Oil, Oil ,Oil

Here is a great post on oil and its current price level, for a multitude of reasons being too low.

From Gregor.US

4. There is risk that oil re-tests its old high in late 2009. This risk would be zero had oil maintained itself above 80.00. The trip to 40.00 destroys actual supply but more important it damages psychology in the industry. Just watch as global oil producers refuses to spend one penny to increase supply next year. As it stands, oil will return to 80.00 at minimum in 2009.

Try not to laugh at the globally coordinated fiscal stimulus. It’s accurate to use the word gargantuan, to describe the scale of everything that’s been announced. Also, regardless of one’s views about 2009, we also need to price in macro outlook volatility. Government intervention kicks streams out of their beds, and gets them running in different directions. For example: You could wake up one day and realize that all that excess PV that is in oversupply is being quickly sucked up by global governments, to do solar projects. Same too with SPR fills on oil, and metals and fertilizer stockpiling.

Final thought: economic events are both structural and psychological. The credit crunch was both, and, created its own structural mess. But there is still a psychological component. Economics is a social science. What’s at issue is human behavior, not foot-pounds of pressure through pipes. By definition, reflation must eventually result in velocity or there has been no reflation. Once you get that velocity, it is reinforcing. Oil was a very important medium for capital to travel around the world. Low oil prices are just another condition of low velocity.

I am sticking with my view that the FED and global governments will keep reflating until they get strong signals they have succeeded. But, by then, they will have done too much. That’s the key dynamic. They will just keep upping the ante until they get feedback. Which means that they are fated to go too far. Regardless of how one sees the battle between Deflation and Inflation, one simply has to capitulate to the fact that policy makers are now all-in, and will keep doubling down on their reflationary bet until they get returns they like, or lose it all.

Three weeks to go. First week in January we’ll fund the IRA’s and kids college accounts for 2009 and a large portion of that is going into crude…

Will be staying away from USO this time. It is either going to be (DBO) or (DXO) od some combination of the two.

Can anyone find a good reason oil will not go up substantially in 2009-2010?

Disclosure (“none” means no position):None yet
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