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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Vendit™ who wrote (2570)	12/9/2004 9:58:27 PM
From: Walkingshadow	Respond to of 8752

Hi Reid, To an extent, I think you are right. Iraq has indeed been exempted, but I don't think it is fair to characterize them as being at odds with OPEC. As you say, they will try to maximize income from oil. But OPEC is not dumb, and I think much of the current posturing regarding raising the bands, eliminating excess production over quotas, and considerations of reductions in quotas is driven by the realization that this is the only way to counter increased production from Iraq. And for their part, Iraq would like nothing better, since it allows them to have their cake and eat it too: THEIR production is pedal-to-the-metal, but the price they get remains high because of cutbacks from other OPEC countries. I don't think this will bother OPEC too much at first, since in absolute terms, Iraq's production is still comparatively small. But eventually, there will probably be a showdown. At that time, I suspect Iraq will not break with OPEC or defy them, but will reach a compromise that is favorable to them, then push the envelope of production anyway. The ultimate effect on the stock market remains to be seen, but my view is that the effects of prolonged high oil prices have been only partially realized, and eventually the market (and perhaps the FOMC) will have to respond to the economic realities as they become more apparent. Any good effects from a drop in oil prices on the market will likely take place against that backdrop, so at best, I suspect things will be a wash for the market, at worst a definite negative. How much of a negative that might be will depend in turn on how vulnerable the U.S. economy is, and that remains to be seen. I think a year from now we will be in the midst of economic conditions that are significantly deteriorated from present conditions, and if so, then oil will have a marked effect. If not, it will have a much more muted effect. Re heating oil and gas prices, one factor has been the relatively mild winter (so far). Gas prices in my area have fallen only a fraction of the decrease in oil (which I think is pretty typical). I don't know the exact relationship between the two... I'd love to see a chart of oil prices vs. gasoline prices. My gut level feeling is that when oil rises, gasoline responds with a commensurate rise in a few picoseconds, but when oil falls, gasoline drifts slowly down, and the change on the downside is only a fraction of the change in the upside. That is, gasoline prices seem to have an upward bias after correcting for the price of oil. This, no doubt, is profit margin on several levels. JMVHO..... T