Tuesday, May 27, 2008

Oil Speculation

There's an excellent piece of article written by F William Engdahl, the author of A Century of War: Anglo-American Oil Politics and the New World Order. The article appeared in the Asia Times. There is a strong believe that 60% of the current price is due to speculation. The oils future trading in ICE is not well regulated that give a wide open door for so-called "price manipulation". The author thinks there is a strong correlation between oil price and starts of ICE futures trading.

As usual, the big boys are involved. A-ha, one of them are predicting it will breach US $ 200/barrel, can you see it?

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and numerous hedge funds speculate.

There was a panic buying last week sending oil price to exceed US $ 135 punishing those who shorting oils. With that punishment, I believe not many dare to stand in the middle of the track to stop this unstoppable train.

The oil future market rallied fiercely after a dose of steroid injected by IEA appeared in the WSJ on May 22. Yup - Supply Crunch was the magic word.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

The implications will be wide and broad especially for emerging economies. Double-digit rates is back?

Jean-Claude Trichet, president of the European Central Bank, this week gave warning about the mistakes of the 1970s, when inflation was let loose at huge cost to growth. His words were aimed at rich-country central banks, but policymakers in emerging economies are the ones who should most take heed. In countries such as China, India, Indonesia and Saudi Arabia even the often dodgy official statistics show prices have risen by 8-10% over the past year; in Russia the rate is over 14%; in Argentina the true figure is 23% and in Venezuela it is 29%. If you measure the numbers correctly, two-thirds of the world's population will probably suffer double-digit rates of inflation this summer.

There is an incredible close link between loose monetary policy(too much liquidity) and inflation. There is no point predicting the trend, the trend will depend on how committed the central banks around the world to mop up the excess liquidity.

Look at the broad money supply in the emerging markets. It's three times of developed markets!. Central bankers around emerging markets must be determined to fight inflations or else .............

Turtle begins to ask: bubble bubble on the wall, which bubble is the biggest of all? Turtle is not trying to sound like Marc Faber but facts are facts. Fed and other central banks let all these Genies out, only them can get them back into the bottle?

Alternatively, Soros said both the US and Britain enter recession will make the bubble burst.

The billionaire investor said the money pouring into the oil market increasingly had the look of a bubble, but that it would not burst until both the United States and Britain were knocked into a recession.

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