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Pipeline on slider supports where it crosses the Denali fault.
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Map of the pipeline
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Special Alaska Oil Pipeline Bridge – The Pipeline Crossing the Tanana River
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A caribou walks next to a section of the pipeline north of the Brooks Range.

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By Louise Story, May 21, 2008, The New York Times – Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” — a price surge that will soon drive crude oil to $200 a barrel.

Mr. Murti, who has a bit of a green streak, is not bothered much by the prospect of even higher oil prices, figuring it might finally prompt America to become more energy efficient.

An analyst at Goldman Sachs, Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now. Oil shattered yet another record on Tuesday, touching $129.60 on the New York Mercantile Exchange. Gas at $4 a gallon is arriving just in time for those long summer drives.

Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits. But the grim calculus of Mr. Murti’s prediction, issued in March and reconfirmed two weeks ago, is enough to give anyone pause: in an America of $200 oil, gasoline could cost more than $6 a gallon.

That would be fine with Mr. Murti, who owns not one but two hybrid cars. “I’m actually fairly anti-oil,” says Mr. Murti, who grew up in New Jersey. “One of the biggest challenges our country faces is our addiction to oil.”

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Alaskan Oil Pipeline

Mr. Murti is hardly alone in predicting higher oil prices. Boone Pickens, the oilman turned corporate raider, said Tuesday that crude would hit $150 this year. But many analysts are no longer so sure where oil is going, at least in the short term. Some say prices will fall as low as $70 a barrel by year-end, according to Thomson Financial.

Experts disagree over the supply of oil, the demand for it and whether recent speculation in the commodities markets has artificially raised prices. As an energy analyst at Citigroup, Tim Evans, reportedly put it, trading commodities these days is like “sticking your hand in a blender.”

Whatever the case, oil analysts like Mr. Murti have suddenly taken on the aura that enveloped technology analysts in the 1990s.

“It’s become a very fashionable area to write about,” said Kevin Norrish, a commodity analyst at Barclays Capital, which began predicting high oil prices around the same time as Goldman. “And to try to get attention from people, people are coming out with all sorts of numbers.”

This was not always the case. In the 1990s, oil research was a sleepy area at banks. Many analysts assumed oil prices would hover near $15 to $20 a barrel forever. If prices rose much above those levels, they figured, consumers would start conserving, suppliers would raise production, or both, causing prices to decline.

But around the turn of the century, oil company after oil company started missing predicted production. Mr. Murti, who covers oil companies like ConocoPhillips and Valero Energy, decided to study the oil spikes of the 1970s.

Since starting his career at Petrie Parkman & Company, a Denver-based investment firm acquired by Merrill Lynch in 2006, he had been conservative in his calls on oil. But by 2004, he concluded the world was headed for a long supply shock that would push prices through the roof. That summer, as oil traded for about $40 a barrel, Mr. Murti coined what has become his signature phrase: super spike.

The following March, he drew attention by predicting prices would soar to $105, sending shock waves through the market. Angry investors questioned whether Goldman’s own oil traders benefited from the prediction. At Goldman’s annual meeting, Henry M. Paulson Jr., then the bank’s chief executive and now Treasury secretary, found himself defending Mr. Murti.

“Our traders were as surprised as everyone else was,” Mr. Paulson reportedly said. “Our research department is totally independent. Our trading departments have no say about this.”

Over time, Mr. Murti was proved right again. Oil crossed $100 in February. Mr. Murti’s forecasts now feed into many of Goldman’s economic and corporate forecasts, affecting research of companies like Ford and Procter & Gamble. His research is distributed widely among investors.

“Even if you disagree with their views, the problem is that Goldman does carry so much credibility,” said Nauman Barakat, senior vice president for global energy futures at Macquarie Futures USA. “There are a lot of traders who are going to buy based on their reports.”

His sudden fame unsettles Mr. Murti. He rarely grants interviews, citing concerns about privacy, and he declined to be photographed for this article. He is not the bank’s only gas prognosticator: Jeffrey R. Currie predicts oil prices out of London.

Mr. Murti, for his part, discounts suggestions that his reports affect market prices. “Whenever an analyst upgrades a stock or downgrades a stock, sometimes you get a reaction that day, but beyond a day, fundamentals win out,” he said.

Mr. Murti falls into the camp of oil analysts who believe that supply is likely to remain tight because of geopolitical factors. These analysts predict higher prices because production is declining in non-OPEC countries like Britain, Norway and Mexico.

The analysts who predict lower prices say there are supplies of oil that the bullish analysts are missing. “This year will be a year in which supply will be put into the market by stealth by OPEC and by countries we call black-hole countries,” said Edward L. Morse, chief energy economist at Lehman Brothers. China is one example, he said.

But while oil and gas prices have been rising for a while now, Americans have only just begun to reduce gasoline consumption, so their efforts to conserve have not dragged down oil prices.

