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Tuesday, July 08, 2008

Oil Market Bubble Starting to Bust

One of the things any investor does not want to hear is that their investment dollars are hurting people. That would be similar to Microsoft causing cancer by using their product on your personal PC. The stock would tank and Bill Gates would be stepping into a homeless shelter. Where Microsoft pretty much has a piece of every single personal computer in the world the same is true for oil. Bad news in any investment always trickles down and dollars move out of the investment not for the sake of greed but the sake of what is right. Investing in oil right now is like free basing heroine and thinking that all is well in the world while your investment high soars. The damage done is the reality of the investment in oil speculation. All around you the world crumbles and you think to yourself that you are good to go?

Over at the New York Times they have tons of opinions in this article and many of them actually make sense. The oil market bubble is about to bust..

Oil Prices Plunge for Second Day

Published: July 9, 2008

HOUSTON — Oil prices headed in an unusual direction — down — for the second consecutive day on Tuesday, leaving energy experts to wonder whether the drop is the beginning of a lasting trend or just a brief pause before another surge.


The rise in gasoline prices has not matched the rise in crude oil prices in recent months, largely because Americans are driving less, buying fewer gas-guzzling vehicles and riding more mass transit where it is available.

MasterCard reported on Tuesday that American drivers decreased their consumption of gasoline in the days leading up to and including the Fourth of July weekend by nearly 4 percent from the year before. It was the 21st consecutive week of lower gasoline consumption in comparison with last year.

Snippet Part 2

But some energy experts say the price could drop further. They say it is possible that the kind of “demand destruction” for oil that is taking place in the United States and Europe could spread to China, India and other countries that subsidize gasoline and other energy supplies.

Governments in China, India, Taiwan, Thailand, Indonesia and Malaysia have cut subsidies at least modestly in recent months because of strains on their budgets, and further subsidy cuts are considered likely, especially if oil prices continue to go up. Once their consumers see higher prices, they would be expected to cut their consumption.
- New York Times

What is happening right now on the world commodity markets is bad news when it comes to anyone that is dealing in the oil market. Even the Saudi’s are crying foul on the inflation crisis going on in their nation. Food prices are through the roof, but gas is still forty five cents a gallon in the kingdom. I’m not sympathetic with the Saudi people but I am a realist. Oil rich nations are not controlling the price of oil, dollars are, and those dollars are coming from economies like the United States that are expanding even in the face of oil prices rising to never ending highs.

This is where investments meet the road of reality. Joe Six Pack has a 401K where the biggest gain in his retirement fund was in the oil commodity markets. That increase in investment is offset by the cost to feed his oil burning furnace and the fact that his Joe Six Pack pickup truck now cost a couple of hundred dollars a week to feed so he can get to his construction site job. Then he has to pay double or triple what he did last year to heat his home, double to feed his family, double for just about everything he paid for just a few years back. Where is the investment gain?

If the world financial markets are responsible for the rape of your checking account every single month then you need to rethink your long term investments. It can’t be put any more simple than that. It’s your checking account and retirement plan, only you can decide how to invest your money. Just don’t bitch when gas is $12 per gallon. All of our retirement dollars are moving this feeding frenzy in the oil markets and if those dollars are removed then the appetite is no longer there. Or am I wrong?


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Anonymous Neocon said...

Until the government addresses the underlying reasons for huge oil pricing then this is only going to continue to rise.

Fear. Iraq war has not reduced production at all. Increasing world demand is at or near its peak.

Remember oil futures are for the future price of oil. Investors believe that demand will continue to outstrip supply and therefore oil prices are going nowhere but up.

The only way to address this is to decrease demand or increase supply. I am for a 2 pronged attack. Drill now, open capped wells and turn the wildcaters lose. I am also in favor of putting in to place conservation methods and above all I am in favor of installing a floating cap on the price of oil that guarantees that oil prices will not tank.

Those 3 things together will bring prices down. Any one of them or any two of them will not.

Do not misunderstand I believe GREEN is the future but it is 5 to 25 years away. Until green is the norm then Oil is the storm.

8:31 AM  

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