Lies: Mine, Yours, and Statistics

The EIA was out in force today, informing the American public that the average price per barrel of oil in 2008 would be $127, and that DEMAND would fall by 400,000 barrels per day. 

The EIA continues to frame the issue in DEMAND terms.  They are being disingenuous, to be kind.  To be informative and accurate, the EIA SHOULD HAVE framed the issue this way:

"Oil SUPPLIES are expected to fall by 400,000 barrels this year."  

Rather than the propaganda:

"Oil DEMAND is expected to fall by 400,000 barrels this year."

DEMAND can NEVER exceed SUPPLY, as used and defined by the subject matter.  And since the SUPPLY of oil is going down, the DEMAND for oil must also head down with PRICE as the mechanism for bringing the two into equilibrium.

Now, if inventories were PILING UP, then perhaps the EIA would be correct in using the DEMAND argument.  In fact, inventories are down year over year.  Once again, the EIA obfuscates the real meaning behind the data.

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I have received an inordinate amount of email haranguing me about my audacity in challenging the conventional and politically correct views on funding social programs, healthcare, housing, etc...

Once upon a time, I was a healthcare finance analyst.  In fact, I ran a million dollar a year practice doing so in New York for the better part of a decade (to be fair, in addition to several other hats I would wear on a daily basis).  

Yet the emails I received were from folks that I feel confident had very little experience as an analyst whatsoever, and absolutely nothing in the area under discussion.

I have noticed a few things about my fellow Americans -  Every single one of them will tell you, with a face as serious as a heart attack that:

1. That they are very good drivers, far above average (The entire set of any data pool cannot, by mathematical necessity, be above average).
2. That they are excellent lovers (again, certainly above average - please refer to 1).
3. That they/we could solve the most contentious, intractable issues imaginable.
4. And that they have received all of the pertinent data on whatever the issue - healthcare, social security,  abortion, taxation, guns, flag burning, freedom fries, gay marriage (to bring up a few of the manufactured, yet somehow contentious issues), the drinking age or age of consent, crime and punishment, energy, etc... - and that they understand the issue perfectly and succinctly and that the data was delivered to them by a pure and unbiased, unfiltered and altruistic data source with absolutely no agenda, and that their own personal experience during their formative years has had no influence in the formation of beliefs based upon the aforementioned angelic data feed.

And, of course I am as guilty as the next.  But at least I know I am full of shit. 

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Just over a week ago, on June 28, I posted this article that Oil at $142 did not turn me on.  Well, Oil is $136 and I am still not excited to add to it here.  As I said before, Oil could certainly head straight to $165, or right back to $120.  That risk/reward ratio does not turn me on.  A 20% or 30% decline might peak my interest in adding long positions.  Of course, I might miss the next leg up.  But for me, this is not academic (or political).  This is how I make a living.

My fellow analyst and fund manager, our own mad scientist Dr. Lalani pointed out to me today that having Oil over $100, let alone $136, was like throwing gasoline (pun intended) on the fire of the exporting countries economies.  For every bit of economic pain high prices cause in the U.S., they cause an equal and opposite amount of joy in the export economies.

Still, no market, not even oil during the greatest and last oil crisis mankind will ever know, moves in a straight line (with the possible exception of the U.S. housing market).

Good luck!

Mentatt (at) yahoo (d0t) com