Goldman Sachs Expects Oil Prices To Hit $200

The same analyst for the company who predicted 100 dollar oil three years ago believes oil will hit the 200 mark within 24 months.  This is a financial goldmine for investors.  But it's also frightening in more ways than just the price of gasoline...

More below the fold:

From the Financial Times:

Analyst warns of oil at $200 a barrel
By Javier Blas and Chris Flood in London
Published: May 6 2008 18:58 | Last updated: May 6 2008 18:58
Crude oil prices could surge to $200 a barrel in the next two years, according to the Goldman Sachs analyst who three years ago correctly predicted a price “super-spike” above $100 a barrel.

The warning by Arjun Murti came as oil prices hit a fresh high above $122 a barrel, boosted by supply disruptions in Nigeria, lower output in Russia and continued robust demand in China ahead of the Olympics.

EDITOR’S CHOICE
In depth: Oil - Apr-29

Oil hits above $120 amid Nigeria concerns - May-05

Oil price rises lift BP and Shell - Apr-29

Oil majors rebuked for lack of openness - Apr-27

BP plans to invest $560m in biofuels - Apr-24

UN says oil rise hits food prices harder - Apr-26

Mr Murti said the energy crisis could be coming to a head as a lack of adequate supply growth was becoming apparent.

He said: “The possibility of $150-$200 per barrel seems increasingly likely over the next six to 24 months.”

He added that the spare capacity of the Organisation of the Petroleum Exporting Countries to cushion against unexpected supply shocks was very low.

The other links within the article make it more apparent how dangerous this situation is for the world political balance and for things beyond the work commute.

The term stagflationary abyssal is becoming more precise than even I thought.  In the 1970s, the CW was that the best investments you could possibly make were oil or gold.  They were the best value.  

Oil surged 20% in only a few months from when oil reached 100 dollars as Jerome a Paris had predicted. That's better than stocks average in their best years, let alone a stumbling economy.

For oil to go from 100 to 200 will make a lot of investors really happy, if it does not entail an economy where ordinary people can prosper and thrive.

•  Tips Jar

  meanwhile, the costs of transportation, including petroleum for shipping and as part of made goods will continue to cause prices to rise.  So yes, it's getting worse for you at the checkout as well as the gas station.

  Shipping is now so prohibitive that a Chinese industrialist moved work to the American south, offsetting American labor costs with less on shipping and tax writeoffs.

  by Nulwee on Wed May 07, 2008 at 07:37:20 AM PDT

  •  high shipping cost can be a good thing

    If prices go high enough, we may see a resurgence in US manufacturing, especially for larger and bulkier items where the cheap labor of the third world may be offset by the high shipping cost.  

    However, it would take a huge increase in fuel costs (bigger than we've seen) to really affect things substantially.  The longest part of the trip is usually by large vessel ocean shipping , which gets about 1000 ton-miles per gallon of fuel burned.  So, you can move 1 ton of stuff 1000 miles with just a gallon of fuel oil.  

    by NRG Guy on Wed May 07, 2008 at 02:17:41 PM PDT

•  hmmm, where is our Jerome anyway?

  been awfully quiet.

  by borkitekt on Wed May 07, 2008 at 07:44:43 AM PDT

•  Algerian President of OPEC already said this...

  Mon April 28, 2008 Yahoo! News reported...

  "Questioned about a possible rise which would go to $200, the minister did not rule out this eventuality, explaining that this rise is indexed from now on to the fall in the dollar or to the rise in the dollar,"

  And the slide of the dollar is a direct result of the Bush administration, Republican lead congress and federal reserve monetary policies.

  by Enterik on Wed May 07, 2008 at 07:45:33 AM PDT

  •  so, there is a big $ devaluation in the works

    or Euro climb in the works? I wonder how much the $ would have to fall to see that figure?

    by borkitekt on Wed May 07, 2008 at 07:47:40 AM PDT

    •  OPEC has give a rough formula...

      in the article I cited, roughly a $4 increase per barrel for each 1% reduction in the value of the dollar. Currently, oil is priced near $120 per barrel, so divide $80 difference by $4 per percentage value lost and you would need a further 20% reduction in the value of the dollar to get $200 per barrel.

      by Enterik on Wed May 07, 2008 at 08:37:00 AM PDT

      •  thanks,

        I'd seen the figure a week before but forgot where.

        by borkitekt on Wed May 07, 2008 at 09:07:48 AM PDT

•  Seems like the FT is getting ready to

  acknowledge Peak Oil.  The most telling quote to me:

  Mr Murti said the energy crisis could be coming to a head as a lack of adequate supply growth was becoming apparent.

