Oil trend

Oil is now trading quietly over $80.00 a barrel. Part of that reflects the downward shift in the US dollar against other global currencies. Part reflects the decline in inventories and the unrelenting erosion of energy security. We can expect a decline in global production to set in over the next couple of years. We cannot expect an increase in production.

As I posted earlier, the only thing that will bring consumption back in line with either flat lined production or even declining production is a move to a punishing price regime obviously we are about to break a $100. And any shock will hand us our heads with a quick move to $200. If I were wrong this year, the price would have cooled of for the fall and be trading at least $10 cheaper.

Of course, trying to massage market direction from a maze of statistics, some very doubtful, is at best a mug's game. Oil represents perhaps 10% of the global economy. This is a guess since it once represented 12%. In any event, it is the one commodity that truly dominates the global economy, and because of that the only proper way of looking at it is in reverse.

In simpler terms, how much oil currency is needed to transact business. This ratio has been in decline for several years now and it is not getting better. The producers are slowly been flooded with foreign cash that they are finding harder and harder to get rid of. Just how much do you think that the cash holders want to be invested in derivatives backed by sub prime mortgages.

It is getting harder and harder to place this sea of cash. It was exactly this scenario that created the great inflation of the late seventies. Right now our central bankers have got to be holding their breaths.

Right now we need a monster multi billion barrel oil field to give us a break. All I know for sure is that we all are about to get our collective asses kicked. The alternate solutions will take years to implement.

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