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Oil Unwind?

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March 17, 2008 – Comments (0)

Long term I think oil goes up, but I've been saying for a while I think it goes down in the shorter term, and so far the market is saying different.

Currently you've got "those" in the middle east saying that oil is no longer trading on fundamentals, but is now trading on speculation.  I tend to agree with this position.

So, why post this right now?  I'm showing oil just dropped by $4.30.  My hunch is that this is about having to clear trading positions.  And that would be the point, speculation and buying futures without ever having the intention of taking delivery is what I think is pushing the price as high as it is now.

Earlier I was asking questions about how easy it is to turn oil supply on and off and once a deposit is started it generally isn't shut down, so a slow down in production mostly comes from not replacing production from wells at the end of their life with new wells.  To me this means that in a short term there will be supply continuing as if it is business as usual, but consumers and businesses are cutting back.  I do think there will be growth in the emerging markets, but short term I think the slow down exceeds the growth.

So, oil is coming back from that $4.30 spike down, but you've got to ask yourself what caused it? 

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