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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (169759)	6/23/2012 3:32:59 PM
From: Dennis Roth	4 Recommendations Read Replies (2) \| Respond to of 206159

The Coming Oil Crash foreignpolicy.com excerpt: In an email exchange, Verleger pointed me to an interview he did a few days ago with Kate Mackenzie at the Financial Times. First, he explains, the Saudis are out for blood when it comes to fellow petro-states Russia and Iran, the former for failing to help calm the fury in Syria, and the latter for refusing to go to heel and give up its nuclear ambitions; in both cases, the Saudis think lower prices will produce a more reasonable attitude. In addition, Saudi Arabia is terrified of a current U.S. boom in shale oil; it is hoping that lower prices will render much of the drilling in North Dakota's Bakken Shale and Canada's oil sands uneconomical. Finally, the Saudis are well aware that low oil prices helped to turn around the global economic downturn in 1998 and 1999, and they hope to help accomplish the same now, and perhaps win new affection from the world's leading economies. Meanwhile, though, Verleger thinks that oil prices will crash. Markets overshoot when one is trying only to fine-tune them, as the Saudis are, he argues -- which is the basis for his forecasts of $40-a-barrel oil and $2-a-gallon gasoline by November. To the degree that such fire-sale prices are long-lived, they could cause mayhem among petro-rulers. While Verleger thinks that the Saudis can maneuver prices back up when they want, the very nature of a crash demonstrates that markets can be uncontrollable. But the Saudis are willing to suffer the consequences, knowing that their own financial reserves (some $700 billion) give them staying power. "The Saudis are able to look at the long term," Phil Flynn, an analyst with Pricing Futures Group, told me. Citigroup's Morse thinks that prices can fall further from where they are now, but not as low as Verleger forecasts because, he told me, today's market conditions are different from 2008 -- the decline in demand is not as steep, and inventories are not as large. Morse calculates that Brent can fall into the $70s-per-barrel range and U.S.-traded oil into the $60s-a-barrel range. "There is a good chance Saudi Arabia continues to produce enough to force [a rise in oil inventories]. And there's a good chance, between Europe and China, that demand growth could come to a halt," Morse said. OPEC might respond by reducing production, but its actions would be late. "Add to the scenario no more supply disruptions (or only modest ones) and no military conflict involving Iran," Morse said, "and prices could fall another $20 a barrel fairly easily."