Friday, May 19, 2006

Crude prices rising again

Reuters has the full story. Summary and upshots:
  1. As long as China and India continue to increase demand, we will be in a bull market.
  2. (nonexistent) Spare capacity is to blame; look to stabilization in Iraq, Nigeria and Iran as the primary means of getting oil prices to settle down.
  3. High gas prices in the US have led to a drop in demand (I actually consider this to be good news -- it's the first evidence yet that an American market will indeed respond to high prices at the pump).
Don't let last weeks "technical" sell-off fool you. The drop below $69 a barrel is temporary. Expect $100 per barrel in the not-too-distant future. Mark Mathias, chief executive of investment specialist Dawnay Day Quantum, says that "[t]he basic supply demand fundamentals point towards demand growing at a rate far in excess of supply growth." What he doesn't mention is that as spare capacity drops relative to demand, local political instability becomes an ever more important factor in the price of crude oil. So pay better attention to Nigeria, Condi! And stop saber-rattling in Iran! It only drives up crude oil prices, which feeds directly into Ahmedinejad's coffers.

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