BY Eric Sprott, CA & Sasha Solunac, CFA Sprott Asset Management July 5th, 2005
"...Although the world for the most part is still in denial when it comes to the pending oil crisis, the markets haven’t been oblivious to these developments. Even though we are seasonally in a low demand period, the price of oil is quickly approaching $60 as we speak – an all-time high and an increase of $12 in the past month alone. The futures price of oil is now in contango (future price higher than spot) until 2007 and, early last week before the run-up in the spot price, was in contango all the way to December 2011 (the longest contract available). A contango in the oil market was practically unheard of as recently as the beginning of this year. However, the way events are unfolding, posterity may well show that buying a 2011 barrel of oil for $55 today was the bargain of the century!
How high can oil go? In a crisis the sky’s the limit. Even the threat of a shortage can send the price parabolic. Back in 1970 when US oil production unexpectedly peaked (nobody believed Hubbert back then), the price of oil shot up from $1 per barrel in 1970 to $12 per barrel by 1973. (This all happened before the Arab oil embargo.) There wasn’t a de facto shortage of oil back then, as the Middle East was able to pick up the slack in US production. Unfortunately, there is nobody left to pick up the slack today. All the data points are confirming that we have a problem in oil, and by inference the entire energy sector."
Full article at: http://321energy.com/editorials/sprott/sprott070505.html
