Oil heading higher in 2012

A supply squeeze coupled with any kind of disruption could boost prices even more next year.

By TheStreet Staff Dec 28, 2011 12:22PM

the streetImage: Oil Well Pumpjack © Roger Milley/Vetta/Getty ImagesBy Daniel Dicker

 

Oil has increased in price by almost 15% in 2011, making it the third straight year that oil prices have risen. And 15% should be considered a very good result for consumers and business, considering that Brent crude, the benchmark upon which most refined products are based, was rising toward $130 a barrel in spring.

 

We won't get as lucky in 2012.

 

What has been holding down crude for the past two quarters has been a combination of factors:

  • First, negative news from Europe put the deep threat of recession contagion throughout global markets.
  • Second, the lack of transparency into the Chinese markets is making it difficult to predict whether China can engineer a "soft landing" or whether more depressing data that have been emerging are the precursor of a real commodity crash.
  • And third, increasing supplies from Libya and Iraq are coming online faster than many people thought.

Combine all that with a slowing Europe and U.S. consumers who are slowly getting better at conservation, and you've got weakening prices for oil.

 

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While many factors will not go away in 2012, some are being answered enough to allow the oil market to again find the kind of buying interest it saw in 2009 and 2010.

 

Saudi Arabia and OPEC have taken steps to close down surplus supplies in the coming year and force prices to remain sticky above $100 a barrel -- putting prices one or two headlines away from testing 2011 highs of $125 a barrel.

 

In a very underreported story, the Saudis abandoned a $200 billion, 10-year program of development that could have increased marginal barrel reserves in the kingdom by as much as 5 million barrels a day.

 

In addition, OPEC ministers earlier this month in Vienna agreed to a daily output ceiling of 30 million barrels a day. The last time OPEC established production limits cartel-wide was more than three years ago, when prices were closer to $50 a barrel.

 

These are the beginnings of a concerted supply squeeze. If you add any disruptions in 2012 -- whether from Iranian sabre-rattling in the Straits of Hormuz, a collapse of a newly U.S.-free Iraqi infrastructure, a hiccup from the newly instituted Libyan oil industry, or a host of other issues neither you nor I could possibly plan on -- you've got a streaking oil price, perhaps approaching the all-time highs of $147 a barrel we saw in 2008.

 

There will be further upward price pressure from investors looking to cycle back into commodities, and particularly oil, after the start of the year. Outflows have been the theme of the past two quarters, both in equities and commodities. But as confidence in the markets continues to increase, so will the risk appetites of investors. I expect a good portion of that appetite to turn to oil.

 

There are lots of ways to play this, but perhaps the simplest is with the two largest energy ETFs, the Energy Select Sector SPDR ETF (XLE) and the Market Vectors Oil Services ETF (OIH). Both provide super-liquid and sector-wide exposure to both mega-cap energy companies and oil services companies. Both sectors will benefit greatly and rally strongly as oil begins to climb.

 

2012 looks to be another strong year for energy.

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130Comments
Dec 28, 2011 3:09PM
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Ok wait, first we have ALL the oil and natural gas we need here and in Alaskan reserves.   All we are doing is what they call spreading the wealth to other countries, Have you ever noticed how often our refineries go down for maintenance? How any and I mean any size raindrop falls, they are suddenly in danger from storms? There is enough oil stored unrefined and refined to run this country for 5 years.  Until Americans tell their Reps and Senators, NO MORE by voting them out, it wont stop. Stopping the lobbyist is the easier way to make it become a better country again. I remember being a kid and Mom making 8 $ an hour, gas was 89 cents, light bills were 40 dollars, and a 100$ phone bill was unheard of. Now my kid makes 9$ an hour, gas is 4$, food is unreal, and 300 energy bills are normal, and we wonder why the world is a crazy place.

      Heres how we stop it, We revise our system of representation to stop this. All Senator and Representatives are part time. They have an office in their home State, and that's it. Housing allowances are what the state deems fair,no more. No more wining and  dining, no more overseas travel, and no lobbyist. Each office shall maintain a web link that all legislation must be posted publicly for 14 days. If it isnt, no vote ,,, period, except in a declared war, and only then a bill that affects the outcome of the war. Leave social security alone, people paid in the money, IT IS NOT an entitlement. Its insurance , let the ones that spent the money make it up out of their retirements. Every registered voter can access their Representative,and Senator online gateway, and vote for the bills, yes or no, and THAT is the way the Legislators must vote, no excuses, they website {accidently} go off line ,no vote until it is back up for 14 days. Finished, no more lobbyist, no more expense accounts, no more , no more no more,

Dec 28, 2011 1:09PM
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Funny, every time Oil gets back down to a reasonable level "something" magically  happens in the middle east or some other phony excuse to raise prices again.

