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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: gregor_us who wrote (12467)	4/23/2004 11:30:52 AM
From: Wyätt Gwyön	Respond to of 110194

a 60 day theme I am turning over in my mind is that the Iraq Drop Dead Date of 30 JUNE 2004 as a general principle, i think the short term is less predictable than the long term. short term, it may or may not rain next week. long term, the sun will burn itself out and the Earth will be a frozen wasteland. and maybe get sucked into a black hole to boot. i don't have much of an opinion on the June 30 date--it looks like the Administration is increasingly backing away from this date as signifying any meaningful transfer in any case (obviously they are just slowly confessing to the reality of the situation). short term, the thing i believe could cause the largest spike in oil prices is a terrorist strike in Saudi Arabia, taking out a major pipeline or platform. having 5 million barrels go offline for half a year would be a great boost to the near futures. but it's also unpredictable and a rather ghastly way to bet. on the other hand, i'd guess a terrorist strike would not do nearly as much for the long-term futures, and in a way could actually be helpful to global welfare long-term (to the extent that it simply delays production as opposed to destroying reserves as Saddam did with the oil fires of the early 1990s) in the sense that it would impose a "crash course" conservation regime and perhaps galvanize attention on the coming energy disaster. by "helpful", i mean similar to the way OPEC "helped" galvanize energy conservation efforts in the US and elsewhere in the 1970s. but i prefer to look farther out, especially as the futures are in backwardation and i can pay a lot less than the near months. in fact, now that i think about it, possibly the very high backwardation reflects to some extent an option premium for the near months--basically an "Al Qaeda Call"--Baer estimates prices could go to 100 to 150 USD per barrel following a strike on Ras Tanura, e.g. but that would be near term, as the supply would come back online, albeit after a delay of many months. in short, there could be some "lighting strike" event which gooses the near term, but i prefer to bet on the slow, steady, "gravity trade"; i.e., my belief that slowly rising global demand combined with plateauing and perhaps declining supplies will inexorably lead to higher prices, long term. but of course there are fluctuations in the interim. Jeremy Grantham gave the useful analogy, vis-a-vis the stock market, of dropping a bunch of feathers from a tall building: you can't predict where any feather will be at any given moment, as they are affected by short term weather fluctuations like wind, rain, and thermals; but long term, you can expect gravity to do its steady work and bring them to rest on terra firma (or at least some solid object). that's basically my feeling about crude oil. and unlike the sun turning into a dwarf star, i believe the peak oil scenario will conveniently coincide with my time horizon as an investor.