Webdiary - Founded and Inspired by Margo Kingston

US First Lady Laura Bush called today for a "global response" to the world food crisis in remarks before the executive board of the UN food assistance agency in Rome.

"From Afghanistan to Africa, the United States understands that meeting people's needs for food is a global problem that needs a global response," she told leaders of the World Food Program.

Speaking days after making a lightning visit to Afghanistan, her third since the fall of the Taliban in 2001, Mrs Bush also warned that "those who use arable land to grow poppy instead of wheat are threatening their families as well as their neighbours".

Has Laura thought that the use of arable land to grow ethanol may also threaten their families and neighbors?

Estimates of the link between biofuel production policies and recent food price increases vary. The Washington-based International Food Policy Research Institute says 25 to 33 percent of the inflation is due to biofuel policies, while the United Nations’ Food and Agriculture Organization puts the impact at 10-15 percent.

Some believe the problem could worsen, however, because of the U.S. mandates for ethanol that are set to rise. In 2006, the energy bill called for 4 billion gallons of corn-based ethanol to be mixed into the country’s fuel system, but that mandate jumped to 9 billion gallons this year and nearly 13 billion by 2010.

The result has been a bigger burden on the country’s corn crop. About 20 percent of U.S. corn was used to produce ethanol in 2006, for example, but that percentage could jump to 30 percent this year, according to the Environmental Working Group.

John Pratt: "Why don't they make some hard decisions toward moving us into alternative fuels? Increase the price of petrol and use the money to move our vehicles to natural gas."

Why don't they take wheelchairs away from cripples, and they might walk again? Necessity being the mother of all invention – it's about as ridiculous an argument. The world is simply not in a position to move away from traditional fuels overnight. Sure, it could be forced; however, people must accept the consequences, which won't be nice. Think extreme poverty for large numbers of people, along with social anarchy.

A good tax has never made a good business, and a bad tax has destroyed many a good business. I still find it amazing that people (after hundreds of years of evidence) find it hard to get their head around such a simple matter.

If we falsely create an industry it'll fail. It'll ultimately fail because it was unable to pass the basic test of competition. For all the money wasted in such an enterprise, something, much more worthy, will miss out. That could include: health, education, technology, future business etc. It always has ended, and it always will end, in tears.

The problem with hysteria is the unintended consequences it creates. Allowed to run out of control, all manner of kooky things begin to seem normal. Got a population problem, no problem, refuse health services to any person over fifty. That'll cut life expectancy and the world population in no time at all (actually, the most logical thing for a population in survival mode is to rid itself of the aged and infirmed). See how crazy things can get?

Unfortunately (for them), John Pratt, some of our greatest social planners have had the knack of finding themselves on the wrong side of their original plan. Some people might even call that universal justice.

Australia relies on petroleum based fuels for most of its transportation requirements. The implications of this reliance have been brought into the spotlight through rising prices. Oil reserves are limited and diminishing. Petroleum products produce highly polluting emissions, even before they enter the vehicle's engine. They have a heavy impact on the environment and public health. Fluctuating and rapidly rising prices create uncertainty and contribute to inflation. Australia relies heavily on overseas supply and, increasingly, on overseas refining. Reliance on Middle East supplies threatens our energy security. The only way that Australia can protect its economy and national interest from the inevitable dangers we face through continued reliance on petroleum based products is to embrace indigenous alternative fuels.

Australia has an abundance of natural gas. See Radio National's Background Briefing.

Australia's sitting on some of the biggest natural gas fields in the world - and other energy-starved, ravenous nations are starting to bid for it. Australia will have to do some soul searching about how much we keep for ourselves and who to sell it to.

What is the sense of exporting our natural gas while we import petroleum based products? Instead of Labor and Liberal politicians fighting over a few cents on the price of petrol, why don't they make some hard decisions toward moving us into alternative fuels? Increase the price of petrol and use the money to move our vehicles to natural gas.

John Pratt: "A lot of analysts see this simply as a supply outstripping demand - it is in fact peak oil."

Every bubble eventually bursts, John Pratt - this bubble will be no different. For many older traders (I'm not old enough) this year has a very curious 1980 feel about it. Seriously, do some of your own research on the period. The resulting commodity recession lasted well on a decade. I've learnt to be very afraid of the words: Yes, but this time will be different. I remember hearing them buying commodity stocks when people all around were buying "dog hospital.com" etc. Back then, gold was "over, man".

My opinion is the bubble has been in the making for near a decade. It began with the bailing out of the dot con boom (loose monetary policy). It was pushed along by bailing out the real estate industry (loose monetary policy). It was pushed further by bailing out the CDO industry (loose monetary policy). It will end with no more Wall Street bail outs (tight monetary policy). There just aint no bailing out commodity booms.

It's time bubbles Bernanke started acting like a person in the real world, and not some kind of CNBC educated idiot. It's about time this clown made inflation priority number one (I doubt he even understands inflation), and started taking steps (making it known in no uncertain terms) the dollar will be defended. He does this - he kills rampant speculation in one king hit. It's about time the whole lot of this whole dog and pony show get their heads out of their asses, and into a place that is at least pretends to be Central Bankers!

The world's oil producers cannot keep up with demand.

