Oil on the march in '06

Get used to $60 barrels, that'll look cheap soon


Oil flirting with $64 on Friday, was below $45 at the start of 2005

Bloomberg reports that demand numbers in the US are soaring. Records were set in December for both gasoline and heating oil. The only saving grace in January may be above-average temperatures in the NE US. But, ``Implied gasoline demand jumped 1.2 percent to an average 9.4 million barrels a day in the week ended Dec. 30, the Energy Department report showed. It was the highest for the last week in December since at least 1990''.

The brief post-hurricane period of gasoline demand relaxation appears to be over.

Bloomberg quotes analysts on oil market ``geopolitical risks'' now present.

``If some distant spat between Russia and Ukraine over natural gas can generate'' new buying in crude oil, ``I shudder to imagine what cold weather, a bullish DOE report or a genuine supply problem would do to this market,'' said Peter Beutel, an energy consultant and president of Cameron Hanover Inc. in New Canaan, Connecticut. ``It looks higher from here, although it is certainly not for a want of oil.''

They think that inventories look adequate for now, even with the stresses on gasoline. So the current rally may not sustain.

These analysts are mellow compared to the outlook given in a piece this week by James Howard Kunstler:

The problem is that the oil supply will soon steadily diminish at a rate of at least three percent a year, and that necking down of supply is likely to be expressed in greater geopolitical friction and turmoil between the great nations who crave oil. The US entered into the military phase of this turbulence before any other nation. We used our superpower status to set up a centrally-located Middle East garrison in Iraq, under the idealistic cover story that we were removing a dangerous head-of-state and helping to set up a model democracy that would invite us to stick around the vicinity indefinitely, and thus retain some control over the deportment of other oil-rich states in the region....

The world oil allocation system is now so fragile that any disturbance in one producing region can send damaging shock waves around the planet. There is no more "swing producer." The US squeaked through the huge loss of oil production capacity this fall by taking oil from our own strategic petroleum reserves and from Europe's. These actions kept oil prices in the high fifty-dollar-range through the holidays, giving Americans a false sense of festive security. Those withdrawals are now over. Global demand for oil is still increasing. The strategic reserves will now have to be refilled (they're called strategic reserves for a reason). This will start oil prices moving upward again...

Kunstler thinks oil will cross into $100 territory and gasoline will strike $4/gal sometime during 2006. This will ``absolutely kill'' the housing bubble, according to Kuntsler's predictions.

Meanwhile check out this APM (Minnesota Public Radio) Marketplace interview with solar business guru and environmental activist Jeremy Leggett, author of The Empty Tank: Oil, Gas, Hot Air and the Coming Global Energy Crisis. Leggett gives us three to five years before the oil peak engenders serious economic problems.

LEGGETT: This is the point at which we transition from the assumption that society is making, that there is going to be a couple more decades of growing supplies of generally cheap oil to the point where actually we realize, uh ah, that isn't going to happen, we're going into a world where we're dealing with rapidly shrinking supplies of ever and vastly more expensive oil...