Am I the only one that sees a positive in high oil prices?
The higher it gets, the more viable greener alternatives become and if we find a solution it should reduce our reliance on the variety of often less than delightful oil supplying nations.

The prices will have to go quite a lot higher for this to happen though. $8/gallon petrol in the UK has done little to reduce our reliance on cars, and the US seems to have stayed at about $4/gallon or there abouts for years. I know the green campaigners want something like $50/gallon, and part of me is ok with that actually but this could have something to do with my city living and lack of car of course...

We need to find a compromise that pushes city dwellers towards public transport, but at the same time allows country folk to use their cars as much as they need to because local countryside public transport tends to be expensive and inefficient. Congestion charges are one way I suppose, but obviously that involves tracking car movements which I'm not so keen on.

I'd say this will go above $150 if the middle east game continues. The game now is national reserve holding domestic price vs. Opec tightening.



http://www.bloomberg.com/news/2011-01-21/opec-pressured-to-lift-output-as-africa-asia-oil-at-100-energy-markets.html

Nigeria’s Bonny Light grade, from which traders gauge the cost of West African oil, rose to $100.12 a barrel on Jan. 17, passing $100 for the first time since October 2008, according to data compiled by Bloomberg. Malaysia’s Tapis and Indonesia’s Minas breached that level a week ago, trading at $104.36 and $104.01, respectively this week.

The International Energy Agency, an adviser to consuming nations, said Jan. 18 that “three-digit oil prices risk damaging” the economic recovery, signaling that the Organization of Petroleum Exporting Countries should raise output. OPEC responded the same day by saying that global supplies are sufficient to meet demand.

With “some Asian crudes well above $100 a barrel, the risks of OPEC acting must be higher,” said Lawrence Eagles, New York-based head of oil research at JPMorgan Chase & Co. “We would not be surprised to see the public rhetoric from consuming countries accelerate in the coming weeks. Behind the scenes pressure will no doubt be mounting in parallel.”

The announcement by Brian Cowen that he was resigning as the leader of the Fianna Fail party, but is going to stay on as Taoiseach (Prime Minister) until the March 11 election, has put the Irish bailout into question.  The November bailout of the Irish economy consisted of a series of different financing packages being combined into a larger total.

The first funds available under the bailout were provided by the raiding of the Irish retirement fund by its bankers.  The next steps were to be funded by the EU and IMF funding sources, once the people of Ireland were legally subjected to the bailout requirements.  The bailout never made it to a full vote before the collapse of the Fianna Fáil party.

This leaves Ireland in the unique position of being able to reclaim its future, by denying its past.  The citizens of Ireland have not accepted the bailout.  The coalition is not expected to be able to put the matter to a vote before the election.

“All we know is we are going to get an election on or before March 11 but that is about it,” said Micheal Marsh, professor of politics at Trinity College Dublin, calling the events of the past week “bizarre.”

“If the conditions in which all of this was going on were not so serious it really would be farcical.”

The people are clear they plan on voting for anyone who will fight the bailout.  This makes the chances of a post-election bail out vote of acceptance unlikely.  If the Bailout fails to be voted on in the coming days, it may never make it to a vote.

http://www.zerohedge.com/article/ireland’s-titanic-bailout-risk-iceland-looms-ahead

 

Go Ireland!

The Importance of Capital Theory

When thinking about this article, I went back and forth. I have decided that I should spell out a "model" of intermediate complexity, because if I simplify it too much, it might not really click with the reader, but if I go overboard with it, no one in his right mind would finish the article. Without further ado, let's examine a hypothetical island economy composed of 100 people, where the only consumption good is rolls of sushi.

The island starts in an initial equilibrium that is indefinitely sustainable. Every day, 25 people row boats out into the water and use nets to catch fish. Another 25 of the islanders go into the paddies to gather rice. Yet another 25 people take rice and fish (collected during the previous day, of course) and make tantalizing sushi rolls. Finally, the remaining 25 of the islanders devote their days to upkeep of the boats and nets. In this way, every day there are a total of (let us say) 500 sushi rolls produced, allowing each islander to eat 5 sushi rolls per day, day in and day out. Not a bad life, really, especially when you consider the ocean view and the absence of Jim Cramer.

