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Wednesday, December 12, 2007

My Notes for Bloomberg Asia TV Appearance

I was on Bloomberg Asia just before 6 pm Eastern time. The subject was oil. Here are my notes ...

1) At 304.5 million barrels, U.S. crude inventories are at their lowest since March, 2005. Increasing backwardation in crude oil futures means refineries will sell down their current stocks because they know they can cover in later months at a cheaper price. Lower stockpiles should boost prices.

2) The Bush administration has been adding 50,000 barrels a day to the Strategic Petroleum Reserve since August, with plans to kick up the pace to 70,000 barrels a day by the end of January. Why are they adding to the SPR when oil is at $90 per barrel? How expensive do they expect it to get?

3) The Energy Information Administration just told the US Senate that crude should average $85 per barrel in 2008 as fundamentals tighten. Goldman Sachs one-upped with its own forecast of $95 per barrel. Remember that back in 2005, Goldman Sachs predicted oil could spike to $105 per barrel.

4) I think we could see prices spike to $150 barrel spike next year. Causes: On the supply side, trouble in the Middle East and possibility of supply disruptions in Nigeria, Russia and beyond. On the demand side, higher prices don’t seem to be dampening demand much in US. Demand in India and China is growing rapidly. China puts 14,000 more cars on the road each day.

5) The only thing that could derail higher prices is a stiff recession in the US. The Fed is working hard to prevent that, with rate cuts and cash injection this morning.


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