Return of High Oil Price Predictions: CNBC Segment Warns of $300 Oil
If you want to know when the economy is making a comeback, keep a watchful eye on the frequency of high oil and gas price reports in the news.
Throughout 2007 and the first half of 2008, viewers were inundated with high gas and oil price reports on cable and broadcast news. But since hitting $147 back in July 2008, oil prices have plummeted into the low-$40 range mid-January and so has the frequency of doom-and-gloom oil warnings.
However, crude has since rallied into the upper-$50s. And, as crude has rallied, predictions of oil hitting unfathomable heights appear to be making a comeback as well. CNBC's May 8 "The Kudlow Report" considered that $300-a-barrel oil was a possibility.
"Crude oil teetering on the $60 mark, rising today as much as five bucks," "The Kudlow Report" fill-in host Michelle Caruso Cabrera said. "Are we heading toward $150 oil? Could we even hit $300?"
Kevin Kerr of Global Commodities Alert explained $300 oil was still a possibility - since the momentum to drill for more oil, improve infrastructure and develop other sources of energy has waned with the decline in the price of crude.
"Look, $300 isn't going to happen overnight," Kerr said. "But the same situation that we had, when we saw oil prices get to $147 - the same things still exist. We do not have more drilling. We do not have more infrastructure. Alternative energy has basically dropped off the map."
One variable many experts attribute the decline of the price of oil to is the drop in demand, due to the economic slowdown. But Kerr contended the economy is turning around and so will oil's price.
"You know, oil prices have swung all the way back down to around $30," Kerr continued. "Everybody was talking about a $30 sustained oil price or maybe even lower and that's just unrealistic. Demand is starting to comeback. We're starting to see the seeds of a recovery."
Stephen Schork of The Schork Report explained oil's rally last year was nothing more than the creation of a speculative bubble and it wasn't based on true supply and demand.
"Let's go back to a year ago," Schork said. "We did get to $147. That was nothing but a speculative bubble."
One variable in the oil equation Kerr said - inflation. As the dollar weakens with a low Fed funds rates and increased government spending, the price of commodities will reflect expansion of the money supply.
"What was one of the biggest drivers this week for the energy sector - the weak dollar," Kerr said. "It got slammed and what do we see crude do - it rallied right back up. As the dollar keeps dropping, which I think it's going to, we're going to see these commodities prices get some move to the upside."
Updated by Noel Sheppard at 11:20 a.m.: I wanted to add that the current rally in oil is clearly a revival of absurd speculation ignoring fundamentals. After all, oil inventories are now at their highest levels in almost nineteen years. Add this to reduced demand as a result of a global economic slowdown, and today's prices should be NOWHERE NEAR $60/bbl.
Even with a $10 to $20/bbl geopolitical risk premium, oil should be between $20 and $40/bbl. Readers are encouraged to review Raymond J. Learsy's recent article on this very subject, "Why are We Paying $50 a Barrel for $20 Barrel Oil??"
The only reason oil is now at these levels is because speculators are once again bidding it up irrespective of the current supply and demand. This makes CNBC's $300/bbl discussion irresponsible, for they are once again assisting the oil bulls in driving up energy prices which hurts all of us who are looking to cut expenses in a soft economy.
As last year's run to $147/bbl was clearly a speculative bubble that CNBC helped inflate, maybe these good folks should learn from that and not allow themselves to aid and abet bubble filling again.