Tuesday, June 01, 2004

Oil Prices Again

Oil prices jumped $2/barrel today. As a rule of thumb, assume every $1/barrel price rise will add $.05 to the price of a gallon of gas in the US.

Oil traders are scared shitless about terrorism in Saudi Arabia - the only country with perceived real spare capacity. For the most part I think that the futures market is the best indicator of future price - as these are people putting actual money down as bets on what they think the price of oil will be. Today NYMEX futures shows $40 oil though the end of 2004 and oil above $30 through the end of 2009.

My own opinion is that this view might be optimistic. But I can tell you that the BP's, Exxon's, Chevron's, and Shell's of the world are much more bearish about oil prices than the NYMEX traders. The big oil companies are investing like the price of oil is currently at $18/barrel and will never hit $25.