Here we go again. I have the feeling that it’s going to be a rough summer, especiallyin July and September as a number of events combine to give us part two of the financial horror show that is our country. California is in dire straits and has about fifty days left before its completely out of money. Its politiciansare in gridlock as they continue to livein denial about the magnitude of the budget cuts necessaryto restore order and sanity to the state government. Other states are going to be following suit, mostly all the big liberal states that havebought into the idea that government is your daddy and that government is going to take care of you. The other big deal, also the product of denial on the part of Washington politicians, if not mass psychosis, is the extravagant borrowing if finally unleashing inflationthe leading edges of which revolve around gas prices as our dollar continues to plummet.
Perhaps you’ve noticed: Gas Prices have been Going UP!
Gas prices are in the $70 a barrel range now and within a week or two it’ll be in the $80’s. As the stimulus spending is wasted by congress who now wants to shovel money faster in the economy, they weaken the dollar dramatically and thus oil and other commodity’s goes up. It’s a vicious cycle and we’re in it. Some people say we’ll stabilize around $90 to $100 for a while and other prognosticators say that as the ObamaAdministration and the nefarious Federal Reserve trash the dollar that oil will just continue to go up until it destroys the economy. Either way the prices are going higher and I suspect that we’re seeing the leading edge of an inflationary tsunami that will shortly engulf us in yet another agonizing summer of bad economic news. The Arabs are not likely to raise production until its in the low hundreds a barrel and the Russians are champing at the bit to drive oil as high as possible and recover some economic clout.
Consider the following story from the Guardian UK:
Oil price leaps to year’s high
Predictions of $250 a barrel on fears for oil reserves, hopes of economic recovery and hedging against weak dollar
The price of oilburst through the $71 a barrel mark today amid revelations that proven reserves had fallen for the first time in 10 years and predictions that the price could eventually hit $250.
The latest high – from lows of $30 only four months ago – came on the New York Mercantile Exchange, where the cost of July deliveries rose by $1.35 to $71.36.
This comes on top of a $2 rise the day before as investors rushed into the market on the back of lower stockpile figures, higher demand estimates and speculation against further falls in the dollar.
“I wouldn’t be surprised if we’re testing $80 in a week or two,” said one analyst, while BP‘s chief executive, Tony Hayward, questioned whether $90 could be the “right” value.
Kuwait’s oil minister, Sheikh Ahmad al-Abdullah al-Sabah, put some of the rise down to signs of recovery in Asia but warned that overall demand was still weaker than last year. Opec would not raise supply at current oil prices but did not rule it out “if it reached $100”, he said.
Alexei Miller, chairman of the Russian energygroup Gazprom, raised the stakes further when he reiterated last year’s estimates of $250 a barrel. “This forecast has not become reality yet, given that the [credit] crisis gained momentum and exerted a powerful impact on the global energy market. But does this mean that our forecast was unrealistic? Not at all.”
The latest surge has also raised fears that higher energy costs could snuff out the nascent economic recovery. Shares on Wall Street’s Nasdaq index fell 1%.
The febrile atmosphere in oil markets was fed by the publication of BP’s Statistical Review of World Energy, which showed that the world’s proven crude reserves had fallen by 3bn barrels to 1.258tn by 2008 from a revised 1.261tn in 2007.
Declines in important producers such as Russia and Norway offset rises in new areas such as Vietnam, India and Egypt. The figures did not include Canada’s tar sands, which are put at 150bn barrels.
The drop is partly attributed to a drop in exploration drilling due to the precipitous fall in oil prices last year but also to the end of “easy” oil. Conflict this week in the Amazon and speculation about Arctic drilling underlined how oil companies are pushing into environmentally sensitive places to find new reserves.
Tony Hayward, BP’schief executive, insisted there was enough crude to last 42 years at current consumption levels, roughly the same as last year. Adherents of “peak oil” – the theory that the maximum rate of oil production has been reached – believe supplies will run out much sooner because of growing demand.
The BPboss said: “Our data confirms that the world has enough proved reserves of oil, natural gas and coal to meet the world’s energy needs for decades to come.” Higher prices allowed companies to invest in finding further reserves while not choking off demand, he said.
“There is a rational argument to say that somewhere between $60 to $90 a barrel is the right sort of level,” he said.
Global oil consumption fell 0.6% to 81.8m barrels a day in 2008, the first decline since 1993 and the largest drop for 27 years. North Sea output dropped 6.3% to its lowest level for three decades.
By contrast, gas use rose by 2.5% globally and 16% in China. The use of coal, the heaviest emitter of climate-changing carbon, rose 3.1%, with Chinese demand up 6.8%, leaving it with a market share of 43% despite more high-profile announcements about its commitment to renewables.
BP says it is difficult to compare “primary” carbon fuels with renewable sources of electricity. BP notes that globally solar capacity rose nearly 70% and wind by 30% year on year but says renewables only generated 1.5% of global electricity and therefore began at a low base.But it notes these sources are playing an increasingly important role in some countries with wind power providing 20% of total electricity generation in Denmark, 11% in Spain and 7% in Germany.
Despite the 2008 rise in coal consumption, the BPdata showed growth in the use of the fuel continued to decline compared with 2007 when it rose 5% and five years ago when it went up by 8%.
But the coal figures will alarm environmentalists and increase the calls for companies and governments to speed up trials on “clean coal” technology and the use of carbon capture and storage.
China has promised to increase its use of renewables: Zhang Xiaoqiang, vice-chairman of the China’s national development and reform commission, says the country may produce as much as 20% of its energy from wind and solar by 2020.