Gregor, been following your posts for a while. Basically, agree with your thinking, as does Henry Groppe:
watch.bnn.ca
I have considerable doubt about the accuracy of the market's "prediction" in present-day oil prices and futures. I can't reconcile these prices with my own vision of demand/supply (I won't repost information that you and others have already made available). Looking for explanations, I'm wondering if we aren't seeing the effect of still-unwinding derivative/hedge fund plays.
There's no doubt that this will be the recession - or maybe worse - of our lives. Nobody questions that demand will drop - but there is a floor. Until that floor is found, more expensive production will be shut down. When the floor is finally reached, prices and futures will rebound quickly.
When that happens, we will have discovered the "natural" meeting point of supply and demand: pretty well, without the distortions of non-supply/demand forces. Not completely; for instance Pemex's $70 hedge, and others, will still distort the picture.
Short version: I don't believe what the market is telling us now. Data (so far) is inconclusive: there's a floor in there, but it's impossible to see. IMO the picture is still distorted by unwinding positions, and higher prices are closer than the market is pricing.
Jim |