But alas, one day Paul Krugman washes onto the beach. After being revived, he surveys the humble economy and starts advising the islanders on how to raise their standard of living to American levels. He shows them the outboard motor (still full of gas) from his shipwreck, and they are intrigued. Being untrained in economics, they find his arguments irresistible and agree to follow his recommendations.

Therefore, the original, sustainable deployment of island workers is altered. Under Krugman's plan for prosperity, 30 islanders take the boats (one with a motor) and nets out to catch fish. Another 30 gather rice from the paddies. A third 30 use the fish and rice to make sushi rolls. In a new twist, 5 of the islanders scour the island for materials necessary to maintain the motor; after all, every day it burns gasoline, and its oil gets dirtier. But of course, all of this only leaves 5 islanders remaining to maintain the boats and nets, which they continue to do every day. (If the reader is curious, Krugman doesn't work in sushi production. He spends his days in a hammock, penning essays that blame the islanders' poverty on the stinginess of the coconut trees.)

For a few months, the islanders are convinced that the pale-faced Nobel laureate is a genius. Every day, 606 sushi rolls are produced, meaning that everyone (including Krugman) gets to eat 6 rolls per day, instead of the 5 rolls per day to which they had been accustomed. The islanders believe this increase is due to use of the motor, but really it's mostly due to the rearrangement of tasks. Before, only 25 people were devoted to fishing, rice collection, and sushi preparation. But now, 30 people are devoted to each of these areas. So even without the motor, total daily output of sushi would have increased by 20%, assuming the islanders were equally good at the various jobs, and that there were plenty of fish and rice provided by nature. (In fact, the contribution of the motor was really only the extra 6 rolls necessary to feed Krugman.)

But alas, eventually the reduction in boat and net maintenance begins to affect output. With only 5 islanders devoted to this task, instead of the original 25, something has to give. The nets become more and more frayed over time, and the boats develop small leaks. This means that the 30 fishermen don't return each day with as many fish, because their equipment isn't as good as it used to be. The 30 islanders making sushi are then in a fix, because they now have an imbalance between rice and fish. They start cheating, by putting in smaller pieces of fish into each roll. The islanders continue to get 6 rolls per day, but now each roll has less fish in it. The islanders are furious — except for those who are repulsed by the idea of ingesting raw fish.

http://mises.org/daily/3155

At least oil is down. back at $90 instead of $100.



http://www.bloomberg.com/news/2011-01-25/oil-declines-a-sixth-day-after-saudi-arabia-s-al-naimi-signals-more-supply.html



Oil for March delivery declined as much as 49 cents, or 0.6 percent, to $87.38 a barrel in electronic trading on the New York Mercantile Exchange and was at $87.65 at 9:16 a.m. London time. That’s lower than its settlement prices since Dec. 1. Brent crude for March settlement slid 15 cents to $96.46 a barrel on the London-based ICE Futures Europe exchange. Yesterday, it fell 99 cents, or 1 percent, to $96.61.

Well, you need to make sure the sheeplees are stupid and ill informed when the slaughtering day comes. It's fairly amazing how much similarities there is when  things spiral down. Usually, this is followed by increased spending on means to control the mass (priest, mullah, church, special unit police, government news outlet & groups)



I for one am watching egypt. no1. It's the biggest cotton producer in the world. If that place blows to pieces, next holiday the poor won't be able to afford clothing. Depressing further the biggest job provider in the world (garment industry)  At the very least this will happen. no2. egypt is a huge country. 80 million people. A turmoil won't end nicely like tiny tunisia. It'll be followed by years of political bickering. no3. Saudi regime is shaking in their boot right now. Along with Jordan. They are next on the list. This will include Israel misbehavior adding into complexity. no4. And with that global oil price and US economy (currently it is incompetently run, absolutely corrupt)



If Egypt ends badly, for the first time, total collapse of dollar and US economy are now a real possibility. Not just a domain of internet conspiracy theory. We are talking about the destruction of petro dollar cycle. If saudi is destroyed, Real-Dollar peg will go. And with that, oil price & Dollar value are only supported by one remaining leg , China's peg/asian central banks willingness to hold it. About $ 5 Trillion worth of cash. Everything else is detail.  After that, who knows what will happen to dollar value. Europe is not large enough to support dollar from collapsing, nor does it have the political willingness.