  Forget upping MPG standards, we need to be getting off oil period.
  Does Detroit want to keep making cars?  Then spend some money working with Tesla cars out in CA and work on making plug-in electrics for every single model.  If an electric sports car (not mass-produced) can sell for a sticker of $100, would mass-produced sedans go for?

  by John Shade on Wed May 07, 2008 at 07:46:34 AM PDT

•  Yep, say goodbye to peak oil,

  receding into the distance.

  Then again, I wonder what this will do to the price of waging war and maintaining a military-based empire, hmmm?

  by chesapeake on Wed May 07, 2008 at 07:47:43 AM PDT

•  You'd think the industry would be fighting this

  as it means their doom. As crude oil gets ever more expensive, all the things that require it - plastic, fertilizer, chemicals, as well as gasoline, along with all the things made from/using them - are going to become more expensive, reducing demand and making alternatives competitive.

  They might be making a killing now, but this is no boom cycle that'll slow down and retreat but cycle back up even higher again, it's the death of their product and all products made with it.

  by Visceral on Wed May 07, 2008 at 08:30:41 AM PDT

  •  The industry has windfall profits...

    ...to finance their buy-out of the alternatives market. You and I will continue to pay higher prices, only the source will change to something even more profitable and depletable only as a function of surface area.

    by Enterik on Wed May 07, 2008 at 08:39:20 AM PDT

    •  Then we have to stop them

      Let's suppose that they do buy out the alternatives market: how can we make that not matter?

      Since we can't rely on these oligarchs' good will to fade into history like they ought to, and the government is not likely to make them, we have to outmaneuver them somehow.

      I'm thinking off-the-grid living and Victory gardens so we can all (individually and collectively) produce our own food, water, and electricity.

      Clothing and medicine might be harder. Definitely learn and practice preventitive medicine - a good idea anyway in the absence of effective health care.

      Set up small gift economies of goods and services between friends and neighbors and that's less money you need to make and therefore less slavery to the elite.

      If it's going to happen anyway, then we have to take measures to protect ourselves.

      by Visceral on Wed May 07, 2008 at 09:26:42 AM PDT

      •  Stop using processed energy...

        ...why turn on a light when you can open a curtain?
        Why not legislate stricter building standards for insulation? Subsidize geothermal loops? Why not put a distance, carbon or energy tax on consumer goods?

        by Enterik on Wed May 07, 2008 at 09:30:58 AM PDT

        •  A) it's not just energy, B) corps own gov't

          Oil by itself goes into so much more of what we need and want than electricity. Everything made out of plastic is ultimately made out of crude oil: Peak Oil will affect their availability and affordability too. The fertilizers and pesticides that grow our food are also ultimately made out of crude oil: same problem there.

          Plus, if the oil company parasitoids are just going to weasel their way into the low-carbon sustainable economy, then I want no part of it - I hate these people and don't want to support them.

          Legislation, subsidies, and taxes are governmental solutions: they'd work, but they have to overcome the fact that Big Business owns our government. I'm not willing to wait anymore for the political stars to align and I'm tired of fighting people who are either too rich to care about these problems or too stupid to realize that they are problems.

          by Visceral on Wed May 07, 2008 at 09:44:47 AM PDT

          •  Now you're preaching to the choir :-)

            Tilling monocrops on an industrial scale requires a large amount of oil as well.

            Of course my government solution presuppose a successful earlier solution which is the installation of a sensible responsive government. Something we need to always be working for.

            Until then, there are sensible choices to be made, sans regulation. One trick is to get good at calculating life cycle costs and imbued energy for products.

            You don't have to have better, properly installed insulation legislated in order to break even on cost.

            by Enterik on Wed May 07, 2008 at 09:53:04 AM PDT

            •  I agree, but we shouldn't count on sensible govt

              We can't get an ideological monopoly on the federal and state governments because not everyone thinks exactly like us: radical change requires consensus and commitment that may not be possible for that many people. Maybe some very general principles or the legal nucleus, but not a comprehensive program.

              Plus we know as well as anyone that a powerful federal government can be as much a liability as an asset.

              This is why I've become so skeptical of major change emanating from Washington or the state capitals: too many people have to agree on too many things to create policies for the rest to just follow, and if the wrong people are in charge and the population is not sufficiently independent of the System, progress stops and may even lose ground.

              The specific policies are going to have to come from the local levels, suited to the specific problems and means of the people who're going to have to do the actual lifestyle changes.

              by Visceral on Wed May 07, 2008 at 10:02:55 AM PDT