$120 Oil

[Denver]

BG perspective who obviously knows sod all about the above (Including me)

In bed watching Channel 3 news last night and the news of the 40.35 Baht litre price now in BKK.

"All World gasoline finnit soon! When I baby Issan it ten Baht!!!!"

"Yes, it's a problem all over the world, there isn't endless supplies and it will all be gone eventually" - in my bestest Thai obviously!

"No poblem, I like walk, walk everywhere, me not want be pom poi!"

.....................Yer gotta lub 'em!

[Schmeen]

A friend of mine is a reginal manager for a European airline based in Bangkok.

He was saying some of the big airlines are now standing planes down, non profitable routes will be culled and a huge amount of airline jobs will go.

Inevitably prices are going to continue to rise.

Bleak times ahead for world travel. They expect the high oil price for 5 years at least and that is how they are planning.

[LivinLOS]

Will tourism be dramatically effected ?? Will the demographic of who can afford international holidays change ??

Lets face it cheap long haul for the masses has only been around for a couple of decades.

[So-cal]

Originally Posted by LivinLOS

You guy realize the implications of predictions that high do you ?? I mean little things like the collapse of western economies ?? Social meltdown ?? Great depression Mk2 ?? etc.. those kind of predictions ??

I thought I was the doom and gloomer !!

I agree with the doom and gloom but $70 oil to $135 changed nothing.???

Stocks still hovering around the same, people keep buying 10mpg trucks.

[LCPL_0311]

Originally Posted by So-cal

I agree with the doom and gloom but $70 oil to $135 changed nothing.???

Stocks still hovering around the same, people keep buying 10mpg trucks.

True. I know of people who complains about the high gas prices but still driving SUV's trucks, and even sports cars that consume a lot of gas.

Even the people who said that the US went to war with Iraq because of oil. They keep complaining about that but drive gas guzzlers vehicles.

[LivinLOS]

Thats becuase theres a delay as this all feeds through.. And we are getting close to a tipping point..

At 70 USD per barrel.. Gaz was 3 bucks.. now at 130 its 4 ?!?! Thats due to inventory, supply side delays, forward hedging, a few factors.. Once this resets to 6 or 7 USD gas how will people feel..

Already airlines are just hemmoraging money.. Already people are saying its not worth driving to work for thier pay.. The inflation monster is only just peeping through the window.. Once he gets settled is when things look ugly.

I am sticking with my 2 or so year old prediction of 'popping bubbles'.. Housing is going to keep getting much worse, oil will stay high (tho I expect pullbacks in the uptrend) inflation is going to get madly insane and people are going to have a lot less purchasing power. The next few years will not be easy ones.

[So-cal]

Originally Posted by LivinLOS

Thats becuase theres a delay as this all feeds through.. And we are getting close to a tipping point..

At 70 USD per barrel.. Gaz was 3 bucks.. now at 130 its 4 ?!?! Thats due to inventory, supply side delays, forward hedging, a few factors.. Once this resets to 6 or 7 USD gas how will people feel..

Already airlines are just hemmoraging money.. Already people are saying its not worth driving to work for thier pay.. The inflation monster is only just peeping through the window.. Once he gets settled is when things look ugly.

I am sticking with my 2 or so year old prediction of 'popping bubbles'.. Housing is going to keep getting much worse, oil will stay high (tho I expect pullbacks in the uptrend) inflation is going to get madly insane and people are going to have a lot less purchasing power. The next few years will not be easy ones.

Well i hope you are right. I want the sh*t to hit the fan hard so that the economy can reset for my generation. What the hell can people do in my generation now? Buy over priced houses and buy into a high stock market?Even when there is wars going on and $135 oil?

Like i said, i agree, what goes up must come down but there is a million reasons for the economy to reset but its not happening.

[K2]

Think the Fed has finally realised this too and statements last week saying they would be quick to put interest rates back UP should be a warning to those able to fix their mortgage (if they have one) as far out as possible (5 years min) since when the central banks get serious with the inflation monster - which they will have too - then don't be too in shock an awe if rates get up to 10% (its happened before).

Price shocks (energy and food) are trickling through the pipeline and a year for now we will likely be paying much higher airfares (from the airlines that survive) and higher grocery bills. This is a worldwide issue and looks that the end of this decade could sadly prove particularly unpleasant for many.

