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Erste Group's Complete 2012 Oil Price Outlook - "Nothing To Spare", Crude Could Reach $200

Tyler Durden's picture




 

The latest in a series of reports evaluating the future of the energy markets, especially in the context of the increasingly inevitable Iranian conflict, may just be the best and most comprehensive one (not just because it looks at the commodity from an "Austrian" angle). In 82 pages, Austrian Erste Group has extracted the key aspects and variables for the world oil market and come up with a simple conclusion: "nothing to spare." To wit: "We see the risks for the oil price heavily skewed to the upside. At the moment, the market is well supplied, but the smouldering crisis in the Persian Gulf could easily push oil prices to new all-time-highs should it escalate. We believe that new all-time-highs can be reached in H1, at which point we could see demand destruction setting in. We forecast an average oil price (Brent) of USD 123 per barrel between now and March 2013...The latently smouldering Iran crisis seems to be close to escalation. The most recent manoeuvres, ostentatious threats, sanctions, embargoes and the shadow war currently ongoing, have heated up the situation further. It seems we may soon see the last straw that breaks the camel's back. Even though Iran could probably only maintain a blockade of the Straits of Hormuz only for a very limited period of time, the consequences would still be dramatic. The oil price would definitely set new all-time-highs and could reach levels of up to USD 200." Enjoy those price dips while you can.

Some more highlights:

Brent oil set a new average all-time-high of USD 111/barrel in 2011. This price also exceeded the 2008 and even the 1979/80 referential values on an inflation-adjusted basis. The main drivers of the oil price last year were the supply side and the unrest in the MENA region. Not even the latent worries about an economic slump in Europe, the US or especially China had much of an impact on the oil price. The increasingly expansive monetary policy of the Federal Reserve, the ECB, the Bank of England, and the Bank of China also came with a stimulatory effect. Given that the Fed will now continue its zero-interest-rate policy at least until the end of 2014, this should support the entire commodity sector, oil and gold in particular. This scenario seems to lay the basis for new all-time-highs.

 

Last year, we saw mainly upside risks for the oil price, expecting the wave of revolutions to continue rolling across the MENA region more vigorously than it ended up doing. For now the spill-over of the revolution has been prevented by appeasement measures worth billions taken by the various governments. However, the system-immanent problems have only been covered up, not resolved. The initial euphoria of the Arab Spring has meanwhile given way to a sense of sobriety.

 

The latently smouldering Iran crisis seems to be close to escalation. The most recent manoeuvres, ostentatious threats, sanctions, embargoes and the shadow war currently ongoing, have heated up the situation further. On top of this, the situation in Iran seems tense, with a cut in subsidies and the onset of hyperinflation exacerbating the crisis. It seems that we may soon see the last straw that breaks the camel's back. We will discuss the political risks and their effects on the oil price in the following pages.

 

On top of the aforementioned issues, it seems that OPEC currently controls the price more tightly than ever before. In the current environment, prices of USD 90-110 should not (yet) create any form of demand destruction. It seems as if the oil price were to test the precise price level of that critical threshold and then rise a bit higher with every attempt. They say that the cure for high prices is high prices, as a result of which both demand in the OECD countries and supply (unconventional oil, new production methods, etc.) seem to adjust.

 

A comparison of the oil price forecasts from various oil producers reveals that, in the period of 1999 to 2010 Mexico, Saudi Arabia, and Russia made the most accurate forecasts. All three of them also came closest to the actual price last year, which is why it makes sense to listen to their expectations. For 2012 they predict substantially higher oil prices. Saudi Arabia expects an average WTI price of USD 97, Mexico forecasts USD 116, and Russia USD 120/barrel. Iran has given the highest forecast at USD 137/barrel.

The Austrian School of Economics offers investors a new angle on forecasting asset and commodity prices. In contrast to traditional economists, "Austrians" do not regard the rising demand for oil or other commodities as determining factor for rising prices. Rather, they view the ongoing increase in money supply, which in our partial reserve bank system entails an expansion of credit, as the crucial factor of rising prices. For Austrians, one thing is certain: the more monetary units circulate, the lower their intrinsic value. As a result, the substantial increase in oil prices in the past year has come as no surprise, as for Austrians it is not so much the demand for a good such as oil that determines a price increase, but simply the fact that, especially since 1971, more and more paper and digital money has been circulating globally. The following chart supports this fact impressively. While the average inflation-adjusted oil price had been USD 6.1/barrel within the framework of the Bretton Woods agreement, it embarked on a rapid increase once gold had been discarded as monetary basis. Since the end of the gold standard the price of one barrel of oil has averaged USD 20.6 per barrel.

