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Coming Soon: $250 Oil



June 16 (Bloomberg) -- At $250 a barrel for crude oil, food prices double. The U.S., Japan and Europe plunge into deep recession. Companies go bankrupt. Airlines are nationalized. Sport-utility vehicle sales dry up as gasoline tops $7 a gallon.

The scenario may not be unimaginable. Alexei Miller, chief executive officer of OAO Gazprom, the world's biggest natural- gas company, said June 10 that crude will climb to $250 a barrel in the ``foreseeable future.'' Prices may reach that level only after a war or attack on major oil installations, says Jeff Spittel, an analyst at Natixis Bleichroeder Inc. in New York.

While executives, elected leaders and economists disagree on the probability of Miller's vision, there is consensus that the price would jolt everyday life.

``It would be a disaster for all the oil-importing countries, all the democracies and China,'' says James Woolsey, vice president of consultant Booz Allen & Hamilton Inc. in McLean, Virginia, and a former Central Intelligence Agency director. ``And it would be hugely beneficial for the many monarchies and dictatorships that are the main suppliers.''

Some investors are already betting on Miller's forecast. At least 3,008 options contracts have been purchased giving holders the right to buy oil at $250 a barrel in December, data compiled by Bloomberg show. The options closed at 64 cents on June 13.

Rising oil costs have been responsible for a third of global food inflation since 2004, according to London-based research firm New Energy Finance.

``At $7-a-gallon gasoline, you're probably looking at food prices almost double,'' says Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut.

`Massive Shutdown'
Crude oil prices reached a record $139.12 a barrel on June 6, more than double what they were a year earlier. Goldman Sachs Group Inc. and Morgan Stanley forecast the cost may reach $150 in the next few months.

At $250, ``there would be a massive shutdown of companies,'' says Carlos Mattei, procurement vice president for glassmaker Vitro SAB in Monterrey, Mexico. ``Many of these small companies have to choose between paying the gas bill or payroll.''

Still, slowing demand may curb prices. The International Energy Agency, an adviser to 27 oil-consuming nations, last week cut its forecast of world oil use for a fifth month as record costs dented consumption. The U.S. Energy Information Administration expects prices will drop to $120 by December 2009.

``Over a decade or more, after you adjust for inflation, if the price doubled, we would expect demand to fall by 30 percent,'' says Douglas MacIntyre, the agency's senior oil market analyst. U.S. oil consumption fell 5.7 percent from 1973 to 1975 as the Arab oil embargo led to import shortages.

`Incredibly Vested Interests'
Tom Kloza, chief oil analyst for the Oil Price Information Service in Wall, New Jersey, is skeptical about Miller's prediction because it may benefit Gazprom.

``It's silly to take people with incredibly vested interests as having an unfettered, unbiased opinion,'' Kloza says.

Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, says the firm's economic models break down if the price of oil goes over $200 a barrel.

``The U.S. goes into deep recession, as does most of Europe and Japan, and that takes much of the developing economies with it,'' he says. ``I don't see how we get to $250 because the economy is broken long before that, and demand falls and that causes prices to fall.''

Oil at $250 would slash the growth of U.S. gross domestic product by about 2.5 percentage points, says Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts.

Nationalized Airlines
The U.S. may be forced to nationalize airlines if oil keeps rising, Barry Sternlicht, founder and CEO of Starwood Capital Group LLC, told a hotel conference June 2 in New York. Carriers won't be able to raise fares enough to cover costs, requiring government subsidies to make tickets affordable.

``I'm not sure the model that the airlines are in right now is going to work unless the U.S. does what many other countries have done,'' Sternlicht says.

US Airways Group Inc. would need an average fare of about $1,000 per round trip to break even with oil at $250, President Scott Kirby says. That's more than triple the current average of $300. Fuel accounted for 31 percent of US Airways' 2007 operating expenses.

Automakers would be devastated, says Daniel Coker, CEO of Northville, Michigan-based Amerigon Inc., a supplier of parts that heat and cool car seats.

``Well, $250 per barrel would cripple the auto industry,'' he says.

Transportation Reduced
Households will cut back on transportation, says John Wolkonowicz, an analyst at Global Insight.

``You certainly won't see mom hauling around the kids in a Chevy Suburban,'' he says.

Imports of smaller cars accounted for 23 percent of U.S. auto sales in 1980, up from 15 percent in 1972, according to Ward's Automotive Reports, which tracks vehicle sales.

At $250 a barrel, even energy-producing states would cut services, New Mexico Governor Bill Richardson said in an e-mail.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aWwoUcZaR5BY&refer=home
 

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You can just see the speculators rubbing their hands with glee as these "analysts" talk up oil at higher and higher prices. Then, once the see folks jumping in they'll bail.

A major recession would seriously collapse oil, perhaps down to below $50/bbl. None of the oil producing countries want that and it's probably why Saudi Arabia is going to start pumping more oil. A major economic contraction will drive oil prices down, consumption down, and no one knows what it will look like on the other side of a major recession.

This has the same ring as the "NYSE is going to 100,000" crap we saw in 2000. Sure, it'll get to 100,000 ... one day. But not when the speculators are egging on inexperienced investors to jump onto the bandwagon so they can efficiently bail.

The louder the rhetoric surrounding the price of oil the larger the drop will be when it ultimately hits.