 

The high price of oil is crippling any chance of our economy getting back on track, both parties

in Washington are so far in the pockets of Wall Street & Big Oil they are just lackeys.

Forget about Islamic crazies, our own corrupt corporate oligarchy is destroying our country  from within, they are a much bigger threat in the long run.

 

While we squabble over mindless wedge issues we are all getting shafted.

 

Dec 28, 2011 1:06PM
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Let me get this straight for ALL OF YOU,   We, the USA is NOW an EXPORTER of OIL PRODUCTS.    We EXPORT more OIL and OIL Related Products then we IMPORT.   We Drill and Pump more oil then we CONSUME here in the USA.  Now we are being told again Price HIKES.  I have the ONLY Answer that will work .    NATIONALIZE all of OUR ENERGY , Coal, Gas , OIL,   And OUTLAW any Exportatoin of any of these .   Hold prices down for Americans, and our US industries.      EXXON and the others can live well on the BILLIONS IN PROFITS that they already made. 
Dec 28, 2011 1:09PM
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Wake up PEOPLE ,  its time for a REVOLUTION,  A real one.    GOVT Is NOT THE SOLUTION, it is the PROBLEM.
Dec 28, 2011 1:22PM
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This is all rhetoric. Speculators at their worst. When will our government get the balls and put a stop to this. One of these days, the people of this country are going to have put up with enough and take matters into our own hands. Just wait and see!
Dec 28, 2011 1:09PM
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So basically the same old song and dance. Prices go up.. .people will drive less. Economy goes in the tank... prices drop. you can't revamp the economy with high gas prices, but who cares.. as long as wall st is keeping thier wallets fat... nothing will ever change. Good thing my commute to work is only 5 miles.....
Dec 28, 2011 1:16PM
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In 2011 the United States of America EXPORTED more oil than was IMPORTED.  The oil companies are taking oil from our Alaskan oil fields and sailing West with it to supply the Orient for huge profits.  They then IMPORT oil from the Middle East, refine it in the United States and make HUGE PROFITS on the gasoline that they sell to you from expensive IMPORTED OIL.  If oil were not EXPORTED and RE-IMPORTED, gasoline would be below 2$ a gallon.  This Country has to be wrenched from the greedy fists of the 1% and returned to the middle class!
Dec 28, 2011 1:21PM
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A sound economic recovery in the US and abroad will cause oil prices to skyrocket which will in turn cause an economic downturn. The last three idiot presidents have talked about energy independence and have done nothing.  America is held hostage and until the US makes it the number one priority to produce energy here and find sound alternatives we will never be a free nation.
Dec 28, 2011 1:05PM
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Yep, they will find any reason, no matter how trivial, to hold up prices on oil. without any of these threats the real price comes shining through. Which is about $50.00 per barrel. So they make up threats and OPEC trims their supply to prop up the market. All this serves to keep the economies from growing in many countries.
Dec 28, 2011 1:39PM
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High oil prices is the down fall of this country
Dec 28, 2011 3:33PM
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People seem to forget why we as citizens decided to remove ourselves from English rule.  The country was founded in blood, and the fight for JUSTICE.  We fought against the Tyrannical behavior of the recognized government of that time.  We as a people were tired of having prices raised to satisfy the GREED, of the upper power.

So we as a people stated our intentions and our disapproval adamantly.  Also with that statement, we issued a warning along with it to the recognized government & upper class.  I believe we as a people, need to revisit our original intentions and disapproval.  To the current recognized government & upper class, as we did before!

We as American citizens should remember that the people, are supposed to make the rules.  So it is my belief, that we should again take up arms if necessary to reestablish order to the people.  Our government has forgotten that they serve at the behest of us the people.  That our best interests are supposed to be the priority, of the governing body.

In the current & past climate of our country, this is not the case.  The governing body serves it's own greed & interests, while squashing the people!  We as a people need to do more than talk, if we ever hope for fair treatment again.  