Demand will drop sharply this year. If bubbles continues on his crazy path the price may not.

The US dollar is in free fall, unemployment is rising, the US is moving into recession.

The dollar isn't in "free fall"; that's a simplistic reading of the situation. The current plight of the dollar can be corrected. It merely takes understanding and conviction.

A recession (and nobody likes a recession) is a needed correction. The recession the USA will go through will be a lot worse than it needed be. Bubbles and his predecessor should've allowed mal investments to have been corrected a long time ago. His overly thoughtfulness toward the Street is going to cause many around the world more pain than needed be. I assure you the rest of the world won't be escaping his mistakes.

We have to get used to the rise of China, India, Russia and the Middle East.

None of these places exists on a sphere outside economic reality. You'll also find they are all suffering inflation (understated in the case of China). They are all affected equally by higher oil prices (in the case of the Gulf this transfers onto other products such as food). China is also using subsidies to keep prices artificially low (which will come back to hurt them).

The belief that China can use internal demand is a false belief. China has grown in leaps and bounds; however, many there haven't (at least half a billion in fact). The belief that the rest of the world will wear possibly a great deal of pain to appease China is ludicrous. Even if governments wanted this, it'll be political suicide (watch this become a massive political issue in the coming election). Of course, economically it isn't possible for China or India to continue on the current growth path without the rest of the world (especially the USA).

Bernanke either accepts the very real possibility of terrible stagflation or he doesn't. He either starts taking real action now or he doesn't. If this is beyond him he should be moved for somebody that will. Personally, I believe, he should never have been there in the first place.

Hi Scott, it seems some of what is happening is neither driven nor controlled, but very blessed by the oil company groups. Our friend who stayed recently, in charge of Western Europe for an Ivy League oil company, was quite candid about that.

Then again, if it is the hedge funds, and if the pension schemes also buy into that gambling and then we actually get peace in the ME and Israel doesn't bomb Iran, well ... think of the gawdalmity crash then.

Bit scary when world economic stability relies upon a country obliterating another with its nukes. The oil is far enough away from the gov centre. How long can the "upping of ante" straws piling up continue without the camel’s back breaking? When the ship of the desert sinks we may find some believed their own rhetoric.

So do the hedge funds crash or do we go to war over money, oil hegemony and Israel?

Neither would be the first time. Trumpets away.

How do people live in that region and not have ulcers? I have already declined four invites as I don't like radon in my soup and fried gametes for the kids. Their godparents just had six months in one of the targeted countries. How jolly annoying not to be able to visit , particularly as I have always wanted to go after studying its history. They had nerves of steel but said they were so so so glad to be back. Another friend is off to Oman, where the aluminium industry that NSW thinks it is building power plants for is now setting up with cheap labour and unlimited gas energy. Looks like another industry, like the steel to Vietnam, is about to disappear. The whole region there has more for it than China, as it has cheap labour AND unlimited energy, if the stability could be sorted out . The Haifa pipeline that Saudi wants requires the protection from Hezbollah hence that group’s interference too via Bandar, but peace and cooperation would work too. So much potential if willing to share the wealth and land.

I just wish the war mongers on both sides had all their children in the front line – that is what it takes sometimes to get peace. It is often the returned military than help the people learn the realities of war. And that spoils the spoils.

So much for the $12 a barrel of Murdoch vaunting from his pro-war media whore outlets. Perhaps that, or the pre Iraq war price of about USD28 is the proper price unless people are saying there has been a 600% increase in demand since then.

As it is a speculative oil price futures bubble that may involve many people's money, perhaps we should find out exactly whose money is invested in this roll of the dice so that we can be more aware of whose interests are served by those increasing and stoking the tensions. And what would happen to the US economy if that bubble did burst and peace and industry settled down in the region and Israel decided their borders and such were agreed by all and peace reigns ... yes, perhaps there are some who benefit from such tensions and perhaps it would be wise to know who is exposed thus financially. Wars have been waged for such.

Any data out there? I do hope JP Morgan has not been using our future fund, eh?

And Russia wins no matter which way it goes. Anyone notice that?

Cheers

Many analysts say that fundamentals, not speculation, are driving prices.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before another Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed out to a confluence of trends that have contributed to the oil price rally, including a weak dollar, strong energy demand from emerging-market economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

David and Paul, I don't think this is a bubble. A lot of analysts see this simply as a supply outstripping demand - it is in fact peak oil. The world's oil producers cannot keep up with demand. We are going to have to get used to high oil prices. With millions buying their first car in China and India, where is all the extra oil going to come from? The US dollar is in free fall, unemployment is rising, the US is moving into recession. US demand may fall but still demand will grow.

In 2008 China , India , Russia and the Middle East for the first time will consume more crude oil than the U.S. , burning 20.67 million barrels a day this year, an increase of 4.4 percent over year earlier levels, according to the International Energy Agency. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA forecast. (Bloomberg)

We have to get used to the rise of China, India, Russia and the Middle East.

US demand for oil may fall but so will the US dollar. Nothing will stop the demand for oil in China and India.

David Roffey

Well, Paul, I certainly never said I though the market was rational, nor am I going to be Fooled by Randomness. This is a spike, and I'm pretty sure it will fall back again into the mid-$120s next week (and will bet on the Dow rebounding, too ...)