“The fact that the U.S. gasoline demand can be down and that the U.S. gasoline consumer is no longer driving world oil prices is a monumental event,” Mr. Murti says. He spends most of his time talking to money managers and analysts, many of whom keep asking him if oil prices will stay high if speculators abandon the market, and says he applauds investors for driving up oil prices, since that will spur investment in alternative sources of energy.

High prices, he says, “send a message to consumers that you should try your best to buy fuel-efficient cars or otherwise conserve on energy.” Washington should create tax incentives to encourage people to buy hybrid cars and develop more nuclear energy, he said.

Of course, if lawmakers heed his advice, oil analysts like him might one day be a thing of the past. That’s fine with Mr. Murti.

“The greatest thing in the world would be if in 15 years we no longer needed oil analysts,” he says.

Hong Kong, May 21, 2008, Forbes.com — Share indexes in Hong Kong and Shangahi closed higher on Wednesday, as rumors that Beijing might soon implement a policy to assist the country’s oil refiners sparked a late rally in that sector.

The Hang Seng index closed up by 1.2%, or 290.83 points, to 25,460.29, supported mainly by speculation that China’s central government will help struggling oil companies by permitting higher prices for refined products or reducing windfall taxes on their operations. H-shares of PetroChina rose 2.2%, to 11.36 Hong Kong dollars ($1.46), while CNOOC soared 5.9%, to 15.90 Hong Kong dollars ($2.04). The country’s biggest refiner, China Petroleum and Chemical Corp., commonly known as Sinopec, surged 4.3%, to 7.57 Hong Kong dollars (97 cents).

China’s stock markets also staged a late rebound, with the Shanghai Composite index closing 2.9% higher, at 3,544.19. The average had been in negative territory at midday.

Other Asian equity markets finished lower Wednesday, as record oil prices and data showing rising prices in the United States discouraged investors.

A rise in crude oil futures to a record of $129.07 overnight in New York sent the Dow down 199.48 points, to 12,828.68. The U.S. Labor Department’s latest report on inflation provided another cause for investors to abandon stocks, as the core Producer Price Index, which excludes food and energy prices, ticked 0.4% higher, prompting a fresh round of inflation fears. (See: “Producer Inflation Stays Strong — Or Maybe Not”)

The drop on Wall Street darkened the mood along the Pacific Rim. The S&P/ASX200 index in Australia was down 0.9%, to 5,853.90, while the broader All Ordinaries fell 0.8%, to 5,945.10. Mining stocks led the way to the down side in Australia, after Morgan Stanley predicted that weaker Chinese demand may lead to softer metals prices in coming weeks. BHP Billiton fell 3.6%, to 46.87 Australian dollars ($45.00), and Rio Tinto fell 3.2%, to 150.05 Australian dollars ($144.05). On the up side, though, Macarthur Coal soared 14.1%, to 20.98 Australian dollars ($19.96), after Arcelor Mittal, the world’s largest steel maker, took a 14.9% stake in the company.

Australian financial stocks also fell, with Insurance Australia Group sinking 5.7%, to 3.99 Australian dollars ($3.83), after QBE Insurance Group abandoned its $8.3 billion takeover bid for the nation’s largest auto and home insurer. (See: “Insurance Australia Plays Hard To Get”) QBE Insurance shares were down nearly 2%, to 25.16 Australian dollars ($24.15). Australia’s largest brokerage, Macquarie Group, lost 4.5%, to 58.50 Australian dollars ($56.16), after it warned Tuesday that the challenging credit market would make it difficult to maintain its earnings this year, despite posting 23% growth in post-tax profit, to 1.8 billion Australian dollars ($1.7 billion), for the previous year.

In Japan, the Nikkei 225 index toppled by 1.7%, to close at 13,926.30. The broader Topix was off 2.1%, at 1,370.09. Exporters saw strong selling, with the yen strengthening to 103.31 against the dollar on Wednesday morning. Toyota Motor went down by 3.3%, to 5,240 yen ($50.68), while Canon slipped 3.5%, to 5,640 yen ($54.65).

Banking stocks fell in Tokyo, after Mitsubishi UFJ Financial Group, the country’s largest lender, forecast flat profits this year, although a turnaround in its consumer credit unit boosted the bank’s fourth-quarter profit by 71%. Mitsubishi UFJ fell 4.5%, to 1,008 yen ($9.76). No. 2 bank Mizuho Financial Group slid 5.0%, to 514,000 yen ($4,976), and Sumitomo Mitsui Financial Group fell 4.4%, to 821,000 yen ($7,949).

Elsewhere in Asia, South Korea’s KOSPI index fell 1.4%, to 1,847.51. The Straits Times index in Singapore inched down 0.1%, to 3,196.90. Taiwan’s Taiex weighted index ended the day 0.6% lower, at 9,015.57.

by Charley Blaine

I’m really not here to scare you, but, get ready, I AM going to scare you.

