
Many folks do not believe me but I am confident that the price of oil is going to go down. The reason is simple economics. The price is ultimately set by the cost of the "marginal producer". The tar sands of Canada are producing huge profits at today's prices and production is steadily increasing. At a Coal to Liquid conference yesterday, it was reported that Coal to Liquid technology is now capable of producing fuel at $35 to $45 per barrel. This morning it was announced that Iraq has restarted pumping oil through Turkey. This will have the immediate effect of adding about 500,000 barrels per day to the current burgeoning supplies in storage. Crude is trading down about $.68 per barrel today. Iran has until June 29 to accept a deal.
The recent collapse in the price of Gold, Aluminum, Copper and Lumber is a great indication that the central banks of the world have gotten "on top of the curve". The great Stan Salvinson used to say that inflation is "bingo, bango, bongo". Bingo is the phase where employee wages go up too much, bango is the phase where commodities go up too much and bongo is the phase where interest rates go up too much. By the time you get to the interest rate phase, inflation is being pushed up by all three. However, the rise in interest rates slows down employment growth and commodity prices and then interest rates can follow the others down, before starting the cycle all over again.

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