Tuesday, July 22, 2008

Oil Down $4 CAL Up $3, More to Come!

For two years, I have been talking about the straw that breaks the camel's back. This camel was tough to break because enough oil had to be stored before Iran could be told to take a hike. The current situation is that the world is well supplied and we do not need Iranian oil. The world wide economic slowdown will cause the demand to fall even more, and the price to fall even more.

Since there has been no agreement with Iran, a lot can still happen but oil usage is not about to climb back to the peak made back in 2005. Those who have purchased scooters or high mileage cars are not going to give them up. They will be joined by others looking to save some dough.

Iran has been given two weeks to "get serious". One irony is that Iran has reported two very large oil discoveries. As I recall, the first was around 750 million barrels and the latest was 500 million barrels. These could be moral boosting stories but, true or not, Iran's oil production could be easily doubled within 5 years of making a deal.

What we currently have is the hoax of peak oil production and the reality of peak oil demand. After the demand peak around 1980, it took 17 years to reach the same level of demand again. By the time it was reached, there were plenty of capped wells available to handle the first 15 million or so barrels of new demand. The huge billion dollar drilling ships tend to keep on drilling year after year. Discoveries are capped and developed only after demand rises.

If you have buying power, BUY SOMETHING! I will be back home next week. I will check the accounts once back home but the sharp drop in oil prices is feeding the buying power of accounts that own airlines.

Got to Run. The decline in oil will not be straight down but it has a long way to go. BUY, BUY, BUY!