When Goldman Sachs starts talking prices down, there may be bigger price issues coming up than are now visible. GS did just that today and joined the IMF in alerting investors and traders that the current price for crude may not be economically sustainable. When prices started climbing to these heights before Christmas, it was all about the risk premium necessary to be added on to the price of oil because conventional wisdom held that you never know what can happen to the region if one government falls.
Two governments, Tunisia's Ben Ali and Egypt's Mubarak, have fallen. There is still a supply glut in the market. Libya is in the midst of a bloody civil with the fortunes of Ghaddafi and the Libyan rebels changing every day and the loss of 1.6 million barrels of production. The supply glut continues. Demonstrators are shot by security forces in Syria and Yemen and the supply of crude actually grows so that Saudi Arabia has now stopped over-production. Prices may be artificially higher as risks are seen as greater than they actually are.
Gasoline prices are now approaching the heights of the 2008 pricing and the U.S. government is now predicting a 40% price increase in gasoline over the summer. Inflationary economic policies combined with prohibitions on drilling are now coming home to roost. Prices may go higher despite demand destruction because supplies will be tight even though economic activity may be lower than forecast.
Today, WTI -$3.82, $106.06; Brent -$3.47, $120.68; RBOB -$4.94, $3.1559; HO -8.99¢, $3.1675.
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