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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (341637)	8/22/2007 12:10:12 PM
From: stan_hughes	Read Replies (1) \| Respond to of 436258

I don't see it quite in the same terms -- I do see lower nominal prices for oil coming regardless, if for no other reason than the oil:NG equivalent BTU ratio is WAY outta line here. Think about that -- either the NG or the oil price is offside relative to the other -- so do you think the flaw is on the NG side (too low), where the price is set largely here in NA by traditional market forces, or do you think it might be the oil price that's out of whack (too high), what with oil prices being controlled by a cartel in the ME? At the risk of appearing to oversimplify things, here's my take -- strictly on an energy content basis relative to $6 NG, oil should be ~$40, to which you can then assign three currently legitimate price premiums: (1) overpaying for light crude in order to have feedstock to produce gasoline, (2) a war risk or "supply scarcity potential" premium, and (3) a potential weather disruption premium. The hurricane premium is truly random, but will disappear entirely in another few months. If US gasoline consumption drops significantly (which it has already started doing -- 4th chart down the page here theoildrum.com, so much for needing to continue to overpay for crude for gasoline feedstock. Even if you want to leave a war risk premium in the oil price, IMO there's no way it's worth paying an additional ~$30-35 a barrel. One other thing -- if oil starts heading for $40, that's also going to rally the Clownbuck, which would kill all the other hard commodities in the process (including gold). I'd also say it would help the Yen if it weren't for the fact that the prospect of making 5% on US treasuries without a falling dollar would probably bring back the carry trade with a vengeance