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By William Patalon III
Executive Editor
Money Morning/The Money Map Report
Crude oil futures zoomed more than $16 a barrel yesterday (Monday) – and traded as high as $130 a barrel – thanks to a steep decline in the U.S. dollar and speculation that the Bush administration's plan to bail out the financial sector might actually jump-start the U.S. economy.
The record single-trading-session gain came on a day when CNNMoney.com republished a brand new Fortune magazine story in which author and noted "peak oil pundit" Matthew R. Simmons stated that crude prices were headed for $500 a barrel.
At that price level, gasoline would cost more than $10 per gallon.
Crude oil for October delivery soared $16.37 a barrel, or 15.7%, to close at $120.92 a barrel on the New York Mercantile Exchange (CME). The gain surpassed the previous price-gain record for a single day of $10.75, a move that occurred on June 6. The highest percentage gain in a single day – 20.9% – was recorded on Jan. 3, 1994, according to FactSet Research Systems Inc.
Trading was halted for five minutes after the October crude contract reached the daily price-movement limit of $10 per barrel, MarketWatch.com reported. Under trading rules, the price-change limit is increased by another $10.
The October contract expired on NYMEX at the end of trading Monday, a factor that fed into yesterday's volatility.
"I never expected a move that big in one day without some real news, but I'm past the point of saying there are any absolutes in a market like this one we're in presently," Neal Ryan, a managing partner at the New Orleans-based Ryan Oil & Gas Partners, told MarketWatch. The move "underscores that energy is the only place to expect outsized profits these days and the money is flocking into that market."
Simmons is the chairman of the Houston-based investment bank Simmons & Co. International. And like Money Morning Investment Director Keith Fitz-Gerald, Simmons is a longtime oil bull. Indeed, back in February, Simmons actually predicted that oil prices could climb as high as $378 a barrel – characterizing current prices in the $100 range as "preposterously cheap."
What he doesn't understand, he told Fortune, is why so few others see what is so obvious to him.
"I find it ironic that here we have the biggest industry on earth, and I'm one of the few people to figure out that we have a major problem," he told the magazine. "And I did it all in my spare time. How stupid and tragic is that? I shouldn't be one of the only folks that actually has a handful of ideas of how we can keep from blowing each other up and get through this."
Once just an "influential industry expert," Simmons was transformed into an "A-list pundit" by the 2005 publication of his book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," Fortune reported. In the book, Simmons argues that Saudi Arabia's oil supplies are much more limited than everyone thinks.
Today he's viewed as a guru of the "peak-oil" movement, a group of experts who believe that world oil production is near – or actually at – an "inflection point," after which production will no longer be enough to meet growing future demands.
As Simmons, Fitz-Gerald and a relatively small number of others generally predicted, oil zoomed from below $20 a barrel in 2002 to an all-time high of more than $147 earlier this year, before dropping back under the psychologically significant $100 a barrel level.
But with the financial crisis, oil prices have surged anew, making prognosticators such as Simmons look very smart.
"Like most people who ignore conventional wisdom, he was scoffed at, ridiculed, and denied," commodities guru Jim Rogers told Fortune. "And now, of course, people are starting to say, 'Oh, well, I thought of that.'"
Billionaire oil and gas investors Richard Rainwater and T. Boone Pickens are two other high-profile billionaire oil-and-gas investors who both speak highly of Simmons.
U.S. Sen. Susan Collins, R-Maine, who recently began consulting with Simmons on energy issues, told the magazine that the expert is "issuing a clarion call that policymakers need to listen to."
News and Related Story Links:
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MarketWatch.com:
Oil scores biggest daily dollar price leap in history. -
CNNMoney.com:
Here comes $500 oil. If Matt Simmons is right, the recent drop in crude prices is an illusion. -
Money Morning:
Money Morning Boosts Oil Target Price to $225 a Barrel, Thanks to Continued Scarcity, Burgeoning Demand in China.
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.
Matthew Simmons is right, the price of oil will soon skyrocket:
According to most independent scientific studies, global oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 14%.
This is equivalent to a 33% drop in 7 years. No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always exceed production levels; thus oil depletion will continue steadily until all recoverable oil is extracted.
Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.
We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from "outside," and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.
This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html
I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/
As it happens, I am reading Simmons's book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy", and I can understand perhaps why Saudi Arabia was reluctant to agree to an increase in output at the special conference in Jeddah recently.
The main OPEC producers must be concerned about the projected growing gap between world oil consumption and world oil production going forward.
When you see over recent days the NYMEX crude oil futures and ICE Brent crude price rise on expectation of the Paulson plan being voted through in Congress, it is clear that the success of this action will resucitate demand in the US and wider world economy.
