Oil prices up; gasoline and diesel set new record pump prices

Oil prices rose once again today on quite low volume.  After spending much of the day in negative territory, down as low as $121.58, oil closed up 16 cents at $123.69 a barrel on the New York Mercanile Exchange.  It did once again set an all time intraday record high of $124.61.

 

According to AAA pump prices went up 2.7 cents to a new record of $3.645.  Diesel prices also rose 0.9 cents to a new record at $4.251.

 

Meanwhile gas futures price rose 1.96 cents to settle at another record close of $3.1378.  Distilliate futures, which include heating oil and diesel fuel rose 6.25 cents to $3.5098.

 

It's widelt expected the average price of gas will soon rise as high as $4.  Motorists in many areas, including parts of California, Hawaii and New York are already paying that much, or more.

 

If oil prices go the way the pundits are expecting, there's no "way we'll stay under $4 a gallon," said Fadel Gheit, an analyst at Oppenheimer & Co. in New York.

 

After Goldman Sachs reiterated its forecast for $150-$200 oil on Monday Keith Fitz-Gerald came out with a revised forecast for oil.  He has been saying since December 2007 that oil would hit $187 per barrel within the next three years.  Today Keith came out with a new forecast for oil to reach $225 per barrel.

 

"The math is really simple here," Fitz-Gerald said.  "We are burning through supplies at a rate that's four times to five times faster than we're discovering new reserves.  Throw in a few [surpised]...perhaps a terrorist event...and add in the accelerating use of oil and gasoline in Third World countries, and we have the recipe for far higher prices.  That's already in the oven."

 

To put things in a more appropriate perspective, oil prices have risen $11 a barrel or 9.8% in the past week alone.

 

In addition to the proprietary strategy he used to project market prices, Fitz-Gerald said he relief on some of the observations he's been making as part of the investor trip he's leading through China.  "Bejing alone is adding 14,000 cars a day.  Across China, the number is obviously higher. [The] same [is true] in India, but I don't have the figures at my fingertips.  Then there's the other side...evidence suggests that OPEC reserve figures may be artificially high.  Imagine what's going to happen when people figure out that there really isn't as much oil as everybody thinks.  $225.21 is not out of the question...after we get to $187."

 

Fitz-Gerald sees oil and gasoline prices going higher...much higher.  And four factors will be the key catalysts.  They are:

 

Obfuscation by OPEC: Members of OPEC have been misrepresenting their reserve capabilities for years.  The key players have reported no new discoveries for decades.

 

Terrorism Threats: The odds of a terrorist act will interrupt oil supplies in the near term or the long term are higher than most security experts would ever publicly confirm.

 

The Dollar Doldrums: Oil is priced in dollars.  The dollar is in the dumper.  Indeed, rising inflation and falling interest rates have put the greenback into a steep downward spiral.  If the Federal Reserve continues cutting interest rates, the dollar will continue to drop against global currencies OPEC members will counter the greenback decline by marking up the price of crude, causing prices to increase still more in dollar-denominated terms.

 

Cruising Goes Global: As more Chinese and Indians purchase automobiles they will continue to consume more and more oil.  The fact that China's oil imports jumped 18% in one month is evidence enough that this is happening.  Tata Motors has unveiled a $2,500 car, the Nano.  It underscores the fact that international carmakers are looking to recruit a whole new group of motorists.

 

The fall out of all this is that U.S. refiners will end up paying more for oil, and then supplies will start to dry up as countries opt to halt exports and keep the precious black gold for themselves.

 

China has embraced a different strategy to create captive supplies of crude.  It has been cutting deal with countries U.S. refiners either can't or won't deal with.  They have been investing in Africa and Iran.  It has signed deals with Sudan, Chad and the Congo.  Trade between Africa and China has advanced at a rate of 40% a year since 2001.  In 2006, bilateral trade between the two was $50 billion.  Already 14% of China's oil imports come from Angola.  About 60% of Sudan's oil goes to China.

 

Meanwhile, OPEC Secretary General, Abdalla Salem El-Badri on Thursday reiterated his position that oil supplies are adequate, and there is no need for the cartel to boost production.  He said several OPEC oil projects are coming on line.  He also noted several member countries are having a hard time finding buyers for their additional supplies.

 

It's anybody's game on which direction oil prices are going to move over the next couple of years.

 

The Energy Department released natural gas inventories which rose by 65 billion cubic feet last week.  They remain slightly below the 5-year average.  On the news natural gas fell 6.4 cents to $11.263.

 

The market still looks like it could halt its upward trend or even pullback in the short term.  Currently the relative strength is in the upper portion of its normal range.  The 20 day moving average currently stands at $116.62 and the 50 day moving average is at $109.23.  The number of front month open contracts dropped once again today down to 302,673 fom 327,550 yesterday.  Meanwhile, all oil contracts increased by 50,000 and are now up over 500,000 contracts since April 25th at 6,545,605 contracts.

 

(See chart of current oil prices at bottom of webpage)