When the unthinkable becomes the inevitable, continued
Almost nobody who gets paid for a living to hedge energy prices foresaw the doubling of oil prices in the last year, as corporate results in oil dependent industries show. Yet what was unthinkable only a few months ago has now assumed the mantle of “inevitability”. WSJ:
Crude futures soared to a new intraday record near $128 a barrel and finished up $2.17, or 1.8%, at an all-time closing high of $126.29, boosted by a report from Goldman Sachs commodity analysts, who said investors are underestimating the “inevitability” of further increases in crude and other raw materials. The investment bank raised its forecast for oil in the second half of 2008 sharply, to an average of $141 a barrel, up from Goldman’s earlier target of $107.
Meanwhile, from the FT: “Saudi Arabia said on Friday that it was increasing its oil production to its highest level in two years,…by about 300,000 barrels a day.” But who’s counting anymore? Maybe the bulls are right and others are wrong. But why were so many people wrong a year ago, and why has the previously unthinkable now suddenly become the inevitable?
May 17th, 2008 at 10:59 am
But why were so many people wrong a year ago, and why has the previously unthinkable now suddenly become the inevitable?
Because:
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IMHO one of the things that bursts a commodities bubble is that high prices elicit new sources of supply. Unfortunately, Instapundit notes that the Senate just blocked exploration of Colorado oil shale, and asks if senators are on the Saudi payroll. I’m not sure how much he is joking. Line up those six- and seven-figure post-retirement Saudi speaking and consulting fees, posture for the Gulfstream environmentalists, and pass the consequences on to the peasants and be ready with moral condemnation (or price controls and rationing) if they complain?