Full report:

 

 

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Tue, 03/06/2012 - 10:14 | 2227625 GeneMarchbanks
GeneMarchbanks's picture

If Erste was truly Austrian they would have been all over the gold bull of the past decade but they're just another shitheap like the other banks.

Tue, 03/06/2012 - 10:22 | 2227645 Pladizow
Pladizow's picture

Peak everything and the Era of no jobs!

And to the blue vagina above, Erste has put out some great pieces on gold!

Tue, 03/06/2012 - 10:24 | 2227656 Implicit simplicit
Implicit simplicit's picture

Peak Ponzi. Peak a Boo crash.

Tue, 03/06/2012 - 10:26 | 2227660 Pladizow
Tue, 03/06/2012 - 10:32 | 2227684 GeneMarchbanks
Tue, 03/06/2012 - 13:28 | 2228547 Pinto Currency
Pinto Currency's picture

 

 

Waiting for CNN to start covering the relationship between the money supply and oil prices.  Maybe soon.

Gov and MSM are so busy staging our reality while we're stuck in our "reality-based world" ...

 

http://landdestroyer.blogspot.com/2012/03/syria-game-over-for-western-propaganda.html

 

http://www.infowars.com/syria-danny-caught-staging-cnn-war-propaganda-stunt/

and...

 

The aide said that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality." I nodded and murmured something about enlightenment principles and empiricism. He cut me off. "That's not the way the world really works anymore." He continued "We're an empire now, and when we act, we create our own reality. And while you're studying that reality—judiciously, as you will—we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors ... and you, all of you, will be left to just study what we do."

http://en.wikiquote.org/wiki/Karl_Rove

Tue, 03/06/2012 - 10:34 | 2227690 markmotive
markmotive's picture

Economy would bust long before oil hit $200.

Here's empirical evidence that high gas prices triggered the housing crisis:

http://www.planbeconomics.com/2012/03/05/how-high-gas-prices-triggered-the-housing-crisis-theory-and-empirical-evidence/

Tue, 03/06/2012 - 12:15 | 2228309 LowProfile
LowProfile's picture

Maybe.  Correlation does not imply causation.

I think a better way to determine it would be to look at the fragility of consumers resulting from leverage.  Get out too far and any stray straw breaks the camel's back.

Tue, 03/06/2012 - 10:26 | 2227662 trav7777
trav7777's picture

I like how they frame the "debate" as a false dilemma between two strawmen right at the outset.  Makes intellectually lazy analysis much easier.

Tue, 03/06/2012 - 10:30 | 2227679 CPL
CPL's picture

When sock puppets attack with a dash of red herring.

Tue, 03/06/2012 - 10:23 | 2227657 Implicit simplicit
Implicit simplicit's picture

Peak Ponzi. Peak a Boo crash.

Tue, 03/06/2012 - 10:14 | 2227628 Vergeltung
Vergeltung's picture

a camel reference in a post about oil.

excellent.  :-)

 

Tue, 03/06/2012 - 10:18 | 2227638 LawsofPhysics
LawsofPhysics's picture

Made this bet about two months ago.  Paying well so far.

Tue, 03/06/2012 - 10:18 | 2227640 Madcow
Madcow's picture

too many people on this blog continue to under-estimate the impact technology will have on future oil production. check out 'into the deep' here at

http://www.newtechmagazine.com/

using aerospace technology, oil service companies are close to being able to economically extract 10X the reserves they're capable of extracting today.  most of these reserves are in 'friendly' places like canada and the US.  

this is not the same hopeless EROI as tar sands mining or surface steam flooding, but a step-change in oil recovery technology. once the technology has been widely adopted, the price of oil will fall dramatically - 

Tue, 03/06/2012 - 10:29 | 2227671 Pladizow
Pladizow's picture

Technology cannot create energy!!!!!!!!!!!!!!!!!!!!!!!!!!

