Continuing the theme of what's driving the price of oil, here's a quote from the president of OPEC Shaikh Ahmad Al Fahd Al Sabah:
"The market is well supplied," Shaikh Ahmad said and added: "There is about or over one million bpd (oversupply) in the market. If we talk about demand and supply and other economic factors I don't think prices will reach $100 or even deserve to be near $70."
"But if we talk about other issues or realities which play a role in the price increases like geopolitics, refinery problems or psychological problems... then prices may cross $100."
And while we're at it, here' Morgan Stanely's Andy Xie banging the "oil is overpriced drum" once again, even louder:
Economists have been confounded by the limited impact of skyrocketing oil prices on the global economy. There are already some visible negative effects in (see ‘Business Cycle Likely to Resume Downward Trend’, August 26, 2005). But, the effect is limited in relation to the tripling of the oil prices in the past few years. The strength of the global economy, the strong demand for oil, and the rampant speculation in the oil market are all related to the global liquidity boom and the rising risk appetite.
Commodity is the asset class with most bubbles in history, especially during the 19th century. From grain to silver, every commodity has seen bubbles. Oil now is probably the biggest commodity bubble in history. It seems that there is some excuse to push up the price everyday. The oil price chart resembles the NASDAQ chart from five years ago.
Oil is one of the most important inputs in the global economy. The tripling of its price should have had a major impact on the global economy. But it has not. The reason is that the liquidity behind the oil speculation has also been pushing up property and stock prices. The wealth increase from property and stock appreciation has vastly exceeded the increase in oil costs. The oil bubble is one aspect of the global liquidity bubble.
True or not, you've got to give him credit for sticking to his message. By the way, Xie's post is titled "Bubbles All Around Us", so I guess he's taking over for his colleague Stephen Roach, who tends to have some ideas on the subject.
And one more Katrina-related note here's James Hamilton's full discussion of the Hurricane on energy prices.
By the way, if you agree with Xie, and want to find a way to profit from declining oil prices, the Oil & Gas Services sector is now pricy, due to speculation on huge growth over the coming year. If prices collapse, the prospect for these companies could get shakey.
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