Monday, May 5, 2008

Oil Speculation?

"Our mounting economic downturn was supposed to curtail demand and drive prices down. ... 'All the conventional wisdom about the oil markets is wrong,' said Jeffrey Brown, an independent geologist in Dallas who studies energy market data. ... I called him ... because of his work developing the Export Land Model, a counterintuitive theory that says as oil prices rise, exports from oil-producing nations will fall. ... The message here is simple: We have to share the world. Other countries want a piece of the living standard we've enjoyed for decades. For us, that means $120 isn't a spike, it's just another milestone on oil's upward journey. Let's talk in a few more months", Loren Steffy at the Houston Chronicle, 25 April 2008.

I agree with Brown. I do not expect say, the Saudis to increase oil exports as prices rise. Why should they sell oil likely to increase in value for dollars, likely to decrease? As long as oil exporters think oil's future price will at least keep up with long-term US dollar interest rates, why should they sell now? What a radical notion, that the Saudis, who hold about 260 billion barrels of oil reserves, are also speculators in the oil markets.

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