Oil prices have risen to a 9-month high "driven by simmering geopolitical tensions over key crude producer Iran and optimism the Greek debt crisis can be resolved." Brent is going for $121.35 a barrel, and the Nymex WTI price stands at $103.24. That's about a 7 dollar rise in the Brent price and a 4 dollar rise in the WTI price since my previous Saturday report. Greek debt isn't going anywhere, and the threat that Israel will bomb Iran is just that—a threat. Speculative money is driving the price. I see no reason to change the alarm level.
Oil Alarm Level — Orange
As I noted in yesterday's post, fears about a surge in gasoline prices this spring have mounted in recent weeks. According to the Daily Fuel Gauge, regular unleaded is going for $3.538 per gallon on average across the nation. That's a 16 cent rise in the past month and a 38 cent rise year-over-year. In an election year, a potential economy-stifling rise in fuel costs puts the Fear of God into Obama's people, who think such a rise might damage "the recovery" and thus their re-election chances.
Amid predictions that the economy's recovery will continue at a moderate pace, White House officials are keeping an increasingly wary eye on oil prices, worried that an election-year spike in the cost of gasoline could dampen consumer confidence and quash President Barack Obama's recent economic and political gains.
Obama advisers point to oil's $23 per-barrel increase in the first half of 2011 over 2010 prices as the factor that eroded purchasing power and slowed growth last year. At the time, unemployment remained stuck at 9.1 percent for three months, and by August Obama's approval rating stood at a low of 38 percent.
In an annual report issued Friday, Obama's economic advisers drew attention to improved economic data and a range of private sector forecasts that place unemployment at between 8.0 and 8.6 percent for the end of 2012. And they note that economic growth so far has been nearly as fast as the recoveries after the 1991 and 2001 recessions.
But gasoline prices — right now at a national average of $3.53 per gallon and rising — are higher than they were at this time last year. Amid continued turmoil in the Middle East and building tensions with Iran, investors are betting that supplies will remain tight in the months ahead and Obama administration officials worry that any disruption in the flow of oil from Iran will result in a rise in global prices.
Obama has been using the threat of higher oil prices as justification for extending a 2 percentage point payroll tax cut through the end of 2012, thus avoiding a $40 reduction in the average worker's paycheck.
"When gas prices are on the rise again — because as the economy strengthens, global demand for oil increases, and if we start seeing significant increases in gas prices, losing that $40 could not come at a worse time," Obama said this week.
All of the parts about "the recovery" are political nonsense, but higher prices for oil and gasoline are all too real to Americans already stretched very thin. Unless a miracle occurs, there is a tough road ahead in 2012 from the fuel costs perspective.
I also alluded in yesterday's post to Citigroup's report claiming that peak oil is now a dead issue. One might think that with our peak oil concerns allayed we needn't worry about gasoline prices now or ever again. I took the liberty of looking at that report. I saw that the first author listed was Seth Kleinman, who Peter Orszag quoted in his Bloomberg editorial asserting that fears about peak oil were baseless. See my recent post Peter Orszag Destroys The Peak Oil Myth. Orszag, who used to be Obama's OMB director, now works for Citigroup. It all comes together!
The Citi report mostly confines its production analysis to shale reservoirs in the United States, so Mr. Kleinman is apparently dismissive of the fact that peak oil is a global phenomenon. Moreover, the report never distinguishes between crude oil and natural gas liquids, lumping these fossil fuel hydrocarbons under the general terms oil or liquids. This is one of the first things an experienced analyst looks for in such reports. Thus we get graphs like this one—
And this one—
If you are impressed by about 18 billion barrels of liquids BOE (barrels of oil equivalent) discovered (globally) in 2010, it seems that you are very easily impressed. Of course, I should remind you that gas liquids (or condensates) are not normally refined into the transportation fuels we use (gasoline, diesel and jet fuel). Crude oil is refined into these products, and that's one reason among many (e.g. it's higher energy density) why it is important to humankind. But if you're at Citigroup, you can make money trading either, so it makes no difference to them. I suppose I could be irritated with a world in which bankers tell me my business, but I'm too old, cynical and detached to care.
What will the oil price be in two weeks? It could be higher if this Iran nonsense continues. I also expect gasoline prices to keep climbing. Welcome to 2012.
Bonus Video — How many times does anti-carbon crusader "Crazy" Bill McKibben mention coal, as opposed to oil, in the video below?
The Colbert Report Mon - Thurs 11:30pm / 10:30c Bill McKibben
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