Analysts warn of oil price bubble

[CHIMO]

OTTAWA — The flood of speculative investment into oil markets is inflating a price bubble that could pop and send crude prices sharply lower if U.S. petroleum demand continues to slump, analysts warned yesterday.

Crude prices continued their remarkable rally yesterday, rising 95 cents (U.S.) to close at another record high of $105.47 on the New York Mercantile Exchange.

But the boom could be setting the stage for its own undoing, many analysts argue, since it is being fuelled by speculators looking to hedge against a declining U.S. dollar and devalued financial assets. Some analysts are forecasting a sharp correction in the price of crude this spring.

“It's hard to argue that prices should be higher than they were not too long ago,” said Michael Lynch, president of Strategic Energy and Economic Research Inc., of Cambridge, Mass., who has forecast that crude markets are set for a massive correction that could eventually bring prices as low as $50 a barrel.

http://www.theglobeandmail.com/servlet/story/RTGAM.20080306.r-oil07/BNStory/energy/home

[tuvor]

1. Reuters: Oil prices won't fall under $60-$70: Naimi

(For what it's worth...)

ALGIERS (Reuters) - Oil prices won't fall below $60 to $70 a barrel as this is the minimum level at which alternative fuels are economically viable, Saudi Oil Minister Ali al-Naimi said in remarks published on Sunday by Algeria's APS news agency.

"From now there's a line below which prices won't fall," the official agency quoted him as saying in an interview with Petrostrategies magazine.

He said this involved "the marginal cost of production of alternative fuels, whether that's biofuels or tar sands" which had a threshold "between $60 and $70," APS reported.

"If you take into account all the subsidies involved in the production of a barrel of biofuels, I doubt whether anyone could make money from that with a price lower than $60 or $70," he was quoted as saying, referring to the price of a barrel of oil.

http://news.yahoo.com/s/nm/20080302/bs_nm/oil_saudi_prices_dc_1

[CHIMO]

2. I Have Lived Through

All the predictions before. They can predict and pontificate on everything to make an analysis. But Garbage In = Garbage Out.

A reduction in demand will mean a reduction in the price.

If one thought the the banks were only making secure loans they were assuming something that has shown to incorrect.

F = ma and you can't push on a string.

As for biofuels, you can't get more energy out of crops than you can by just burning them. As for bio-fuels being environmentally friendly. Well people forgot that those little yeasties produce carbon dioxide in the generation of ethanol.

[tuvor]

3. No argument from me.

Your post reminded me of the other story, so I thought I'd share.

[CHIMO]

4. Thanks

Just this week there were reports of ethanol plants that were being stopped because of the rising price of feedstock.

So when consumption goes down ...

A saying going around is that the high prices are the solution in itself.

Can just see the high priced producers going down. And the high priced producers are in Canada.