Thursday, December 25, 2008

Oil is not well

Layman out there across the world is rejoicing as oil prices come around $35/ barrel. The conventional thinking goes 'see we told you the fundamental did not justify oil @
$100'. But nothing can be far from the truth at this point in time. Like a rubberband - the more the prices will contract, the more the projects of oil exploration will get delayed and thus lesser the supply will be when it is called .

The drop of oil price by 67% in less than 6 months is unprecendented. Never before we have witnessed such as crash this fast.
The price right now oil is hovering is breaking the camel's back in the economies which pre-dominantly depend on petro dollars for the budget surpluses.

Countries like Russia, Venezuela and Iran are vehement supporters of Oil prices around $75-90 per barrel. Otherwise this is going to be disastrous for the budgets and thus stability of the regimes in these countries. Eg. "Initially, Russia was hit with a huge exogenous shock when its terms of trade deteriorated sharply because of the sudden fall of oil, gas, metals, and other global commodity prices. With current commodity prices, the country's exports next year could plummet by some 40 percent in current dollars, or by $200 billion. Budget and current account surpluses will quickly turn into deficits." - source-

Where are all the talks of speculation right now, I heard them a lot when oil was at $147 a barrel. The contango right now in the oil futures market gives you an instant profit of $10-12 a barrel instantly and that smacks of someone trying to short oil in huge quantities in the markets.
And hence the smart oil producers are buying oil in the spot market, and selling them in futures.

Markets as efficient as they might claim to be are not working as they are supposed to. If you have seen prison break season 4, you might relate the happenings in these markets being manipulated by a COMPANY for their own gains. Slowly but steadily - POWER is being concentrated in few hands and corruption is running rampant, and to give ourselves a false sense of optimism and security - WE CRY: SEE I TOLD YOU SO.

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