Other factors of course but this is the main driving force. If the USD keeps falling, oil will continue to rise.

Should I keep going?

EAHINC

 

Part of the problem is guys see the $105/bbl price and the "sticker shock" immediatly triggers their anxiety over how much it's costing their companies per year, because the airlines don't have the pricing power on tickets right now to make up the difference.

Inflation is too many dollars chasing too few goods. The weak dollar fuels that senario. Airlines are on a different formula, with too few passengers chasing too many seats, so that even though ticket prices aren't going down in nominal terms, they are going down in real terms as the dollar weakens. In other words, ticket prices are deflating relative to oil and other costs, hence the profit squeeze and the decelerating earnings for many airlines in the 4th quarter. JP

 

OK, earlier you said the dollar had "everything to do with it", and I thought you were excluding the possibility of other factors affecting oil prices. Do you subscribe to the peak oil theory, for example? Limited refinery capacity? CAFE standards as being costly? etc...JP

 

JP,

I believe misguided monetary policy is the main issue responsible for high oil.

I subscribe to the peak oil theory in as far as it trickles into economic speculation. Investors think, Ok, this commodity is going to become increasingly scarce in a few more years. I personally don't believe it, but enough people do and investors are taking advantage of it. So again as the USD drops, oil prices go up as oil is denominated in dollars.

Investors are looking, I believe for safe haven as the global economy slows. Oil and other commodities such as wheat, corn, coal, gold, platinum and silver are very high.

As oil goes up, the more inflation will go up, the more it weakens the USD, the more oil looks like a lucrative safe investment and then thrusts oil price up even further. In my opinion, I think rates need to come up rather than go down.

This is especially evident in developing nations where I have done extensive business. Infact, as inflation has increased a few nations have been tinkering with the idea if they should move off the USD as its been a destabilizing and retarding force for their economy. I believe that would be a very poor decision in the long term for them but historically poor nations have continued to lack sound economic policy.

I think oil has gone up slightly 50 percent in Euro and over 60 percent in USD terms last year. So this explains in my opinion, why Europe has not been hit as hard as the US with an increase spread between the Euro and USD however this is going to change if the USD sinks more and contribute to a downward spiral for Europe also.

The spread between the USD and the Euro is at a maximum. If it increases further European business mainly exporters will start to seriously hurt and will contribute to this circle of economic volatility.

Oil supplies are slightly up worldwide and demand is down as the global economy slows and price is still rising? I think this can explain the wave of speculation investment rushing into the market. I would estimate speculation is responsible for 30 percent of the oil price today.

I think speculators may wake up a realize they can find a reality of oversupply and price will fall. Hopefully we will see rates increase at around the same time if not before.

As for the question you asked, yes, CAFE standards have a negative effect but I believe not as much as the weak USD and speculation.

As for limited refinery, well I'm not sure. Its true no new refinery construction has been built in the US for some time now but Exxon has increased the size of its refinery considerbly in Texas over the last decade. It has grown larger than originally built to avoid new regulations and permits to construct a completely new refinery.

Its obviously very murky global economy right now and this is just my opinion as I see it from my vantage point.

EAHINC

 

I think that we all want to believe that there is no long term problem with our oil supply.

However, there is a long list of books and talking heads coming out about the "end of oil". Add to our problems of the USD and inflation, the growth of China and India it seems inevitable that the price of fuel will double or triple over the next 5 to ten years.

One book that I read claimed that we will have oil above $200 a barrel in 2010. It also claimed that in 2008 we would reach $100. So far its predictions are right on.

As pilots our entire profession is dependent upon a free flowing supply of fuel. Demand in the airlines swings wildly with the price of tickets. In ten years from now we most likely will have a much different and smaller industry than we do today.



SkyHigh

 

It is not just that there have been no new refineries... How many have closed in the last 20 years! Google It! That's why I am inventing ZPE!!

Yeah! Baby!

 

Oh GAWD!! Puhleeze....

 

Peak oil theory is a myth perpetrated by oil lobbyists to gouge prices. Internal memos obtained from Chevron, Mobile and Texaco have proven this. CAFE standards while a good idea are still rooted in a woefully inadequate baseline. It needs to be raised tenfold in order to be effective. We certainly need more refineries to be built in order to up capacity. There are an estimated one trillion barrels of oil yet to be tapped under the sand box so a bit of an ample supply is out there, albeit under areas highly vulnetrable to volatility. Russia, although the second biggest exporter recently behind the Saudis is about to tap out, along with Nigeria, Chad and Venezuela. Their oil discoveries are quickly becoming a flash in the pan. No staying power with availability.
EAHINC, very intelligent post.

 

Ok, let's see them.


According to whom?

 

Three separate internal confidential memos from Mobil, Chevron and Texaco ( http://www.consumerwatchdog.org/energy/fs/) have been obtained by The Foundation for Taxpayer and Consumer Rights.
These memos outline a deliberate agenda to gouge prices and create artificial scarcity by limiting capacities of and outright closing oil refineries. This was a nationwide lobbying effort led by the American Petroleum Institute to encourage refineries to do this.
An internal Chevron memo(http://www.consumerwatchdog.org/energy/fs/5103.pdf) states; "A senior energy analyst at the recent API convention warned that if the US petroleum industry doesn't reduce its refining capacity it will never see any substantial increase in refinery margins."
The Memos make clear that blockages in refining capacity and opening new refineries did not come from environmental organizations, as the oil industry claimed, but via a deliberate policy of limitation and price gouging at the behest of the oil industry itself.


Geologist studies have repeatedly claimed there is still close to a trillion barrels of untapped oil under Saudi Arabia. Not a hard fact to come across with some mild research.