The price effect of the surprise OECD withdrawal from oil stocks was shortlived. On the day it was announced, oil dipped briefly into the 80s, but today the Nymex price has bounced back up to $94.94. This development is commensurate with the recent dip in the dollar index, which stands at 74.30. In my last report on June 18, Nymex was going for $93.01/barrel, but the dollar index stood at 75. Which just goes to show that the value of the dollar is more important in the short-term than the supply & demand balance.
The dollar has fallen relative to the euro in the last two days as Greece looks less likely to default on its debt.
Oil, which is priced in dollars, generally rises as investors flock to the commodity when the euro strengthens and dollar's value falls.
"Oil is not up all that much more than the dollar is down," said Greg Priddy, a global energy analyst at the Eurasia group, a political risk consultancy.
Priddy said that if the oil reserves weren't tapped, oil prices would simply be higher. Rather than bouncing back to around their pre-SPR price, he said oil would be $4 or $5 dollars higher than that.
The alarm level remains unchanged.
Oil Alarm Level — Orange
The decision to release strategic reserves to stimulate global economy by driving down prices should be filed under Stupid Human Tricks. Not only was the move shortsighted and ineffective, but it set a dangerous precedent regarding our response to future spikes in the price of crude oil. We can not and should not attempt to control prices by using our emergency oil supplies. It's not as if this "peak oil" situation is going to disappear.
There are two subjects which make humans crazy—money and oil. In modern industrial societies, they are treated as much the same thing, except for the fact, of course, that they are not
Consequently, the oil market is one of the most over-analyzed subjects on Planet Earth. If we step back and look at the bigger picture, you can see precisely where we are.
Updated version of the schematic used in my The Next Oil Price Shock — An Update. You can see that we are precisely on track as we head for next oil price shock.
Earlier this week I predicted that the next price spike will occur in 2012 absent a major downturn in the global economy. There was nothing unusual in my prediction—I first made this graph about 2 years ago after the 2008 price spike and the sharp price reversal that followed. As we get closer to the event itself, it gets easier to pinpoint its timing.
As far as I am concerned, this abstract price graph is destiny. It is our fate to live with these huge oil price swings. There's not a damn thing the Earthlings can do about it.
What will the oil price be in 2 weeks? I won't even hazard a guess. The oil markets are chaotic. And why? Because there are two subjects which drive humans crazy—money and oil.
http://online.barrons.com/article/SB50001424053111903617204576411791590055646.html?mod=TWM_pastedition_1#articleTabs_panel_article%3D1
It seems Barrons agrees with you about next year's oil price shock. It must be an easy call at this point if mainstream business press gets it and makes it front page news.
Posted by: Edward Boyle | 07/02/2011 at 11:44 AM