Slider, I really like your posting, you really seem to be up on things. However, in the spirit of healthy discussion I would like to make a few comments:
1) I agree with your assessment that being neutral is an option as much as buying and selling. I would like to add to that this: Markets do not have to always wildly search for much lower levels, or reach for super-overvalued heights. The could just be sideways for years.
2) $10 oil does tend to generate $30+ oil, but I disagree with the reverse for this decade.
The actual return on investment for oil has not been very high during the 1990's when we had oil averaging around $18. That reason alone could explain why excess capacity has gone from around 16 mbd to near 0 bpd in the last 10 years. But on top of that I tend to believe Simmons when he says the production of world-wide cheap oil is peaking right now. The depletion treadmill is just too steep a slope. Oil prices will have to climb much higher to slow demand and make it economical to explore in super deep water and to do other unique but costly things. I view the Brazil off-shore rig sinking as a reminder that the oil business is risky and needs an adequate return for that risk.
....I like your call on the weaker dollar. However, I think the thing that knocks the dollar down is much higher oil prices (hurts trade deficit). I think we go $40+ on oil later this year due to being at zero capacity. The seasonal swing in oil demand is around 4 mbpd, so, since we are now at the seasonal low point, OPEC will be spending the rest of the year increasing output.
Of course this is just all my opinion. If we get oil prices that are much higher and a weaker dollar, then it would seem to me, that the only country that would really notice would be the U.S. In dollar terms, oil prices would be higher, but in euro, yen, etc., the price change would muted.
So, I guess I am advocating an unpopular view, that the U.S. takes Japan's place as the next economy that is stagnate for several years. |
