Why oil could hit $180 a barrel

Just when crude is becoming more costly to extract and process, producers in three key countries are short of cash. And without that money, recent finds won’t do much good.

Why oil could hit $180 a barrel (full article)
By Jim Jubak
April 22nd, 2008

It’s that gap between production declines that are continuing and visible now and production increases that are speculative and in the future that will keep upward pressure on oil prices.

In the short term, the oil market is right not to underestimate the ability of the governments of national oil producers to shoot themselves in the foot by starving their national industries of capital. We’re likely to see a continuation of these self-defeating strategies among enough big oil-producing countries to keep oil prices climbing until global consumers finally say, “We can’t take higher prices anymore.” In that crisis, falling demand will break the upward trend in oil prices.

For a while, anyway. The logic of rising costs of production and falling supply from cheaper conventional sources of oil argues that oil prices could suffer a temporary correction on a fall in demand but that over the next decade at least oil prices will trend higher.

24 Replies to “Why oil could hit $180 a barrel”

  1. I guess that answers my question on CFN last night as to the chance that we could see a deflation in the “commodity bubble” Ah well, every time I think I have turned off the doomatron, you guys reel me right back in. How long have you guys been PO aware anyway? I just wish I had know earlier/had more time to get my affairs in order.

  2. I’ve been into oil since 1997. I became energy “aware” after the Blackout of 2002. I’ve known about PO since 2003.

    You DO know “earlier.”

    Earlier than the other 6.5 Billion drunkmonkeys. You’ve got plenty of time. Relax. Get more paranoid.


  3. TP and JR,

    You probably won’t believe this, but I wrote an e-mail (about two and a half years ago) to Jim Jubak about PO. I wrote this letter — in a fit of idealism or something — because it appeared from his articles (back then) that he was not yet aware. He definitely has become a less silly writer since. Was I the catalyst and proximate cause of a red pill experience for a nationally known MSM (and MSN) commentator? Who the fuck knows…

  4. Jubak never wrote me back. I can say this much: He’s now learned how to quote statistics from the Wall Street Journal. Yuk, yuk.

    I give JHK a lot of shit, but at least he replied the one time I wrote him.

  5. Jubak is a regular contributer to this site. He just wrote and let me know he’s sorry. He says you were THE catalyst. He has renamed April 20th The Day of the Holmes.

  6. JR, I’m going to read IHTSBIH (it’s in the mail).

    Not playing yourself is understandable IMHO. Not being involved in music selection… well, that’s nothing short of criminal.

    Did TM really quit law school? His writings gave me the impression he finished… maybe I wasn’t paying close enough attention. That’s always been a problem for me — not paying close enough attention to things that I don’t truly care about.

  7. Hi JR. Yesterday a co-worker loaned me a copy of the new book “Gusher of Lies: The Dangerous Delusions of ‘Energy Independance'” (2008), by Robert Bryce. I’ve cruised through a few chapters. It is well referenced and it looks possibly quite good, so I plan to read it more closely.

    No big deal but FYI, I was going to supply this comment on your post ‘Crude Books’ but it has no place for comments.

    BTW. Your blog is very good JR.

  8. well, i think i rad about 3/4’s of the first page. why do these asswipes always think that money(they call it investment) equals oil?

    and whoo cares about fucking oil anyway? are the mutherfuckers in haiti rioting about rice or oil?

    fuck jubeck.

  9. Could it be that speculators are migrating money from precious metals to food? File that under random anecdotal musings.

    dave, like you said, whadareyougonnado… eat a fucking Krugerrand?

    POT… maybe buy at $175 or thereabouts. The trend seems favorable to be sure.

  10. yeah holmes, don’t know, that’s for sure. but as far as long plays go(3 months to 3 years), i don’t think you can go wrong with most stuff that needs to come out of the ground, most metals, oil, coal, staple food stuffs.

    my next bet for a run up is coal. i just bought some KOL. it’s exposure is a little wierd, but….?

  11. dave, as to things that come out of the ground, I’ve been focusing mostly on oil. In early April, when crude dipped to around $100, I picked up some long term options contracts on crude oil futures. Sold one earlier this week, practically doubling my money. With the added volatility of options (and I’m sure you know this), it seems that a person who is sufficiently motivated and who has a decent sense of timing stands to make easy money jumping in at the dips, unloading later as the herd pours in again, and repeating. For example, if I buy a Dec 2011 call option with a strike price of $150, sure the price of oil might go down between now and then, but there’s plenty of time for it to go up (and make a nice profit)… even if I’m not “in the money”.

    JR, why is it that there is more interest in December crude options for a given year than June options? Something to do with taxes… dunno.

  12. hey holmes,

    well, playing the commodity markets, directly, is a little beyond me. is it “easy” to somehow by contracts? i don’t know how.

    i have just been concentrating on ETF’s, commodity based mutual funds, and select stocks. this seems to be working pretty good for me at moment.

  13. dave, I recently opened an account with optionsXpress, which provides a pretty decent interface for on-line trading of commodities futures and options. They also do trades over the phone, with a live human assisting you, but I haven’t tried that yet. Interestingly, and I just recently learned this, you can’t fund an account that allows you to trade futures with retirement account (IRA, SEPIRA, etc.) money. I have no idea what the underlying policy rationale might be with keeping the proles from gambling away their woeful retirement savings on futures… as if equities, ETFs, etc. aren’t gambling?!? In any case, it’s an interesting website, you might want to check it out… they also allow you to practice via virtual trading. There are other on-line places to do this sort of trading, but I haven’t looked into them.

  14. holmes,

    i will check optionsxpress, thanks.

    i cashed out of POT. made about enough money to live for the next year. with some losses, my taxes should be about nil.

    bought KOL at about 38. making $ right now.

    i’m really not very sophisticated. i mostly think about, fishing, mushrooms, and pussy.

  15. my biggest, by orders of magnitude, fear in life, is having a “job”. i will kill myself before sinking so low.

  16. holmes, JR,

    it’s all speculation.

    i still meet people who say things like they’re “in it for the long position”. as if everything will go up, eventually.


    you place your bets, and you take your chances. it seems that simple to me, pretty much. i’m betting on a lot hungry desperate people, and that the grid stays up long enough for me to collect.

    but who knows? not me.

  17. dave, you may well be the first person ever to use the words “mushrooms” and pussy” in the same sentence. As always, I salute your mellifluent phrasing.

    Money, filthy lucre, whatever you want to call it… if having enough of it can free a man from having to work, it can’t be all bad. As Humphrey Bogart purportedly said, “The only point in making money is so you can tell some big shot where to go.” (I would suggest to him that it helps facilitate baser needs as well, that is, until it ain’t worth anything anymore to anyone. Hopefully, well before then, the stuff has been traded away for some new coin of the realm.)

    You’d think those kids playing in virtual on-line worlds with virtual money would be the perfect day traders. You know, nerves of steel… and none of it’s real to them anyway.

    I’m sure someone is way ahead of me on this one… scattered throughout the globe, there are probably boiler rooms full of third world nerds suspected like calves before banks of monitors, farming their daily profit quotas on behalf of some big wheel who’s staking the whole operation. Every two hours, they get a comic book and cigarette break.

    p.s. — A double “Fuck You” to the losers soiling CFN with snarky baiting and soul grindingly tedious, imperious posing.

  18. thal, I’m glad you took the plunge.

    ZK is beginning to pick up a rhythm of sorts IMHO… I’m enjoying it!

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