Well, normally I'd agree, however, the events of the last two days have got me wondering. A lot depends now on Dr Bubbles and his money printing motley crew (forget the hawk next week, this guy will want be talking like a f###### wedge tail eagle). Personally, I think any vestage of confidence in him has been blown to pieces (the end for him is certainly near). The guy can claim a lot things, not being warned, is not one of them.

I still stick by my end of year predictions (could even go lower). Unfortunately it won't happen for the "right" reasons. Spikes such as this are good if you make money (everybody loves that, and plenty was to be had), though, over the long-term they're not good for anybody! It's not the spike that's the worry for me; it's the conviction of the spike.

So you've read fooled by randomness? Not a bad book. A few things I totally disagree with, though, I think he sums up the general crux of life, and market pretty well. It's certainly worth a read.

Richard;  Paul, this is your bag. A threadstarter on the market collapse? Please?

There really isn't much point - my opinion hasn't changed. It's a monetary problem; it's always been a monetary problem. "Dr Bubbles" inherited it (and has done SWFA to change it). This isn't peak oil (not to say it doesn't exist), markets simply don't move that fast, and brutally, over something known about.

The EU guy (French of course) makes a couple of ill thought out remarks (actually hes just sealed the deal on interest rates); lets say he kicked in the door, well, everybody stampeded and burnt down the entire barn.

The problem for Dr Bubbles is the conviction the market did it with. The only thing I can take from that is a complete, and utter lack of confidence in the Fed. Dr Bubbles has had a million chances (time for the bs now officially  at an end). He either acts in the interest of everybody (the world) or he moves aside, or is moved aside, for somebody who will. America is going into a recession (even if Dr Bubbles refuses to look at it, and people are going to be hurt), that's now beyond question, how deep and severe is now in Dr Bubbles hands - and with captain Bubbles at the helm - I'm more than a little worried.

The problem with a commodity boom is the same as any other boom - when it deflates, it deflates - just how far depends on the size of the bubble (which is a whole other set of problems). Either the USA wants commodities priced in dollars (in which case it should start acting responsibly) or it doesn't. Personally, I think Dr Bubbles has lost the confidence of the market (been in this situation for a while, only now it's for all to see), and I don't see any coming back from that.

I'm loath to say it, but, maybe it's time for a Central Bank sit down. The current lot just cannot be trusted any longer (Dr Bubbles, and crew). Out with the old crew and in with the new is sadly the only answer the market will hear at this stage.

I've seen booms and busts, and I sincerly believe this is the most  critical time, I've personally witnessed.

My God!

In all my life I've never witnessed anything like the last two days in crude. Forget my predictions, this shit has got really serious. Spikes are one thing, however, if this is not out of control it's on the borderline.

President Bush must do one thing he has yet to do - act like a President. I would call on him now to dismiss "bubbles" Bernanke - a liability that cannot no longer be justified. If this thing is not nip in the bud, and soon, we're all headed into an uncertain future (and I do mean everybody).

Sadly, it should've never got to this.

Richard;  Paul, this is your bag. A threadstarter on the market collapse? Please?

So, I predict, with caveats all over, that the headline oil price will reach US$145 a barrel or more by the end of the year. While I'm at it, I predict that the Aussie dollar will reach (at least) parity with the US dollar over that same period.

Personally, I think that by year's end, oil will have moved in the opposite direction. That's not a criticism of the article (which is well researched), simply an opinion.

For me the three deadly sins of the commodity trading are:

1. The belief markets can be controlled (intentionally moved in a certain direction):

Whilst it may not be impossible for certain funds to do this in the very short term, it's impossible over the long term.

2. Markets are rational:

They're not, and never will be. Markets are made up of competing interests all with a different idea about "true value". This is something the peak oil people often fail to understand. Fact is a hell of lot of the market is random.

3. Underestimation of what the market has already factored in:

Any person that has traded for even a short period of time will find this out - often to their peril.

Okay, my opinion is that by year's end oil will be trading at around the $95-$105 mark. I also find it highly unlikely the Aus dollar will hit parity (not saying the worst for the USD is over; again go back to what is "already" factored in).

The continuing slowing world economy (believe it or not the Chinese market for example is off around 50% since last October) will begin to eat into record commodity prices - it's not if, it's when.

None of the above is to say oil hasn't got one or two more spikes left in it. It's to say the medium term view for me is downward. On any kind of retracement, key levels of support would be hit leading I believe to a revision on many forecasts, and sentiment. Although this only a very basic outline, sell can be my only action.

Naturally, I could well be totally wrong. They are called futures, and not presents!

Ian MacDougall: "Well put, though probably not news to many readers of this site. Calling on governments to lower petrol prices must rank with searching for Noah's Ark or the Philosopher's Stone, as among the most futile of human activities."

The most a person can be master of is his/her own domain. Whilst the government doesn't have the ability to lower world oil prices, it does have the ability to lower taxes. The nonsense that a slight lowering of tax on oil is worthless is a baseless claim (it'll result in much bigger savings than most seem aware). That tax (oil) is passed on to all products (with a gasoline content in final pricing), and if a consumption tax comes into play, a product is taxed again. It's a classic tax on a tax which pushes prices, and of course in the present situation, inflation.

