www.bloomberg.com/apps/news
Oil May Hit $200 as Refiners Buy Costlier Crude, Verleger Says
By Robert Tuttle
April 25 (Bloomberg) -- Crude oil may rise to $200 a barrel by the end of the year as refiners increase purchases of low- sulfur oil to make diesel fuel, economist Philip Verleger said.
Ultra-low-sulfur diesel powers most U.S. trucks and diesel- burning cars. To make the fuel, refiners are buying more-costly low-sulfur oils such as the West Texas Intermediate crude traded on the New York Mercantile Exchange, said Verleger, president of PKVerleger LLC, in an interview.
``It's conceivable'' oil could rise to $200 a barrel by the end of the year, he said. If economic ``growth resumes, we are short diesel and no way we are going to fill the gap.''
Lower-sulfur crude is easier to refine into ultra-low-sulfur diesel than heavier, higher-sulfur oils, said Verleger, who, in 2005, predicted oil would rise to $100 a barrel. The diesel was introduced to the U.S. in 2006 to cut air pollution.
Converting higher-sulfur crude into diesel requires hydrogen, which is in short supply, Verleger said. The element is a byproduct from making gasoline. Refiners are making less of the motor fuel than in the past because of increased ethanol use, and therefore less hydrogen, Verleger said.
The 2007 Renewable Fuels Standard, signed last December, mandates that the U.S. use 9 billion gallons of renewable fuels, such as ethanol this year and 36 billion gallons by 2022. U.S. gasoline production in November was 1.4 percent lower than two years earlier, Energy Department data show.
Ethanol Requirement
An option ``would be for Congress to waive the ethanol requirement,'' Verleger said. ``There are a lot of reasons to do this.''
Oil has also risen because investment funds are buying commodities, Verleger said. ``These index funds are playing an important role in lifting prices across the board.''
The returns on the index funds are ``negatively correlated'' to stocks and bonds, Verleger said.
``That finding causes the leading pension funds to put more money into these commodity funds because it has the effect of diversifying portfolios,'' he said. ``This is an ongoing processes that probably has another five years to go.''
Crude oil for June delivery rose $2.93, or 2.5 percent, to $118.99 a barrel at 11:01 a.m. on the New York Mercantile Exchange. Prices are up 81 percent from a year ago.
West Texas Sour, a crude oil that is higher in sulfur, was trading at $112.38 a barrel at 9.03 a.m., according to data compiled by Bloomberg.
To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net
Last Updated: April 25, 2008 12:17 EDT
Oil May Hit $200 as Refiners Buy Costlier Crude, Verleger Says
By Robert Tuttle
April 25 (Bloomberg) -- Crude oil may rise to $200 a barrel by the end of the year as refiners increase purchases of low- sulfur oil to make diesel fuel, economist Philip Verleger said.
Ultra-low-sulfur diesel powers most U.S. trucks and diesel- burning cars. To make the fuel, refiners are buying more-costly low-sulfur oils such as the West Texas Intermediate crude traded on the New York Mercantile Exchange, said Verleger, president of PKVerleger LLC, in an interview.
``It's conceivable'' oil could rise to $200 a barrel by the end of the year, he said. If economic ``growth resumes, we are short diesel and no way we are going to fill the gap.''
Lower-sulfur crude is easier to refine into ultra-low-sulfur diesel than heavier, higher-sulfur oils, said Verleger, who, in 2005, predicted oil would rise to $100 a barrel. The diesel was introduced to the U.S. in 2006 to cut air pollution.
Converting higher-sulfur crude into diesel requires hydrogen, which is in short supply, Verleger said. The element is a byproduct from making gasoline. Refiners are making less of the motor fuel than in the past because of increased ethanol use, and therefore less hydrogen, Verleger said.
The 2007 Renewable Fuels Standard, signed last December, mandates that the U.S. use 9 billion gallons of renewable fuels, such as ethanol this year and 36 billion gallons by 2022. U.S. gasoline production in November was 1.4 percent lower than two years earlier, Energy Department data show.
Ethanol Requirement
An option ``would be for Congress to waive the ethanol requirement,'' Verleger said. ``There are a lot of reasons to do this.''
Oil has also risen because investment funds are buying commodities, Verleger said. ``These index funds are playing an important role in lifting prices across the board.''
The returns on the index funds are ``negatively correlated'' to stocks and bonds, Verleger said.
``That finding causes the leading pension funds to put more money into these commodity funds because it has the effect of diversifying portfolios,'' he said. ``This is an ongoing processes that probably has another five years to go.''
Crude oil for June delivery rose $2.93, or 2.5 percent, to $118.99 a barrel at 11:01 a.m. on the New York Mercantile Exchange. Prices are up 81 percent from a year ago.
West Texas Sour, a crude oil that is higher in sulfur, was trading at $112.38 a barrel at 9.03 a.m., according to data compiled by Bloomberg.
To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net
Last Updated: April 25, 2008 12:17 EDT
posted by:
|
SF Bay Area
|
-
Re: Forcast of $200 by years end.
Sun, April 27, 2008 - 6:15 PMCurrently the price of oil has no real bearing on the cost to pump it out of the ground. There are too many factors that are mucking up the works. The Bush initiative to keep the price high by pumping as much expensive crude into the SPR as possible. The switch to lower polluting diesel engines. And the Bush war causing so much instability in the place where so much oil is currently produced and in reality will be produced for a long time to come no matter what anybody says. Gee when Chavez offered a long tern (decades) contract for Venezuelan oil at $50 a bbl the world scoffed at him. Who were the bigger fools? Or maybe they knew that big profits were on the horizon with that oilman in the White House. Now the fact that the current price of oil is artificially high does not mean that peak oil is not a reality. It just means that the price rose faster than it should which does not bode well for the future price of oil. I suspect if saner heads are in the administration after the election the price will drop for a while until the supply and demand forces the price up once again. -
-
Re: Forcast of $200 by years end.
Sun, April 27, 2008 - 7:36 PMThe cost of anything doesn't have true bear of cost of doing anything, nor the supply. As Matt Simons said, one of the problems that is contributing to oil is that it is too cheap to effect the way people live. When we really run into problems is not when oil hits $1000, it is when spot shortages arrive.
-
Re: Forcast of $200 by years end.
Sun, April 27, 2008 - 8:39 PMwell, we knew he was an oil man, and he has managed to rip of the American people more then any other president in the history of our country. The greatest thing is that we all think he is an idiot, fooled us all. I guess he learned something from Regan, I bet he ends of losing his memory so he doesnt have to be held accountable for the bullshit they pulled the last eight years.
-
