The “speculator” argument for high oil prices does not hold water. Speculators would have to hold physical inventory and inventories are falling.
Worldwide, production of crude rose from 2003 to 2006 by a total of approximately 6.3%, then plateaued; 2007's production was the same as in the prior year.
Yet, while global supply was slowing, demand was growing more robust. Global petroleum consumption is up approximately 7.5% since 2003; demand rose 1% in 2007 from the prior year. Demand is rising fastest in emerging economies such as Brazil, Russia, India and China. OECD countries, which include developed economies such as the United States, the United Kingdom, Japan and Germany, have not been the main drivers of increased oil demand. Petroleum consumption in OECD countries is up only 1.1% since 2002, and was relatively unchanged in January 2008 from the same month a year earlier.
And there is not much slack in supply.
While all eyes have been on crude oil prices this year, coal prices have actually increased more in percentage terms. Coal futures prices have risen 95% since the beginning of 2008, while oil prices have risen approximately 30% during the same time. The surge in coal costs will drive electricity prices higher since coal is used to generate nearly 50% of all the power consumed in the U.S. Robust demand, particularly from China, has been the primary cause of the surge in coal prices this year. Unless China’s economy decelerates sharply over the next few months, which appears unlikely, coal prices will remain on their current upward trend.
This means that pellets will look good for electric heat people too! Also suggests that pellet prices can rise somewhat and still hold a huge margin over alternatives.
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