[LivinLOS]

Originally Posted by So-cal

Well i hope you are right. I want the sh*t to hit the fan hard so that the economy can reset for my generation. What the hell can people do in my generation now? Buy over priced houses and buy into a high stock market?Even when there is wars going on and $135 oil?

Like i said, i agree, what goes up must come down but there is a million reasons for the economy to reset but its not happening.

But its not just a case of the economy resetting..

The current deficits have hung your 'generation' out to dry on the debt front.. Plus the retiring baby boomer timebomb is ticking.. Those are 'your generations' bills...

Its going to be interesting to say the least to see how that tightrope is walked.

[ATMwalking]

Originally Posted by K2

Think the Fed has finally realised this too and statements last week saying they would be quick to put interest rates back UP should be a warning to those able to fix their mortgage (if they have one) as far out as possible (5 years min) since when the central banks get serious with the inflation monster - which they will have too - then don't be too in shock an awe if rates get up to 10% (its happened before).

Price shocks (energy and food) are trickling through the pipeline and a year for now we will likely be paying much higher airfares (from the airlines that survive) and higher grocery bills. This is a worldwide issue and looks that the end of this decade could sadly prove particularly unpleasant for many.

Interesting and I agree. For me the question is will Asia raise their generally already high interest rates? Bloomberg had an interesting article on this. I think the Thais have very little wiggle room on this.

[K2]

Worth watching Vietnam - both stock market and currency taken a massive beating this year - could the "Pho" crisis be upon us? - BoT already looking to raise rates as official inflation tops 4% (reality is more than double that p.a.).

[gollygosh]

Originally Posted by So-cal

I want the sh*t to hit the fan hard so that the economy can reset for my generation.

i need exactly the same, i feel sorry for my parents who are about to clear their mortgage only to find their house won't sell, i guess it could be a lot worse for them and at least they won't be facing negative equity.

Originally Posted by LivinLOS

At 70 USD per barrel.. Gaz was 3 bucks.. now at 130 its 4 ?!?! Thats due to inventory, supply side delays, forward hedging, a few factors.. Once this resets to 6 or 7 USD gas how will people feel..

Whilst i agree the above is true, I think you've missed an important point, Several elements make up the price you pay at the pump. Factored in to $4/gallon pump price will be things like:
Refining
Distribution
The retailers markup
State Tax
Federal Tax
A doubling of oil price price won't mean the price-at-the-pump will double as these are relatively fixed costs.

ps: neat trick on google, type "4.00$/gallon in £/litre" and it does all the math for you Our price in the UK is currently £1.20/litre = $10.75

[LivinLOS]

Originally Posted by gollygosh

Whilst i agree the above is true, I think you've missed an important point, Several elements make up the price you pay at the pump. Factored in to $4/gallon pump price will be things like:
Refining
Distribution
The retailers markup
State Tax
Federal Tax
A doubling of oil price price won't mean the price-at-the-pump will double as these are relatively fixed costs.

well theres 42 US gallons in a 'barrel' of oil..

But you only get about (so I just read) 20 gallons of gasoline out of a barrel of light sweet crude through refining.. You also get heating oil and other 'byproducts' from the refining that have value tho..

But at 20 gallons of gasoline to a barrel, with a barrel now costing 130, before refining costs, distribution, taxation, etc etc.. I think the shock is still going to come down the pipe !!

[gollygosh]

ouch!!! looks like the summit's not even in sight yet then.

how much aviation fuel do they get from a barrel though? surely that sells for a much higher price than gasoline or is that included in the 20 gallons you mention? iirc there's very little wasteage, even the crap left over goes into making tarmac.

on a seperate note, http://hsgac.senate.gov/public/_files/052008Masters.pdf
worth a read for those having trouble sleeping!

[manniko]

Just to make you a bit jealous:

Gasoline prices were cut here by 50% last year.

We are paying 0.45 SR/ltr which equals to 0.09 Euro/ltr

or 0.14 US$/ltr - which calculates 0.53 US$ per US Gallon.

Why don't you change your pump stations and get your vehicles filled over here?

But don't worry, somebody how needs to buy a liter bottle of Black Label has to pay at the moment around 350 US$........