People say Dollar is over valued by 40% against basket of world currency. (I'd say, you can't calculate that, because we are talking about Forex hold by biggest asian central banks. It could stay, or it could plunge to nothingess overnight.)



you do not want to get caught holding worthless dollar when the elephants are stampeding out.

The U.S. budget deficit this year will jump nearly 40 percent over prior forecasts, mostly due to the mammoth tax-cut package brokered by President Barack Obama and lawmakers last month, the Congressional Budget Office said on Wednesday.

The CBO said the fiscal 2011 deficit will hit $1.48 trillion, up from last August's $1.07 trillion estimate, which was crafted before Bush-era tax rates were extended at a cost of $858 billion over 10 years.

http://www.huffingtonpost.com/2011/01/26/budget-deficit-to-hit-148_n_814479.html

 

WASHINGTON — The US budget deficit will hit a record-breaking 1.5 trillion this year, the Congressional Budget Office projected Wednesday, thanks in part to a recent tax cut deal.

Constrained revenues and increased spending to revive the economy will push the deficit to a whopping 9.8 percent of gross domestic product this year, according to the forecast.

The CBO, which is considered a bipartisan scorekeeper in the hotly contested debate over US debt, said an expected uptick in tax revenues as the economy improves would not fully materialize.

http://www.google.com/hostednews/afp/article/ALeqM5hXaAaMmuNBITOu4py5sj1Azte6jg?docId=CNG.32ed027d9136847068e1420850fb9209.51

The money printing will be twice as hard as last year. ... so get ready.  price explosion.

this will do wonder to coal, wheat and cotton price.



http://www.businessinsider.com/map-of-the-day-cyclone-anthony-2011-1



Another massive weather problem is on Australia's doorstep, this time in the shape of a developing cyclone off the country's east coast.

2011 money printing will be double 2010 size. Do the math people.

Already Record Food Prices Rise By 3.4% In January

the FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4 percent from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990."



http://www.zerohedge.com/article/already-record-food-prices-rise-34-january

 China allocates $228m for vegetable supply (China Economic Net)

http://www.neurosoftware.ro/finance/insurance/economy/egypts-food-problem-in-a-nutshell/

Shit, Meet Fan

The happy carnival ride continued through the mid-2000s, and in fact 2005 and 2006 were banner years. As much as any region of the country during those heady days, this place was on steroids: housing prices doubled (or more) almost overnight, and it seemed everyone and their brother was buying and flipping homes. Historic bungalows in our neighborhood, which sold for $150,000 in the mid 1990s, were going for $500,000 or more a decade later -- and people were lined up to out-bid one another! Late-night TV was full of home hawkers who wore gold chains and drove Rolls Royces, and every weekend in Phoenix or Scottsdale you could attend a huge convention marketing another piece of the Ponzi.  

The state's developer-owned Republican legislature took the money and stoked the dream, along with many city councils and chambers of commerce. Sitting in jail, Charlie Keating looked like a piker compared to the casino economy unfolding around us. With the skids greased by government, banks, the construction industry, realtors, and mortgage companies encouraged young couples earning $30,000 between the two of them to buy that new $300,000, 5-bedroom, 4-bath tract home in Del Vista Heights -- very little down, 0% interest the first year. The fellatio artists who comprised the corporate media celebrated that success story, rarely digging beneath the veneer. But then reality turned on its very big fan and shit started hitting it in 2007. That 0% ballooned to 12%, home values plummeted, jobs disappeared ... and you know the rest of the story. There were nearly 100,000 homes foreclosed on last year in the Phoenix area, and likely many times that number under water. Middle class houses in the West Valley that sold for $175,000 a few years ago are now listed for $30,000. And sitting empty. The state has historically experienced an economy built on booms and busts, whether it's mining, ranching, or lumbering -- leaving ghost towns in its exploitative wake -- and today Arizona is a poster child for the most recent bust.

