Regardless of how you feel about the Wall Street Journal’s political coverage or editorial board (and that’s a column for another day), when Wall Street’s financial paper of record talks about oil prices these days, it’s worth noting.

So when the Gray Armani Suits start seriously talking about $200 oil by the end of this year it’s worth paying attention, especially given that it’s an election year.

Oil’s historic ascent from $100 to nearly $150 a barrel in just six months is lending weight to a far grimmer prediction: Crude could reach $200 a barrel by the end of the year.

Oil at that price would wreak deeper havoc on the world’s airlines and automobile industries.

In the U.S., $200 crude would push the price of gasoline to well over $6 a gallon, causing commuters to alter their driving habits more sharply than they have already, while putting extreme strains on large sectors of the U.S. economy. In Europe, it would stir more political unrest and increase the clamor to cut the continent’s stiff petrol taxes. In Asia, governments would be under pressure to cut fuel subsidies and risk a popular backlash.

Clinical, but correct.  I personally think it would be a lot worse, with fuel prices closer to $7 or $8 a gallon given that there’s always “refinery bottlenecks” and “production shutdown” excuses from the energy companies…then again, election year.

U.S. benchmark crude prices leapt 3.6% last week, closing before the Independence Day holiday at a record $145.29 a barrel. Roughly halfway through the year, oil prices have soared 50% since Jan. 1 and have doubled since the same time last year.

Few oil watchers are now ready to bet that oil will hit $200 a barrel by New Year’s Eve. But nearly all are wary of predicting how and when oil’s upward stampede will be reversed.

What makes the market so unpredictable, analysts say, is that prices are being pushed by such a wide array of factors, while no single force has emerged with the power to throw them in reverse.

“Crude is going up,” said Dave Pursell, an oil analyst at Tudor Pickering in Houston, “because there is nothing strong enough yet to push it down.”

The words “for now” need to be appended on to that sentence.  A worldwide demand crash for oil would certainly do it, but that’s not going to happen overnight.  Still, look how rapidly the auto industry is changing in the US.  The Big Three are on the brink of insolvency.  If you had told me even in 2003 that all three major US automakers would be facing the gallows in 5 years, I would have laughed at you.

Still, the WSJ is somewhat correct on the matter:  there’s nothing strong enough to push oil prices down right now and keep them down.

In Washington, deepening fears that oil prices will shoot still higher have stoked talk in Congress and within the Bush administration of using one of the last remaining cudgels to try to reverse the price rise: a sharp and sustained release of oil from the U.S. Strategic Petroleum Reserve.

Those discussions remain preliminary, though, while most senior administration officials remain opposed to such a move, because the oil stored in salt mines is meant for release in genuine supply emergencies.

Remember, to a Republican, this isn’t an emergency.  Your mileage, as the saying goes, may vary.

The list of forces shoving prices upward is long: a weak dollar driving hot money into commodities; jitters over a possible military conflict with Iran; soaring costs and chronic project delays in the world’s oil patch; concerns over scarce supplies and long-term production declines; and continued robust demand growth in much of the developing world.

Oil ministers and top petroleum executives have added to the alarm. Paolo Scaroni, head of Italy’s biggest oil-and-gas company, Eni SpA, told an Italian newspaper last week that he could see prices hitting $200 a barrel this year.Chakib Khelil, president of the Organization of Petroleum Exporting Countries, predicts that crude could go as high as $170 a barrel this summer.

Oil’s seemingly unstoppable rise has also scared off some of the very financial players that would otherwise temper the market. Oil producers who would normally lock in high prices by hedging on the futures market have now backed off, assuming that prices will continue to rise.

That has fueled the upward momentum as financial players continue to bid up oil on the futures market, said Larry Goldstein, an economist at the Energy Policy Research Foundation. “The problem is that the natural hedgers, the producers themselves, are shying away, while the buyers get bolder,” Mr. Goldstein said.

What’s left unsaid?  The price of oil continuing to rise, and that meteoric rise becoming a fact of life across the world, is making people who can take advantage of that fact very very wealthy.

The great transfer of wealth from the poor to the rich continues.  The Second Gilded Age is upon us.

But here’s the kicker.

Geopolitics, particularly the fear of a potential Israeli or U.S. attack against Iran, have also re-emerged as a significant factor in the market. Some investment houses were saying last week that it was more likely than not that a war with Iran would break out this fall.

That’s certainly worth noting.  The big money is increasingly betting on “No Pass” on the craps table, the pass in question being the Straits of Hormuz in Iran.  An outbreak of violence against Iran may not stop the price of oil at $200, it could go much higher.

So not many people are betting on $200 oil by Inauguration Day, according to the article but more than half ARE betting on war with Iran.  I see that as a bit of a disconnect.  Given the preceding evidence, war with Iran would easily allow the price of oil to hit $200 by January.  Then again, it remains to be seen just when that war would start.

