My dark hypothesis is that oil prices may once again begin to march. Although I can present a smattering of stats to support my thesis, common sense dictates that despite the pull back last week, we are anything but in a lull when it comes to oil prices. As long term investors know, the trading markets can fluctuate lulling the overall market into creating higher profits for big picture investors.
Demand isn’t going anywhere. Slowdown or not there are more light s on in this world every year. China is building more cars. The US has more cars on the road then citizens (and illegal immigrants). India’s new thriving middle class wants the same luxury items western society has including consumer electronics and cars. The fact remains that across the globe, most electricity, heat, hot water and 99% of passenger, commercial and heavy vehicles are powered by petroleum-based products.
Alternatives can not come to market fast enough. Even if a cost effective alternative motor system was released today and could be mass produced, it would take more than a decade for acceptance and the retiring of existing vehicles. Gasoline substitutes and additives are a placebo to placate the liberals. We need a steady stream of incremental changes over 20 years to evolve us off dead dinosaurs and onto renewable clean energy sources. The fire in our bellies is still not there to begin to take on the challenge. The US, is just not ready.
Global unrest seems to be most prevalent in oil producing regions. The Middle East is in the same or worse political state than it has been since the end of World War II. Iran, Iraq, Algeria and Saudi Arabia are all hot beds. The recent elections in central and South America do not bode well for U.S. interests. Add in Nigeria which also does not seem to have an end to unrest in sight. The main stream media can dramatize or stabilize sentiment on just how bad it is at any given moment.
Oil is measured in Yankee Green backs and as the dollar falls or waffles, it influences oil prices. A cheap dollar policy or a strong dollar policy will greatly influence oil prices. For now with stable to potentially lower interest rates, current Fed policy isn’t going to help oil prices.
Yesterday marked the first heavy jacket day in NYC. It was below 40 degrees when the typical trader waited for their train this morning. It will be interesting to see where oil goes once they are seeking the radiators to warm themselves, and I don’t mean the band from New Orleans. Human nature affects trading.
All this stew needs to boil is for our government to replenish the strategic oil reserves that were tapped when oil hit its peak earlier this year.
Check out the price of oil the first of each week since September. Look at pump prices as we approach Thanksgiving. They are rising. Look again in mid January, just eight weeks away. You may want to re-read this post.
USO 6-month chart: