Sunday, September 17, 2006

Oil Prices - NYT Suprised at Oil Price Decline

Well, maybe not. At least not yet. At least not in public - yet...

A Question: Has the US Government completed its replenishment of the Strategic Reserve?

This factor has many implications:
  • A full reserve can be used to stabilize prices.
  • A full reserve is one preparation for war in the Middle East.
  • A full reserve means that the US Government is not competing in the market.
Economic factors:
  • What is India’s current economic status?
  • What is China’s current economic status?
  • What is the economic matrix of a barrel of oil costing $70 and a gallon of gasoline costing $2.50 (refined cost estimate). We know a barrel (55 gallons) cannot all be refined to gasoline so I am guessing the math sucks for Iran. They sell 55 gallons of oil at $70, Exxon or Shell or TotalFinaElf refines the oil to gasoline and other fuels, and sells it back to Iran at let’s say $2/gal. That is, export at $70, repurchase at $110. Very unsustainable. And, very difficult to remedy without internal refining capability.
Political factors:
  • Is Iran being slowly subsumed by another great power – thus following a pattern of weak ME pashas becoming clients of major powers? Is this a bad thing? Can we deal with China on a civilized basis, Iran? In my very humble and unlearned opinion I would greatly prefer Libysque ‘Frank Diplomatic Discussions’ with China to similar talks with Iran.
And, one market factor:
  • How many times can Mahmoud Ahmadinejad cry wolf before the markets ‘discount’ him? This may not be the smart thing to do, but it is the natural thing to do. Very coy regarding the August 22 thang – but also dumb long term. When he is discounted he will cease to affect the market price.

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