The First to Call $100 Oil

Today, oil hit $100 per barrel for the first time. This satisfies two sets of SNS predictions: our 2008 Top Ten, calling for this price in 2008, and a long run of earlier predictions of the same price, going back to early 2005, when oil was in the 40’s, and no one else was suggesting such a rise.

Here are the calls, and their dates of appearance in SNS newsletters, with supporting comments on why this then-outrageous price seemed obvious:

2/15/05: What Is Search?:

From “Upgrades”:

“I was asked last December what I thought of oil prices, and I suggested they would average around $40, and not return to their earlier ($14) lows. So far, we’re pretty close, with oil remaining in the forties today. But recently, our very good friends Hugo Chavez and Vlad Putin have been making some new moves on the chessboard, which have caused me to re-assess the long-term pricing of oil.

“Let me start by saying that no one or thing is more responsible for current global oil pricing than George Bush and the Iraq attack, and that yes, I am aware his family and their business interests and allies make much more money when the price is high. $46 oil might be good for Texas wildcatters, suppliers like Halliburton, and the Saudis (and bin Ladens), but it certainly is not good for the U.S. economy.

“That said, Venezuela’s Chavez appears to be planning his next anti-U.S. move, and bears watching. I don’t believe the fact that he just seems to have reversed himself, and will allow ConocoPhillips to continue exploration in that country, should be construed as anything other than what it is: the PDVSA is dropping in absolute production with ongoing loss in skilled workers and no new investment. Foreign companies, and their money, are needed just to tread water on production, much less improve it. So, for awhile (as in Russia), these companies will be allowed to invest and prove resources, develop infrastructure, and increase production. His deal today with Brazil’s Lula, to buy fighter planes and open the same Orinoco fields to Brazilian oil development, is more likely to be representative of his future path – one that excludes the U.S., when not directly opposing it.

“Venezuela is either the number three or [number] four producer of U.S. oil, depending upon whose list you use, selling us about 15% of our annual import. Last week, there were indications that, after already shifting some oil to Cuba at subsidized prices to help out his buddy Castro, Hugo had a new plan: take some or all of the U.S. export, and funnel it instead to others – including China.

“You might flash back to Chavez’ installation of sidekick Ali Rodriguez as OPEC chief several years ago, just before the prices started getting out of control.

“Russia, for its part, announced this week that no natural resource extraction companies will be allowed going forward if foreign ownership is at or over 50%. Russia has already rejected previous deals done with Western oil companies, in favor of a then-unstated policy whereby the state re-takes control of all privately owned oil and gas operations, a la Yukos.

“Russia is already in a détente with China, using oil and weapons sales as its key export in return for the hard currency we ship in boats to Beijing every 15 minutes. Japan, also desperate for oil, is trying to outmaneuver China for Russia’s supply, but is thus far losing at least some of the strategic war, in terms of landing points for exported oil.

“Chavez just concluded a weapons [deal] with the Russians, buying 100k assault rifles and a batch of helicopters. (Presidents of his neighboring countries [Colombia and Ecuador] claim he is already supporting the narco guerillas who run what SNSers know as the Che State, a name which seems increasingly to have been well-chosen.) This week he complained about late deliveries of parts to his U.S.-supplied F-16 fleet, most likely as a prelude to importing MIG-29s from Russia.

“Among the several places where these trends are heading: higher oil prices. The U.S. is not prepared to lose 15% of its current supply, and nothing would delight Chavez et al. more. Of course, there is more oil out there, despite the vast new thirst China has added to the equation, but it’s not clear at what price, or when it will, as in Iraq’s case, come online.

“If Hugo arbitrarily stops shipping to the U.S., it isn’t hard to imagine oil at $100/bbl. And you think we are leaving Iraq when?”

4/12/05: The Next Microsoft:
From “Quotes of the Week”:

” ‘$105.’ – Goldman Sachs’ estimate of the oil price peak which shook global markets last week, about two weeks after the SNS prediction of $100. And yes, many Goldman analysts are [SNS] members.”

6/23/05: Ten Years In:

“For the last couple of weeks, you’ve been hearing about the increasing price of a barrel of oil, driving up the cost of doing business and taking the wind out of the stock markets. Every publication has some kind of story on how this unlikely thing could be happening, even as we ease into summer. People are confused, worried about the future.

“If you are an SNS member, you’ve been waiting for this price escalation. Even before that nice chap from Goldman Sachs shocked the markets by saying it, you’ve expected oil might hit $100 per bbl. in the next couple of years. You read SNS.

“At a time in history when almost everyone believes it is impossible to predict the future, you are one of a small group who know that it can be done. And the longer you’ve been reading SNS, the more evidence you have for this crazy idea. For most people, the future can be a scary idea; for SNSers, the future (like the trend) is our friend.”

8/31/05: Special Letter: From Bits to Barrels:

From my intro: “Second, Martin’s efforts will directly promote increased climate sustainability on a local, regional and perhaps even national scale. And, finally, as world events such as Hurricane Katrina continue to drive oil toward the SNS $100/bbl figure, finding alternatives to this fuel is both timely and provides direct assists to our economy and security.”

11/22/05: High Energy:

“At the beginning of our discussion, I mentioned [that] I had predicted oil would go to $100 per barrel, that I still felt that was a likely event, after a fall perhaps down to a floor of $50. I noted the pressures driving oil price, including Hugo Chavez in his PetroAmerica push, the Chinese and Indian economic growth stories, and the entry of purely financial traders into the markets.

“One figure I didn’t use, but should have, was that currently about 84.6MM barrels of oil are produced globally each day, and 84.3MM are consumed. This near-matching of supply and demand leads to high price volatility (beta), which in turn attracts financial trades. I described one chart I had seen on recent pricing that suggested perhaps one-fifth to one-quarter of the total price was being supported by financial-only trades, a non-contributor a year ago.

“I think I surprised the group by telling them I thought reasonably high oil pricing was good. Among other things, it provided the headroom for technically advanced extraction techniques, as well as for alternative sources and conservation investment. I mentioned our discovery at SNS that about four-fifths of the fake science done to rebut global warming had been paid for, directly or indirectly, by ExxonMobil. I told the group I thought this was dinosaur-like behavior, intended solely to confuse buyers and resulting in social harm, and had no place in the New Energy marketplace.

“Finally, I tried to give them a new goal to shoot for that I thought might be worth their combined energies: expensive, but infinite, energy. I think this is an achievable goal that would eliminate wars, could create unending social benefits, and was worth pursuing.”

4/26/06: Hu’s on First:

“…the larger economy is not as healthy as the Rovers would have you think, and earnings growth without revenue growth is a bad sign. Global energy pricing is COMPLETELY OUT OF CONTROL, with every agency from ExxonMobil to Chavez to the Saudis and Chinese out to get their own and make sure a) the U.S. gets the long end of the stick, and b) prices continue to climb. People who thought I was nuts when I was the first (before Goldman) to predict $100 oil, are now asking ‘When?’ and not ‘If?’.”

8/8/06: Special Letter: Toward Energy Independence (Glenn Spacht):

From my intro: “Those readers who laughed when I predicted $80/bbl oil last year, are not laughing any longer. And those who now take my (pre-Goldman Sachs) $100/bbl prediction of last spring seriously, are no doubt even more concerned. Certainly the Federal Reserve is now in that boat, together with the central bankers of the world.”

11/7/07: Behind the PC Blowout:

“China’s increased demand is the primary mover behind oil prices now approaching $100/bbl.”

12/18/07: Top Ten Predictions for 2008:

“Oil will find a new floor at $70, the average will be higher, and we’ll see a second run at $100 at, or just after, next year end.”