Oil prices are the derivative of what happens in the global economy and global geopolitics

Now that the price of crude oil has crossed the psychologically important $100-a-barrel threshold, and then retreated, what direction will it take now?
Many experts say it will go up, then down, and then maybe up again, International Herald Tribune reported.
That, anyway, has been the pattern of the past several years of volatile prices.
The arguments for even higher oil prices are well known. The economies of China and India are booming and hungry for energy. Oil fields in Mexico and the United States are drying up, tightening world supplies. President Hugo Chavez of Venezuela is using oil as a political weapon. Rebels in Nigeria are creating havoc in some of Africa’s most productive oil fields.
The war in Iraq rages on. The dollar is weakening, causing hedge funds and traders to flee to oil and other commodities as a haven.
But all those factors were in play last summer when the price fell to about $60 a barrel, before it rallied at the end of the year. The price touched $100 on January 2 and surpassed that briefly January 3 before retreating after the government reported higher-than-expected supplies of heating oil and gasoline.
Crude oil futures for February delivery fell $1.53 to $97.65 a barrel on January 4 in afternoon trading on the New York Mercantile Exchange.
“Predicting oil prices continually demonstrates the perils of prophecy, because oil prices are the derivative of what happens in the global economy and global geopolitics,“ said Daniel Yergin, chairman of Cambridge Energy Research Associates.
Yergin said he could foresee oil prices soaring as high as $150 in the next few years or falling as low as $40.
John Richels, president of Devon Energy, an international oil and gas company based in Oklahoma City, said $150 a barrel was possible, but so was $55.
“We have to make investments based on our outlook over a long period of time,“ he said. “It is tough.“
Central to the question of where oil prices will go is the effect of high prices on the consumption and development of alternative fuels.
Large amounts of public and private investment are going into solar, wind and biofuel development, but so far they are making only a slight contribution to energy supplies. Scientific and engineering leaps, like developing the atomic bomb or sending a man to the moon, can be made relatively quickly, but they are still measured in years.
Until now, most economists have been surprised that the steady rise in oil prices - from as low as $11 less than a decade ago - has not had a greater effect on American consumers.
But with oil prices rising at an increasingly rapid rate over the past few months in conjunction with the US housing market slump and credit squeeze, many economists wonder whether oil prices could tip the economy into a recession.
A recession, of course, would curb oil demand. That would push oil prices right back down again, or so the theory goes, as fewer consumers drive to the mall, companies produce and ship less and world trade slows.
“If we are slowing down, we will not be buying as much goods from China and services from India,“ said Addison Armstrong, director for market research at Tradition Energy, an energy broker that deals with banks and hedge funds.
“My forecast for 2008 is that crude prices will average $75 a barrel, and that is based on a scenario of a slowing economy in the United States.“
But Armstrong and other experts cautioned that a protracted insurgency in Nigeria, a punishing hurricane season or other unpredictable events could take oil prices up.
So why are oil prices going up now? The military situation in Iraq is arguably improving, and Iraqi oil exports are beginning to flow again. Tensions with Iran have eased a bit.
There are forecasts for a mild late winter in the United States, which should help bolster oil and gasoline inventories going into the spring and summer driving season.
Many experts say the answer lies in the investment decisions of traders and hedge funds. With the markets in equities, housing, credit and currency shaky in the United States, traders are betting on oil and other commodities as a perceived haven.
Phil Flynn, a vice president and market analyst with Alaron Trading in Chicago, said the recent interest rate cuts by the Federal Reserve had underscored for traders the depths of the country’s economic risks and led them to buy oil futures.
Flynn said he thought that oil prices were more likely to fall than rise, “because I think the factors that drove us to today are unlikely to repeat in 2008.“ He added that he thinks the dollar will find a bottom in 2008 and that the problems in housing are already priced into the markets.
But most experts say that if oil prices do go down, they will probably not go down very far or for very long.

Google is very focused on operating efficiencies and sees renewable energy as good not only for the environment but also for the company's bottom line.

