Et, vOILa!

I wonder if it's coincidence that this is happening ahead of what is effectively a media blackout for four days...

LONDON (Reuters) - Oil held above $98 a barrel on Wednesday, after closing in on the $100 milestone as the dollar hit new lows and cold weather in the United States, the world's biggest fuel consumer, stirred anxiety over winter supplies.

U.S. light crude surged to a record $99.29 early in the session, but then edged down from this peak to stand at $98.39, up 36 cents at 8:04 a.m. EST.

Prices blasted past the previous $98.62 record, extending a rally that has lifted oil by 45 percent since mid-August as speculative investment rises, supplies tighten and the dollar weakens.

I'm going to speculate for a minute here: if oil passes $100 before next Monday (there are three trading days, if you count time differences in the Asian markets), it will spike over $150 by the end of next summer.

Crude has risen 45% just in the past three months, so a further fifty percent increase ahead of the Beijing Olympics would not be impossible. And none of this is with any reference to Hugo Chavez's rant the other day.

Coupled with the dollar dropping to record lows against the euro, it's gotten so that even the Saudis are making noises about the weak US economy.

Heading into the holiday shopping season, people are understandably edgy. Who wants to choose between Junior's iPod and heating the house for a month?

And where's the President's leadership on all this? Is he more concerned with covering his ass or with helping poor Americans to keep from freezing in the long cold winter ahead?

In 1979, if you're old enough, you may recall that Jimmy Carter was at least concerned enough to speak to Americans nearly weekly, recreating FDR's fireside chats, during that tragic economic period in our history. Carter instituted price controls when oil hit $15.35 a barrel, well before it hit its all-time peak of over $39 a barrel (adjusted for inflation, that would be $101 today).

Bush? Nothing. Not even asking us to turn our thermostats down and wear a sweater. No lowering of Federal speed limits. Bush is less effective than Jimmy Carter. There's your legacy, sir.

We're heading for a very nasty period in American history. We can't lower interest rates for fear the dollar will plummet further, yet we can't maintain them as more and more Americans default on their home mortgages. Neither can we raise them. The Fed's hands are tied, pretty much.

This nation has been destroyed by men (and a few women) hellbent on ideological concretization, with no regard to the one true fact of life: there is no "one right way". Frederick Winslow Taylor is an extinct dinosaur, and rigid dogma will always lose out in the end to the chaos of life and the planet.

Always.

Soon, The Fun Begins....

Not much to say about this event, except I told you so...

LONDON (Reuters) - Oil sped above $98 a barrel for the first time on Wednesday, closing in on the landmark $100 level, driven by a slumping dollar and worries over a winter fuel supply crunch.

Analysts said it was only a matter of time before oil hit triple digits, with evidence of tightening stocks aiding a nearly 8 percent rise over the past two weeks alone.

"We're going to get $100 before too long," said Kevin Norrish of Barclays Capital.

The only surprise in this story for me is that it's happening about two months earlier than I anticipated. I assumed that OPEC would keep the price down until after the Christmas shopping season, in one of their usual gestures to the Bush presidency.

Little did I imagine that China would become such an influential player so quickly this year, and that the Iran crisis would piss off even the Saudis so much.

The peak per barrel price (adjusting for inflation) came during the 1979-1980 oil crisis. Today, that per barrel price was $101.70. We ain't far away, and that crisis helped topple a President and helped create stagflation, the twin punch of inflation without economic growth, and interest rates at record highs (the prime ended up at 20%!).

Now, of course, our oilmen in the White House have this all figured out, right? I mean, these guys are the experienced pros in this area and they ought to be able to formulate some policy that will help lower prices.

Right?

"Oil prices are too high," said spokeswoman Dana Perino. Oil sped above $98 a barrel for the first time on Wednesday, driven by a slumping dollar and worries over a winter fuel supply crunch.

...as she turned slightly sideways to reveal her perky breasts to the press gaggle, while she plotted to get away from the Three Bears. She sounds like Dumb Blonde Barbie here.

It's not like this was an uncertainty, $100 a barrel. In fact, it was inevitable based on the laws of supply and demand. On The McLaughlin Group, Mort Zuckerman, a fairly astute businessman, all but said we are heading for a depression the likes of which this country has never seen.

Let me repeat that last bit: the likes of which this country has never seen. That says a lot. Zuckerman is no raving maniac in the desert of finance. He owns US News and World Report and the NY Daily News. I think we can assume he's somewhat conservative in his thinking.

And it's starting to be seen at the pump. Gas is up 16 cents over the past two weeks, averaging just under $3.00 for a gallon of regular. Just in time for the holiday season, the time when retailers make their profit margins for the entire year.

This is not going to be pretty. The lag time between oil spikes and gasoline spikes is now in motion. $3.75 a gallon is a nasty Christmas present.

The Oil Slick

I'll have some analysis on the other side of this excerpt:

LONDON (Reuters) - Oil is headed straight to $100 a barrel, Venezuelan President Hugo Chavez said hours after prices surged this week to an all-time high near $79.

But others remember the price collapses of the last four years and wonder if markets are headed for a repeat.

U.S. crude on Wednesday climbed to a record high of $78.77 a barrel, surpassing the previous peak of $78.40 reached in July 2006.[...]

Since 2003, the oil market has entered into a sharp correction phase after climbing to its highs for each year.

After reaching last year's peak, prices tumbled 36 percent in the following six months to below $50 a barrel.

For the record, the futures market is betting that prices will drop, and while I concur, notice a trend that develops here: each peak is higher, each floor also rises, and longer-term, the floors are rising faster than the ceilings:Some of the heaviest hitters in the commodities markets have predicted that, even without adjusting for inflation, gasoline will hit $15 a gallon in 1995 dollars within eight years (adjusting for inflation, the actual price you'll pay would probably be somewhere in the neighborhood of $23 a gallon). And lest you think I'm talking out of my hat:

Chavez is not alone in believing oil's rally will continue. Goldman Sachs said last month prices could reach $95 by the end of the year.

It's hard to predict precisely what $100 a barrel oil will mean immediately for Americans. The correlation between crude and gasoline, for example, is less tethered than the correlation between crude and home heating oil. We see today, in fact, that oil at $79 a barrel has hardly budged gasoline prices upward, where oil at $65 a barrel back in April had prices at the pump well over $3 a gallon.

The perfect storm for Americans would be an oil spike in October. Even at $80 a barrel, refining capacity would be limited by physical production requirements: the shift to more environmentally-friendly winter blends of gas demands that refineries be shut down for retooling. And some of the crude, much of the crude, would be diverted for the imminent heating oil season. If global warming keeps the weather unseasonably warm in the fall in the Northeast, thus encouraging more people to drive later into the fall and winter, $4 a gallon at $80 a barrel would be likely. $5 a barrel in states like California and Massachussetts would be reachable.

$75 just to fill up a Toyota Corolla, $150 to fill up an SUV, will bring home the crisis to Americans in a way they'd never imagined.