Tue, 03/06/2012 - 10:34 | 2227691 LawsofPhysics
LawsofPhysics's picture

there you go!  plus one for you sir.

Tue, 03/06/2012 - 11:53 | 2228198 mayhem_korner
mayhem_korner's picture

Technology cannot create energy!!!!!!!!!!!!!!!!!!!!!!!!!!

 

Oh yeah?  Then what was that Flubber movie about, huh?

/sarc

Wed, 03/07/2012 - 00:29 | 2231058 Elvis is Alive
Elvis is Alive's picture

Technological improvements in drilling certainly can increase energy yields. Why do you think we have had a natural gas boom?

Tue, 03/06/2012 - 10:32 | 2227683 Monedas
Monedas's picture

BO and Hillary and their green mean machine will put a stop to that.....don't be naive !  Monedas  2012   Socialists can destroy and make filth faster than free people can invent and produce !

Tue, 03/06/2012 - 10:33 | 2227687 LawsofPhysics
LawsofPhysics's picture

In addition, too many people ignore the true cost (in terms of capital and energy) in discovering (basic research), developing (academic-corporate partnerships), and actually bringing said "technology" to the market (private equity, now kleptocracy) so that it is implemented and makes a fucking profit (in terms of both energy and capital).  People who don't understand the current flux of energy (in terms of BTUs or calories or joules) through the relevant "system" (ALL energy in the relevant system coming from the sun, at least until our own fusion reactors come online) just need to STFU.

Tue, 03/06/2012 - 12:17 | 2228331 LowProfile
LowProfile's picture

Sure, but that oil is going to be more expensive to extract...  And can they bring domestic supply on line quick enough to avoid a collapse?

I'll take the under on that bet, thank you very much.

But long term (10+ years out), that's very good news.

Tue, 03/06/2012 - 10:19 | 2227644 Stanwick
Stanwick's picture

Disseminated by the Austrian School. Figues.

Tue, 03/06/2012 - 10:22 | 2227647 semperfi
semperfi's picture

Bullshit.  The Central Banksters are more powerful than the market and will keep prices in check to keep ahold of their throne - you can take that to the bank - hahaha!

Tue, 03/06/2012 - 11:54 | 2227933 slewie the pi-rat
slewie the pi-rat's picture

maybe, but it is pretty hard to tell future prices accurately no matter how much titillating chart porn you put up there

if these guys are so smart, why this?

Erste Group Bank to report big loss on govt debt - Yahoo! Finance From Yahoo! Finance: Austria-based Erste Group Bank AG said Monday it will make a net loss of euro700 to euro800 million for 2011 because of the government .. (paste) Erste Group Bank also marked down holdings of bonds issued by troubled governments such as Greece, Portugal, Spain, Ireland and Italy, and changed the way it accounts for credit default swaps it has sold. The swaps insure debt instruments against default.The bank has 3,200 branches across Central and Eastern Europe. {end} imo, the accounting games are all these fuking banksters have left w/ their CTRL+P + "promises" the oil longs put out this kinda shit;  faber, also long, i might think, talks of ME war, PMs + "equiies" which "should do ok"   L0L  this is really amazing tho, at THIS point, doncha think?  from these losers?  call your accountants, quick, shitheads!  or else you will lose even moMoney! p.s. stick yer "predictions", too!
Tue, 03/06/2012 - 10:22 | 2227648 Implicit simplicit
Implicit simplicit's picture

I'll raise and call. I give this argument more credence in the mid-term:

http://www.nakedcapitalism.com/2012/03/chris-cook-the-ghost-of-enron-past-explains-oil-market-manipulation.html

 

Tue, 03/06/2012 - 10:22 | 2227650 Flakmeister
Flakmeister's picture

He's a Austrian.... why doesn't he plot barrels per oz instead of using dubious inflation adjustments....

Tue, 03/06/2012 - 10:24 | 2227659 Monedas
Monedas's picture

BO and Hillary have their hands bitten by the vicious Norkom dog after they promise food aid !  Why don't they offer oil to fire Iranian power plants in exchange for promises not to build a bomb ?  Committed Socialists will trump our Harvard Retarded Socialists every time !  Thanks for all Neville Chamberlain profiles in stupidty !  Monedas  2012   Jimmy and Madeline are not forgotten !

