Iran and Saudia Arabia are in a bitter feud, says practically everyone apart from the President of Iran, and yet that doesn’t seem to be the case in the energy markets. As reported by Bloomberg News, Saudi Arabia has aligned with Iran by cutting oil output by 4% so prices don’t fall below $100 a barrel. While energy economist Robin Mills informs me via Twitter that “it’s important to watch exports more than production, as Saudi domestic demand declines post-summer”, the Saudis could be using their spare oil production capacity to make it more difficult for Iran to sell its oil instead. So why aren’t they?
“The Saudis typically make decisions based on what’s in their own best interest,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Their second priority is to do what’s best for global economic conditions. The Saudis probably like seeing the price of Brent between $90 and $100, more than at either $75 or $125.”
This could change, but as shown by this event and Ali’s report, sometimes (and much more often than we think) economic interests win over political ones.
Oil is driven by speculation, not supply and demand. Demand is down 5% globally, and hence the volumes of oil that the Middle East is producing is excessive. Further, with the fait accompli in Libya, one might assume that production there will increase.
We’ve been in a speculation bubble since Hurricane Katrina–when the recession started, due to the $3/barrel oil–this sucked all the liquidity out of the market, hurt the car companies, manufacturing and shipping. All these costs hurt companies who were always too late to adjust their prices, hence they ate much of the cost. With no abatement in price till it was too late, the economy slowed and slowed, and then debt service became untenable, investment slowed, all straining the big financial players.
Through all of this time, essentially only the Saudis were pointing out that we had a glut of oil. During the Spring of 2008 Bush and Bodman (energy sec. for Bush) both said we were short on oil, while we were smack in the middle of a 17 week run of 1 million barrels of excess–broken only by fog in Houston that slowed imports for the week. But Bush and Bodman encouraged the speculators, led by Goldman Sachs and others.
The Saudis even pumped more oil despite the lack of real demand. This didn’t alter the news coverage, but it did show that oil prices had come completely unhinged from supply and demand.
Many market investors see commodities and precious metals as a safe investment. Well, not so much. Commodities are a safe investment in the face of INFLATION. However, we are facing deflation. With the gov’ts around the globe cutting spending, there is likely to be less actual money in the economy. In such scenarios, commodities fall too. That’s where we are.
I predicted the peak of Gold just over a month ago. It could reach new highs, but this will be based on gov’t policy. If we see QE3, perhaps they will, or, as many suggest, QE3 is already priced into the market. If so, expect gold to fall precipitously. Either way, gold pays no dividend, and will not be an attractive investment.
the headline reminds me of a favorite saying of Jerry Jones, owner of the Cowboys; “don’t let your money get mad.”
Why your government imprisoned Ethiopian Christian for praying in their private home. On the other hand your government is keeping constructing mosque in our country with out shame. Mosque is bread to be eaten?Why construct school, health center, and pure water rather than you expend your oil money on unproductive area. Teach your people technology and humanity than wearing white cloth as seen as peaceful people in the world. Who bombed the American New York trade center. Most of the bombers were from your citizen. Your government is talking about Ethiopian Great Dam as dangers for Egypt and Sudan. Who you are after all? We didn’t ask you your oil as gift. Nile is our resource. We don’t abide by colonizers rules. All signatures were put by British which were the master of Egypt and Sudan during that time, British was also your master. From Kenya and Uganda was also Britain. So even the signatory has legal problem. Like it or not the dam is constructing as planned. You may think war. The result will be bad. you find us in Khartoum then no more Sudan. Again stop your race speech between “Arab league” countries and Africa Nations. You are jealousy of African sources. We know your oil has short life span. Better to put your money on development than buying thanks and fighting jets.Don’t talk in the name of Arab league. Arab league is the club of dictators tyrant leaders who deprive of their citizen basic human rights and freedom of speech, stay for ever in power with their family, and seen as gods in the ordinary people. Your government has no moral issues to talk about Our gold river, Nile. You need our people to be poor and beg in the straight of Mecca We never do that. The rivers are flowing to Egypt and Sudan from the highlands of Africa not from Meditranian or Red sea following back to Ethiopia. How your Deputy minister is arrogant. How naturally water flows from lake Aswan to Ethiopia(kkkkkkkk). Your deputy minister has to go back again to University. He can learn geology and geography from Addis Ababa University. So the rivers are African rivers, not Egypt or Arab league river. You have embassy in Ethiopia. What is doing there, transferring technology? free oil supply You are there for the sake of religion only. Don’t forget that we are sovereign country. We are 100 million people. We will stand long battle war . You can learn how won back a war. Even we make the war between Africa and Arabs. You have tried hard to load Arabism software to Ethiopia you are unsuccessful. Why the war in Somalia. You load your Arabism softwar over African decent. We ar keen enough We know you have plan to buy water from Egypt. When that day happens, the river will be diverted to the red sea by any cost. And the water stops flowing for ever. This will be the darkest for all of us. Use your oil. we didn’t ask you to give us oil. use your oil. We use our Nile river. This is the mathematical calculation.
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