Combine this housing shit storm with the corporate tax cuts that the oh-so-wise legislature started to enact a decade ago, and the result is an economy in free fall. The current fiscal year deficit is $3.2 billion (pdf), which amounts to 47% of 2011 revenues, and the forecast for 2012, Arizona's Centennial year, is no rosier. To help itself out of this economic cesspool, the state even sold its Capitol, legislative chambers, and other facilities to slum lords, and is leasing the space back. One wonders what Arizona will celebrate in 2012.  

http://www.dailykos.com/storyonly/2011/2/5/941260/-Arizona-Sinks,-Deck-Chairs-Arranged

The average price of a gallon of self-serve regular gasoline in Los Angeles County rose to its highest amount since Oct. 15, 2008, today, increasing 1.4 cents to $3.394. 



The average price is 4.4 cents more than a week ago, 6.6 cents higher than one month ago and 40.5 cents above what it was one year ago, according to figures from the AAA and Oil Price Information Service. 



The Los Angeles County average price has increased four consecutive days - 1.1 cents both Wednesday and Thursday, nine-tenths of a cent Friday and 1.4 cents today. 



The Orange County average price rose to its highest amount since Oct. 13, 2008 today, increasing 1.5 cents to $3.397, 5.1 cents more than a week ago, 6.8 cents higher than one month ago and 41.5 cents above what it was one year ago.



The Orange County average price has increased four consecutive days - 1.2 cents Wednesday, 1.3 cents Thursday, nine-tenths of a cent Friday and 1.5 cents today.



Analysts cite high oil prices as the reason for the rising gasoline prices. 


http://www.contracostatimes.com/california/ci_17304816?nclick_check=1

As Brent Front Month Contract Rolls To April, Price Hits $103.75, Wheat Highest Since 2008

http://www.zerohedge.com/article/brent-front-month-contract-rolls-april-price-hits-10375-wheat-highest-2008

Gold $1410.

Silver over $34.

Oil over $94.

http://www.businessinsider.com/the-day-begins-and-oil-silver-and-gold-are-going-nuts-2011-2

(preview of what the world will look like during next Saudi Revolution.)

Cocoa at 32-Year High As New Ivory Coast Ban Looms

http://online.wsj.com/article/SB10001424052748703529004576160232155821522.html

stop hoaging all the chocolate, I haven't stock up mine yet...

what is happening in Egypt and North Africa results in stagflation in the
short term. So higher inflation and lower growth because of higher oil
prices that take away purchasing power and transfer wealth somewhere
else; because of higher geopolitical risk

On unrest in the Middle East:

"I think that a
common factor that's been driving all of that is a combination of youth
unemployment, high food prices, and political repression. But as you
say, Libya is different. The revolutions in Tunisia and Egypt were
relatively peaceful. Libya is far from being relatively peaceful.  There
is a tremendous amount of human suffering and casualties there, making
this protest more unpredictable and more dangerous. In addition, Libya
is a major oil exporter, so suddenly developments in North Africa and
the Middle East have a systemic impact on the economy."

http://www.zerohedge.com/article/mohamed-el-erian-says-we-can-not-assume-dollar-will-retain-its-reserve-currency-status

Ugly Out There!

The Shanghai Index fell 2.6% overnight.

Italian bonds are blowing out. If sustained, this is bigger deal than
the stock market swoon across Europe: CAC down 1.45%, FTSE down 1.1%,
Dax off .4%. A lot of Libyan shares apparently in Italy and Libyan
interests own over 7% of Unicredit, the biggest bank in Italy. Ouch.
[...]

Continued clashes and the possibility of civil war have spooked
global oil markets, with prices jumping to the highest levels in over 2
years. Libya produces 1.8 million barrels of oil daily, and its 41
billion barrels of proven reserves represent more than 3% of global
supplies.