Tue, 03/06/2012 - 10:25 | 2227661 johnQpublic
johnQpublic's picture

should we BTFD and get physical barrels of oil?

 

about 12 barrels of oil/gasoline ,or one ounce of gold?

what would warren say?

Tue, 03/06/2012 - 11:09 | 2227883 HurricaneSeason
HurricaneSeason's picture

I have 1250 gallons of gas in my garage. Real gas too, not that corn crap.

Tue, 03/06/2012 - 11:54 | 2228205 mayhem_korner
mayhem_korner's picture

 

 

Make sure someone doesn't park a Volt in there.

"Tweren't nuthin' left but a scorch mark..."

Tue, 03/06/2012 - 12:02 | 2228239 HurricaneSeason
HurricaneSeason's picture

No, nobody is allowed in the garage. The fumes can be pretty intense. I bought most of it at $3 a gallon.

Tue, 03/06/2012 - 12:07 | 2228274 mayhem_korner
mayhem_korner's picture

 

 

How do you stabilize it all?

Tue, 03/06/2012 - 12:18 | 2228338 HurricaneSeason
HurricaneSeason's picture

Mostly in 55 gallon drums.

Tue, 03/06/2012 - 13:23 | 2228641 Nobody For President
Nobody For President's picture

I think mayhem corner meant 'what do you ad to it to prevent it from deteriorating?' when he asked about stabilization. (There are several products for this: StaBil is one.)

 

As a long-time former firefighter/founder chief of our local VFD, the idea of all that gas stored in 55 gallon drums in a garage where 'the fumes can be pretty intense' scares the shit out of me. Hope your next door neighbors are a couple hundred yards or more (a lot more is good) away. The 55 gallon drums are ok, of course, and the only approved (note to anti-regulation folks = this means 'safe' based on *years* of experience - not all rules are bad) way to store more than 5 gallons of gas -

BUT, if the fumes are bad, you are not capping/sealing the drums well enough and/or are filling the drums too full - you should have at least 5% expansion space in each drum. 

I repeat: if the fumes are as bad as you say, you are sitting and tending a fucking bomb - get more venilation (forced air if necessary), insure expansion space, and check yer seals.

 

Just because we are all used to being around and using gasoline most of our adult lives does not mean the stuff is safe. It is inherently very, very dangerous, and what Hurricane Season has described (with some pride it seems) is sort of insanity on the hoof. 

And what happens if that hurricane hits his garage - or a neighboring house or car fire, or a wildland fire if he is near the edge of his woods, or a thief that causes a spark in that space, or a slightly funky light switch or any number of other Murphy's Law things that really do happen to people. 

 

Boom!

Tue, 03/06/2012 - 13:54 | 2228747 mayhem_korner
mayhem_korner's picture

 

 

Good education - thank you.

(wonder if my stealth junker is going to down arrow this one, too)

Wed, 03/07/2012 - 05:38 | 2231431 vato poco
vato poco's picture

Great post there, Nobody. Could you maybe arrange to have it posted on every gas pump in the country? I can't count the number of times i've seen boneheads filling their car as its idling, to keep it cool/warm, depending on the season. There's more of them every year, as the self-esteem-infused illiterate HS grads make their way into the world. I used to try and assist the morons doing this: helpfully pointing out what dumbshits they were; showing them 'car fire at gas pump' ytoutube vids.....none of it took. Heck, some of them even spoke to me in discouraging words.

Now I just chalk it up to Darwinism and cleansing of the gene pool, and get the hell out of there double-quick.

Still, you hate to see (usually) poor nitwits burn their car & maybe themselves all to shit at the local gas station.

Tue, 03/06/2012 - 10:28 | 2227668 tmosley
tmosley's picture

lol, they used government price statistics.

Should've used gold to get the real picture, bitchez: http://pricedingold.com/charts/Crude-1950.pdf

Tue, 03/06/2012 - 10:30 | 2227677 azzhatter
azzhatter's picture

they'll get it up to $200 and then back down to $150 after it's over. all in the game

Tue, 03/06/2012 - 10:36 | 2227702 LawsofPhysics
LawsofPhysics's picture

Sure, but unless "they" can get it back down to $40 a barrel, game fucking over.  Besides, oil needs to be price in gold, period.

