My predictions for oil in the $140s by July 8 and signs of shortages by the end of August are based on the following observations:
- Oil production peaked in 2006
- Demand continues to grow
- Speculators grasp the first two facts and are taking advantage of it
- Governments and corporations have done little to mitigate the situation; most do not even acknowledge it
A greater percentage of the crude oil being delivered to refineries will be heavy/sour, instead of the light/sweet oil that refineries can turn into gasoline (this is one place we will start to see shortages develop, even though otherwise, we are not “running out of” oil). Right now, Iran is storing 30 million barrels of its sulfer-heavy crude oil in supertankers. Iran has held that oil because nobody wants to buy it at this price.
Oil is driving many of the financial headlines. Bloomberg.com is reporting that Dow Chemical will raise prices by 25% in July, because of higher energy costs. Dow raised prices in June by 20% for the same reason. Both recession and inflation are coming our way.
Dow said it also is reducing production at plants around the world because of slowing U.S. and European economies. About 20 percent of the company’s capacity for producing Styrofoam in Europe has been idled, along with 30 percent of its North American acrylic acid capacity and 25 percent of its global ethylene oxide production, the company said.
Bloomberg.com: Most U.S. Stocks Drop on Confidence, Housing Data; UPS Tumbles
Most U.S. stocks fell after consumer confidence weakened to the lowest since 1992, home prices tumbled and United Parcel Service Inc. said higher fuel prices will reduce profit.
Not all news is bad, though. Florida Governor Charlie Crist announced “a $1.75 billion deal to essentially buy the U.S. Sugar Corporation, including 187,000 acres of farmland that once sat in the northern Everglades.” The state would control almost half of the 400,000 acres of sugar fields in the Everglades Agricultural Area below Lake Okeechobee.
U.S. Sugar “currently produces 9% of America’s sugar — thanks to a massive federal water-control project that its executives helped design, and a lucrative federal sugar program that artificially boosts its prices.” Sugar ethanol is more efficient to produce than corn ethanol, and is what Brazil uses for its alternative fuel program. But that’s not what the State of Florida is intending to do with all those acres of sugar cane. The plan is to restore the ecosystem, which had been badly damaged by the sugar fields and threatened by condominium development.
That would be good news for panthers and gators, dolphins and herons, ghost orchids and royal palms.
Two hundred thousand acres of sugar cane is not going to end our dependence on foreign oil.