Crude Oil Bull Won't Be Easily Tamed

The crude-oil bull will not be brought down easily. The price of a barrel is edging up today despite Saudi Arabia’s pledge yesterday to raise production, reports the Associated Press. And this comes on top of news last week of a 17% increase in China’s subsidized gasoline prices and a clamp down on trading excesses in U.S. futures markets.

Current events supporting oil include the threat of a strike on Iran by Israel and turmoil in Nigeria. And with the U.S. driving season entering its peak period, prospects for a correction certainly do not appear to be in store just yet.

But after August, Chinese authorities should let domestic prices rise closer to world levels, adding to “demand destruction” occurring elsewhere in the world. Chinese authorities ought to take such measures now but don't want to risk having social unrest mar the hosting of the summer Olympics. Tougher measures will have to wait until after.

Comments

[dieuwer:]

You forgot to use the popular word "bubble" in your writeup. How bad of you...LOL

2008 Jun 23 01:58 PM

[Gigem77:]

China won't end subsidies altogether and they are revaluing the yuan. As the yuan grows stronger vs the dollar, crude becomes cheaper for them. Demand for crude has proven to be stubbornly inelastic even at market prices. So those who predict significant demand destruction in China may be disappointed.

2008 Jun 23 08:48 PM

[Quaker:]

Demand destruction is coming from the US, not China. China now has the foreign currency reserves necessary to push the US right out of the oil market.

Demand will drop drastically in the US, probably by 5-7 million barrels per day over over the next three years. By then the Hub pricing system will be gone and the price in dollars will be irrelevant.

2008 Jun 23 11:34 PM

[B0yplunger:]

Quaker,
The only way there will be a 5-7 million barrel drop in US demand is if we all become Quakers.

2008 Jun 24 03:07 AM

[Tracy:]

Americans NEED to start to conserve...in gas, electricity, recycling. We are such an agorant nation! Two percent of the world's population and we gobble up 25% of the worlds energy. This NEEDS to stop!

2008 Jun 25 12:22 AM