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100 Dollar Oil Is Coming

The price of oil has been hovering around 80 dollars a barrel for quite some time now, but get ready, because it is going to move significantly higher.  Oil prices have already risen about 9 percent over the past month, and many believe that this could very well be the start of a new trend.  Lawrence Eagles, a top analyst at JP Morgan, recently made headlines across the globe when he stated that oil could hit 100 dollars a barrel "much sooner than we expect".  Not only that, but a number of top OPEC officials are also publicly discussing the possibility of 100 dollar oil.  But just because a few people are talking about it does not mean that it is going to happen.  So are there any other reasons why we should anticipate a significant increase in the price of oil?

Well, yes there is.

*The Decline Of The U.S. Dollar

Since August 27th, the U.S. dollar has declined approximately 4.8% against the currencies of major U.S. trading partners.  Unfortunately, there seems to be every indication that the dollar is going to continue to decline.  As the U.S. dollar continues to display weakness, just about everything priced in dollars (including oil) is going to continue to rise.

*The Threat Of Quantitative Easing By The Federal Reserve

For weeks, top Federal Reserve officials have been making public statements about the need for more quantitative easing.  If the Fed does initiate a significant program of quantitative easing in the coming months, that is going to put even more downward pressure on the U.S. dollar and even more upward pressure on the price of oil. 

*Other Commodities Have Been Skyrocketing

Over recent weeks, the prices of a wide array of key commodities have been absolutely skyrocketing.  As I noted in a previous article, not only has the price of gold been setting records, the truth is that almost every major commodity has been spiking.  In a recent column entitled "An Inflationary Cocktail In The Making", Richard Benson noted some of the commodity price increases that he has been tracking this year....

-Agricultural Raw Materials: 24%

-Industrial Inputs Index: 25%

-Metals Price Index: 26%

-Coffee: 45%

-Barley: 32%

-Oranges: 35%

-Beef: 23%

-Pork: 68%

-Salmon: 30%

-Sugar: 24%

-Wool: 20%

-Cotton: 40%

-Palm Oil: 26%

-Hides: 25%

-Rubber: 62%

-Iron Ore: 103%

The increase in the price of oil is just part of a larger trend of soaring commodity prices.  As long as this trend in commodity prices continues it is unlikely that the price of oil will go down.

*The Strikes In France

The austerity strikes in France have interrupted the flow of gasoline in that country.  Once the strikes are over there will be an increase in demand as inventories are restocked.

*Increased Demand From China And Other Emerging Nations

Most analysts are forecasting that the demand for oil in China and other emerging nations will continue to grow at an impressive pace.  This growing demand will also cause upward pressure on the price of oil.

*The Potential Of War In The Middle East

As always, war could break out in the Middle East at any time.  A minor conflict in the Middle East would likely push the price of oil over 100 dollars a barrel very quickly.  A major conflict would likely push it over 200 dollars or even beyond.  War is very, very difficult to predict, but it does seem quite likely that some kind of conflict will break out in the Middle East at some point over the next several years.

So how soon will oil reach the 100 dollar mark?

That is very hard to say. 

But even now, Americans are already having to dig deeper into their wallets at the gas pump.

For the two week period ending October 22nd, the average price of gasoline in the United States increased 5.23 cents to $2.82 a gallon.

As the price of oil continues to rise significantly over the long-term, it is going to have an impact on thousands of other prices.  Virtually all products must be transported, and an increase in the price of oil will cause those transportation costs to go up.

So an increase in the price of oil would be really bad news. 

If we do see 100 dollar oil, that will be a huge challenge for the U.S. economy.

If we end up seeing 150 dollar oil (especially for an extended period of time) it will be an absolute nightmare for the U.S. economy.

So where do you think the price of oil is going?  Feel free to leave a comment with your opinion....

