Thursday, March 31, 2005

Goldman sees oil price 'super spike' to $105 a barrel - Oil and Gas - Energy - Analyst

Goldman sees oil price 'super spike' to $105 a barrel - Oil and Gas - Energy - Analyst

Can you believe $105 per barrel of oil in the near future? I don't! Just the thought is enough to shock the market and even to slow the economy a bit. I pumped $39 worth of gas last night, my all time high. With gas prices up because of the refinery explosion, the idea of $105 per barrel strikes fear in the hearts of men.

CAL made the deal with labor to save $418 million per year. One might argue that fuel costs will rise at least that much. I believe fuel costs will be higher but revenues will be higher as well. The Yellow Freight Chairman reports that fuel surcharges are being passed through to customers. The PCED is still only 2.3% and the largest component of costs, labor costs, are still rising at moderate rates. Productivity is still strong.

Can you imagine what all you would do to reduce consumption if the oil price were to double from here? Demand would drop precipitously. One of the important indicators I follow suggest that oil prices are near the peak for this economic cycle. The supply build announced yesterday was large. Germany just announced a 12% unemployment rate and industrial output in Japan just declined. The market is already adjusting to current oil prices.

President Bush continues to "win". For the first time ever, Government workers are not receiving automatic raises. Merit pay is actually creeping into the US bureaucracy. I predict that the congress will pass an energy bill within the next several months. Congress and the President will get the credit for solving the current energy crisis. By year end, I predict oil prices of $42 per barrel. From there it will take a few more years to bring online new resources to reduce the price further.