Mr Rudd came into office making clear intentions to improve "cost of living pressures". There is not one action, thus far taken, that does this. In fact some actions will make it much more difficult for many people. If Mr Rudd was serious about any of his promises he wouldn't have cut subsidy options for a large number of people.

Mr Nelson is right to ask for tax changes. Asking for tax changes gives a clearly stated intention, and also positions his political party to say no to tax increases - such as the disastrous carbon tax. If such taxes are ripping apart the English Labour Party; why wouldn't the exact same thing occur in Australia?

It's not a fluke that North America enjoys much lower prices than Europe.

Folks, you might be interested to see this new documentary "Australia Pumping Empty". DVDs will soon be available via the Aquila Productions website.

Ed - if the embedding doesnt work the youtube link is here - http://www.youtube.com/watch?v=QO4CzgbFRio

The IEA has now online-released its 15 May Oil Market Report. It makes interesting reading, particularly the chapter with the title above, which appears to bear out a lot of of my reasoning (and doesn't support the more optimistic Lehman analysis released yesterday). So interesting in fact that I'm including the whole chapter - then still recommend that you look at the detail of the full report:

With oil prices reaching $125/bbl, calls for more oil are getting louder. But do we really need more oil? To answer this, we need to look at the current balances, forecasting risks and some of the market perceptions that may have been driving the oil price.

First, we need to step back from the detail and simply define that, in our opinion, this is a bull market driven primarily by demand potential outstripping slow supply growth – notably non-OPEC. With no slack in the system, prices have had to rise to choke off demand growth and bring the market into balance.

This report sees further downward adjustments to demand, and they may not be the last. Despite an aggressive cut last month in our US demand forecast, further downward revisions are needed this month. Official March European data are also exceptionally weak. We are currently treating this as a symptom of an early Easter together with price and weather distortions, but if it extends into April, we may have to trim demand further.

Other downside pressures may also emerge. Faced with the realisation that high prices may be with us for some time, several countries, such as Indonesia, are reassessing the budgetary reality of sustaining oil price subsidies. It will not be easy to unwind them (many countries are wary of civil unrest, and may therefore try to cushion low-income earners with other payments), but when such shifts do come, they could cause temporary downward shocks to demand.

It is, however, unlikely that there will be any short-term shift in the demand picture for China and the Middle East, the two key growth regions. China has recently entrenched its subsidy regime by deciding to compensate Sinopec and PetroChina’s losses with monthly payments, and there are again question markets over data. In the Middle East, there is increased discussion of the need for energy efficiency, but with higher oil prices more than compensating for higher domestic subsidy payments, an imminent slowdown in demand is unlikely.

On balance, though, despite continued strength in China and the Middle East, it would seem that the risks to demand remain on the downside. While consumers may be adjusting to high oil prices, the full impact of current high oil prices in excess of $120/bbl, if sustained, has yet to be factored into either behaviour or forecasts.

Looking at the other side of the equation, supply-side risks extend beyond ongoing project slippage and the approaching Hurricane season. In particular, rising food prices have put biofuels policies under scrutiny. While it seems unlikely that biofuel targets will be reversed in the near future, it is sobering to realise the amount of oil that would be need to replace them. Just offsetting the biodiesel and ethanol added to the US and European markets since 2005 would require around 1 mb/d of additional crude oil supplies to be processed.

The most recent data and estimates suggest that the oil market should have been in surplus for the past two months and should remain in that position for the rest of 2008 - as long as OPEC maintains output at current levels. From an OECD stock position such an outcome is not yet visible. Most likely, the restocking is taking place in non-OECD countries, where there are little data, while OECD refiners are adjusting for weak demand and seasonal 2Q maintenance through lower imports. So do we need more oil?

Consumer countries are calling for more OPEC oil to ease prices. They are right – it would. More crude would prompt a more rapid crude stock build and would improve refining margins, allowing more distillates to be produced. On the other hand, OPEC is saying that the market is well supplied, and that stocks should build. The issue here, as we have been arguing for the past 18 months, is one of stock levels and timing. The market can only express its demand for higher stocks in a supply-constrained market through higher prices. And if some players are determined to build stocks they have to do so in competition with those who need the crude to meet current demand – therefore creating a competitive upward spiral in prices. To the list of upward pressures we should also add perceptions.

By setting output at a level that should allow stocks to rebuild throughout the second and third quarters and indicating it would only address the level of stocks in September (when the economic impact of the financial crisis would be more apparent) OPEC was probably hoping to send a signal of stability and confidence to the market. Instead, the market saw a completely different message: producers were comfortable with prices above $100/bbl and they would not react quickly to replenish stocks or adjust output should demand prove unexpectedly robust.

There is also the perception of a ratchet effect from higher prices. OPEC may, with the exception of Saudi Arabia, have only a limited ability to raise output, but every member has the ability to cut output. Therefore, the perception is that with spare capacity at low levels, OPEC can support a higher level of prices. If traders feel OPEC is signalling it is comfortable with $100/bbl, then fundamentals are appraised from that new base. OPEC’s silence as we neared $120/bbl raised perceptions of an even higher floor.