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  • http://eaanders.blogspot.com/ Elwood Anderson

    With a worldwide recession on, you would think commodity prices would be going down. Admittedly, the weakening of the dollar runs counter to this. But, there is also the possibility of a bubble building in commodities. There are gobs of money out there looking for decent investments. If investors can’t find them they speculate, and commodities and currencies are where they appear to be going. I would be vary cautious about hanging my hat on a rise in oil or other commodity prices at this point. These speculators will run for the hills if they sense deflation is in the air. The bubbles always look good just before they burst.

  • John Lang

    Statistics for the period 8/1/2010 to 10/24/2010.

    Crude oil rose by about 12% from $74 to $83.

    Paper currencies all lost against gold,silver by about
    USD–>14%, 30%
    GBP–>14%, 30%
    CAD–>13%, 29%
    JPY–>6%, 22%
    EUR–>6%, 21%
    AUD–>4%, 19%

    US Dollar lost against other paper currencies by about
    AUD–>10%
    EUR–>8%
    JPY–>7%
    CAD–>1%
    GBP–>0%

  • http://www.homeloanpresident.com Mark Lieberman

    Oil did go to $100.00 a barrel back in early 2008, but it came down again because the consumers rebelled at the gas pump! I think with all this current talk of hyper-inflation the experts are missing a stark cold real world fact: YOU CAN’T SQUEEZE BLOOD FROM A STONE! “Anyone can charge any price for anything”….This is nothing new, but if the consumers have LITTLE OR NO MONEY they simply cannot pay their price gouging prices even if they wanted to! So the business owners will just sit there with all their unsold gas or merchandise like fools. Well it won’t happen in the real world, some will go out of business of course, but most will lower their prices to survive.

  • http://brunolem.wordpress.com Brunolem

    The problem is that all the markets are rigged! Thanks to Mr Bernanke and its trillions, banks are flushed with money they need to invest somewhere, like in commodities, for example.

    But I wouldn’t be surprised if there was a deal between the Fed, the Treasury and the banks, going like this:

    In exchange for unlimited access to free money, banks have to buy Treasury bonds, as much as necessary, and they have to spread the remainder of the money in such a way that no bubble start growing in any specific market (oil, gold, stock markets and so on…)

    And this is precisely what is happening. Everything is going up, more or less at a similar pace.

    Thus, oil could well reach 100 dollar, but that would be part of a global price increase in commodities and, probably, stock markets.

  • Flubadub

    It’s inevitable that the July 2008 $147/barrel oil price will not forever remain the all-time high. Aside from the logical causes you’ve mentioned there is the speculator factor. When traders smell an increase in oil futures they buy thereby bidding prices higher. The buying frenzy causes any actual upward pressure on prices to be magnified by the amount the traders add to the bottom lines of their brokerage accounts.
    We import roughly 65% of the oil we use in this country adding hundreds of billions to our trade deficit each year in the process. http://seekingalpha.com/article/192986-how-to-reduce-foreign-oil-imports
    Wind power? Solar power? as Chris Farley might have said, “Well laa-dee-freakin’ daa”. Their time will come but it will be at least a generation until those technologies make a meaningful difference. We are so hamstrung by regulation in the U.S. that we can’t take advantage of the domestic resources of our own not as great as it could be nation. We have plenty of oil but this continent is saturated with natural gas. One of the biggest untapped energy solutions is the use of natural gas as a motor fuel. The technology has been around for over 60 years and converting existing internal combustion engines to run on compressed natural gas would represent a minor challenge for automotive engineers. Gas burns cleaner than oil, is inexpensive, is domestically produced and we have more of it than we know what to do with. What might be the biggest advantage of making use of CNG to fuel Americans’ vehicles would be the job creation involved with providing the infrastructure to make it possible.

  • John Mc

    the only inflation the Fed cares about is labor wages. That is when they will raise rates, don’t see that happening the next 3 years. Oil is bound to go up, the squid and JPM etc.. run up the prices so every time we fill up the gas tank or go to the grocery store they get a tax from us. Also regarding food prices, there is this gem:

    Hawaii has gone farther than most, allowing a family like Gonzales’ to earn up to $59,328 and still get food stamps.

    http://www.huffingtonpost.com/2010/10/22/food-stamp-usage-soars-am_n_772287.html

    Why are we subsidizing families with that much income.

