A Brave New Oily World

The current spike isn't like the oil shocks of yesterday ... tight supply is here to stay, writes CNN/Money columnist Kathleen Hays.

Published: 22-Mar-2005

NEW YORK (CNN/Money) - The view that becomes clearer and clearer in the oil market still bears repeating as we see once again that global bond and stock markets remain fixated on petroleum prices: We are not going back to the future in the oil market because the situation now is not like the 1980s or 1990s when oil prices spiked higher on a supply shock.

This is a price move based on tightening supply as OPEC pumps near capacity versus a brave new world where the US of A is no longer the lone gas guzzler because demand is rising from LA to Beijing to Delhi.

I asked Joe Terranova, director of trading for MBF Clearing Corp. at the New York Mercantile Exchange, why oil keeps going up and up. "Simple, the cat is out of the bag!" according to Joe. "Traders now recognize, for the first time since oil futures have traded, that there truly exists a demand to supply problem."
He pointed out that in the past, during "troubled times" like the Gulf War, the "front of the crude board" -- in other words the nearby traded crude oil futures contract, or spot contracts -- would rally much more than those one year to five years out.


Visits to China, India, Malaysia and Pakistan are significant because the trip spells out the Saudi Kingdom's Look East policy, representing a new reorientation in its foreign policy that was heavily tilted toward the West.

The worst two scenarios suggest a drastic decline in output to 875,000 barrels a day by the end of 2007 and to just 520,000 a day by the end of 2008.

Bush said he envisioned a future in which a plug-in hybrid car could drive 40 miles on a lithium-ion battery, then stop at a filling station for ethanol, a fuel usually made from corn, similar to HyMotion Prius pictured below.


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