Tue, 03/06/2012 - 10:43 | 2227738 Stanwick
Stanwick's picture

Random targets, speculative viewpoint, unfounded analysis

Tue, 03/06/2012 - 10:56 | 2227807 LawsofPhysics
LawsofPhysics's picture

exactly. there is a very real cost for creating captial and not actually adding any real value.  Looks like the world needs to re-learn this lesson and Americans need to stop whinning about $5.00 per gallon gasoline when the rest of the world is paying about $8.00 per gallon.

Tue, 03/06/2012 - 10:36 | 2227703 semperfi
semperfi's picture

They'll get it up to 150, short the shit out of it, and drive it back under 90.

Tue, 03/06/2012 - 10:37 | 2227708 Monedas
Monedas's picture

Government worshippers can lick and clean government hole faster than government can soil itself !  Monedas  2012  Comedy Jihad World Tour

Tue, 03/06/2012 - 10:37 | 2227709 EmileLargo
EmileLargo's picture

Krugman: there is no inflation. Print baby print!

Tue, 03/06/2012 - 10:39 | 2227721 ivars
ivars's picture

xcuse me for self promotion, but this chart :

http://www.tfmetalsreport.com/comment/132799#comment-132799

is unbelievably accurate during the late peak un current silver selloff (see the little triangle peak around March 1st, green chart)  and its source chart (longterm silver prediction chart where I copy it from):

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&start=680#p34623

was made on October 17th, 2011. The older one, from March 13th, 2011 (red chart) does not look bad either. Interesting to see how close it will be to spot price on its yearly anniversary on March 13th, 2012.

All prediction  charts can be found here:  http://www.tfmetalsreport.com/forum/2814/ivars-charts

Tue, 03/06/2012 - 11:00 | 2227814 The Count
The Count's picture

Hey, I am half Austrian, and let me tell you that Austrian bankers are really not very clever. Thats why they didn't overexpose themselves in eastern Europe, right? They are saying that oil prices will go up? Wow, you really have to be a genius to come up with that analysis.... hahaaaa.

 

 

Tue, 03/06/2012 - 11:02 | 2227836 user2011
user2011's picture

This article sounds like a desparate cry.  It fails to mention the dewindling fuel consumptions,  the manipultion of CME margins, and the election year effects.

If oil hit 120 ever, Obama and the phantom economic recovery is over. 

Tue, 03/06/2012 - 11:20 | 2227967 Burnsy
Burnsy's picture

User 2011: First of all, it is over already. Secondly: Do you sincerely think Obama can control oil prices? No way. Do you think the beige jacket guy in Iran gives a fuck if Obama gets reelected? What he wants is for that idiot Santorum to be elected and go to war hand in hand with Israel against them and further undermine America's weakening position and crediibility in the world. Ron Paul for President.

Tue, 03/06/2012 - 11:51 | 2228187 slewie the pi-rat
slewie the pi-rat's picture
Biography

Burnsy is a portfolio manager at a small hedge fund (long/short equity).

Tue, 03/06/2012 - 12:32 | 2228417 Meremortal
Meremortal's picture

Oil, it's the new gold, bitchez.

Tue, 03/06/2012 - 12:34 | 2228427 ZZR600
ZZR600's picture

Pity they don't once mention 'Energy Return on Investment' EROI. That'll be the big spanner in the works...

Tue, 03/06/2012 - 12:56 | 2228537 lunaticfringe
lunaticfringe's picture

It is sheer lunacy that oil is going to hit 200. It won't fucking happen. Not this year, and not anytime soon.

There is simply no demand and they have reached peak pricing. I am sick of listening to dipshits calling for 200 oil and calling it ANAL ysis.

Everybody I know has been calling for 2400 gold and at least 60 dollar silver. It's bullshit and it's old.

Tue, 03/06/2012 - 13:50 | 2228736 Nobody For President
Nobody For President's picture

You may be right, but on this list, you are gonna get down-arrowed from hell, and I suspect you know that, by your name and all...

Tue, 03/06/2012 - 13:25 | 2228649 March Hare
March Hare's picture

You are sharing advice from a firm that dropped 50% in value in 2011... a good year for oil. It talks the talk, but doesn't walk the walk...

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