  • http://thecivillibertarian.blogspot.com/ Something Wicked This Way Comes

    Hey, maybe the ENERGY DEPT. will save us. Remember that giant do nothing bureaucracy that was created in the 70′s to reduce our dependence on foreign oil? Since then our dependence on foreign oil has shot up 40%.

    Another annual waste of billions.

    100 dollar oil is a given. We’d have it now-if in fact we had any kind of global recovery at all. We can’t afford a recovery. Really. This might be as good as it gets.

  • Gary

    we need to tax these speculators heavily and spread the wealth. The speculators are parasites just like for profit health insurance companies. Taking a cut but doing nothing but hurting people. We should more aggressively use the tax code to punish companies/business that do not live up behave ethically.

  • Richard

    So what? Please us a little math $20 increase is less then 50 cents a gallon since there are 42 gallons in a barrel of oil.

    Maybe people should think about moving close to work, or mass transit only once in my life did i have to dive over 25 miles each way to work, after 3 months i moved less then a mile away and got plenty of overtime as a result. I could bike to work.

  • redgypsy

    It is unlikely that oil will hit $100pb real soon.
    Demand destruction seems to start at about $85pb so as soon as oil hits $85 people cut back.

    That said global oil production appears to have peaked and a lot of the new oil in the pipeline is not viable @ $85 pb.
    That said it does not mean we are running out of oil because we are not.

    It just means that per diem or per annum production is not able to keep up with demand and demand starts to limit @ $85 so it is keeping a bunch of plays out of the game.

    This of coarse is what is driving the recession into a depression.

    That said you may see oil as low as $50ish and as high as $120 over the next several years.
    It is a risky trade right now.

    Oil is the grandaddy of all commodities at this time.

    RED

  • Just Observing

    Mark Lieberman:

    Unfortunately, you’re leaving out part of the equation…..the developing world. Back in the days of plentiful supply, oil could respond to the supply/demand theory in this country. Now we have to respond to the supply/demand on a global basis. If the Chinese or Indians or Europeans are willing to pay twice what we are paying for oil, then there isn’t the surplus there was 20-30-40 years ago, and the oil will flow there. We have to be willing to pay what they will pay….and each side will continue to up the ante as oil becomes more scarce.

    Almost ALL growth in the last 100 years has been fueled by CHEAP oil…..you take that out of the equation, and growth stops. If growth stops, there will be no recovery…it will in fact, get worse.

    That is where this is going.

  • tommer

    Someone tell me why we don’t drill for oil right here? I think I read somewhere in the 60′s we were the largest oil producing country in the world, what happened?

  • sharonsj

    This country hasn’t had a decent energy policy for decades. We should have been investing in wind, solar, and water power–and demanding that the companies drilling in the U.S. for oil and gas actually sell what they find to the U.S.

    I bet the average idiot American doesn’t even realize these companies sell what they find to the highest bidder. I think I read that Alaskan oil is generally shipped to Japan. And the higher the cost of gasoline goes, the more this economy will tank faster. It isn’t a matter of us not being able to afford gas for cars, it’s that oil is used to power all forms of transportation. What do you think will happen when all those food truck stop running?

  • happy face

    Car pool. Price for driving to work goes down fifty percent.

    Combine trips to the market. Cut shopping trip cost by fifty percent.

    Walk when you can. Save one hundred percent expense of trip.

    Bicycle. Remember that? Free.

    Leave it parked and find something else to do besides getting out because you’re bored or want to be entertained.

    The Germans had a severe oil shortage in WW II. They said ‘oil is blood.’

    Hope we can get some common sense and stop using oil like water.

  • lostinmissouri

    WE, will be very lucky, if oil only goes to $100.
    With the Fed, about to start QE-2, in the neighborhood of an additional 5 trillion dollars, we may see $1000 oil.