OPEC’s focus on stocks as a barometer of adequate supply reinforces this perception. Basic economics would argue that if prices move higher than the equilibrium level where supply equals demand, then there should be a tendency for stocks to rise. By cutting supplies to reduce stock levels, a higher equilibrium price is achieved, further reinforcing the ratchet effect. These are, however, just perceptions. They could change easily, particularly if stocks build rapidly.

There are some early signs of changing market conditions. Brent and WTI forward spreads are close to contango, implying that that either stocks are building or that storage is being booked to take crude. Reports of a large build in floating storage for Iranian crude have also emerged in recent weeks. This may give the market greater confidence that a ‘normal’ 2Q stock build is underway. But even if we can see this process beginning, the truth is that due to the lack of weekly stock data outside of the US and Japan, any second-quarter OECD stockbuild will not be fully apparent until mid-July. In addition, given the magnitude of recent OECD revisions, end-June inventory levels will not be known accurately until September.

The key question is how to halt the upward spiral in prices. Clear evidence of a seasonal stockbuild would help. OPEC could kick-start the process by giving at least a clear indication that it will rapidly provide more oil if stocks do not build in the very near future. An even more powerful signal would be to provide more oil now. To the extent that current prices also embody an element of concern over future supplies, an ongoing commitment to investment would also help.

SOME rail passengers are being left behind on platforms and bus commuters are enduring long queues as motorists baulk at the soaring price of petrol and switch to public transport.

Morning peak-hour numbers on CityRail vastly exceed the State Government's "high-growth" predictions, and bus corridors are suffering a commuter crush.

There has even been a surge in demand for inter-city Greyhound coach services.

The rush for public transport comes as motorists begin to ration their petrol use. Sales of unleaded petrol fell by 4.4 per cent in the first three months of the year.

The high price of fuel is causing motorists to switch to public transport. This is just what is needed to reduce our GHG emissions. But as the price continues to rise can our public transport systems cope? Governments are spending billions on roads when the money would be better spent on public transport.

Governments have known about peak oil and climate change for years and have done next to nothing. The public transport system in most Australian cities is underfunded and will not be able to cope with the increasing numbers as we move out of our cars and back to public transport.

Two articles published n the same day, first in the printed paper:

 Rebound in supply to curb runaway oil: OPEC's monthly report says that demand this quarter will average 85.75 million barrels a day. Supply was 86.8 million barrels a day in April.

and then at 2pm on the website:

Oil traded higher at more than $US132 a barrel today as the US summer driving season kicked off, underscoring concerns that output was inadequate to meet rising demand.

Of course might be explained by the fact that the figures in the morning article come from OPEC, who say there's no supply problem, and not from the IEA, who think there is (supply 87.3mbd  - including the increases identified  as "unexpected" in the first article - demand 88mbd).

Dr Nelson says that is too long to wait for relief, and he is challenging Prime Minister Kevin Rudd to adopt his plan to cut fuel excise by five cents a litre.

"For God's sake Mr Rudd make a decision. Don't form another committee," he said.

"Don't tell Australians who are trying to fill up with petrol today, trying to feed kids, and trying to feed their mortgages, don't try and tell Australians you're going to have a committee that will report in 18 months and might take four cents a litre off the price of petrol.

"Make a decision today."

With both the government and opposition trying to reduce the price of petrol by a few cents, do they think the Australian public are fools?

Tell us the truth!

If they were honest they would be preparing us for even higher petrol prices and that a high petrol price is good. The more expensive petrol becomes the more we will try to be reduce our fuel consumption.

If the government wants to save the long suffering motorist help them make the transition to fuel efficient vehicles. Driving a car that runs on 5 litres per 100 km rather than 15 litres per 100 can save the average motorist at least $50 dollars a week.

The government should reduce the taxes on fuel efficient cars and increase the tax on petrol. A carbon tax on petrol is what we need, for the good of the planet.

I'm interested by the fact that in both of the last two months there has been a significant price boost on the last day of the contract - last night to settle at $129.07.

The reason this is interesting is that the people who ended up with the contract at the settlement price yesterday actually have to take delivery of the real oil - so these people who added $2 to the price yesterday are not speculators - they're real oil buyers.

Added to that, we've gone back into contango, which is to say that the futures price for later months contracts are even higher than the (now dead) June contract - up to $136.99 for the furthest future traded. This means the traders see the next moves as up not down (perspicacious, eh).

Meanwhile, real (not speculative) oilman T Boone Pickens weighed in on the side of my predictions, saying he expected to see $150 later this year "because supply isn't keeping up with demand". (Of course, as has been discussed elsewhere on this site, Pickens is personally speculating on a 4 gigawatt wind farm). 

Official figures for 1Q2008 show demand and supply both at 87.3mbd.

If so, the rise of 25% in the oil price over this period (from $100 to $125 - nice easy math) came without demand actually exceeding supply in total. If so, I might have been too cautious in my predictions for the potential rise over the next few quarters if demand seriously exceeds supply in any quarter. However, it is said that there is a lot of heavy crude slopping about the world in tankers with no takers, so it's possible that there was a serious shortage of light sweet stuff behind the price rise.