You know something is hot when Google (GOOG) wants in. The dominant Internet search company stunned investors last month with an announcement that it will begin hiring engineers and other energy experts for a project that plans to generate 1 gigawatt (GW=1 billion watts) of electricity--the output of a fair-sized nuclear power plant--from renewable sources.
Not just any renewable source will do, however. Google’s goal is to find sources that can generate power more cheaply than power from coalÑthe ultimate goal of any renewable energy technology.
According to Businessweek.com, Google said it will use its experience building energy-efficient data centers to invest in renewable energy technologies, particularly in solar, geothermal, and wind power. If it succeeds, the company would be in a position to provide a large amount of electric power while reducing carbon dioxide emissions.
“We expect this would be a good business for us as well,“ says founder Larry Page, adding the company expects results “in years, not in decades.“
“Google is very focused on operating efficiencies and sees renewable energy as good not only for the environment but also for the company’s bottom line,“ says Standard & Poor’s equity analyst Scott Kessler, who has a hold recommendation on Google shares. (Standard & Poor’s is a leading provider of financial market intelligence).
Google does not disclose its annual power bill, but “energy-related expenses are becoming more material for Google and other corporations,“ Kessler says.
Around the world, investment in renewable energy projects is skyrocketing and will only increase further as calls grow for tighter restrictions on emissions of carbon dioxide and other greenhouse gases. Major US corporations, including General Electric (GE), Johnson & Johnson (JNJ), DuPont (DD), and AIG (AIG), pledged their support in late November for “a comprehensive, legally binding United Nations framework to tackle climate change.“
It would supercede the Kyoto Protocol--a UN-sponsored treaty that commits developed nations to collectively reduce their greenhouse gas emissions below their levels in 1990--when it expires in 2012. “We believe that tackling climate change is the pro-growth strategy. Ignoring it will ultimately undermine economic growth,“ the group said.
In the US, a bill passed by the House of Representatives would force electric utilities to source 15 percent of their power from renewable sources by 2020. Nonhydroelectric renewable power sources contributed just 2 percent of the US power supply in 2006.
While the money being spent on renewable energy projects is real and rising quickly, S&P Equity Research does not believe that every renewable energy stock is attractive. S&P has buy recommendations on just three US stocks with significant exposure to renewable energy.
All three companies are involved in solar power, which has so far lagged in development compared with wind power, and which is expected to expand rapidly in the years to come.
Photovoltaic (PV) power uses silicon wafers, as well as other light-absorbing compounds, to produce power directly from sunlight--the same silicon wafers used to make the semiconductor chips found in computers.
MEMC Electronic Materials (WFR), the only one of the three with S&P’s highest 5-Stars ranking, makes silicon wafers that are used to manufacture PV solar cells.
With demand for wafers rising as sales of solar power cells increase, a silicon shortage has developed, which is driving up the price of MEMC’s wafers.
Suntech Power Holdings (STP), one of the world’s largest solar cell manufacturers, is another stock that S&P analysts are bullish on. The company has grown rapidly in recent years and says it is now the largest producer of solar PV cells in the world, with an annual manufacturing capacity of 420 megawatts (MW=1 million watts) as of Sept. 30.
It expects to more than double that, to 1 GW of capacity by the end of 2008, a fourfold increase since 2006. The third renewable energy company recommended by S&P is Cypress Semiconductor (CY), which bought San Jose-based PV cell maker SunPower in 2002 and has sold some of its shares since then.
It now owns 57 percent of SunPower (SPWR), which trades on the Nasdaq and supplied about half of Cypress’ revenue and net income in the third quarter ended Sept. 30, 2007.

As New Jersey’s energy infrastructure strains to pump out enough heat and electricity to keep up with all the extra trips to the thermostat this winter, energy costs are bound to rise.
Over the next 15 years, New Jersey’s energy demand is expected to increase by 29 percent, an average of 2 percent each year. Increasing demand for energy means relying on expensive peak sources to satisfy the state’s heating and electricity needs, Northjersey.com reported.
Energy companies have offered to fill in the infrastructure gaps by building more power plants in New Jersey and installing transmission lines to bring more energy from out of state. But not only would those energy sources contribute to an already overwhelming pollution problem, they would be the slowest and least economical way to meet New Jersey’s energy needs.
For example, a new 500 megawatt nuclear power plant would cost $1 billion to build, not including a yearly operating cost of $24 million. Energy-efficient buildings and appliances, on the other hand, would save consumers and businesses a bundle on energy bills, help to reduce pollution and could be realized much faster.
In fact, investing $1 billion in energy efficiency would save three times more energy than the same nuclear power plant could generate.
At the moment, the New Jersey Legislature has a great opportunity to utilize some of the state’s abundant energy efficiency potential. Two bills that would expand New Jersey’s efficiency program have already passed the Assembly and are being considered by the Senate.
A bill sponsored by Assemblyman John F. McKeon, D-South Orange, and state Sen. Bob Smith, D-Piscataway, would allow the state to establish stronger efficiency codes for new commercial and residential buildings.
More efficient buildings would cut projected electricity demand by 5.5 percent in 2020 and natural gas demands by 4.6 percent in 2020.
Better building codes would save consumers and businesses $6.6 billion on electricity and $3.2 billion on natural gas by 2020 compared to current codes.
Since homes and buildings are responsible for about 65 percent of the electricity used in New Jersey, the state’s inability to make them as efficient as possible has a significant impact on New Jersey’s energy security.
This bill will allow New Jersey to regularly update building codes to the most energy efficient, cost-effective standards, significantly reducing the state’s energy needs.
Another bill sponsored by Assemblywoman Bonnie Watson Coleman, D-Trenton, and state Sen. Ellen Karcher, D-Freehold, would strengthen the energy efficiency standards for seven appliances, including furnaces and walk-in refrigerators and freezers.
These efficient appliances will cut projected electricity demand by 1.2 percent in 2020 and natural gas by 0.7 percent in 2020.
After paying for slightly more expensive energy-efficient equipment, the cost savings from reduced energy purchases would save New Jersey nearly $2 billion between the time of adoption and 2030.
If just seven efficient products can reap this much energy and cost savings, think of all the money, energy and efficiency potential that is currently going to waste.
All across the state, consumers are struggling to keep up with the cost of heating and lighting their homes.
But next winter doesn’t have to be as bleak.
New Jerseyans should contact their senators and urge them to take advantage of state’s incredible energy efficiency potential by passing this key legislation in lame-duck.
New Jersey is in no position to overlook such incredible energy and cost savings.