THE CASE FOR HIGHER CRUDE OIL PRICES BY 2012, PART 1
By Robert P. Balan, Senior Market Strategist, Diapason Commodities Management
No commodity has affected the global economy more than crude oil. No commodity has a more direct impact on every world citizen. No commodity exerts more influence on the world financial system’s function and stability than oil. Given the importance of oil to the world economy, one would think the process that determines oil prices would be well understood.
One would clearly expect officials of all of the world’s major energy economies to be fully conversant in market processes. One also expects competition authorities, especially the U.S. Federal Trade Commission, to have a strong working knowledge of market process. One also expects investment banks, which put at risk large amounts of capital trading crude oil, to be able to forecast the price crude oil in a systematic way. Sadly, none of these expectations are close to being fulfilled.
We believe that crude oil prices are close to being launched and would take a semi-parabolic trajectory up to next year, in 2012. But in order for this hypothesis to be realized, there needs to be a structural underpinning of oil prices going forward — a trend that is defined mainly by the interaction of market players (users and suppliers of crude oil) influenced in a large part by the perceived future scarcity of crude oil supplies relative to future demand. That is what we intend to show in this report.
Read the rest below….
The Case for higher oil prices Part 1.1_final
Source: Diapason Commodities Management
Anyone agree that now that the Fed has broken the economy’s interest rates regulator (rates are set zero); what regulates business cycle (boom bust) is the price of oil. Instead of the 4 year boom/bust credit cycle, we now have 2 year oil boom/bust cycle that regulates the economy much like interest rates before the household delevering took hold.
If so, what’s remains to stimulate/regulate the economy is for fiscal government deficit spending that has shown to have little impact to core inflation but produces negative economic effects with higher headline inflation. That is, after energy, the consumer (especially low wage earners) has decreased discretionary income which produces aggregate demand destruction from a low GDP multiplier. Because most discretionary spending is directed to low quality “unproductive” energy prices that are fueled by speculation and away from high quality “productive” employment creation spending.
That is speculators anticipate deficit spending and economic growth as inflationary (fuel/food) and anticipate austerity or slowdowns as deflationary. If this makes sense, is there anyway out of the dilemma?
Yes, we will have volatility and some corrections along the way but the long term price trend is certainly higher. I have been trading oil for years and years and I have to say that it is easier to predict short term prices moves than make longer term fundamental projections.
I have a short term oil report just published on my website on short term oil futures trading. Feel free to make a visit and drop a comment:
http://oiltradersblog.blogspot.com/2011/09/oil-trading-report-intraday-seasonality.html
Have a great day!
Two words. Peak Oil.
Here’s a good summary for those with a sketchy understanding.
http://www.energybulletin.net/stories/2011-09-21/there-will-be-peak-oil