<Poll: How do TOD readers transport themselves? The Oil Drum DrumBeat: May 16, 2006>

47 comments on This is not about blowing smoke, even at the end, I don't think

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Hellasious on May 16, 2006 - 9:41am Permalink | Subthread | Parent | Comments top
The Saudis are afraid that the US (essentially the swing consumer to their swing production), faced with rising geopolitical and economic costs from high oil prices,  will:

a) Impose a stiff gas tax and actively promote disengagement from the petroleum business, reducing consumption in the US by over 20% and/or
b) Succumb to a protracted economic recession that will slash consumption just as much, taking with it the so-called "growth" miracles of Asia.

Bush&Cheney may not do (a) for reasons well known to all (though if push comes to shove even that can change), but the Saudis certainly think past the 2008 elections. As for (b), if prices stay at these levels for another 3 mos. it is a foregone conclusion.

If you ask how the Saudis can lower oil prices, I must again emphasize that right now apparent prices are being set by speculators on NYMEX and ICE, not physical supply and demand. It is child's play to wipe them out - if you want to and have the means: which the US and the Saudis certainly do.

Hint: raise margins on futures contracts to 100% of value. All it takes is ONE phone call from the CFTC. But of course you will only do that in prior consultation with the world's largest producer. You don't want them angry at you.

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dsemenov on May 16, 2006 - 11:08am Permalink | Subthread | Parent | Comments top
I would not call Goldman Sachs a speculator participating in a "child's play". It is for real and for long.
In less than three months, many certainties as to the future were turned upside down ("inescapable" dollar-denomination, "return" to cheap oil, "peaceful" solution to the Iran/USA conflict, "sustainability" of the US real-estate bubble, US "domination" over two other key global players - China and Russia,...) and a great number of indicators now point at converging directions, all of them sources of unbalance for the current system (vertiginous rise in gold and precious metals prices, escalation of inflationary pressures, increase of the interest rates, EURUSD approaching 1.30, large amounts of central banks' reserves being switched to Euros, rise of Asian currencies, stock market and currency crises developing in various areas in the world, growing amounts of articles published in the international and national press using words such as "crash, crisis, collapse, risk, conflict, ..." ).

We are going through a "learning" phase for the system's players. Some of them properly anticipated the evolution and bet on a breakdown of dominant trends. While they still seemed marginal and irrational to the majority a few weeks ago, they now appear to have "won" when the majority has "lost" following the system's "normal" trends. This "lesson" conveys cumulative effects and soon considerably strengthens all breakdown tendencies, resulting in switching from trigger-phase to acceleration-phase. It also reinforces the conviction of the strategic players who got involved into breakdown policies (or who anticipated the breakdown), and weakens in a sustainable way all regulation capacities of the system now faced to a soon generalized crisis of confidence. Well, in the current system, one inherited from WWI and transformed by the fall of the Iron Curtain, whether it is in the financial, economic, monetary or strategic sector, everything relies on the trust granted by each of us to one central player (the US) and to the different components of its might. The passage from trigger phase  to crisys acceleration phase marks the collapse of this trust, sector by sector.

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Hellasious on May 16, 2006 - 2:42pm Permalink | Subthread | Parent | Comments top
Please do not confuse rampant speculation and market manipulation with strategic vision. Kindly remember Enron.
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smekhovo on May 16, 2006 - 11:37pm Permalink | Subthread | Parent | Comments top
I think the change in margin requirements would get us maybe one down day.
And I agree with you that Aramco can't affect the price by producing more oil :-)
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47 comments on This is not about blowing smoke, even at the end, I don't think

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