Zeev's Turnips Patch-No Politics (ZEEV)

[mlsoft]

federal reserves....

I disagree, and think oil is merely reflecting a near term war premium as a showdown with Saddam is probably closer than most folks had previously thought. As I posted before, I also think that the administration is (wisely, in my opinion) filling the Strategic Petroleum reserve to the brim. That puts a temporary additional pressure on the oil complex, but assuming that there are no major dislocations as we go after Saddam, it is only very short term.

The reason I see no longer term strength for oil is that as the economy slows (a premise with which I think you agree) the demand for oil drops, bringing the price down assuming steady supplies. From the supply side, OPEC has already cut production to hold the price of crude higher, so there is easily more oil available from them. More supply is available from a very large new player in the game that would like nothing better than to take away as much of OPEC's business as possible - Russia. Finally, it seems that Venezuela and a number of independents are needing to sell more oil to prop up their flagging economies. All in all, the combination of supply and demand suggest that the price of oil is more likely to go down in the future than rise, in my opinion.

The wild card for oil, of course, is the situation in the Middle East, especially Iraq. All bets are off if Saddam were to launch bio weapons (or chemical, or worse) against Israel, in which case the whole area could become embroiled in a war as Israel strikes back, quite probably with a nuclear attack with a view of turning Iraq into a self-illuminated parking lot. If anything even remotely similar to the above were to transpire, the price of oil would skyrocket, at least temporarily. Of course, the price of oil could be only a small part of our problems should that occur.

Without dislocations arising in the Middle East, though, I expect the price of oil to work its way downward over time due the slowing economy and simple supply and demand.

Just my opinion, though.

mlsoft