Thursday, October 18, 2007

Where is OPEC with all that oil?

Oil, as measured by the WTI front month contract, closed just under $90 today. All that talk about how “the fundamentals do not support $70 per barrel oil” look a bit silly right about now.

So where is OPEC?

“OPEC cannot do much now,” Libya’s top oil official Shokri Ghanem told a news agency. “OPEC did all that it can.” – October 17, 2007

I can just hear the MoRons in Washington: “But you promised!”
(ha ha he he ha ha)… and I love that “fundamentals do not support the price” pitch. Just for fun, please publish your “fundamental analysis” that forms the basis of your claim. What “fundamentals” are we talking about? Supply? That has been in decline. Demand? Hate to tell you guys, but that has been unable to rise because of an inability to increase supply – ergo, price is the mechanism for keeping the market balanced in this commodity. Further, if the “fundamentals” do not support the rise in price, what’s up with gold, silver, wheat, corn, milk, copper, zinc, etc… over the past few years?

This was on today:

“However, the oil price rise has evidently nothing to do with rising gold prices,” Dhafer Al-Qahtani, co-CEO and chief investment officer at Dammam-based Arbah Capital, told Arab News.
“All indications were there about the rising oil price,” he said, adding that a major pointer was supply was not meeting rising demand. The Middle East situation is escalating in all directions involving countries like Turkey, Iraq, Iran and Syria. That’s why supply is not catching up with demand.”
“I will not be surprised if it goes up to $90 or $95 a barrel sooner than expected. Winter conditions that will boost oil demand will aggravate the situation further. In reality, production is not online with demand so supply is short and price will go higher and higher,” Al-Qahtani said.
He hinted that the rising oil price would have its impact on many other fields of economic activity. “Inflation will grow globally. There will be all-round price increase. Air travel, especially, will become costly. And there will be a renewed cry for finding a cheaper substitute or alternative energy source,” Al-Qahtani added.” Bloomberg news


Anybody notice that Steve Forbes, Daniel Yergin, Michael Lynch, et al, have all been conspicuously absent from the likes of CNBC? These were the “oil is going back to $20…then $30… then $35…” crew; apparently they have had the good sense to keep a low profile, particularly after their scathing criticisms of their intellectual betters (me, for instance). Larry Kudlow might still be flapping his gums, but not about oil. It would be too much for him to say “I was wrong, folks” (after all, he did a stretch in Washington, and those guys “may not always be right, but they are never wrong”). Hey guys, what is the value of a Ph.D. who can’t count and refuses to be corrected? I mean, there is always room for a good BS artist in every major corporation, especially for one with your establishment credentials, but you got to stop drinking your own Kool-aid. You got to stick to pontificating about stuff that people cannot measure – predicting oil prices is clearly not your thing.

OK, I am back.

The markets, including oil, zig and zag, they don’t zig and zig. Oil will likely not move in a straight line, the last several weeks not withstanding. So if and when prices retreat somewhat and the cheerleaders at CNBC announce for the 58th time that the crisis has past, don’t fall for it.

This energy crisis is at least as likely to be a slow motion train wreck as a crash. More like a python slowly squeezing the world economy until it finally notices it is getting difficult to breath. At that moment, the deluge will be unmistakable. It is not possible to predict that moment with any accuracy, but considering the price action in the oil markets it seems unlikely that it is too far away. It then follows that this might be a good time to get your house in order, get your act together, etc…

Here is a fun fact to know: If every American suddenly had reason to believe that gasoline supplies might become erratic and decided to fill up their gas tanks… there is not enough gasoline in the system to do so. Which means an even greater panic would ensue once the late arrivals showed up at the empty gas station. How do think that might play out in the stock market? In the housing and autos market?

It is something to think about.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

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