Thursday, January 12, 2012

Naked Oil: Are Oil Markets Stripped and Readty to Be Raped?

Brian Westenhaus discussed a fascinating dissection of global oil markets recently, which deserves some comment. The article in question is written by Chris Cook, entitled "Naked Oil," published on The Oil Drum website. It is presented as an attempt at predicting the global price of oil over the next 6 to 12 months.

After explaining how the world oil markets work, Mr. Cook proceeds to make a bold prediction: forecast is that the crude oil price will fall dramatically during the first half of 2012, possibly as low as $45 to $55 per barrel.

Then What?

As the price collapses we will see producer nations generally and OPEC in particular once again going into panic mode, and genuinely cutting production. We will also see the next great regulatory scandal where a legion of risk-averse retail investors who have lost most or all of their investment will not be pleased to hear that they were warned on Page 5, paragraph (b); clause (iv) of their customer agreement that markets could go down as well as up.

At this point, I hope and expect that consumer and producer nations might finally get their heads together and agree that whereas the former seeks a stable low price, and the latter a stable high price, they actually have an interest – even if intermediaries do not – in agreeing a formula for a stable fair price. _Naked Oil
It is important to read Mr. Cook's preliminary analysis and discussion in order to understand his audacity in predicting a disruptive oil price collapse in the near term.

A few days ago, Al Fin Energy presented a parallel argument for moderation of oil prices, based upon a number of current economic trends affecting global oil demand. Some readers may wish to consider the two articles as complementary and reinforcing to each other's arguments. Certainly they are both of the contrarian variety, given modern fund manager sentiment, and popular peak oil superstitions.

Al Fin economists and energy analysts have always found it more fun to be contrarian.

No comments: