Oil: Painful for some, but hardly a crisis

So says a lead report in the Economist. “Americans might whine about it, but they aren’t in pain because the oil price is $35,” argues Roger Diwan of PFC Energy, a consultancy. As evidence, he points to the robust growth in demand for oil in America in recent months—one of the main reasons why prices are now so high.

WOW, tell that to the soccer mom filling up her SUV! The Miami Herald reports: “The national average of $1.729 a gallon reflected data from two separate surveys with all grades averaging $1.779. That represents a 26-cent increase since Jan. 1, according to the Lundberg Survey, (Lundberg Letter of January 21, 2004, analysis of crude oil and wholesale gasoline price, reformulation costs, margins, demand trends and other factors in play is provided along with seven illuminating graphs), which tracks prices at 8,000 stations. Two weeks ago, the Energy Information Administration (EFI) had warned that escalating oil prices could result in refiners cutting back on crude purchases, thus reducing gasoline production.” With the supply of gasoline declining by 800,000 barrels, the drop sent the supply total to nearly 10 million barrels below the five-year average.

The short-term energy outlook, as analyzed by the Energy Information Administration, offers this forecast: “Even if unexpected significant refinery or pipeline disruptions are avoided, national monthly average regular are projected to reach a peak of about $1.83 per gallon this spring. Summer (April to September) gasoline prices are now expected to average about $1.74 per gallon this year. This would be a record in nominal dollar terms and the highest inflation-adjusted summer average since 1985. For 2004 as a whole, national regular gasoline pump prices are now expected to average $1.67 per gallon, 10 cents higher than our previous projection.

So why would the venerable Brits not feel our pain with the huge rise in retail costs to the American consumer? The U.S. Dollar has tanked and since OPEC has an oil settlement in dollars, the price soars. The reason that OPEC is considering a move to euro for pricing crude oil, should be obvious. Their profits are tied to a falling currency. The Globe and Mail warned that OPEC is considering a move away from using the U.S. dollar — and to the euro — to set its price targets for crude oil, the highest-profile manifestation of the debilitating effect of depreciation on the greenback's standing as the currency of international commerce.

Now review the OPEC revenues fact sheet and focus on the next chart - OPEC Basket Prices 1/1/2002 - 3/8/2004. The tell of the tape, since 911, has a chart that makes speculators drool. Add the current spike to $38.18 a barrel and it is hard to dispute the latest comments from the current OPEC President, Purnomo Yusgiantoro: “The current oil price will not be a benefit to the world”. However, he goes on to suggest that OPEC would not back track on its February decision to cut official production to 23.5 million barrels per day from 24.5 million bpd from April 1.