While the world may be focusing on the US difficulties, we should remember that even if there is a recession in America, the emerging economies will act as a locomotive of the world economy, and by extension maintain strong demand for crude oil.
Because of technical problems on your ordering form I can not sucribe, sorry!
Karl Bula
You are a fear monger. Fair value was, is, and will remain $60-$70/bbl. It's "cheap" now, it wasn't at $100.
Trackbacks
[…] and depending on it at existing rates In Uncategorized on September 23, 2008 at 9:16 am With crude oil having record gains, I find it deeply unsettling that America, a powerful and technologically advanced country, depends […]
[…] all the volatility we've seen in the price, I don't know how much of a safe haven oil really is." Crude Oil Futures Post Record Gain as “Peak Oil” Expert Calls for Rally to $500 a Barrel Crude oil futures zoomed more than $16 a barrel yesterday (Monday) – and traded as high as $130 a […]
[…] Crude Oil Futures Post Record Gain as “Peak Oil” Expert Calls for Rally to $500 a Barrel Crude oil futures zoomed more than $16 a barrel yesterday (Monday) – and traded as high as $130 a barrel – thanks to a steep decline in the U.S. dollar and speculation that the Bush administration’s plan to bail out the financial sector might actually jump-start the U.S. economy. The record single-trading-session gain came on a day when CNNMoney.com republished a brand new Fortune magazine story in which author and noted "peak oil pundit" Matthew R. Simmons stated that crude prices were headed for $500 a barrel. […]
[…] will rise again and go through the past peak on its way to new record highs. If that happens – and it appears that this reversal is already under way – the actual risk will be borne by investors who aren't invested in oil- and other […]
[…] will rise again and go through the past peak on its way to new record highs. If that happens – and it appears that this reversal is already under way – the actual risk will be borne by investors who aren’t invested in oil- and other energy-related […]
[…] Fourth, the world will learn one day – probably sooner rather than later – that Saudi Arabia’s vaunted reserves are nowhere near what it claims them to be, and those reserves are certainly not at the levels long held as "gospel" in the oil business. Matthew Simmons, chairman of the Houston-based investment bankSimmons & Co. International and author of the seminal 2005 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," has been most vocal about this alleged shortfall, and I respect his work, especially since I’ve spoken behind closed doors with several OPEC figures who privately acknowledged that this may be their worst nightmare. Simmons recently predicted that oil prices would rally to $500 a barrel. […]
[…] Fourth, the world will learn one day – probably sooner rather than later – that Saudi Arabia's vaunted reserves are nowhere near what it claims them to be, and those reserves are certainly not at the levels long held as "gospel" in the oil business. Matthew Simmons, chairman of the Houston-based investment bankSimmons & Co. International and author of the seminal 2005 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," has been most vocal about this alleged shortfall, and I respect his work, especially since I've spoken behind closed doors with several OPEC figures who privately acknowledged that this may be their worst nightmare. Simmons recently predicted that oil prices would rally to $500 a barrel. […]
[…] Fourth, the world will learn one day – probably sooner rather than later – that Saudi Arabia’s vaunted reserves are nowhere near what it claims them to be, and those reserves are certainly not at the levels long held as "gospel" in the oil business. Matthew Simmons, chairman of the Houston-based investment bank Simmons & Co. International and author of the seminal 2005 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," has been most vocal about this alleged shortfall, and I respect his work, especially since I’ve spoken behind closed doors with several OPEC figures who privately acknowledged that this may be their worst nightmare. Simmons recently predicted that oil prices would rally to $500 a barrel. […]
[…] Money Morning: Crude Oil Futures Post Record Gain as “Peak Oil” Expert Calls for Rally to $500 a Barrel […]
[…] KF: Longer-term, the world won't realize that global demand is rising all along – despite what the statistics say – until the economic recovery stimulates oil demand again. Probably no more than five years from now. Eventually, the fundamentals of declining production, growing demand, and thin inventories will overwhelm today's low prices. Which is why I think oil will be back at $212 dollars a barrel … a figure that's downright conservative compared to Matthew Simmons [peak oil pundit and author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy"], who's on record predicting that oil prices will reach $500 a barrel. […]
[…] It seems, though, that the actual boiling point was reached last summer when oil went into a near-vertical climb, surging 63% in just five months, and hitting an all-time high of $147 a barrel last July. Given that oil is in many ways the most relevant commodity to the general public (think fuel for transportation and heating), the new record price touched off a media feeding and prompted projections that crude oil could be headed for $500 a barrel. […]