Oil's Outlook Remains Good

One day after the Sino-US Economic Dialogue, China announced it was raising prices on electricity, gasoline, diesel oil and aviation kerosene to reduce demand and help its domestic refiners. US investors were surprised by the news announced late in the day and oil fell almost $5.00 a barrel. This weekend Saudia Arabia will host a Oil Producers Meeting in Jeddah to discuss how to deal with the rampant, worldwide rise in the price of oil.

China's announcement explains Secretary of Treasury Hank Paulson's ear to ear podium grin following his remarks at the conclusion of the dialogue. Unfortunately it doesn't add up.

We have said before and we reiterate it again that other nationstates are gaming the US, acting in their best interest, just like we are. The point this time is that China simultaneously announced subsidies to certain rural and urban residents, taxis, farmers and fertilizer makers.

At the same time Hong Kong's Transport & Housing Bureau issued a relief proclaimation from double taxation for airlines originating flights between Hong Kong, Mexico and Finland. The three jurisdictions will be tax exempt as for income and profits derived from international flights in an efffort to cut operational costs and and improve income and efficiency. This means the 17-25% "energy" hike will have an effect. It will affect GM (GM) and Ford (F) sales in China as well US airlines, freight carriers, and export prices of US goods that have to be transported within china. Moreover it will be inflationary for China so that one can bet China's proclaimation was essentially lip service appeasement to compliment Paulson's rhetoric of the US policy for a strong dollar.

Look for oil to decline a bit, perhaps to 120-125 per barrel in the next week or so while people goo-gaw over the mutual cooperation of nation-states. But don't expect OPEC or Exxon (XOM) to want lower prices, nor China to ruin its upcoming Olympics by stoking inflation and creating disincentive to travelers to come to China.

In the end the US, China and the oil producing nations are acting in their own best interests which are a weak dollar to help US exports, a Yuan artificially pegged to the weak dollar, and record high profits repectively. In other words trade the sentiment or just hold your stake.

As a matter of fact, you may want to boost it on any decline. Remember the terrorists. One faction wants to drive the prices up to bankrupt the West and will likely sabotage oil production to keep prices high. The other side requires devisiveness and a common enemy to sell weapons (for protection) and may soon take out Iran's nuclear factilities. Get the picture? It's a theme you can trade because its unlikely to end anytime soon.

Disclosure: Long XLE

Comments

[Maquiavelli]

Good post. I agree completely. Will you expect the yuan to increase in value to offset the cost of china's oil imports?

[Realsit]

So any insignificant effect China's recent price hikes in fuel would have had will now be washed away by new subsidies. What a joke. Oil is going to $200.

[Michael Levy]

10 Reasons Why Oil Price Speculation Requires a Change in the Rule of Law by Michael Levy

High oil prices that are governed by the commodity markets are in dire need of common sense law and order. When speculation and detrimental logic and reasoning take central command of human society, the results always turn out to be damaging to the majority, at the abundance of the few. The experts and speculators will argue we need free markets and any interference will take away free trade. Well, in many cases they are correct, however, when it comes to essential commodities of food and energy they are completely out of order. Here are a few reasons why essential commodity markets require new legislation.

1. There has been no shortage of gas at any filling station for the past 10 years yet prices are up 1200% because of futures trading going out more than eight years. Even the Saudi oil minister has recently stated the price of a barrel of oil should be no more than $70.00. Demand from China and India is still far less than that of the USA. The Chinese stock market is down 50% signifying a sharp slow down. This news still is not enough to stop the wild speculators hiking the oil prices.

2. When hurricanes hit Florida many gas stations are closed and there is a real shortage of gas for a few days. However, if a gas station increases its prices they will be prosecuted for price gauging. Therefore, if we take the experts argument that there is a shortage of oil then that still does not give anyone the right to profit from the shortage as this is deemed to be prices gauging. How can the USA governments have double standards and prosecute gas station owners who price gauge and not treat commodity markets in the same manner?