The news got lots of attention: Goldman Sachs analyst Arjun Murti predicted Tuesday that the price of crude oil could hit $150 to $200 a barrel in six to 24 months.

Crude oil in New York promptly jumped to as high as $122.73 a barrel in New York before closing at $121.84. And, as I write this, crude was trading slightly lower in electronic trading. But it also had the perverse effect of pushing the stock market higher. Indeed, the biggest winners in Tuesday’s stock market were oil and gas production companies, natural gas companies. (But not refiners; crude oil is rising faster than refiners can push their prices up.)

So, if crude jumps to $150 or $200, how does that translate into prices at the gas pump. Here’s the scary part.

If crude hits $150 a barrel, we could be looking at $5 a gallon or so for the retail price of gasoline. That’s based on Tuesday’s $3.61-a-gallon national average and the rule of thumb that, for every $1 increase in crude oil, the pump price rises 5 cents a gallon.

If crude hits $200, the retail price of gas jumps to $7.52 a gallon. (Plus or minus a few cents) To fill the 10-gallon gas tank on my Honda Civic would cost $75.20, probably more because I live in Washington state, which has relatively high gasoline taxes.

Sure, one could say, well, Murti is a nut, but, as Barry Ritholtz noted on The Big Picture, Murti did suggest in 2005 that crude would hit $105 a barrel.

Gasoline at $7.50 a gallon is something nobody should go into denial over because there are going to be big problems from prices at levels I’ve suggested, including:

Will there be any U.S.-based auto manufacturers left? The answer depends entirely on how fast they can transform their product lines. Chrysler is in deep trouble already. That probably means more stress for the Midwest.

Will there be any domestic airlines left? The so-called legacy airlines (American, United, Northwest, Delta and Continental) would either try to combine into one big carrier or simply disappear. They’re having serious troubles surviving as it is. This means big troubles for cities where these airlines operate hubs that generate thousands of jobs like Atlanta, Cleveland, Newark, Houston, Chicago, Denver, Dallas, Memphis and Minneapolis-St. Paul.

How will big convention cities survive? Places like Las Vegas, New Orleans, Atlanta, Chicago, New York, San Francisco and Houston have thriving convention industries, all built around the capacity of airlines to transport conventioneers to and from the destinations relatively cheaply. Emphasis on the word “cheaply.”

How will tourist destinations like Florida or Hawaii cope? Add to that places like, say, Williamstown, Mass., whose Williamstown Theater Festival is a big draw, or Ashland, Ore., home of the Oregon Shakespeare Festival. They’re not close to major cities.

Although as Douglas McIntyre noted on Blogging Stocks, gasoline at $3.50 a gallon has not cut demand enough to force prices lower, there are signs that adjustments are being made. Sales of big, gas-guzzling SUVs and pickups are slumping. Consumption of gasoline in California fell 4.5% in January from a year ago.

The Department of Energy believes that domestic consumption is likely to fall more steeply than expected this year, the New York Times reported Tuesday. It is forecasting that domestic gasoline consumption will fall slightly this year from 9.29 million barrels a day in 2007 to 9.23 million barrels a day this year. (That’s about 140 billion gallons a year, enough to fill my Honda for, well, a very long time.)

Sales of homes in outer suburbs are falling and not just because of the credit crunch and the subprime mortgage mess. Look at the stock prices of U.S. airlines, down 90% in the last 10 years.

Many commentators have wondered at the ability of Americans to grin and bear higher gas prices. But grinning and bearing it is losing any sense of fun. It’s just gotten expensive: Over the first four months of 2008, as Peter Beutel of Cameron-Hanover noted this week, gasoline has cost the United States $757.24 million a day more than in the first four months of 2002.

That’s more than the estimated $720 million a day spent in Iraq.

In Parts of California Gas is Now Over $5.40 Per Gallon

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Think the prices at your local pump are high? If you aren’t in California, don’t feel so bad. Sure, you may be paying $4 per gallon, but whatever. Because as our auto-loving friends on the Cali coast know, yes, it really does cost $5.40 per gallon. You non-Americans may scoff, what with European prices being around eight thousand dollars per gallon, but for us this cost is simply outrageous. Don’t oil companies know this is America? We’ll never stand for such prices. Or at least we’ll just sit here in our cars and wait it out. [CNN]

-1.jpgAlthough AAA of California is reporting some drivers are now paying $4 a gallon for regular unleaded gasoline, local Cali station KSBW found gas stations in Gorda, south of Big Sur, currently charging $5 per gallon for gas. While that’s obviously an isolated occurrence, the average price is getting pretty high up the cost meter. For instance in Salinas, AAA recorded an average of $3.39 per gallon. Santa Cruz is at an average of $3.37 per gallon. Yes, the gas prices in California are always higher than elsewhere in the country, but this is getting ridiculous. Something must be done! Oh, Toyota — please come and save us. If they only could get every individual in the United States to drive a Prius.