BARCLAYS ON OIL PRICES: “THERE IS NO WAY PRICES CAN FALL MUCH”
Here’s a fairly alarming prediction heading into the seasonally strong winter months for oil prices. Amrita Sen, commodities analyst at Barclays was interview on CNBC recently to discuss the outlook for energy prices and to shed some light as to why oil prices have diverged from many other commodities and remained so firm in the face of severe global headwinds. Sen says the likelihood of prices falling much below current levels is close to nil:
“It’s been the supply side. Libya went off the market. Lots of problems in the North Sea. Brazil, I mean, there were problems everywhere. Inventories Are about are about 50 million below the seasonal average heading into the winter. There is no way prices can fall much from where they are now. You just don’t have enough inventories around.”
Not a good sign for the economy. Cost push inflation via rising energy prices is likely to continue to be a major headwind in the future. Real resources continue to hinder economic growth. Like the last few years, this is going to be a major risk heading into 2012.
See the full interview here. It’s quite good:
Source: CNBC
“Real resources continue to hinder economic growth”
How far are we supposed to grow, i mean its pretty ridiculous that you use such a term as a serious economist.
What is your point exactly?
Guess he’s a hit-and-run poster. I can’t figure out his point either.
Good thing I’m not an economist. Whew.
Real resources are a constraint to economic growth. If you don’t understand that notion then consider us running out of oil tomorrow….It’s a pretty simple concept really….
You could have economic growth with falling real resource usage if productivity & efficiency gains were high enough.
If we could get over our fear of the atom, tech like Thorium molten salt reactors could provide us with all the energy we could desire, and we could leave hydrocarbons to long distance transport use.
Ilyia, electric motors are actually really efficient, ~90% is a figure I’ve seen quoted more than once. The lack of huge heat sinks and cooling systems on electric motors would suggest this to be correct. By comaprison, a typical gasoline powered engine is around 30%, and the very best internal combustion engines – really big diesels – only get to around 50%.
“You could have economic growth with falling real resource usage…”
We’re clearly not at the point where we can move off hydrocarbons….It will be enormously bullish when we do though. I hope it occurs in my lifetime. Unfortunately, this real resource has an enormous impact on economic growth.
What Amrita failed to add to the list of things keeping Brent at elevated levels are the ralley monkeys at Barclays, its kind of self-fullfilling when you’re entire commodities business model relies on getting clients long to the gazoo in commodities
Personally I find this quite chilling. There are 10 to 20 large financial institutions capable of manipulating oil prices through huge highly leveraged bets.
Who would know if this is signalling to each other or whether they have already colluded on a strategy and this is an invite to mug punters?
@Patrick McGavock
Agree totally.
There’s very little holding the market up, and absent more US QE (which the Fed daren’t do) or urgent OPEC cuts (which they have said they won’t do) it will probably crash, and over-correct, to maybe $50/bbl before being marched back up the hill again by producers with the aid of money borrowed from funds…..IF the funds will wear it one more time…..
Seems like there are always short term and long term forces at work. Seasonally, Oil will go up till Spring, but Recessions here, Europe and elsewhere may drive it the other way.
http://earlywarn.blogspot.com/2011/11/oil-prices.html
Cullen,
It’s good to see you looking into and posting more on the realities of resource constraints – I believe you posted a piece from the The Oil Drum recently as well.
While the peak oil doomers are a bit extreme, we must always remember that all this finance/economics mumbo-jumbo is just about allocation of real resources. And when real resources like oil become relatively more difficult to find, that puts a squeeze on things.
From a real resources perspective, I think one of the key factors going forward over the next decade will be the rise of oil prices as an economic growth inhibitor. Even when the economy is ready to get past debt issues, oil prices will act as a governor on growth. Economic energy efficiency (GDP $/BTU) will have to rise faster in order to enable a quality expansion. To some extent this is already happening – for instance, the growth of the mobile device/tablet etc markets are all very energy efficient when viewed from a GDP $/BTU perspective.
Let oil go up. The higher it gets, the easier it will be to switch our transportation economy to natural gas. Then we can tell OPEC to shove it.
On the other hand, Libya has announced they’ll be producing 800,000 bpd by the end of the year, and we’re freeing up 150,000 bpd from storage at Cushing with the Seaway pipeline reversal. An increase of roughly 1 million bpd onto the world market when China’s building boom is slowing plus Europe is slowing plus China’s hydroelectric is back in full force (Chinese factories had been running on diesel generators) means I expect Brent to dip down to $85.
What consumers need are cars that can run on fuels that are not sourced from oil. My solution would be an electric car with a generator – like the Chevy volt – but I would have the electric come from either a Stirling engine or a thermoelectric generator (which has no moving parts), so that ANY source of heat could be used.
I love the optimist. Lets get electric cars! what is your favorite electricity source? Coal or natural gas I hope. What are efficiency losses in an electric engine? 50% i hope. So you are better off going with nat gas powered cars or you are already payong double. Unless you like nuclear (I do) but noone else does. Utherwise you are stuck with solar and wind which are still super expensive
A headline like that engenders immediate contrarian thoughts.
short Yen is the new santa rally
Cullen,
In this case, what would be the effects of managed money on oil futures markets ? It seems to me that if we are already 20-30dollars up from a supply/demand price…couldn’t we have a slump on energy prices even with tight inventories?
Once the EPA finishes off coal which should be about 3 years of less, you will sed oil at 300 per barrel.