Wednesday, January 09, 2013

Global Oil Oversupply vs. Global Oil Markets

Oil prices have been relatively stuck recently, with no apparent rational relation between the real world and oil prices.

Andrew McKillop takes a look at why oil prices appear to be in a non-responsive limbo over the past few weeks:
Following the 12 December OPEC meeting it took around 15 days, stretched by the holiday season, for the message to sink into the minds of traders: by 1 January 2013 prices were at $111.11 per barrel for Brent and over $91 for WTI. The unreal logic is that OPEC is by its own admission pumping more oil than the world needs - so prices must rise!

The logic is in fact double-stage: if oil prices are pushed up and stay high, OPEC will maintain output, and in a certain hard-to-specify period inventories will grow enough to make the already plain fact of oversupply even plainer. At that unspecified time interval forward from now, prices will fall.Talk about what constitutes the "reasonable price" for oil is rigorously and always talk only: at OPEC meetings no figures are ever mentioned. The trader and analyst community supplies the numbers - but these range from below $50 a barrel to around $120 a barrel.

The net result is directionless markets tagging along behind the incoming news on growth (and recession) outlooks, currency trends, CPI and purchasing manager forecasts, non-oil energy news, and of course the always intriguing subject of Arab Spring, Syrian civil war, al Qaeda in the Middle East and in Sahel Africa, and other material from the Indiana Jones collection.

We therefore have an interesting entry scene to year 2013 oil trading, with current supply/demand most surely and certainly out of balance, with too much supply. To be sure, the Mid East geopolitical scene can unwind at any time, and winter cold can storm across the northern hemisphere - both of which can bolster prices. By late January however, we could expect the accumulated set of problems for overpriced oil to start taking their toll. _Andrew McKillop
Markets can be much like herds of cattle or sheep. Made up of hundreds or thousands of relatively dim-witted beasts, they can usually be easily herded and arbitrarily kept in artificial "holding areas" for varying lengths of time.

But when the "stampede" signal hits the herd, the herders and herd owners had best be prepared to cash in quickly, before the losses start to pile up.

Another piece by Andrew McKillop, looking at the larger stage of global Ponzi Scheme economies

If McKillop and all the others are right -- those who point out the insubstantiality of modern economic foundations -- the underpinnings of the global economy are far less substantial than we are being told by "our betters" in government, the media, academia, and the punditry. What that means for intermediate and long term oil prices, will be left as an exercise for the reader.



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