American's stop putting up with the status quo, and shout from the rooftops!!!!
We will no longer be treated as SHEEP!  We will fight again if necessary!  We have had enough ****!
Dec 28, 2011 2:57PM
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The problem is Dragonfly 72, we won't charge them $300 for a bushel of wheat.  My father, a farmer, said back in the 70's when we had the so-called oil shortage, just trade them a bushel of wheat for a barrel of oil.  They certainly can't eat that black stuff.
Dec 28, 2011 1:20PM
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Nationalize US OIL Lease terms. ,   ITS OUR OIL, not Exxons.   REVOKE every US OIL lease, and LET ME WRITE THE TERMS for the new OIL leases.   1. NO EXPORTING OF ANY US ENERGY PRODUCTS, With this exception.  US OIL Producers must provide for the USA first. and then they can EXPORT SOME OIL,  at 5% profit, to the producer, but the huge profit persentage for products sold offshore, goes RIGHT BACK TO THE US TREASURY to pay off our debt. . 2.  Leases, will Pump to meet our use Demands,  Or Forfeit the lease to someone that can and will. 3. First order of refining. a. Motor fuel b. Motor oils, c. Heating oils, ..... Last Plastics feedstocks.   4. Maximum profits allowed per barrel of oil,  Shall be no greater then 5%.    ITS OUR OIL, ITS NOT EXXONS.   Trust me,  We are allowing a profit of 5% .   Easy money for sure.  Its more then a grocery store makes,  Their margin is about 2 to 3% .  Its time to WAKE UP.  If this nation,  Took the Profits from Domestc Energy and applied it to our Tax and Debt burden.    Both would be REDUCED at an alarming RATE.  How do you people think that In Libya and Saudi,   Everything is provided to the people with the Oil almost at no costs, and no taxes.   We, the USA has MORE OIL then both.
Dec 28, 2011 4:23PM
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Here's how I look at this. In 2005 gas prices were around $1.99 a gallon. Now, they're around $3.64 a gallon. That's a 55% increase in 6 years.  No one will ever be able to convince me the oil companies don't manipulate the market. It's a simple game they play. They drive the prices up to record levels, then let them drop to the level they want them to be in order to maximize their profits. They've seen it time and time again. People freak when ga**** a level they think is unacceptable, then heave a sigh of relief when they start to drop. Ever notice that every time the prices spike, eventually they'll drop a bit but NEVER go back to what they were beforehand?
Dec 28, 2011 4:14PM
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We have no leaders just millionaires and billionares who want more and more money and could care less about the people.  Career politicians, we can't get them out because they pass the laws, there should be time limits.  They shouldn't get free health care for life for one term or retirement, they should live like the rest of us.  And quit using expense accounts paid by the tax payers.  Bunch of crooks is all they are.  Boycott the elections.  You just vote for the next millionaire who gets to screw you no matter what party he represents.

 

Dec 28, 2011 1:21PM
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I just don't understand....we are importing oil from all over the place...we have oil waiting to be retrieved in this country...we are a net exporter of refined oil products...we export oil to other countries.

what is going on is a major theft of u.s.a. consumers dollars with the blessing of government officials both democrat and republican.

the incentives to big oil, paid for with taxpayer dollars, has to stop. they are making tremendous profits and doing nothing to assist in the economic recovery in this country. as far as the saudis are concerned we should start charging them for protecting their oil fields. opec countries can regulate the amount of crude they pump so why can't we charge them, and any other country using our military, for protecting those interests?  

Dec 28, 2011 3:31PM
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Just another cycle of hipocracy.

"Economy shows signs of recovery"....

Followed by "oil futures rise"....

Nevermind, everyone back in the big gay pile.

The problem for many is not the cost of gas itself, but the costs of goods and services that all inflate due to shipping costs.

The direct impact of $3 vs. $6 gas to my family is only ~$120 a month. The problem is the indirect costs that get added to everything else. $4 for a gallon of milk, $2 for a head of lettuce.

Of you want to go pickup a piece of furniture advertised on craigslist, but it's 40 miles away and requires a truck and $40 worth of gas.....

Now imagine you're a small business making a widget and shipping your widget to stores makes it unaffordable....

This is the real damage of high fuel/transportation costs, which our corrupt and ignorant government continues to do nothing about. The race to the bottom shall continue... 

 

 

Dec 28, 2011 3:18PM
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oil speculators should have the crap kicked out of them about once a week.they make money at the expense of everyone else and then justify it by saying it's a job.time for a major overhaul of our financial and government systems.push alternative fuel systems to lessen our dependence.build the pipeline! if your president isn't doing his job,then get off your **** and VOTE. 15% turnout  does'nt send a message except that we're too lazy to vote! that's the revolution we need.that's why we're called a democratic society.and i feel the same about oil industry lobbiests too! maggots w/ money!

Dec 28, 2011 4:02PM
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the oil people and the speculators and the hedge funds are trying to squeeze the oil price higher, I say let them squeeze and when they do let them drink it. They are a greedy bunch of people who has no pity on the working man and woman. We can cut back on the gas and oil but they can't make money on it if they can't sell it. Pigs of greed is what they are wallowing in their own slop of greed..
Dec 28, 2011 1:09PM
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What a way to bring in the New Year.  Certain to kill any chance of a good economic start to 2012.  Thanks oil companies.  Really appreciate the petroleum shaft...NOT.Nerd
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