But again, it’s important to note that Wall Street sees war coming.  Wishful thinking from the neocons at the WSJ, or an “All aboard!” call for investors?  Considering Sy Hersh’s latest piece detailing how the dogs of war have already slipped free from their leash it’s hard to put chips down on the path of peace these days.

With so many forces arguing for higher prices, the big question is: What would spook the market enough to cause prices to fall?

So far, falling gasoline use in the U.S. has done nothing to put a damper on prices, largely because growing demand elsewhere in the world has managed to keep global supplies tight.

“The reality of it is, swings in U.S. consumption just don’t matter that much anymore,” said Jeffrey Rubin, chief economist at CIBC World Markets, who is predicting that oil will average $200 a barrel in 2010.

So while you may not be paying $6-$8 a gallon in 2008, sometime during the presumed Obama Administration you can count on it (and if it’s somehow the McCain Administration, that becomes a certainty).

I’d hold off on that SUV.

The one shift in demand that would have a serious price impact would be any sign of diminished thirst for fuel in China. Speculation has run high for months that Chinese demand may have surged artificially in advance of the Beijing Olympics as the country turned to oil over coal for power generation to ease pollution. It is also unclear whether China stockpiled gasoline and diesel to avoid any shortages.

“But if consumption roars on even after the Olympics, then the upside pressure on prices will remain pretty strong,” said Stephen Brown, an energy economist at the Federal Reserve Bank of Dallas.

Another force that could shove prices down in a hurry would be signs of a significant buildup in oil inventories in the U.S. But even with oil use down in the U.S., crude stockpiles remain unusually low. The U.S. now has just over 19 days of total commercial supplies, compared with 23 days worth at the same time last year.

Alarmed over the economic impact of soaring oil prices, Saudi Arabia tried last month to hammer the market back down by boosting its monthly output and promising a dramatic long-range increase in its production capacity. But neither announcement by the world’s largest oil producer had any perceptible affect, further underscoring how weak the market’s traditional levers now are.

As I’ve been saying, for quite some time now the rules of logic have stopped applying to the oil market.  It has now come to life like Frankenstein’s creation and it’s stumbling around causing great swaths of destruction and chaos.  Oil may be the last great bubble, but it’s the one that’s going to cause the most damage.

The one lever left that’s working?  Greed.  That lever is locked into “up” position.

Some advocates are clamoring for the Bush administration to take a more dramatic step and release millions of barrels from the U.S. strategic reserves, which contain around 706 million barrels. The House of Representatives is weighing legislation to force a release from the reserves, while support for such a move also appears to be building in the Senate.

The administration strongly opposes using the reserve for market interventions.

A release of two million barrels a day for long as a month, analysts say, could make a sharp impact on prices, in part because the barrels would be sold at auction, thus allowing buyers to set the oil’s value. The U.S. consumes a little more than 20 million barrels a day.

“We have exhausted all other short-term policy options,” said Mr. Goldstein, a veteran of the Washington energy establishment who is among those pushing aggressively for a significant release from the reserves. He argues that the U.S. Energy Department should step in to tamp down oil prices and thus prevent further damage to the U.S. economy.

But others worry that even that step could backfire. For one, sky-high prices have made refiners all the more reluctant to build up oil stocks.

“And even if you release 20 or 30 million barrels, people are still going to be worried about Iran or something else,” said Michael Lynch, a Massachusetts-based oil analyst who is among the many who believe that oil prices are already far too high.

The fact that the WSJ is freely admitting oil is now a runaway train should be very sobering.  Things are getting bad now, truly bad for millions of Americans.  They will get only worse.  If we’re looking at $5 or more a gallon sustained over the next two years or more, the damage to the economy may be total.  We’re already seeing things stretched to the limit.

Another 30 months of this on top of the land mines still lurking out there in the credit and financial markets and in the deadly derivatives sector may be enough to detonate the world economy.  The engine driving the forces holding this detonation at bay?  The American consumer.  Every penny that gas rises takes billions out the economy.  That engine is starving for money.  We’re already seeing the effects on consumer spending and unemployment.  Most of us are seeing the effects on our wallet.

Have you factored in $7 gas for the next several years in your family’s expenses?

I would be.  Check your gas card or bank card to see how often you fill up the tank in a month or two. Multiply out for a year, then 3, at $7 a gallon.  Two cars, 8 tanks a week for a family of four, you figure 16 gallons a fillup, comes to right at $900 a month.  (At $4 a gallon, that’s $512 a month as it is.)  Can you afford an extra $400 a month for gas?

Not many of us can, considering in just the space of a few years that fuel cost was as low as $150 a month when Bush took office.  You’re already putting down an extra $350 a month now…a second car payment.  How hard would a third car payment hit you and your family?

It’s far past time to start asking those questions of our politicians and ourselves.

Be sure to check out this poll of the Frog Pond on gas usage.

Be prepared.

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