Re: Mike Masters on oil on CBS

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(email exchange)

>   On Mon, Jan 12, 2009 at 11:49 AM, Russell
>   wrote:
>   Very compelling argument. Still believe it is the
>   Saudis controlling price?

Has to be, within a range of net demand.

Notice their ‘production increase’ right before the big sell off in July?

>   Makes sense: I remember the Kuwait oil
>   minister saying that he could not explain $140
>   oil. He was not seeing any new demand to
>   drive up price. Everyone said he was lying.
>   A friend was telling me that there was no
>   shortage. In March he was trying to find
>   storage along the Mississippi River. There was
>   no. All tanks full.

Right, never has been a shortage. Just price setting. And the price setters were happy to accommodate the run up until it cut demand, as they were running out of capacity as well.

>   So today we have global demand declining 1
>   million barrels per day.

Right, no big deal. Nothing OPEC hasn’t already adjusted for.

The problem has been the inventory liquidation as prices fell. No telling when that has run it’s course. Futures markets are saying not yet, but getting closer to the end.

The Masters Inventory Liquidation is probably the largest inventory liquidation of all time.

Hopefully it leads to pension funds not being allowed to use passive commodity strategies as investments, but not sure it won’t all come back. There’s still a lot of it going on. I’d vote to have it outlawed.

>   Supply is being cut back. We have the Chinese
>   economy tanking. So are we looking at $25 oil?

Not impossible until the inventory liquidation has run its course. It took about this long in 2006. I didn’t think it would last that long this time, but the liquidation has been a lot larger than back then.

>   If so, we are going to see a violent world at a
>   time of global economic weakness. Russian is
>   struggling, so is Venezuela and Iran. Potential
>   uprisings there.


>   Here is the USA it is a true blessing. Without
>   lower oil prices, we would be a serious
>   economic quandary.

It’s already pretty serious! While consumers are being helped, the energy related companies have gotten hurt and helped bring stocks down. Lower crude also makes stronger/USD harder to get overseas, so they stop buying our stuff like they were before. Domestics should pick up that slack as their oil bills go down, but there’s a big lag due to rising unemployment general economic disruption.

>   Who said markets were understandable let
>   alone logical.

Can’t remember. Probably me!