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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerThen on Tuesday, Saudi Arabia nixed that plan, and on Friday Venezuela's Oil Minister Rafael Ramirez reignited some traders' concerns about a dwindling safety margin between oil supply and demand by stating that OPEC should not increase production at its next meeting in December.
Even worse, Ramirez said, "OPEC can't do anything about the price" of oil, Bloomberg News reported.
Those two last data points were enough to spark a rally in oil, with crude oil rising $1.72 to $95.15 in Friday afternoon trading. Unleaded gasoline also jumped 4 cents to $2.37. Heating oil climbed 2 cents to $2.59
A $90 defense?
Jim Dietz, independent energy trader, said the market's psychology has shifted, and the oil bulls are back in charge.
"The consensus is now that OPEC will try to defend $90 per barrel oil, as far-fetched as that seems," Dietz told bloggingstocks. "The thinking now is that, OPEC knows the price is high, but as long as they don't see signs of a global recession, they're going to try to maintain the $90 price. OPEC's going to try to push the envelope."
Dietz quickly added that, in OPEC's defense, analysts thought both the U.S. and the global economy would fall into a recession when oil reach $40 per barrel, then at $50, at $70 etc. It hasn't happened. That said, Dietz doesn't like the prospect of OPEC playing "let's see how high the price of oil can go" before the economy stalls.
"OPEC is not fully-incorporating the lag-affect. The $60 oil months ago has already slowed the current economy, and $90 oil will slow it further, a couple quarters from now, if it holds," Dietz said. "A $90 price is not where you want to be in order to promote economic growth."
From a trading standpoint, Dietz said his bias is "oil higher, with a re-test of $100" in the weeks ahead.
Cartel's influence
Most analysts agree that OPEC's influence, while not the near-absolute power over price that the cartel exhibited from 1973-85, is still substantial. OPEC accounts for about 40% of the world's oil production. Further, OPEC still accounts for a majority of the world's spare production capacity.
That latter advantage was magnified Friday when Russia's oil minister announced that Russia does not expect to repeat double-digit production increases in the decade ahead, The Wall Street Journal reported. (Subscription required.) That more-modest Russian production estimate added to some analysts' concerns about a dwindling safety margin between global supply and demand, amid rising demand from emerging markets and resilient per capita demand from the developed world.
A $90 defense?
Jim Dietz, independent energy trader, said the market's psychology has shifted, and the oil bulls are back in charge.
"The consensus is now that OPEC will try to defend $90 per barrel oil, as far-fetched as that seems," Dietz told bloggingstocks. "The thinking now is that, OPEC knows the price is high, but as long as they don't see signs of a global recession, they're going to try to maintain the $90 price. OPEC's going to try to push the envelope."
Dietz quickly added that, in OPEC's defense, analysts thought both the U.S. and the global economy would fall into a recession when oil reach $40 per barrel, then at $50, at $70 etc. It hasn't happened. That said, Dietz doesn't like the prospect of OPEC playing "let's see how high the price of oil can go" before the economy stalls.
"OPEC is not fully-incorporating the lag-affect. The $60 oil months ago has already slowed the current economy, and $90 oil will slow it further, a couple quarters from now, if it holds," Dietz said. "A $90 price is not where you want to be in order to promote economic growth."
From a trading standpoint, Dietz said his bias is "oil higher, with a re-test of $100" in the weeks ahead.
Cartel's influence
Most analysts agree that OPEC's influence, while not the near-absolute power over price that the cartel exhibited from 1973-85, is still substantial. OPEC accounts for about 40% of the world's oil production. Further, OPEC still accounts for a majority of the world's spare production capacity.
That latter advantage was magnified Friday when Russia's oil minister announced that Russia does not expect to repeat double-digit production increases in the decade ahead, The Wall Street Journal reported. (Subscription required.) That more-modest Russian production estimate added to some analysts' concerns about a dwindling safety margin between global supply and demand, amid rising demand from emerging markets and resilient per capita demand from the developed world.
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Reader Comments (Page 1 of 1)
11-17-2007 @ 9:49AM
michael schneider said...
There is increased concern about OPEC gaining strength as new members seek to join. Yesterday's oil action was influenced by a number of factors though including more nuclear troubles with Iran, more possible disruptions in Nigeria and a snap back from declines due to a combination of technical factors, bearish oil inventory numbers and reports earlier in the week suggesting that this winter will be milder than normal. A cold weather forecast for this week in key areas caused nat gas to move back up by around 30 cents yesterday.
There are many items on oil including trader comments on this week's oil and nat gas inventory numbers in the Oil Alerts section (light blue label, left side) at http://www.Barrelomoney.com.
12-01-2007 @ 6:06PM
Larry said...
Our government has sat on its hands throughout this mess as if there is nothing to be done. Jimmy Carter knew how to approach this prolem. He called it the "moral equivalent of war".
We are at war, and the American public has not been asked to do anything. 55 MPH speed limit for a short period, enforced "sabbaths" for the airlines to immediately cut their fuel usage by 15%, and other dramatic action which could add 100 to 300 million barrels into what is known as 'inventory'. These measures wouldn't have to be in effect very long to throw the cartel into disaray.
The next thing that needs to be done is the incentives of the domestic oil industry have to be corrected. Now the different levels of the petrochemical supply business are rewarded with higher prices, and thus profits, for doing less of what they do. Even the 'threat' of a supply disruption can create enormous profits for members of the affected industry. A Windfall Profits Tax, such as that instituted under the Carter administration, would take all of the profit out of windfall situations, thus discouraging things like poor maintainence, redundancy of facilities necessary to service the public, because the only way they can make more money is to do more of what they do.
Last I would break up the horizontal and vertical trusts in the domestic oil industry. Anything that encourages competition in this industry and will translate itself into a diminishment of OPEC's contol of our national destiny.