[Peakoil] Fwd: Petrol Prices Peak Like it's June 2008 - expect oil prices to fall soon

[Keith]

This is Saturday's edition of a daily free e-mail I receive from Port Phillip Publishing. It's also on the web at:

http://www.moneymorning.com.au/20120324/petrol-prices-peak-like-its-june-2008.html
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Keith Thomas
keith at evfit.com
www.evfit.com
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Keith Thomas
keith at evfit.com
www.evfit.com
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Petrol Prices Peak Like it's June 2008 
Saturday, 24 March 2012 – Melbourne, Australia 
By Shae Smith

After we reversed out of our driveway yesterday morning and over our limelight shrub (again) we noticed we only had a quarter of a tank of petrol.

As we drove past a couple of service stations, something became obvious. Petrol was almost $1.60 per litre. "We're not paying that!" We said to ourselves. So we let our V8 cough and splutter its way to the Money Morning office here in St Kilda.

Yes - it's getting too costly to travel. However, if history is anything to go by, high petrol prices could be giving you an important investment signal...

Oil Price to Fall?

Back in June 2008, petrol prices nudged $1.60 a litre in Melbourne before the crude oil price fell 71.73% from its peak. The knock-on effect didn't take long. By November, petrol prices had dropped to $1.15.

But before you start watching the news every night for information on the oil price, know this...

The benchmark for Australian fuel prices is the Singaporean Tapis Crude Oil contract. And while the Tapis price is derived from the Brent Crude oil price, it's always slightly higher because it includes the 'cost of carry'. A fancy economic term that factors in the cost of storage and transport.

Currently, Tapis is trading at USD$133.80 per barrel, compared to Brent's USD$124.24 per barrel.


So, let's look at what happened last time petrol prices pushed above $1.50.

Between 29 May and 24 July 2008, the Melbourne petrol price was above $1.50. It peaked at 1.58 on 9 July.

Tapis Crude Oil Spot Price Five-Year Chart


Source: Bloomberg

Why the spike? Well, oil prices were high for several reasons: political risk, Middle East tension, terrorist risk and supply fears. Another reason was that investors were flocking to oil as a hedge against inflation and a weakening US dollar. 

In fact, the US dollar Index was down 12% during this period... while the price of Brent crude was up 112%!

But not long after the oil price hit a high of $150.70 per barrel, it fell to $49.93 a barrel.

And it looks like the market is ready to fall again, with similar reasons as 2008 behind the fall. 

You see, the dollar index is 4% higher since November last year. As the US dollar gains some strength, the oil price will start to weaken. 

And just as it warned 4 years ago, the Organisation of Petroleum Exporting Countries (OPEC) is worried about the impact of the higher oil price on developed economies. 

Twice this year, OPEC has lowered its forecast for oil consumption. It dropped it to 88.76 million barrels per day (mbpd) in February. And less than a month later, it lowered it to 88.63 mbpd.

On top of that, OPEC reported non-OPEC members have increased production by 300,000 barrels a day. Meaning stockpiles are growing while use is declining.

The International Energy Agency is concerned the higher prices are already hurting developed economies. It said last week, 'Demand growth will likely remain stunted by weaker economic prospects, the more so if prices stay high.'

Just like 2008, there's some speculation at play. The Mexican standoff between Iran and the US is helping to sustain oil prices.

Even so, the current high petrol price could be your signal to get ready for a fall in oil prices. If we see a repeat of 2008, now could be the time to get ready for short selling crude oil.

Shae Smith
Editor, Money Weekend