Remarkably, for those inured to peak oil and all the oil patch blather
of the last few years, there has been a dramatic retrenchment of oil prices
these past few weeks. From a high of $78.40 a barrel on July 14 to $77.30 as
recently as August 8, the price has dropped by $8.20/bbl from its high
to close at $70.20/bbl on the New York Mercantile Exchange today. That is
a dramatic drop. The question now before the market, with its ever growing
realization that the prices we have been experiencing are more smoke
and mirrors, and more manipulation than reality, is whether
this the beginning of the end of the oil bubble?
The oil patch pitchmen tell us the market is simply responding to the
stabilization of the political situation in the Middle East (as though Iran is no
longer an issue), the slowing economy, and whatever reasonable sounding
rationalization that they can come up with. But you will not be
reading nor hearing the observation that prices should not have been at the
levels we have seen to date. That the market has been contrived, aided and
abetted by oil patch cheerleaders such as the likes of Matt Simmons
author of "Twilight in the Dessert..." who had predicted $150/bbl
oil by the end of last winter (see "OPEC Agonistes" 1/29/06). By the people
at Goldman Sachs who were plugging $105/bbl oil based on their projected
assessment of oil production capacities and market demand, all the while
speculating with virtual barrels (barrels traded on the futures exchanges
as opposed to wet barrels, the kind that people actually use)
in the futures markets and arbitraging positions pushing prices ever higher.
All cheerleaders for the oil patch and its ravenous drive for ever greater
profits, all at our expense.
This all may be a temporary pull back. I don't think so. As posted on this
site consumers, even our Congress (see "The Enron Loophole Helps
OPEC Serve Up a Hefty Helping of Oil Price Baloney", 7.20.06)
are getting wise to the Ponzi scheme to which we are being subjected. The
bubble of phony shortages, scary peak oil scenarios, leaping consumption
forecasts is beginning to sound stale and not very real when we look at
inventories of oil and related products, storage capacity bulging at the seams,
new production capabilities, declining monthly consumption in China,
diminishing price elasticity and on.
Already we are hearing the inevitable and cautionary oil patch voices
warning us of the danger of low oil prices. I need only quote
Sadad Husseini, a former top executive at the Saudi state oil company,
Aramco: "A major drop in oil prices in the next year or two would cause
severe disruptions and volatility in the energy industry. In the longer term
this can only slow future supplies and damage the global economy."
As though $70+ oil would not damage the global economy and continue to
destabilize the rational conduct of too many oil exporting nations in their
domestic and international affairs.
It is interesting to note that according to Reuters the major oil companies
remain cautious in their investment decisions pricing new projects on the
basis of $25 oil. Does the oil patch know something they are not telling
A further cautionary note. Please, please, do not invest or make investment
decisions based on my comments and observations. That is not the purpose
of this exercise. Let's just sit back and watch what happens as these
Titanic (figuratively and literally) forces play out.