Transportation Management Focus: You Move It, We Write About It  
 
 

-April 6 , 2010 -

Logistics News: Here We Go – Oil Reaches $87, amidst Predictions for another Race to $150.00



Up 70% in 12 Months; Diesel Prices Reach more than $3.00 for First Since 2008; Will New Supply Keep Lid on Costs?


 
 


SCDigest Editorial Staff
 

SCDigest Says:
It was just in 2005 that many predictions that oil prices would rise to as much as $100 per barrel from what was then nearer to $60.00 had companies highly worried about the dramatic impact on supply chain costs. Now, we are nearing the $100 level again.

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The price of oil is fiercely on the rise again, and the question for logistics managers and company executives is just how far it can go.

 

Today, prices were hovering near $87.00 per barrel. That the highest level in 18 months, and represents a rise of about 70% over the levels of April, 2009.

 

Of course, all that is impacting diesel and consumer gas prices. Shippers are now seeing diesel fuel moving past $3.00 per gallon for the first time since November 2008. The premium to year ago increased to 78.70 cents or 35%.

 

What’s behind the rise? Primarily renewed confidence that economic expansion in the US and Europe is occurring, which will bring in new demand in addition to the strong growth in demand expected from China, India and many emerging markets.

 

While the role of speculators in driving oil prices has never been clearly explained, nevertheless in the short term there are often momentum plays where a new high begets another one, as traders push prices higher in the futures markets that are where oil prices are now defined.

 

This climb to $87.00 comes before the summer driving season. In many years, increased summer demand has had the effect of pushing prices further north.

 

It was just in 2005 that many predictions that oil prices would rise to as much as $100 per barrel from what was then nearer to $60.00 had companies highly worried about the dramatic impact on supply chain costs. Now, we are nearing the $100 level again – and we could go higher, perhaps even to the peak levels seen in mid-summer 2008.

 

CNBC analyst Rick Santelli said yesterday that “We're going to have $4 gas this summer probably anyway… You know, we've been to $150 [per barrel] before and I don't see why it couldn't happen again."

Stephen Schork, an oil industry analyst and editor of the influential Schork Report, said oil certainly could spike still higher in the short term.

 

"Crude oil surged past our pivot range to trade in unknown territory," Schork said Tuesday. "Crude oil appears to have broken out of the $75-85 band, and above here the sky’s the limit.”

 

However, in the bigger picture, Schork says there is a lot of supply coming on line that could push prices back down.

(Transportation Management Article - Continued Below)

 
     
 
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Russia recently announced its oil output was 3% above 2009 levels in the first quarter, and OPEC shows no sign of cutting output, with several countries openly flouting their OPEC quotas recently, according to Schork.

 

He believes that while there is likely to be higher prices in the short term, it could soon be blunted by this increased production.

 

“The bottom line is that American energy demand will rise in the short term, but there is a tidal wave of supply ready to meet it,” he says.

 

Still, with prices perhaps just days or weeks away from a move to $100 in what is a still soft economy, we could start heading to 2008 levels again – perhaps sadly stunting the nascent recovery in its tracks.

 

Are you surprised oil is back to near $90 per barrel? What does your crystal ball tell you prices will be headed? How is this affecting your planning, if at all? Let us know your thoughts at the Feedback button below.

 

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