Italian oil and gas company Eni SpA said Tuesday it had suspended
some of its Libyan production, including the Greenstream pipeline that
supplies about 10% of Italy's natural-gas needs. Spanish oil company
Repsol YPF said Tuesday it is suspending operations in the country.

All Libyan ports—including Zawia, Tripoli, Benghazi and Misurata—have
been closed, traders in the country said. They said they expect the
ports to be reopened in two to three days. A vessel owned by Eni was
been asked to leave Zawia, said people familiar with the oil and
shipping market. An Eni spokesman wasn't immediately available to
comment.

Residents Tobruq said virtually all signs of central government
control had disappeared in the eastern side of the country and that an
antiregime tribe, the Az Zawiya, was also in control of major oil
fields. "We control all of east Libya…and half of western Libya," said
Ali Zeitoun, a 29-year-old anti-Gadhafi activist from Tobruq.

http://online.wsj.com/article/SB10001424052748703529004576159821865690988.html

Another jump at the pump in Wichita Tuesday morning. Gas prices shot up to $3.15 a gallon for regular unleaded at most stations.

That's about a dime more than prices on Monday.

Analysts say unrest in the Middle East is helping to drive prices up.
Gas prices are up 20% from levels a year ago but nearly 23% below the
record $4.11 national average set in 2008.

http://www.kwch.com/kwch-jab-gas-prices-jump-again-20110222,0,3164037.story

What the Saudi Arabia- "day Of Rage" March 11 means for silver and gold, oh and oil too?!

DUBAI, Feb 23 (Reuters) - Hundreds of people have backed a Facebook
campaign calling for a "day of rage" across Saudi Arabia next month to
demand an elected ruler, greater freedom for women and release of
political prisoners.



The page called for a "revolution of yearning" on March 11 in the
kingdom, the world's biggest oil exporter and which is ruled by an
absolute monarchy.



More than 460 people had endorsed the page by Wednesday morning, but it
was impossible to verify how many of them were inside Saudi Arabia or
whether any protest would materialize.



Well, seems as though this is inevitable, and Oil, along with Gold and
silver should do well (add understatement). I wrote about this a few
days ago, and what this means for Israel. I wish the ME luck, we
haven't seen anything yet. The legend grows...



Check back later for full metals report, you know how to thank me.

http://www.thestreet.com/story/11018682/1/what-is-the-message-from-oil-prices.html

More observations from Nomura's Michael Lo:

• In order to
  estimate the impact the current MENA crisis could have on oil supply and
  prices, we analysed past crises that rocked the region. There have been
  a few events that drove oil prices higher (from 30% to 130% per event),
  most of which were during the period in which OPEC controlled oil
  prices. However, we believe the closest comparison is the 1990-91 Gulf
  War as this is the only event outside of that period. During the
  seven months of Gulf War, prices jumped 130% as OPEC spare capacity was
  reduced to 1.8mmbbl/d while demand came off briefly by 1.7%. Similarly,
  today, if Libya and Algeria were to halt operations, OPEC spare
  capacity will also likely be drawn down to 2.1mmbbl/d, in our view,
  which could fuel higher oil prices.
• We have identified
  three distinct stages of the Gulf war which led to changes in oil
  prices and we believe we are only at the initial stage of the three
  stage process for the current MENA unrest. During the initial stage of
  the Gulf war, prices moved up by 21%. This is comparable to what we have
  seen recently when oil price went up by 13% since the beginning of the
  MENA unrest. As we see further evidence of real supply disruption, we
  will be moving into Stage 2 of the event – during this stage of the Gulf
  war, prices moved to its peak (up 130%) within a period of two months.
  On the assumption that prices will move up by the same amount, we could
  see US$220/bbl should both Libya and Algeria halt their oil production.
  We could be underestimating this as speculative activities were largely
  not present in 1990-91.

http://www.zerohedge.com/article/nomura-predicts-220-oil-if-just-libya-algeria-cut-output