OPEC produces 32 million barrels of oil a day. And that, it reckons, is enough. The oil price suggests otherwise.
Crude traded above $105 in New York. R.S. Sharma, the chairman of India’s state-run Oil and Natural Gas Corporation told a conference that, “The $100 a barrel [oil] price is here to stay… If we look at statements from OPEC countries, when they say that $90 a barrel should be considered the floor price, it is a matter of great concern and anxiety. It is very disturbing for oil consuming countries.”
What countries don’t consume oil? Iceland maybe, with its unique geothermal wealth. But really, the oil price is “very disturbing” for anyone who uses energy, which includes pretty much everyone.
You reckon something has to give. The markets are reacting to lower interest rates in the States and in the dollar-pegged economies of the Gulf and China (even though China dropped its rigid dollar peg a few years ago.) Fed Chairmen Ben Bernanke is setting the world on fire with inflation.
High oil prices should curb demand, but that hasn’t happened yet. There may be some good investment news in all of this. And no, we don’t mean that it’s great news for energy stocks, although it is. Higher oil prices are going to accelerate the race for substitutes.
Alternative and renewable energy had a dog of a year last year. Most sectors-except for resources-did. But with the oil price back on the boil… real commercial alternatives to getting energy from petroleum will probably get a second, third, and fourth look.
Solar, geothermal, fuel cells, wind, waves… the whole portfolio of energy projects comes back into play the higher the oil price goes. It’s true none of these things replace oil’s sheer versatility as energy. But nothing will. So if the marketplace is going to work, it will have to cobble together a coalition of the able to begin replacing oil’s centrality in our industrial economy.
Don’t expect it to happen fast, though. And don’t be at all surprised if coal-dirty, dusty, black and villainous-plays a big role. Making fuel from coal by turning it into a gas and then liquefying it is old technology. But it will probably get a lot more interesting to oil-poor, coal-rich countries in the next few years. Nearly everyone has some kind of coal. Only a few countries have oil.
After taking its lumps earlier in the week, gold got back in the game today, up $22 in New York. How tricky is the gold market? One the one hand, you have huge investment momentum driving people away from bonds and shares into tangibles. On the other, you have a worldwide credit deflation, from which no asset is seemingly immune.
So which will it be for gold? Hyperinflation on lower U.S. interest rates? Or will the Mighty Midas metal be dragged down with property, shares, and fixed income? Reader comments below.
The Aussie market continues to whipsaw between surprising manifestations of the credit crisis… and higher metals and energy prices. We are reminded of an old Saturday Night Live skit where Steve Martin finds a tub of yellow goo. “Is it dessert or is it floor wax?” he asks. “It’s both.”
This market is dessert and floor wax too.
The Daily Reckoning Australia