[Graeme]

Lehman warns that oil boom will deflate

$this->bbcode_second_pass_quote('', 'T')he roaring oil boom of the last few months may be on its last legs as economic growth slows hard across the world and a clutch new refineries come into operation, Lehman Brothers has warned in a hard-hitting report.

“Supply is outpacing demand growth,” said Michael Waldron, the US bank’s oil strategist.

“Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.

The Saudi Khursaniya field has just opened with 500,000 barrels a day (b/d) of production, and the new Khurais field will start next year with a further 1.2m b/d.

The Saudis have pledged to spend $90bn (£45bn) on their oil industry over the next five years, lifting capacity to 12.5m b/d by the end of 2009.

Lehman Brothers said the price of oil had been pushed to inflated levels by a $40bn inflow into commodity index funds this year, much of it coming from Mid-East sovereign wealth funds.

The petro-investors may have second thoughts about gaining “double exposure” to commodity prices.

“Financial flows have been the marginal driver of prices since the onset of the credit crunch. Investors are using oil as a hedge against inflation and a falling dollar,” said Mr Widmer.

The index effect has lifted prices by $20 to $30 a barrel. This could reverse sharply once the dollar starts to stabilize against the euro, since the euro/dollar exchange has become the proxy watched by oil traders for signals.

[jato]

$this->bbcode_second_pass_quote('', 'T')he Saudi Khursaniya field has just opened with 500,000 barrels a day (b/d) of production, and the new Khurais field will start next year with a further 1.2m b/d.

[cipi604]

It's going to be just fine. 5$/barrel because of the lack of demand.

[Cashmere]

Lehman probably had invested heavily short on oil.

Lehman is considered the next most probable bank to take a Bear Stearns.

[dorlomin]

Surely oil can only be overpriced in the market for 3 months after that people have to deliver the futures they have bought and if no one wants $100 oil they will have to take a $20 hit per barrel on it....

I can appreciate that some consumers like airlines are going to be burned out of the market once they get through there credit but until then the price is justified by what the market will bear.

If the market price hikes were due to unschooled investors then surely the more experianced ones will be taking positions that will make them a killing at the expense of the new money?

And why are Sovs getting into short term high volatility markets wehn they are supposed to be mopping up all the long term bargins in euquities?

[dorlomin]

$this->bbcode_second_pass_quote('Cashmere', 'L')ehman probably had invested heavily short on oil.

Lehman is considered the next most probable bank to take a Bear Stearns.

[Starvid]

Oil prices might well fall by a third, or even by half for a shorter time. Or they could double.

[MD]

$this->bbcode_second_pass_quote('Starvid', 'O')il prices might well fall by a third, or even by half for a shorter time. Or they could double.

[EnergyUnlimited]

$this->bbcode_second_pass_quote('MD', '')$this->bbcode_second_pass_quote('Starvid', 'O')il prices might well fall by a third, or even by half for a shorter time. Or they could double.

[TonyPrep]

$this->bbcode_second_pass_quote('Graeme', '[')b]Lehman warns that oil boom will deflate

$this->bbcode_second_pass_quote('', '�')��Inventories have been building since the beginning of the year.

[wisconsin_cur]

Or if there is demand destruction it will be just in time to mask a peak and declining output. It will allow producing nations more time to continue the lie that we do not have a problem.

[Starvid]

$this->bbcode_second_pass_quote('EnergyUnlimited', '')$this->bbcode_second_pass_quote('MD', '')$this->bbcode_second_pass_quote('Starvid', 'O')il prices might well fall by a third, or even by half for a shorter time. Or they could double.

[Eli]

$this->bbcode_second_pass_quote('Starvid', 'O')il prices might well fall by a third, or even by half for a shorter time. Or they could double.

[dohboi]

Right, but the really stunning thing about the recent skyrocketing price of crude is that it has come about in the absence of any of these. If this doesn't convince folks that something more fundamental is going on, nothing will.

I had assumed that there would continue to be enough above-ground "noise" in the political...realm, that pundits would always have something besides peak oil to point to as an explanation for price hikes. But even without major non-geological explanations, most analysts still avoid attributing the enormous run up in oil prices to PO. Go figure.

[Starvid]

When oil went up to $85 and $100 (it's not that long ago...) I felt that there was a lot of speculation going on, that we had something of an oil price bubble. I am, of course, very "bullish" on the long term supply and demand picture, with demand going up a lot and supply just going up a little and then being flat and then entering terminal decline.

So high prices are backed by fundamentals in the long run. But is this we are seeing today and even greater speculative bubble (a bit like with uranium), or is it a sign market participants are starting to believe that we will enter an extremely tight situation (which we will)? That is after all not an incredible assumption as even people like the IEA have been talking about our energy system in terms of "the wheels are coming off" (yes, they said that, really).

But in the medium term, the next 5-10 years, prices should stay in the $65-$85 range according to Henry Groppe as there is 15 mbd of easily substitutable demand (power, heating and industry which will switch from oil to coal and gas) in the emerging markets.

So who is right and who is wrong? Well, I can say one thing. Don't trust investment banks and analysts. They just take the current price and add or subtract $5-20 depending on the direction the market is moving. With the possible exception of Goldman "Superspike" Sachs, but they probably just pulled a big number ouf of their ass. So did we, and no one pays us six figure salaries.

Frankly, my dear, I don't give a damn. I just keep my Exxon stock very close to my chest.

[Ferretlover]

Ssoo.. How does Lehman's wishful thinking measure up to their past performances in predicting the future?

[jdmartin]

^^^^I don't know, but based on their ability to make sound investments in the real estate market, I don't think I'd put too much credence in anything Lehman has to say. The same people have been saying the same thing for almost 5 years now. What do they think it's going to deflate to - $30/bbl? Let's even say it loses 20% off its peak and goes back down to mid-90s. So what? That still leaves gasoline at + $3 in the US and Diesel still floating around $4.

They say it as if once it deflates we'll all go back to $1 gasoline and Hummers everywhere

[Graeme]

Oil prices slip on dollar recovery, rising US crude inventories

$this->bbcode_second_pass_quote('', 'O')il prices fell sharply Thursday as a strengthening dollar and rising US crude stockpiles prompted traders to lock in profits after this week's record-breaking run.

New York's main oil futures contract, light sweet crude for delivery in June, dropped 2.24 dollars to close at 116.06 dollars a barrel. The May contract had struck a record high 119.90 dollars before expiring on Tuesday.

In London, Brent North Sea crude for June delivery on Thursday settled 2.12 dollars lower at 114.34 dollars a barrel after earlier hitting a record intraday peak of 116.87 dollars.

"Crude futures slipped lower, falling under pressure from the recovering greenback," said Sucden analyst Andrey Kryuchenkov.

"It seems that a larger-than-expected increase in US crude inventories during last week and a stronger dollar were good excuses for some investors to book profits."


However, prices were supported by ongoing supply worries.

Talks aimed at heading off a planned strike at one of Britain's key oil refineries broke down Wednesday, a union spokesman said.

The collapse of discussions between officials from Unite and Ineos, which owns the Grangemouth refinery between Glasgow and Edinburgh, means 1,200 workers at the site will go on strike Sunday and Monday.

Members of a white-collar union working for Mobil Producing Nigeria (MPN), an affiliate of US oil group ExxonMobil, began an indefinite strike on Thursday over pay and working conditions.