Crude Oil above $92
from The Big Picture by ritholtz
Oil briefly broke over $92 this morning.
In real terms, Crude remains below its all-time
inflation-adjusted high of $101.70 from April 1980. However, Crude has climbed 47.3%
over the past 52 weeks, and since 2001, it is up ~511%, from $18 to $92. (So much for the transitory, self-limiting nature of these price increases).
Its time again to have a quick look at how and why it got here. It doesn't take a genius to identify several obvious factors:
1. Increasing Global Demand
: Booming growth in China and
along the Pacific rim is only the beginning of the global story. India,
Korea, Russia, Brazil, and Australia are expanding. Even "old Europe"
has experienced a spurt in growth. This may be an old story, but it has
yet to fully run its course.
2. Falling U.S. Dollar
: The dollar is at 15 year lows versus
a basket of currencies. Blame the Federal Reserve for failing to
protect the currency, and forcing capital to go where its treated
better.>US DOLLAR INDEX
Fun thought of the day: Imagine if every time Treasury Secretary Hank Paulson said "We have a strong dollar policy
-- and the dollar dropped yet further, his nose grew another inch,
Pinocchio-style. I originally was going to suggest a college drinking
game where you do a shot each time, but I wouldn't want all those
alcohol-related deaths on my conscience.
3. Wars in Iraq, Afghanistan
: Its why I flipped bullish on
Crude way back in 2002. The two hot wars in the Middle East have
increased tensions, reduced Iraq's oil output, and generally led to
higher terror premiums for Crude Oil. Future administrations should
take note of this simple formula: Mid-East War = Higher Crude Prices.
4. Supply constraints
: US crude oil stocks unexpectedly fell
by 5.3 million barrels last week, and we have a variety of
infra-structure issues contributing to this factor. Globally, there is
a tight supply of ships, refineries, pipelines, and storage facilities.
This contributes to a minimum amount of reserve -- no buffer -- which
means Crude Oil Futures fluctuate even more than they might otherwise.
5. Saber-rattling against Iran
: The increased jaw-boning
against Tehran in general and the Revolutionary Guard in particular. A
variety of analysts have noted that threats of US sanctions against
Iran and tension on the Iraqi border had also helped fuel the oil rally.
Although I am not a fan of this White House, I guess I owe them a
debt of gratitude: Their tone deaf saber rattling is definitely helping
my positions in energy stocks and commodities. Who ever would have guessed that actions have repercussions?
There's plenty of pixels being spilled on the subject; here's a typical excerpt:<blockquote>"Oil
futures rallied to a new record high on Friday, with worries about U.S.
inventories and Middle Eastern tensions combining to send the benchmark
energy contract past $92 a barrel.
Crude for December delivery rose
as high as $92.22 a barrel in electronic trading, a day after the U.S.
slapped new economic sanctions on Iran. The gains were also driven by
worries about potential conflict between Turkey and the Kurds in the
north of Iraq.
At 5:30 a.m. Eastern, crude had settled back a bit. It was up 82 cents to $91.28 a barrel.
prices have been lifted by data, released Wednesday, showing a much
higher-than-expected decline of 5.3 million barrels in crude supplies.
Some believe the $100 a-barrel level is just around the corner.
"An unexpected drop in U.S. stockpiles has added to ongoing concern
that supply from the Middle East may be disrupted," said analysts from
Saxo Bank in Copenhagen on Friday.
Gold futures also rose to a
28-year high on Friday. Commodities across the board are getting a lift
from expectations that further U.S. interest rate cuts could come as
early as next week, and could fuel inflation."</blockquote>>
Hey, at least the core
is contained . . . $100 Oil, here we come!