A new Goldman Sachs prediction that oil prices could rise to $150 to $200 within two years seemed to motivate much of Tuesday's buying, although a falling dollar and increasing concerns about declining crude production in Mexico and Russia contributed, analysts say...........

Not everyone shares Goldman's view. Tim Evans, an analyst at Citigroup Inc., countered Goldman's analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable.

The price of oil hit record highs again today, analysts are saying the price could be between $40 and $200 within two years. The oil price has been rising steadily since 2001, it is hard to think of a circumstance that would change the trend. The fact is supply cannot keep up with demand.

Based on the data from the National Bureau of Statistics of China, China's economy began to grow rapidly from the 1980s and even faster after 2000. oil demand is proportional to the fast economy growth. Fig. 6 indicates that the correlation coefficient between China's gross domestic product (GDP) and oil demand is 99.5%.

The BP Statistical Review of World Energy 2007 says that China's oil demand growth is one of the fastest in the world, increasing by 7.4%/year in the recent decade. China's oil demand has reached 350 million tpy in 2006, second only to that of the US. oil demand because of the fast growing economy still has a potential to grow rapidly. At the same time, China's oil production is growing slowly, only by 1.5% in the last decade.

This gap between demand and production has reached 166 million tpy, and it seems that the gap will become larger in the future.

If we take in China's growing demand for oil it is hard to see the price of oil falling, not to mention India and the rest of the developing world.

Economic growth of more than 8 percent in China and India, coupled with increasing car ownership among the countries' combined populations of 2.45 billion people, will more than compensate for falling U.S. demand. Oil use worldwide will increase 2 percent this year because of growth in emerging markets, the Paris-based IEA says.

I think we should be prepared to pay at least $200 in the next two years and who knows what we will be paying for oil in five years time?

It should be obvious from the cost of food (amongst many things) that gas prices affect the third world a lot more harshly than the first. Basically what you are seeing is a decline in the US dollar reflected in the oil price.

Note: This may read that I'm equating Europe (first world) to the third world (writing of British elections). It should read that if Europe is feeling the effects imagine the effects on the third world.

Jenny Hume

The least we could do in Sydney is as in London - get the cars out of the central city. It is time to legislate as many cars off the city streets as possible. People need to be forced to make the changes that are going to be so obviously needed in terms of protecting the environment and conserving oil reserves. The one person, one car to work policy has to change.

The restrictive "green taxes" were a major reason for the British Labor Parties recent decimation. It's obvious people talk a lot of turkey about such things; that is, until it comes to paying the piper. One conservative guy on the Guardian blog summed it up very succinctly. He said they (Labor Party) just kept thinking of more, and more taxes (or force). These people (Labor Party) had lost touch with the average citizens reality. The stuff they were proposing was "manna from heaven" for us (Conservative Party).

It should be obvious from the cost of food (amongst many things) that gas prices affect the third world a lot more harshly than the first. Basically what you are seeing is a decline in the US dollar reflected in the oil price. This in turn is making US industry a lot more competitive, along with pushing up commodity prices across the board.

The current situation has put the EU in a very strange position. A position were they're basically calling for something that is doing them the most damage. The "green taxes" are helping along inflation which they're finding hard to deal with because to do so is helping US industries at the expense of their own. It's becoming clear (if the UK results are anything to go by); this particular situation (the world's Mr environment nice guy) is fast running out of steam.

It's also very interesting watching the Clinton attack on China. Strangely at a time free trade is beginning to favor many up and coming nations - United States politicians are hinting at a few restrictions. Nothing like changing the rules to suit a certain result I suppose. America, strangely enough once decimated UK industry during the Victorian era through restrictive trade measures. He who owns the gold makes the rules as they say. Australia will come to celebrate the day that it did sign the free trade agreement with the USA - and that you can take to a AAA bank.

Three Predictions:

1. The so called "food crisis" will be used as an excuse to keep the third world out of agricultural markets in the first (no surprises there).

2. The USA will move very much toward a "favored trade status" of nations. The days of Bob Zollick will become equivalent to the dinosaur's.

3. The up coming "climate disaster", will like actual global warming, start to become a lot cooler, in political circles. In Australia this will become apparent the day a "green tax" is not put on gasoline.

The game of world economic power has unfortunately never really been fair. Unfortunately I don't ever see this changing in my lifetime.

 

 

BBC report

NYMEX

So, solidly above $120 by June, I'd guess, keeping my SWAG holding up well. 

Diesel is now $1.80 in some rural areas of Tas and nowhere in Hobart or surrounds can you buy it for less than $1.74. I bought some fuel for my chainsaw yesterday and got it for $1.33lt of ethanol unleaded blend at united, up the road closer to and in Hobart it was $1.54 for unleaded.

I read where the Queensland government is going to buy more than 100 new buses for Brisbane, but I bet not one will be run on alternatives like electricity or biodiesel. I read yesterday that gas pollutes as badly as petrol, as the process needed to freeze it for storage and transport is a heavy energy user. Yet they give more than $4 billion dollars a year in subsidies to the fossil fuel industries and virtually nothing to alternatives. Why is it natural gas prices continue to rise when their production costs and availability hasn't changed much except for CPI rises? It may be our decline will be more rapid than anyone expects or hoped, yet it seems our leaders are doing the opposite to what reality requires and the world's multinational conglomerates are only interested in profit, not sustainability.

