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  • ivana_humpashort ivana_humpashort Jan 27, 2013 3:07 PM Flag

    Why Two Analysts Think Oil Could Hit a 151-Year High

    You can’t say Ned Davis Research strategists John LaForge and Warren Pies are sticking with the Wall Street consensus.

    The pair argue in a note this week that oil will hit record highs during 2013 — a time when more than a few strategists see oil’s price bobbing around more or less where it is today, in the $90-$100 range.

    Key to this call: Today’s prices aren’t that far off in the first place. Not if we’re viewing it on an inflation-adjusted basis, and not if we’re looking at pricier Brent crude — which the strategists note happens to correlate more closely with U.S. gas prices than the West Texas Intermediate crude that’s used in this country.

    No escape via domestic production.Last year’s average Brent oil price of $113.63 per barrel was already the second-highest on record by this measure — second only to 1864, a time when oil production was only around two million barrels a year, they write. That’s worth pausing over. One hundred fifty-ish years ago, when the United States was not quite through with the U.S. Civil War, the inflation-adjusted cost of oil was $115.45.

    Phooey with the rise in U.S. oil output, and even more phooey to the talk of energy independence, say LaForge and Pies. What the U.S. is gaining in production since 2006, the rest of the developed world has lost. The top three producers, the U.S., Saudi Arabia, and Russia, as a group, are only somewhat bigger producers over the last decade.

    China and Canada, numbers four and five, meanwhile, are increasing output, but their on-and-off competitors Norway and Mexico “have dropped off the production map.”

    Now step back for a moment to see that world GDP is rising faster that world out production. This, too, would seem to leave prices under upward pressure.

    Emerging-markets such as China and Brazil are becoming the real drivers of global demand. This is happening at the same time that those countries are consuming more of their own oil. I.E., they’re not producing more to flood global markets. They’re seeking to fill their own economy’s needs.

    “If we are right about China, oil has a good chance of breaking to highs last seen in 1864,” LaForge and Pies write.

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