Cheers

[Petter]

As said before :it should hardly be a surprise that the oil is actually a final resource. The market should maybe in the past have priced the oil accordingly to that fact

Its no reason for cheaper oil prices in the future,those years are gone me think

[marc26]

Originally Posted by K2

Worth watching Vietnam - both stock market and currency taken a massive beating this year - could the "Pho" crisis be upon us? - BoT already looking to raise rates as official inflation tops 4% (reality is more than double that p.a.).

i think that was a lot of profit taking and realization that it is not as easy to do business there as people thought
Vietnam had a couple great years before this

[Denver]

Originally Posted by Petter

As said before :it should hardly be a surprise that the oil is actually a final resource. The market should maybe in the past have priced the oil accordingly to that fact

Its no reason for cheaper oil prices in the future,those years are gone me think

Agree Petter, we will have to get the old walking boots on unless we want a 1K tuk tuk along the Beach Road! Drink heavily me thinks!

[ChoakMyDee]

I think I saw in a documentary that 1 cup of gasoline does the work equivalent to 2000 man-hours. That is a helluva lot of energy in 1 cup and it is still cheaper than a cup of water. Perhaps we are finally beginning to pay the real value for gasoline where before we have been spoiled with the cheap prices.

[K2]

See increasing central banker talk warning that inflation is now the main fear (rightly so) - Trichet (ECB Head) yesterday was talking of rate hikes and made very strong comments about inflation and Benenke's USD comment (that the $ needs to strengthen).

Interest rate cycle has based (US) and even if the stock market tanks do not look for the FED to cut to ease the pain - this time we will see a real recession to take the inflationary heat out of the system.

I suspect the line has been drawn for USD weakness and all this talk looks co-ordinated and I;d point out for the Fed Chairman to talk about the USD is highly unusual - its normally the sacred territory of the Treasury Secretary (Pualson the gnome - can anyone remember him saying anything meaningful?).

Anyway just significant from the way I look at macro economics - hence expect USD to try and rally, bond yields to raise and eventually the stock market to tank. (Big companies are propping up stocks still as lenders feed them cheap credit having denied everyone else, but eventually the tipping point will come and they too will succumb to the down draft).

[LivinLOS]

Are we actually gonna see a 'strong dollar policy' LOL !!!

Rising rates.. In this housing market.. Ouch !!!

[gollygosh]

"Trichet's clear message"

[K2]

Heating oil hit limit up and crude soared a daily record $10.66/barrel (>8% in one day!) - better nip out and fill up and start hoarding - rally is going parabolic and who knows where it will stop!

Airlines - stick with the majors, the weak ones could well go bust and pay those ticket costs up front or dont be surprised to get hefty fuel surcharges.

Stocks - not surprisingly have tanked (>2%) - a very ugly day indeed.

[JayBee]

A double whammy! Trichet hints at Euro raise in interest rates, dollar tanks, sending oil higher. Then the Israeli minister of transportation says that Israel will at some point have to bomb Iranian nuclear facitlities, if Iran does not halt nuclear development. Duh...., as if that was news! They are not going to bomb Iran in the near future, so it should have no effect whatever on the price of oil. But, in the nervous world be live in.... BTW, loose lips at Stanley Morgan and Goldman Sachs didn't help, either. What's with those guys? They must have big positions in oil.

So there you have it! Absolutely nothing of substance happened, just people running off at the mouth, and oil jumps $10 to $15. Barring war in Nigeria or Straits of Hormuz, hurricanes, or an actual interest rate increase in Europe, or decrease in US, things will likely settle down back to $120. Because there is enough oil. There is no shortage.

However, IMHO, although there are many factors, which currently affect the price of oil, the major factor of substance is that a high price of oil helps prop up the US dollar. The weaker the dollar gets, the higher the price of oil needs to be to keep the dollar from sliding further. High-priced oil makes dollars more valuable, since it is the currency in which oil is traded. When there are too many dollars out there floating around, devaluing themselves, oil acts as a sponge to absorb the excess and stabilize the currency markets. The two biggest dollar holders are the Chinese and Japanese. They don't have oil, but they have excess dollar holdings. They give their money to the Arabs for oil. So do the Indians, Thais, Taiwanese, Koreans, etc. When the price of oil doubles, as it has, it soaks up a tremendous amount of the dollar spillover. The Arab countries are the prime beneficiaries of expensive oil. They absorb vast quantities of dollars, then pump them back into the US by buying US investments, and US govt debt. They know that some day their oil will run out, and then they will be banker/investor economies, relying on the capital accrued from oil sales, while the oil lasts. They invest in the US because it has the most stable history of any majo