    Of course, with my 100 trillion dollar Zimbabwe note, I will be able to buy lots of oil! And, right now, you can buy one of those 100 trillion dollar Zimbabwe notes, for about $5 American, on the internet….the buy of Century!

    lol

  • lostinmissouri

    You know, historically speaking, that one oz of silver, has always bought about 5 gallons of gasoline……just saying.

    Hmmmm, Silver.

    It is still cheap, too!

  • Brian

    Personally, I think oil will prices will be held down by North American consumer demand pressures, but will also be pushed up by the competitive currency devaluations that we have been seeing over the past several months. From what I have seen lately, global oil demand will be stable or increae moderately. Overall, I believe currency devaluation will be the dominant price factor in the next 12-24 months. As such, I would put it at 50:50 that we will see $100+ oil before December 31. That may only be a transient price with a correction before continuing an upward trend as the currency war moves beyond the initial skirmishes and sorties that have take place to date.

    Mark – you are correct that the decline in consumer demand killed demand for oil in 2008, but it was not the price that did it. I believe we are confusing cause and effect. I am of the opinion that the US financial system went into crisis as a result of the housing crisis (which is just now coming to a head after having been kicked down the road via TARP and the other alphabet soup interventions). The follow on effect of the financial crisis was a global economic impact that dramatically curtailed economic activity around the world. As a result, oil prices responded by going down.

  • Viji Varghese

    Lets face the facts here. This government’s debt is 100% of GDP and the bloodletting has no end in sight. With a yearly fiscal budget shortfall of about 10% the Fed is purchasing TREASURIES in order to cover the shortfall on the government balance sheet. Thus they are fulfilling two objectives; one, help the government maintain aggregate supply levels (price of goods and services) and two, support asset prices in order to prevent any further deflationary erosion ( Like Realestate). So in the Feds calculations if you stabilize aggregate supply levels and prevent erosion of assets values you in turn would create an economic recovery, right?! WRONG!!!

    Now follow closely to what I am about to say. We have never recovered from the September 2008 crash. All this talk about a “double dip” is a moot point as we never clawed our way from the first dip. The economy is as it has been for the last two years; heading down, no matter what all the talking heads on radio and TV say. For you see in trying to perform the same techniques which were applied with the crash of 1929 and 1933; the Fed has exhausted its cache of stimulus tools. They have done nothing and they have nothing left. After pumping trillions into stimulus plans, and trillions to improve balance sheets of the “Too Big to Fail” banks they have accomplished one thing; they have UNDERMINED TREASURIES!!!

    Treasuries are the very threads that is holding this economy together and now these policies have metamorphosed them into the NEW AND IMPROVED TOXIC ASSET!!! Every world economy knows that they are overvalued, they know that their yields are mediocre and still no one in the main stream talking head shows ever rails against or even exposes them. The whole world cart blanche walks on eggshells around treasuries as if it were a Financial Nuke with a trip wire trigger and a timer. A bomb if you will….which IT IS.

    History shows us a pattern when and how this financial Hiroshima goes off. It begins like this:

    There will be a slight and sudden rise in a price of a necessary commodity like Oil

    This will send tremors through the treasury yields, Treasury Mangers will sell off their allocations and go into the commodity (e.g. Oil) in order to grab a profit. I guarantee that they will sell treasuries as it’s the primary asset that many of them can sell.

    This will trigger the Fed to step in and buy the dumped Treasuries as they are trying to stave off deflation by keeping low yields and cheaply funded. (Quantative Easing) The Fed knows that the Bond Market senses a “Treasury Bubble” and once again they turn on the printing press to buy every treasury in sight to calm the markets and create asset price stability

    The Zombie “Too Big to Fail” Banksters smell blood in the water and begin to dump their obscene amount of treasury notes. You see these living dead institutions were never nationalized but got the best parts of nationalization; total liquidity (stimulus money) and easing of accounting and regulatory rules. The flip side was the Fed required that they purchase US treasuries. You see buying up of the treasuries allowed their balance sheets to look well funded and monetized, all the while hiding the toxic assets that were being siphoned off their books by the Fed since 2008.

