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Sic Semper Tyrannis

Tuesday, May 27, 2008

Re: Mea Culping

There are a number of serious market analysts who do believe the oil markets are overpricing oil.

I am wondering though on what basis the likes of George Yared claims that it is? I recall him saying he thought the equilibrium point on oil supply & demand was closer to $80/barrel than what it is now. The number that is in my head is $60 to $70 per barrel.

I tracked down the following article:
Beutel didn't know when that collapse would come, but he predicted it will be within weeks or months, not years.

But he didn't know just what might bring it about - perhaps the Federal Reserve increasing interest rates or a big drop in consumption as people worldwide can no longer afford to fuel their cars or heat their homes.

"If these prices stick, you may see whole neighborhoods where people abandon their homes," he said predicting that in the Northeast U.S. it will cost $5000 to heat a home unless prices fall.

Many analysts said supply and demand justifies expensive oil - maybe $90 or $100 a barrel - but $130 is just too much.

Now, long term I don't see us getting back to sub-$1.00/gallon gasoline:
"To see something run this far and this fast, you see it leveraged by financial players," said Neal Dingmann, senior energy analyst at Dahlman Rose & Co., a New York-based energy investment boutique. "The direction is corerct [sic], the speed isn't."

It very much appears that the thought is that oil will eventually be at a solid $135/barrel but that time is not now. That it is speculation driven and does not contain a basis in reality. Please note, the same article contains opinions of oil analysts who believe there to be a solid and current basis for $135/barrel oil.

I have paid particular attention to all of this, I have been at times documented my mileage and such details as gas cost and the like. One thing I have noted is gas prices tend to hit their annual peak right now and will subside to more sane levels as the summer advances. In fact, the highest gasoline price I observed from last year occurred on May 30, 2007. However, remember history repeats itself until it doesn't, that is past trends may not continue to hold.

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