I’m surprised by the move by the President and the IEA. What’s this about?
Is it about the price of oil?
Before the announcement WTI was sitting around 95. That’s a solid $20 lower than it’s peak eight weeks ago. Why would Obama & IEA act today? A very big price adjustment has already been made. If the circumstances were different and the price of WTI was through $120 I might have agreed to this. But why make a splashy show now when no show is required?
There is more to this than meets the eye is my conclusion.
Is this really about Libyan production?
On a global basis I don’t think this sells. Japan’s slowdown offsets most of the Libya loss. Anyway, the Libya story is two months old. Why the action so late in this game?
Is it about punishing speculators?
Obama promised to do this. I thought he delivered on his promise when the CFTC started raising margin requirements willy nilly. But direct intervention in the crude market? That is raising the ante by a great deal of chips.
The driving force in the drop in crude over the past month or so has being the growing realization that the global economy his hitting multiple speed bumps.
Not to be boring, but China, Japan, Europe and the USA are all slowing down. What “specs” out there were swimming against that tide? Not many, in my opinion. So if one of the objectives was to beat on the players I think this moved missed by 90 days. IMHO this silliness is setting up a great buying opportunity. So the specs are going to cash in when this washes out.
Is it about teaching a lesson to OPEC?
I am concerned that this is a factor. The US wanted OPEC to up production. That didn’t happen. So the bad boys who produce oil just got a shot across the bow.
Watch if this angle on the story gets “play”. It would piss off those bad boys and they will retaliate. Does O really think he can take on the world oil market? He can’t beat the Taliban. OPEC will crush him.
Is it about stimulating the US economy?
This seems to be a significant part of the equation. But just think this through. The rule is that for every $1 drop in crude we see a 2-cent drop at the pump.
Say for the sake of it that this drama will result in a $10 drop in crude. So the pump goes down by a lousy 20 cents. Do the deep thinkers really believe that if gas gets twenty cents cheaper for a month or two that they have really bought themselves anything? Are things so desperate that steps not taken before are justified? That’s a conclusion the stock market was pondering today. The bond market ran up the same flag.
Is it about stimulating China or Europe?
That can’t possibly be the case. The 60mm brls represents just 16 hours of global consumption. If it’s stretched out over 30 days it comes to an insignificant 2% of daily demand. That is a super tankers worth. There are hundreds of ships at sea right now with that much crude on them. This has nothing to do with influencing global supply.
Is this a desperate move by the administration to show leadership?
I looked at the WH home page and did not see this important development highlighted. Maybe the big O is trying to distance himself on this one. I’m convinced this will backfire. Give it two months. Tops.
Are supply and demand conditions such that this extraordinary move is justified?
Beyond the already discussed Libya non event I’m not aware of something that is blowing up in one of the big producers. Does Obama have some insight on this? Does he know something I don’t about Iraq, Iran, Venezuela or Nigeria? Stay tuned. If something blows in one of these over the next few weeks you will see how things are orchestrated.
Is this a big deal?
On the numbers; no it is not. But it is one of those sharp right hand turns that come up from time to time. Because it is so unusual it bears noting. We live in an interventionist world. Every aspect of the global economy is trying to be manipulated by the “Deciders”. I have never seen a precedent like today. In that sense, I consider this to be a very big deal.
Are we going to see more of this type of market intervention?
I’m sorry to say that we might. What’s been offered up is a drop in the bucket. So round two of this foolishness is a distinct possibility.
Did Bernanke know this was coming when he spoke with great confidence that oil prices would soon retreat?
This took months to put together. Bernanke knew it was coming. We live in a manipulated world.
-This was a bonehead move that was put together by Euro technocrats. They dreamt this up two months ago. It was a dumb plan to offset the consequences of Libya. Because 30 countries are involved it took sixty days to ink an agreement.The timing today is a mistake.
-Mr. Khadafy is pissing many folks off at this point. He should be gone by now. Look for Mr. K to get a cruise missile up his arse any day now.
The principal rationale for this market intervention is Libya. Take that out of the equation and there is no justification left for continued meddling in global markets.
-This one trick pony is going to knock 15 cents off the price of gas for a month or so. There will be a disruption in market liquidity and inventory levels. This will result in a big spike in crude sometime this fall.
-OPEC will respond. “We” will pay a price for this.
-There will be technical problems at the SPR. They will not be able to deliver 2mm barrels a day of light sweet crude.
-Obama will get some egg on his face with this one.
By. Bruce Krasting