    The Panic sets in…Asset managers are not stupid they know the US is in much worse shape than Greece. They know that there is a “Treasury Bubble”. So when these mangers see the mass buying of treasuries by the Fed, and the mass dumping by the Zombie Banks, it will be their signal to get out of Dodge!!!

    The Zombie To Big To Fails and Asset Managers that have dumped their toxic treasuries will look for a place to park their new found cash. Now where might you think they can put all that new cash into? COMMODITIES. Commodities of all types will shoot to the moon. From precious and industrial metals, Oil, food staples will all skyrocket in price, catching the American public with their pants down. Commodities will be the only safe haven to go to and this is when the American public will get it’s first taste of hyperinflation and it will taste like gasoline when the price of oil surges passed $150 a barrel in one week equating to $10 a gallon gas!!!

    Commodities SOARS and DOLLAR COLLAPSE ensues. The sell off of assets in purchase of commodities will be ballistic. People will unload homes, cars, personal belongings all once thought important for real assets like Gold, Silver, Food, Weapons, and Oil. In hyperinflation your $400,000 house will be worth $60,000 or 70 pieces of silver, for your house will not be able to help you buy things you need, while a commodity like gold and silver can.

    Most of all the government can’t stop it.

  • chris

    @ Richard, You are living in the past. Today, for the majority of Americans, it’s not that easy to change jobs or to move for that matter. I really loved the last little jab you put in about making all that overtime.

  • Bob

    Maybe you fat Americans will get out of your SUVs and start walking then!?! Haahahahahah…

  • redgypsy

    In response to Mark. I did factor in offshore consumption.
    That said we again are approaching 2008 levels of consumption just not in America. It however is unlikely that production levels will ever be able to surpass 2007-2008 levels.
    If any one wants to look at peak oil look at US production levels.
    In 1968 we produced almost 10 million barrels per diem. Now 42 years later. With offshore, deepwater, North Slope, and shale plays we can barely break 2.5 million barrels on a good day.
    It is highly likely that world production will go from 80 million barrels per diem now to 20 within 30 years or less.

    It will likely not be pretty.

    Red

  • Tom

    We need alternative energy but the republicans want us hooked on big oil. They want money for oil and more wars.

  • Richard

    Well who do they call first when someone is sick? The one who lives closest to the job

    Chris, you have to live light and have very low expenses….yes its the past and now its your future…

    —————————
    @ Richard, You are living in the past. Today, for the majority of Americans, it’s not that easy to change jobs or to move for that matter. I really loved the last little jab you put in about making all that overtime.

  • Paul

    Viji Varghese,

    Cool, you explained it all.

  • Mitch

    Hey Viji,

    Just FYI we did have $150 a barrel or just shy of it, and gas was about $4/gallon most places, not 10$. So even if it creeps up that far gas prices won’t be hitting $10 easily, unless world entirely gives up on the dollar/oil deal.

    To Richard, that’s some good advice for some folks I’m sure–but throughout human history all cities need hinterlands, that’s still true today. So for some folks who mine/farm/log etc to help keep the modern world turning, rural living will continue–and biking to work is something only a sliver of people can do. Not many bike friendly cities in the US–sadly, where I live its extremely dangerous to ride a bike on gravel burms. Walkable cities/ and bikable cities would certainly be nice though–but we need to get rid of the dress codes at alot of jobs that expect you to come in looking nice in a suit–getting out of your airconditioned car etc. I used to bike to work for years, but I didn’t have to look very nice, and could afford to be sweaty. With my current jobs, no can do, and we don’t have public showers at work!

    Most places are set up for the cheap oil world, conserving will happen naturally at some level–I know lots of people who don’t go hardly anywhere anymore–they are unemployed.

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