Oil prices might reach more than $200 by 2012, he said, a level that would probably mean $7-a-gallon gasoline in the United States.

Some regions are simply running out of reserves. Norway’s production has slumped by 25 percent since its peak in 2001. In Britain, oil production has plummeted 43 percent in eight years. The North Sea is now considered a dying oil basin. Alaska’s giant field at Prudhoe Bay has declined 65 percent since its peak 20 years ago.....

The International Energy Agency estimates that current investments will be insufficient to replace declining oil production, let alone increase overall output. The energy agency said it would take $5.4 trillion by 2030 to increase global output, a level of investment that is unlikely to be met. It said a crisis “involving an abrupt run-up in prices” could not be ruled out before 2015.

This report was in this morning's New York Times.

If you think today's fuel price of about $1.50 a litre is expensive I hope you are prepared for $3 a litre or $4 maybe $5 a litre if we price in a carbon tax.

The international Energy Agency says an investment of $5.4 trillion is needed to increase global output. Surely this money would be better invested in alternative energy sources.

Jad Mouawad in The Age today on the oil situation:

To many experts, the steadily rising price underscored longer-term fears about a system that has supplied cheap oil for more than a century.

"This is the market signalling there is a problem, that there is a growing difficulty to meet demand with new supplies," said UBS global oil economist Jan Stuart.

Today's tensions are only likely to worsen in coming years.

Jad then runs through the numbers. The human population on this planet up 50% by 2050; the number of cars and trucks on roads around the world (and consuming fossil fuels) doubling by 2040; the number of passenger planes zooming around the planet (and consuming fossil fuels) doubling by 2030.

All of that will require a lot more oil — enough that global oil consumption will jump by 35% by 2030, according to the International Energy Agency, a leading global energy forecaster for the US and other developed nations.

Producers will have to find and pump an additional 11 billion barrels every year.

Two options then: the smart one and the stupid one.  The smart one is to find ways to reduce consumption of fossil fuels; the stupid one is to keep feeding the addiction to fossil fuels.

“The rises were supported by fears of further attacks on pipelines in Nigeria and oil cartel Opec's refusal to raise quotas to curb rising prices.

Comments that it will raise production in 2012 failed to dampen sentiment. “

Could be they won't raise quotas because they can't? We passed peak oil in 2005 and you can't get more oil out of emptying wells. Sure there is lots of oil locked up in shale and coal, but the method for extracting and converting this into fossil fuels is not only extremely expensive, but highly polluting. We will probably see oil at $200 a barrel within 12 months, which will destroy most of the world's economies that rely solely upon oil products for their economic survival as Australia and other major economic clones do.

Oil prices have touched fresh highs as traders bet that violence in key producing nations will hurt supply.

US light, sweet crude rose as high as $119.90 a barrel, before closing at $119.37. London's Brent crude peaked at $116.75 a barrel.

The rises were supported by fears of further attacks on pipelines in Nigeria and oil cartel Opec's refusal to raise quotas to curb rising prices.

Comments that it will raise production in 2012 failed to dampen sentiment.

Oil jumped to a record on Monday, and gasoline prices rose above $3.50 a gallon for the first time across the nation, according to AAA, the automotive group, as fears about energy supplies and a falling dollar drove prices to new records.

Gasoline has risen 22 percent in the last year, and some analysts expect prices close to $4 a gallon this summer, typically the time of the year when demand is at a peak.

Diesel prices reached $4.20 a gallon on Monday, on average, compared with $2.93 a gallon last year, according to AAA.

Despite a slackening global economy, the bull market in energy prices is showing no signs of slowing. Oil futures closed at $117.48 a barrel on Monday, up 88 cents, a record on the New York Mercantile Exchange. Oil prices have more than quadrupled in five years.

Some analysts expect oil prices to reach $125 a barrel this year.

Oil prices continue on their way up to $150 or more. It makes a few cents the ACCC says we may save look a little sick. We should come to terms that oil is going to go up and up. We will also need to add more to the price when we price in a carbon tax. Eventually we will all learn to use energy more wisely and we will drive more efficient vehicles. I have recently sold my Ford Fairmont and bought a Honda Jazz. My consumption has gone down from 15L/100km to 6L/100km more than halving my fuel bill. I smile now when I fill up.

Since we're on a predicting thread:

According to T. Boone Pickens, the solution to the energy crisis might be “in the air.” The legendary oilman told CNBC he’s investing $10 billion in a major wind-power deal. Should you trade the trend?

And indeed he expects to turn a big buck (from the world's largest wind farm). He says (as I've written on numerous occasions) as the price of oil rises, so will the competition from alternatives. Pickens (if successful) will prove that indeed the free market does have the answer - and a very profitable answer at that - an answer that will indeed be a major bonus for American freedom, and capitalism.

My prediction: So called green types won't jump aboard this project. Exactly because it is "free market capitalism" - and of course most of the current bunk, and hysteria, isn't about peak energy etc at all. It's about anti Americanism that has its real roots in anti capitalism.

