Branson, founder of Virgin Atlantic Airways, warned that unless conditions change quickly we could see $200 oil and 15% unemployment in the USA. He predicts the "mother of all recessions" as peak oil approaches.
Branson said unless the world started to quickly conserve energy and come up with alternative fuels the price of oil could soon be $200 per barrel. He warned of an unbelievably painful economic slump if governments don't do more to find alternatives to fossil fuels. We are going to have the "mother of all recessions' if we don't change our energy policy fast.
Branson recently joined the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) because of his fears of a coming oil shortage. This task force produced a forecast back in February and I included a copy of the report with my Peak Oil report earlier this year. Report link
There is definitely a conflict in expectations for oil supplies. The executive director for the IEA, Nobuo Tanaka, said yesterday he believes the oil market will be "well supplied" until the end of 2011. He said OPEC could continue producing at current levels until the end of 2011 when they will have to start adding to production to keep up with demand.
However, the U.S. Military in their Joint Operating Environment report warned, "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 mbpd." (Sec 1, pg 29) Report Link
The conflicting view in the marketplace are causing funds to bet on oil prices returning to their 2008 levels in 2012. The short term market is attracting money from every direction.
Hedge funds increased bullish bets on oil by the most in eight weeks on signs the global economy is accelerating out of the recession. Net longs by commercial investors rose by +18% or 24,461 contracts for the seven days ending Nov-30th according to the CFTC. Total open interest rose to 164,204 contracts. It was the largest weekly increase since October 5th.
Goldman Sachs increased their forecast for 2011 to average $110 per barrel. Deutsche Bank raised its prediction from $80 to $87.50 and JP Morgan raised estimated to $93 from $89.75 but said they could see $120 by the end of 2012. I expect all of them will be wrong and we will see $120 oil again in 2011 and $150 in 2012.
Goldman said the stage was set for a structural bull market in oil by 2012 based on improving global growth. Exploration companies are betting on this growth today. Baker Hughes said oil and gas rigs jumped to a new 23-month high at 1,713 last week. That was a gain of 26 rigs. Oil rigs jumped +18 to 742 and gas rigs gained +8 to 961.
I personally don't believe prices will continue going up after year-end. I believe funds are speculating on the expected decline in inventories as refiners cut inventory levels over the next four weeks to try and avoid property taxes on Dec-31st. Funds are betting on a price spike as the weekly inventory reports show inventory declines. Once into 2011 we should see levels rise sharply. Demand last week was the lowest since mid October. That is not long term bullish.
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