Sean Maher

Oil Defies Bearish Sentiment: Will Natural Gas Follow?

On the contrary, natural gas is the only economically viable 'green' fuel out there right now; solar, wind etc needed huge subsidies to be competitive with oil even at $150, and at these levels are hopelessly uneconomic. If you want to cut carbon emissions and import dependence, it's logical to switch a chunk of electricity generation to gas (half the CO2 emissions of coal) and nuclear...this will dawn on the fiscally constrained Obama administration before too long.


On Mar 24 12:07 PM jack kreg wrote:

> Sean, you said nothing about the steep and massive increase in energy
> taxation that Obama is going to impose on energy company's and America's
> people. Hence, with NG a regional fuel, its priced to meet a strongly
> slumping economy in Obama's America. But, oil, a global fuel, is
> being priced to meet future growth in the more free economy's, namely
> BRIC's.
> OObama's energy taxation plans will not only hurt Americas energy
> industry, but its people and the broader economy as well.

Is Oil a Bubble? Part One

The recent Senate testimony of hedge fund manager Michael Masters says it all re the speculative bubble now ready to burst:
"prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year; that's an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day. There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets... traditional policy measures will not work to correct the problem created by Index Speculators, whose allocation decisions are made with little regard for the supply and demand fundamentals in the physical commodity markets. If OPEC supplies the markets with more oil, it will have little affect on Index Speculator demand for oil futures. If Americans reduce their demand through conservation measures like carpooling and using public transportation, it will have little affect on Institutional Investor demand for commodities futures."

Conclusion: OPEC are right; it's not fundamentals, but rampant speculation that has driven oil prices above $100 (marginal cost of the most expensive new fields/alternatives like tar sands is $70); time to either dump SPR crude on the market, or for the CFTC to suspend new index buying of oil futures before the US economy slumps into a nasty and intractable recession. As with the sub-prime debacle and the tech bust before that, weakly regulated financial capitalism is increasingly self destructive.