Call of the Day
Unleaded Gas Futures headed to $1.55 by June 2004
That will add 55 cents or so to the pump price from here.
Reasons
1) geopolitical risk in Iraq
2) geopolitical risk in Venezuela
3) geopolitical risk in Saudi Arabia
4) inventory levels low
5) demand from China
6) diminishing supplies from North Sea
7) seasonality there usually is a gas spike around memorial day
8) The Opec cartel does not seem to be cheating as much
9) Oil to be priced in Euros
10) TA, every dip is being bought, the trend is up
1,2,3 look the same but they are not. Each one carries a risk and the risks are not the same, nor the results
#1) Iraq is not pumping any more oil in spite of assinine projections that Iraq oil would be used to rebuild the country. Bush seems determined come hell or high water to get out of Iraq by June whether or not Iraq is ready. Who knows what will happen if we leave?
If we stay them that means there will be problems that we could not overcome. I do not think the market is priced for the piss poor fundamental situation in Iraq
#2) This is not the most stable country and at the last meeting (If I recall properly, Venezula was not interested in pumping more and wanted to keep prices up. Already we saw a strike and god only knows what really might happen if all hell breaks lose.
#3) This is the biggie. If anything happens there (pipeline blown up, overthrow of the govt) etc etc etc we are not stopping at $1.55 we are blowing well past it.
#4) How we let our inventories get as low as we did is neither here nor there but they are down.
#5) China has worthless US$ and has been increasing its reserves. What better things to do with worthless paper than buy something usefull with it, like oil.
#6) There was a report on this that just came out. RD overstated reserves.
#7) Seasonality just is and just does. Memorial Day is the biggest driving weekend of the year. Prices reflect this supply/demand issue
#8) In spite of talk, Opec is not pumping more or lowering prices. Perhaps they are tired of US$
#9) Personally I do not think this matter over the long haul. Currency conversions are immediate so who cares. However, in the short haul who knows how the market will react. It would be a change and the market does not deal very well with changes.
10) dip after dip is being bought. We are approaching trendlines and if they get taken out it is blue sky territory, panic short covering and/or god knows what else. So far this rise has been smooth. What happens if it goes parabolic like silver did?
Predictions of a disruption in supply are hard. I do NOT think any of the above is fully priced in. It is hard to say for sure that something will happen, but if several bad things happen at once, consumers are going to be damn unhappy come Memorial day. $3.00 gas coming if several bad thinsg happen?
Disclaimers and Alternate Ideas
a) If this plays out Steve on the FOOL gets credit for mentioning the idea. The analysis and reasons are mine.
b) If it does not play out then things are probably going smoothly in Iraq and everywhere else
c) We can be surprised. Who knows. Iraq starts pumping oil. Terrorism stops, China anounces it has built up reserves and is buying no more crude as its economy slows, whatever. Who knows.
d) A recession hits and demand for oil plummets |
