Its been a while
Let's look at oil.
Why? Well my wife (rightly) chastised my older son for calling Hillary a "pig" in front of my daughter. The thing is, he shouldn't have called her a "pig" at all. She is not. That is a cheap assault on her gender -- if we are being honest, it is a statement about her looks, not her policies or character, and hence a sexist comment.
So for the record, she is NOT a "pig." Evil ... maybe. Singularly dishonest and reprehensible, for sure. Completely unfit for duty as anything other than a vermin control officer ... certainly. But not a "pig." So let's get that out of the way.
She is also pandering to the ignorant: taxing the oil companies for their windfall profits is populist and wrong. The pain felt by motorists all over the world is due to a classic financial bubble. Remember when the call was for insane tech valuations? The new paradigm. So too with oil. Oil demand has increased ... but at a rate lower than the increase in actual world production over the last year, and this includes the notion of increased Chinese demand. This means one thing, and one thing only: there is no inherent reason why oil prices should have doubled. The Saudis are correct! There is no need to increase production.
Now, I understand that Americans are paying $4.00 gas at the pumps ... how can this be? It is because traders in oil, speculators, hedge funds, hedging airlines, oil companies are betting that the price will be higher next month. As anyone who understands anything about bookies and betting knows, the more that people bet one way, the shorter the odds become -- translated, that means higher prices become self-fulfilling prophesies. The history books are full of these conditions: tulips, South Seas, tech stocks, housing (multiple times), credit ... and oil. Remember gold went to $800 before falling back to $300. Now it is $1000-ish and demand for gold for industrial uses has fallen.
There are supertankers lined up in the Gulf, chartered by the governments of oil producing nations, full to the brim with oil. And they are sitting there. Why? Because while the price of oil is reputed to be North of $130, there are not enough buyers for it at that price. Sure the futures price suggests that this is the "correct" price. Sure demand is reputed to support this price. So too did Southern California house flippers believe that property was a one-way thing: there is a limited amount of property ... buy now while you still can. And of course, they are now into negative equity. Note, that there IS a limited amount of supertanker space available ... and if prices do not fall soon, to move the excess capacity stored, they WILL run out of space, or have to shut down the pumps. Or sell it cheaper to find a buyer.
That is, if "spot oil" starts to diverge significantly from "forward oil" or the futures, you will see holders of long positions start to "square it up." That is a nice way of saying that you will see an almighty collapse in oil prices. Too many fat men trying to squeeze through a narrow door. Oil collapses, dollar goes up, commodity prices poop the bed. Count on it.
Why? Well my wife (rightly) chastised my older son for calling Hillary a "pig" in front of my daughter. The thing is, he shouldn't have called her a "pig" at all. She is not. That is a cheap assault on her gender -- if we are being honest, it is a statement about her looks, not her policies or character, and hence a sexist comment.
So for the record, she is NOT a "pig." Evil ... maybe. Singularly dishonest and reprehensible, for sure. Completely unfit for duty as anything other than a vermin control officer ... certainly. But not a "pig." So let's get that out of the way.
She is also pandering to the ignorant: taxing the oil companies for their windfall profits is populist and wrong. The pain felt by motorists all over the world is due to a classic financial bubble. Remember when the call was for insane tech valuations? The new paradigm. So too with oil. Oil demand has increased ... but at a rate lower than the increase in actual world production over the last year, and this includes the notion of increased Chinese demand. This means one thing, and one thing only: there is no inherent reason why oil prices should have doubled. The Saudis are correct! There is no need to increase production.
Now, I understand that Americans are paying $4.00 gas at the pumps ... how can this be? It is because traders in oil, speculators, hedge funds, hedging airlines, oil companies are betting that the price will be higher next month. As anyone who understands anything about bookies and betting knows, the more that people bet one way, the shorter the odds become -- translated, that means higher prices become self-fulfilling prophesies. The history books are full of these conditions: tulips, South Seas, tech stocks, housing (multiple times), credit ... and oil. Remember gold went to $800 before falling back to $300. Now it is $1000-ish and demand for gold for industrial uses has fallen.
There are supertankers lined up in the Gulf, chartered by the governments of oil producing nations, full to the brim with oil. And they are sitting there. Why? Because while the price of oil is reputed to be North of $130, there are not enough buyers for it at that price. Sure the futures price suggests that this is the "correct" price. Sure demand is reputed to support this price. So too did Southern California house flippers believe that property was a one-way thing: there is a limited amount of property ... buy now while you still can. And of course, they are now into negative equity. Note, that there IS a limited amount of supertanker space available ... and if prices do not fall soon, to move the excess capacity stored, they WILL run out of space, or have to shut down the pumps. Or sell it cheaper to find a buyer.
That is, if "spot oil" starts to diverge significantly from "forward oil" or the futures, you will see holders of long positions start to "square it up." That is a nice way of saying that you will see an almighty collapse in oil prices. Too many fat men trying to squeeze through a narrow door. Oil collapses, dollar goes up, commodity prices poop the bed. Count on it.
posted by Zaphod at Thursday, May 22, 2008
1 Comments:
No disrespect to your wife, but your son calling Hilliar a "pig" is an insult only to the pig and could only be construed as sexist if the pig were of the female variety. The oil "bubble" may be a good inconverience if it is of a duration long enough to force the automobile industry in the U.S. to produce fuel eficient vehicles and force americans to kick the monster SUV habit.
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