Cracks Appear in World's Engine

NVDL: Did you know that Saudi Arabia's output is the highest it's been in two years, and even so we're still seeing oil prices go up? The Financial Times reports the following:

Normally it takes a war to lift oil prices $10 a barrel in a week. Not this week.
A market that started on Monday wondering if a fresh record of $125 a barrel was sustainable ended by witnessing spot prices above $135 and, crucially, long-term prices moving as high as $145 a barrel.

... veteran oil traders and analysts still say $150 a barrel is possible as it becomes clear that a supply crunch will hit the market in the next five years if demand growth does not slow.

NVDL: Is demand growth slowing? Did you drive less than usual this weekend? Have China and India said to their 1 billion plus populations, "Sorry guys, guess we're not invited to the party. Let's go back to the farms. Ja, just leave your cars and go back to where you came from. " No, governments and individuals will find any excuse, elect any leader, that allows them to continue consuming as we are now. Even so, it's not going to continue for a lot longer, even if we insist that that's what we want. Demand Destruction is a factor, and we're seeing demand eroding in the collapse of airlines now, but it will take longer to filter through to less vulnerable businesses, but, it will. Recession and the complete collapse of housing/property markets is the long term consequence of these high prices. The markets will choke on them, and globalisation will kick back into reverse.

Kevin Norrish, of Barclays Capital, says: "Strong oil demand, in particular from emerging giants such as India and China, along with disappointing non-Opec supply, continues to underpin oil prices."

Taiwan, Malaysia and Indonesia, [have] started cutting their expensive fuel subsidies, a change that signals that the first cracks in the world's engine of oil consumption are appearing.

Francisco Blanch, head of commodities at Merrill Lynch in London, added: "The oil market is avidly looking for a demand-destruction level." He said that several airlines had started cutting back flights and that high prices were hurting other transportation companies. This week's surge in prices - with spot prices up about 7 per cent and long-term prices up 15 per cent - has triggered concerns that the commodities market has become a bubble, after the booms in dotcom shares and housing.

But Hank Paulson, US Treasury secretary, said high oil prices reflected tight supplies and growing global demand and were not driven by market speculators. "I don't think this is about financial investors," Mr Paulson told CNBC. "This is about long-term supply and demand."

By Javier Blas, more.

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