Oil Never Left Us, Crude To $150

The titanic global recession and anxiety about the government’s failure to quickly fix the credit crisis pushed the price of oil up higher than it has been for months. High gas prices and slow growth in emerging countries decreased the demand for oil. Politicians said it was okay to drill off the coasts of Santa Barbara and Manhattan. The Brazilians found more crude reserves in deep water offshore than Venezuela or Russia have underground.

Oil prices had been volatile for so long that investors grew tired of it and chose to turn to something else. Mortgage-backed paper seemed like a good place to sweat out the future though no one understood the danger they posed. That made credit a perfect target for investor worry and government action.

The government action only lasted a weekend. Politicians debating solutions wanted to tie everything from executive compensation to mortgage relief to a program which had the single and nearly noble goal of buying toxic financial instruments from banks.

Outside the world of high finance, China’s oil imports rose almost 12% in August compared with the same month a year ago. According to Reuters, "Industry sources also said on Monday that top oil exporter Saudi Arabia has trimmed oil supplies to major international oil companies and U.S. refiners since the start of September." Just a few weeks ago, the Saudis said they were our friends and would not cut production along with the rest of OPEC. Perhaps they forgot their promise.

The local rebel threat to Nigerian pipelines and the war games set up by Venezuela and Russia have stayed out of the headlines. The violence in Islamabad has not. Nothing in the geopolitical dynamics affecting oil has changed one iota. The problems have merely been displaced from the public’s attention.

Since oil reached $130 at one point yesterday, up $25, in theory, it could be back to its all-time high of $147 by the end of this week.

Almost every analyst and economist with an opinion on oil prices said the trend was down. Americans were riding bicycles and defaulting on their SUV payments.

If October is a cold month in the Northern Hemisphere, crude will make it to $150. T. Boone Pickens will replace Henry Paulson on the front page.

Douglas A. McIntyre