The only thing that can cause a major jump in the price of oil is if there's some major disruptions in the Middle East.

And I'm quite impressed that Woolsey believes we're a monarchy and/or dictatorship up here in Canada. He does realize we are the largest exporter of oil to the US, right? But let's not get facts in the way of his rhetoric. We'll just change our name to Coldrabia to make him happy :D.
 

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If there is any doubt that we are in an "oil bubble", this article pretty much confirms it. I can't see prices staying this high for more than a few months. They won't go down to early-2004 levels but they will get down around $100/bbl.
 

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If there is any doubt that we are in an "oil bubble", this article pretty much confirms it. I can't see prices staying this high for more than a few months. They won't go down to early-2004 levels but they will get down around $100/bbl.
I figure $75, with the new "normal" price of around $90 holding for a few years.

If there's a sudden economic contraction there might not be a floor as all the oil producing nations will suddenly want as much of the collapsed market as possible. I think that's Saudi Arabia's fear: the market for oil collapses due to economic contraction resulting in a free fall in oil where each of the OPEC nations try to get as much of the dwindling pie as possible. Not a pretty scenario for them to contemplate so better to pump more oil, hope for a soft recession, and only a reasonable dip in pricing to $75 - 90.
 

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Discussion Starter · #12 ·
Yes. 2008 Volvo C30 T5...



It gets about 25-26mpg in LA-style daily driving and about 30mpg on highway roadtrips.

Not the most frugal car, but it's not horrible.
I really like the looks of that. I was reading up on it, the acceleration is pretty good too.

For my next car I think I want a premium hatch with good power and styling. The C30 looks exactly like what I would like, except with AWD.

I'm locked into my current vehicle for at least another 3-4 years though and a lot could change before then.
 

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For my next car I think I want a premium hatch with good power and styling. The C30 looks exactly like what I would like, except with AWD.
Volvo can just bolt the S40/V50's AWD drivetrain to the C30... I don't think it's going to happen any time soon, though.

Next-gen VW .:R hatch or next-gen Audi A3 might be your best bet.
 

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And I'm quite impressed that Woolsey believes we're a monarchy and/or dictatorship up here in Canada. He does realize we are the largest exporter of oil to the US, right? But let's not get facts in the way of his rhetoric. We'll just change our name to Coldrabia to make him happy :D.
Well, your head of state is a monarch: Canadian chief of state: Queen ELIZABETH II

http://www.umsl.edu/services/govdocs/wofact2003/geos/ca.html#Govt
 

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You can just see the speculators rubbing their hands with glee as these "analysts" talk up oil at higher and higher prices. Then, once the see folks jumping in they'll bail.

A major recession would seriously collapse oil, perhaps down to below $50/bbl. None of the oil producing countries want that and it's probably why Saudi Arabia is going to start pumping more oil. A major economic contraction will drive oil prices down, consumption down, and no one knows what it will look like on the other side of a major recession.

This has the same ring as the "NYSE is going to 100,000" crap we saw in 2000. Sure, it'll get to 100,000 ... one day. But not when the speculators are egging on inexperienced investors to jump onto the bandwagon so they can efficiently bail.

The louder the rhetoric surrounding the price of oil the larger the drop will be when it ultimately hits.

The only thing that can cause a major jump in the price of oil is if there's some major disruptions in the Middle East.

And I'm quite impressed that Woolsey believes we're a monarchy and/or dictatorship up here in Canada. He does realize we are the largest exporter of oil to the US, right? But let's not get facts in the way of his rhetoric. We'll just change our name to Coldrabia to make him happy :D.
I like the Kingdom of Kanuckistan that I saw once on the 'net.:D
 

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I like the Kingdom of Kanuckistan that I saw once on the 'net.:D
I was going to use that but most of the 'stans don't have much oil.
 

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I’m not typically an alarmist or supporter of doomsayers but I see oil prices soon heading where the article predicts, with possibly some of the consequences mentioned.

This is why I am for both a New Deal type government supported program which hugely develops nuclear powerplants, wind power, and localized power generation (small scale wind, geoexhange, solar voltaic on homes and powerpoles, etc.), which hugely supports green building and sustainable development, which vastly improves and expands all modes of mass transit, which subsidizes all forms of biofuels, etc. We need both government intervention and private industry innovation / profit motives. At the same time we desperately need to use tons of coal and dig everywhere possible for oil – off the coasts, Anwar, etc.

It seems like so many people come down on one side or the other while to me it is clear we need to do everything we can – not only this but also that – and sooner rather than later. Fortunately when many people are having a hard time eating (let alone driving), they will demand an acceleration of the multi-pronged approach I am advocating and we can all get through this.
 

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some see this as a joke but to working people it is far from funny. the evil in the world is manifesting itself thru gas prices and unnecessary wars. and the time-begone freedom fighters of history have evolved into beer loving, tv watching, weak sucks who have never learned to appreciate the hard won gains of past generations. woe to those who passively watch as the banksters (say Goldman Sachs and their loving friends like Paulsen and Rubin) and their cohorts, control, manipulate, and dictate the future. how naive of the public to not realize how we are ruled by the international bankers who bow to the Rothschild empire. to you young kids who fancy the interactions as if a form of video game, and to those armchair opinionators, beware the NWO and powers that be who control your thoughts and dictate your future.
 
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