many government incentives we might get.
As soon as the market is satisfied that this time the price of oil is not going to plumet back to $20/barrel the problem will be solved. Capitalism doesn't promise a quick solution or one that prevents any economic downturn, but rather slowly but steady progress through the free market system.
4-21-2008 @ 8:41AM
B. Harrison said...
RE: al coholic's comment abut the "free market economy".
Our free market economy"doesn't appear to exactly be "free"; it has been a manipulated market where the elititist corporate and ultra wealthy have illegally manipulated the markets for their personal gain. We obviously need a modicum of government regulation to maintain integrity in the market.If these parties faced prosecution for market manipulations, then things might be a lot more stable, don't you think so?
4-21-2008 @ 6:38PM
al coholic said...
Of course in the case of oil our system is not as free as we would like it to be, but more regulation might have the effect of making it even less free. If the government gives the companies a boatload of our taxpayer money to subsidize we are no better off than we are now.
The market being what it is, the oil companies will modify their behavior to maximize their profits. If we, as consumers decide we want alternate forms of energy, and they can be obtained and distributed in such a way as to be profitable then the oil compnies risk losing their customers if they do not embrace the alternatives.
Unfortunately at least for now, switching to those alternatives is not profitable. As soon as a viable alternative method is realized that doesn't lose money, companies will fiercely compete for our energy dollars.