3. Oil is an essential commodity for every day living in the same way as water is an essential commodity. It makes no sense to trade water so why leave oil in the hands of anyone who wants to make a quick buck gambling on prices.

4. Pension and hedge fund managers have invested billions of dollars in oil futures. The futures markets are very volatile, thus, no place for pension funds to risk the money for people who trust them to build future wealth. The fiduciary duty of a pension fund manger is to find reasonable returns with low risk and the commodity markets is not that place.

5. If the price of oil was regulated between $40.00 - $80.00 a barrel, the price could go up and down on supply and demand. This would be fair to everyone, for even when supply was plentiful, the price would not drop below $40.00 which will still give a fair profit to most oil related industries. When oil is in short supply the price would be limited to a ceiling of $80.00 which is more acceptable to world economies.

6. There is a moral issue that greed cannot come before peoples basic needs ... No right-minded, ethical, principled government can allow starvation and financial ruin because of a system of trading that is completely out of control.

7. The price of a barrel of oil effects transport, food supply, industrial production and every part of modern day living. If terrorists wanted to devise a plan to destroy the world. economies what better way than finding a method to allow oil to trade at $140.00 a barrel. Why play a game that makes terrorists and anarchists happy.

8. Goodwill to all people is the credo every democratic country is built upon.$140.00 a barrel oil delivers no goodwill. It only brings hardship and political uneasiness.


9. Noble deeds and fair dealing is the hallmark of success for every truly prosperous person. Since the world is made-up from people, where are the noble deeds and fair dealing in the commodity pits.

10. We are all put on earth to help each other succeed in the pursuit of freedom, liberty and happiness. There is no freedom when people are slaves to greed. There are only liberty takers when oil trades over $80.00 a barrel. And finally financial hardship brings misery and discontent.

The time for change in essential commodity trading is now. To quote a few voices from the past...

“Experience demands that man is the only animal which devours his own kind, for I can apply no milder term to the general prey of the rich on the poor”_Thomas Jefferson

“For greed all nature is too little.”_Seneca

“It is greed to do all the talking but not to want to listen at all” _ Democritus

“He who is greedy is always in want.” _Horace

[nakedjaybird]

nakedjaybirdJun 23 02:07 PMWhere have some of you folks been? In "school" maybe???

In the early 1970's we concluded it was going to take hybrid electric vehicles for anything beyond the basic 40-50 mile daily commuter using fully electric cars, when and if he was ready to switch from huge gas guzzlers (we knew this because we built and tested electric vehicles! And, there is a market for both types of vehicles). The shackles have been off for the private sector for 40 years.

We were also growing silicon ribbon and producing solar volataic panels in the 70's. The shackles have been off for the private sector for 40 years.

We have used windmills for long before many of you folks existed. Seems like we know how to make and use all of the components. The shackles have been off the private sector for a long time.

One of the major problems is the selfish consumer. His shackles have been off - he's had some free choices.

Another major problems is we have permitted our Government give our tax dollars to big oil thru tax breaks (research, investestment credits, depleption allowances, and on and on).

WE HAVE NOT DONE THE RIGHT THINGS;

NOT EVEN THE THINGS WE WERE/ARE CAPABLE OF DOING. BUT........... THAT ..........

Didn't stop France from going 80% nuclear.

Didn't stop Germany from going 40% solar.

Didn't stop Brazil from going 60% biofuel.

Didn't stop Switzerland (and many other European countries) from going electrified rails for people and goods, and even electric ferries (they put rubber tired hiway diesel busses on electrified rail cars for certain legs of their journeys).

Didn't stop Europe from building and using small economical cars, nor electric delivery vehicles, etc.

So where has the US been??

I guarantee you, without LEADERSHIP, we will not get there....................

We have had the techonologies; we've had the money; we've had the resoures; we've had our heads somewhere, like where the sun doesn't shine.

AND FOR THAT, THERE IS JUST TOO MUCH EVIDENCE!!!!!!!!!!!!!!...