Lets all just wait and see how wrong I am, shall we?

Another $1.83 added overnight. Looking like my prediction of $120 by June is going to be overshot (though the market usually stops for a breather after hitting the next decade, so it may still be in the low $120s in June ...)

If maintained, expect metro ULP price to cross $1.60/l the week after next ... Expect Brendan Nelson to say that this proves that FuelWatch doesn't work, even though it hasn't started yet.

If the price falls back to (say) $114, expect big headlines saying "Oil price falls", so that people can feel bad about the oil companies and the $1.50/l that will be becoming cemented in. And expect Eliot to be claiming that the fall proves I'm just scaremongering. 

In Tasmania, diesel in our area is between $1.66 and $1.75. leaded is $1.43 to $1.54. There's a couple of interesting things to this subject, I believe Australia only gets $6-$10 royalties for a barrel of oil from oil companies. The price of production has not risen in many years, yet oil companies sell the oil to their Australian subsidiary for more than $100 in Singapore, add their transport and refining costs and sell it to the public for massive profits. Yet the oil never leaves the country and is piped directly ashore for refining at the same cost as 25 years ago, just like natural gas. But with gas, there are no refining significant costs, just piping drying and bottling. Yet the prices are rising just as fast if not faster than the rate of petrol.

Then we have the weird anomaly of diesel being so much more expensive than petrol in Aus, yet it’s much cheaper overseas and has refining costs of less than half petrol. Before the Australian lab/lib coalition government introduced an excise rebate of 38 cents a litre for off road and marine engines, and half for road transport, the price of diesel was more than 15 cents cheaper than petrol. Now, it's more than 20 cents dearer and the farmers and fishermen as well as people with remote power requirements have lost their rebate and are paying even more.

So it's really just a con job and grab for huge profits as peak oil passed three years ago and we are now on a rapid road down regarding oil fuels. Yet not one thing is being done to change our approach, just more roads, more subsidies for oil companies, and not one real dollar for alternative or new non polluting forms of transport. I wonder how long it will be before the majority of people actually wake up to the fact that we are being conned into economic slavery, with the only ones being able to have private transport being the elite and security forces, ending up as another Zimbabwe or Burma. Still we should say nothing and just bow down to the superior stupidity of the ruling elite, as they are always right.

Basically this is who is in control of our oil and gas, not us but a multinational conglomerate. They don't appear to be even listed on the ASX and don't mention it at all, so the profits from our oil, go overseas. Truly a great business plan, if your interests are with ACOR and other multinationals as our politicians are.

David, I think you may have been a little on the conservative side. People are already paying over $2 a litre.

Andrew Mayne from the homestead has told ABC Radio's Country Hour program he has no choice but to charge more than $2 a litre for fuel to stay in business.

"You're looking at paying about $2.08 for diesel at the moment, $2.04 for ULP, $2.05 for pulp and $1.09 for LPG. It is a record," he said.

"Every drop we've had so far for the last six months has been a record and it's even looking like it might have to go even higher at the next fuel drop."

Driving around Cairns this morning I saw diesel prices of $1.58 and ULP at $1.48. Spare a thought for the people in the NT who are already paying over $2 a litre. I suspect we will some sort of carbon tax shortly which will take us up towards the $3 mark.

Oil prices soared to new record highs overnight on news of an unexpectedly sharp drop in US energy inventories and a further decline in the value of the dollar.

New York's main oil contract, light sweet crude for delivery in May, jumped $US2.37 to close at $US110.87, after hitting an intraday record of $US112.21.

In London, Brent North Sea crude for May, struck an intraday all-time high of $US109.50.

The US Department of Energy said that energy stockpiles in the United States had dropped across the board during the week ending April 4.

David Roffey, your prediction of $145 a barrel seems to be about right. The oil price continues to climb as the US dollar falls. The high cost of energy is not going to help the already struggling global economy.

Over the past few years the prices of wheat, corn, rice and other basic foodstuffs have doubled or tripled, with much of the increase taking place just in the last few months. High food prices dismay even relatively well-off Americans — but they’re truly devastating in poor countries, where food often accounts for more than half a family’s spending.

There have already been food riots around the world. Food-supplying countries, from Ukraine to Argentina, have been limiting exports in an attempt to protect domestic consumers, leading to angry protests from farmers — and making things even worse in countries that need to import food.

The subsidised conversion of crops into fuel was supposed to promote energy independence and help limit global warming. But this promise was, as Time magazine bluntly put it, a “scam.”

This is especially true of corn ethanol: even on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But it turns out that even seemingly “good” bio fuel policies, like Brazil’s use of ethanol from sugar cane, accelerate the pace of climate change by promoting deforestation.

And meanwhile, land used to grow bio fuel feedstock is land not available to grow food, so subsidies to bio fuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

Oh, and in case you’re wondering: all the remaining presidential contenders are terrible on this issue.

The high price of oil, drought and subsidies to bio fuels are causing a tripling of the price of the world's basic food supplies. A moral dilemma  for the US.

Mark Sergeant: "My understanding, Eliot Ramsey, is that there is a lot more to the European Union than a free trade agreement. Dylan pointed to the Eurozone, which applies to a pretty large subset."