Thursday, Oct 18, 2007
Holy Macaroni
CNN: Oil finishes at all-time high above $89
This combines with the greenback falling to a new low against the Euro, but only part of this rise can be attributed to a fall in the dollar because the Euro has only risen about 2% against the dollar since about mid September, yet oil has risen by about 10% in the same period, so this has more about supply and fear of it than a falling greenback. I think that $100 a barrel will occur very soon, and it should be remembered that an inflation adjusted rate of $90-95 triggered recession in the US in the '80's, and whatever anybody says, that will effect us. The US doesn't go down without kicking and screaming and without bringing down others with it.
Posted by planning4acrash @ 08:56 PM (529 views) Add Comment
5 Comments
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1. japanese uncle said...
Exactly the same as housing bubble. Oil market has simply turned into a quasi-fiancial market through the prolifiration of oil-related derivatives. When oil-bubble is boosted, oil charlatans quite like property charlatans, start to trumpet the same old trick, the demand factor. Complete and utter rubbish. Again derivative trading must be wholly banned, to regain stability in economic lives of nations.
2. planning4acrash said...
Agreed, there is speculative trading involved, but the supply and demand argument is strong here, because supply has been on a plateaux since 1995, yet demand has risen by about 2% each year.
3. stillthinking said...
Hopefully we will remain free to become rich or poor as fate has it, enough things are banned already.
4. whiteknight said...
the printing money argument ain't bad either.
5. planning4acrash said...
Whiteknight, what we have here cannot be explained by one factor alone. Oil is reaching its highest point in modern history, even index linked. What we have here is the perfect storm of high money supply rocket fuelling oil derivitives, a falling dollar, the omnipresent threat of escalating war in the middle east, a hurricane (not this year tho) in the gulf, disruption in Nigeria and state control in Southern America. These geopolitical factors are spooking traders because supply is extremely tight, so the oil economy has little to no buffer for disruption, which is why traders are looking so closely at inventories.
The main insight to add to these factors are that few appear to be at the peak of their cycle. The dollar is in a race to the bottom, the USA and Russia are vieing for control over Iran and none will stop until either American corporations or Gazprom get a foothold in the Iranian oil market, Nigerian disruption is endemic and has by no means run its course, socialism in South America is only just taking hold, hurricanes will get stronger with global warming. On the supply side, non OPEC output is down, OPEC is struggling to boost supply with Ghwar in Saudi-Arabia looking like it may be entering into terminal decline (some say that this event alone ushers in the age of peak oil because its the world's largest oilfield, the second largest, Cantarell in Mexico is already in decline and was hit by a cat 1-2 hurricane this year).
The only bearish factors are that money supply could dry up, but governments will try to print money to stave off recession and M3 supply was very high last month. A recession itself could reduce oil prices, but by that time high oil prices will have had their effect, and there is a chance of stagflation, where booming Chinese demand for oil takes up the slack and high oil prices persist.