[Vnbiz] Will oil prices continue to stay high?

[Tran Dinh Hoanh]

http://www.msnbc.msn.com/id/24316855/

 Will oil prices continue to stay high? Some believe spike as high as $200 a
barrel is possible
<http://www.msnbc.msn.com/id/24315465/displaymode/1176/rstry/24316855/>
 CarolynKaster /AP
      updated 7:02 p.m. ET, Fri., April. 25, 2008

HOUSTON - Oil's meteoric rise to near $120 a barrel looks like more than
just another economic bubble — growing demand and tighter supplies are
likely to keep prices high. Some analysts say even $200 a barrel would not
be out of the question.

The latest price surge — pushing crude to record heights in recent weeks,
and to nearly double its level a year ago — has some key components of a
classic bubble, when market prices climb far above their intrinsic value.
The burst comes when investors realize the assets are overvalued.

But growing worldwide thirst for crude, in large part from the rapidly
developing economies of China and India, means frustrated consumers probably
won't get any relief.
 "We can do our homework, but prices are going to go where they want to go
at this point," said Jeff Spittel, an analyst at investment bank Natixis
Bleichroeder Inc.

Americans who hoped to ride out temporarily high prices by carpooling or
driving less may have to make those habits permanent. And because of the
premium prices, oil companies may be willing to search out more oil in
places they previously couldn't afford to explore.

Oil came close to $120 a barrel Friday on news that a ship under contract to
the U.S. Defense Department fired warning shots at two Iranian boats in the
Persian Gulf. The markets were also weighing the effects of a pipeline
attack in Nigeria and a looming refinery strike in Scotland.

Retail gas prices, which at times rise in tandem with crude oil, moved
further into record territory near $3.60 a gallon.

  [image: Image: Oil prices rise]

The Organization of Petroleum Exporting Countries — which supplies about 40
percent of the world's crude — insists it's supplying more than enough oil.

Instead, many observers blame speculative traders for bidding up the price
as a hedge against inflation and as protection from the sinking U.S. dollar.
Some see that as evidence of a bubble.

It's also becoming harder and more expensive for oil companies to find and
tap new petroleum reserves — a troublesome scenario given forecasts that the
world's energy needs will escalate by more than 50 percent in the next two
decades.

Toss in the weak dollar and political instability in some oil-producing
countries, and it seems unlikely that oil will fall below $100 a barrel
anytime soon, if ever.

Widely watched oil price prognosticator Goldman Sachs has said oil could
average $110 a barrel by 2010, up from a previous forecast of $80, and that
a spike as high as $200 a barrel is possible in case of a major supply
disruption.

Supply is at the heart of  soaring prices, said John Moroney, a Texas A&M
economics professor who just finished a book on energy production and
consumption. He cites production declines in Mexico, an unstable oil
industry in Venezuela and possible shrinking production capacity in the
Middle East.

"I don't buy the bubble theory," he said.

Many analysts believe the weakness of the dollar is a bigger factor than
supply and demand because the soft dollar draws investors worried about
inflation into commodities such as oil and gold.

It also makes commodities less expensive for buyers operating in other
currencies. Many investors see the dollar only heading lower if the Federal
Reserve keeps cutting interest rates, which most analysts still expect it to
do next week.

Some market watchers say oil will probably keep rising until demand falls
off, which they describe as the market's way of finding fair value for the
commodity. For oil, some estimate that price as low as $60 or $70 a barrel.

"The fundamentals don't justify anywhere near these prices, even when you
factor in geopolitical problems," said Michael Lynch, president of Strategic
Energy & Economic Research Inc. in Cambridge, Mass.
He expects prices to fall as low as $80 this year and perhaps as low as $50
in the next three or four years as more global supply comes on line.

Demand already has begun to wane in the U.S., where fuel prices are causing
turmoil in an economy already saddled with recession fears, a housing and
credit crisis, and dismal retail sales.

Drivers have begun to cut back on gasoline consumption. Some people have
taken to riding bikes to work or organizing car pools. The sale of
gas-electric hybrid vehicles is up. Larger trucks and sport utility vehicles
are selling slowly.

It's unclear how much a drop in oil prices could reduce gasoline prices. The
prices do not always move together because they are subject to separate
supply and demand forces. While oil prices have risen 80 percent in a year,
gas prices climbed only 24 percent.

Trying to predict where prices are headed has devolved into a guessing game,
some analysts said.

Two weeks ago, the Energy Department acknowledged "significant uncertainty"
in its oil price projections, noting the threat of supply disruptions in
oil-producing nations, unusual weather or refinery outages.

 The major oil companies began reporting earnings for the first three months
of the year this week, with ConocoPhillips saying it earned more than $4
billion, up 17 percent from a year ago. Exxon Mobil Corp. and Chevron Corp.
are scheduled to report earnings Thursday and Friday.

The higher prices have allowed companies to extract oil from sources too
expensive to tap only a few years ago, like the Canadian oil sands and
deepwater sites in the Gulf of Mexico, said Gary Adams, who heads the U.S.
oil and gas practice for Deloitte & Touche USA LLP. He expects the price of
oil to settle at around $90 to $100 a barrel in the coming months.

Even if oil prices fall back to $60 or $70 a barrel, "the capacity of those
businesses to do well and fund major projects will continue," said analyst
Bernard Picchi of securities firm Wall Street Access. "These are great
storehouses of value, and I don't think anyone can take that from them right
now."
*Copyright 2008 The Associated Press. All rights reserved. This material may
not be published, broadcast, rewritten or redistributed.*



-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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