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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (3445)	4/3/2004 4:30:54 PM
From: NOW	Read Replies (2) \| Respond to of 116555

sounds like he might be short. what a foolish article

To: mishedlo who wrote (3445)	4/5/2004 6:34:15 AM
From: zonder	Respond to of 116555

Consider gas in real, or inflation-adjusted, terms. That is of course a good way to look at it. Since there was no graph in the article, I found one in IEA's library service: library.iea.org Prices peak in 1981 during Iranian Revolution, of course. So I am not sure if taking comfort in today's oil prices because they are not far from the "long term average" starting in 1976 (and including the period of the revolution in Iran) is a very good idea. Not that it matters much. Oil producing countries (not just OPEC) have a vested interest in keeping prices at a level that will be high but not so high as to stunt growth and hence decrease demand for their product. If they are aiming for an average real price which they think is ideal, it would not be surprising. Yet in many ways the story about the current high price of gasoline is that there is no story That is not true, of course. I don't claim extensive knowledge on oil (just looked at it as major driver of demand for the marine transportation sector where we are heavily invested in) but a number of things have happened over the course of the past year that an article such as this should mention: In September 2003, OPEC announced that it planned to remove 900,000 barrels per day of oil from the markets, bringing its quota (excl. Iraq) to 24.5 mn bpd. However, since then, OPEC production levels have increased each month until year-end, reaching 1.6 mn bpd above the stated quota. Meanwhile, US inventories were at their lowest level since 1975, while the price of oil hovering around the levels seen before Iraq's invasion. The reason for this apparent discrepancy is high demand from China that increased twice the rate of its GDP growth in 2003. This suggests that they have been building oil reserves. OPEC must be thinking that China's consumption will return to the historical 1:1 relationship with GDP growth. In this scenario, OPEC will have to remove oil from the global market sometime this year, which is probably why they announced April production cuts. Another bit of info that the author of this article can't have missed is that in January, Royal Dutch/Shell admitted that it has about 20% less proven reserves than it had previously reported. Shell is no Saudi Arabia, but investors don't like being reminded that it is a finite item of consumption and it might be less than we thought it was, which added to the buying. The real story here, according to Dessauer, is that the supply of oil "far exceeds demand That doesn't even make sense. That's what production cuts are for - to keep price at a certain level even if demand falls. Let us remember that oil reserves are finite and will one day end. If you are the owner of this finite commodity, making your living (and wealth) from it, would you let it go at low prices (knowing every bit sold diminishes your reserves) or wait until prices are higher? His closing argument seems to be that oil prices increased by about 30% over the course of the past year because of trader speculation. If he is serious and can find those traders, I will personally hire them all. More likely, he doesn't really understand what made the price move and is blaming it on those insidious powers of speculation :-) "Crude oil prices will come down." Sure they easily could. Not because speculation will have ended, though. Dessauer, therefore, is advising clients to remain fully invested in equities Really. I am not sure that is sound advice at this point, high oil prices or not.