Speculators have been bidding up the price of oil since the last hurricane blew through the gulf and shut down domestic oil production in the region. Pundits hypothesize on how high the price of West Texas Intermediate (WTI) will go. With the talk of trouble in the Middle East and Israel's threats to bomb Iran, its no surprise that fear of a constricted oil supply line has increased volatility in the price of oil and has again driven the price of crude oil skyward.
Is it any surprise then, that today, Saudi Petroleum in an attempt to stabilize markets, announced their intention to increase oil production to 10 million barrels a day, effectively expanding current Saudi oil exports and global supply. Their stated desire is to help boost the global economy and relieve present fears of potential diminishing supply. This puts Saudi production at 80-85% of current capacity and barely stays ahead of expanding demand from the third world of emerging markets.
Dr. Kent Moors doesn't think this will change the long term fundamentals and sees trouble. First he states that the current retracement (a short term reversal) of prices will not last. He argues "there are no essential fundamentals justifying a downturn. Second, and critical, international demand this year will still come in at more than 88 million barrels per day and exceed 89 million by June of 2013." <http://moneymorning.com/2012/09/19/kent-moors-current-oil-supply-remains-adequate/> Thirdly he raises the specter of quantitative easing from the Fed, the Bank of Japan and the European Central Bank; all adding to inflationary pressures of oil and commodities by increasing the supply of money that is trying to buy them. We all saw what previous rounds of QE1-2 did for the price of staples and groceries. The increased supply of dollars chasing a fixed supply of hard commodities with demand unchanged will increase prices. Its no secret that more of the same will lead to more of the same. He makes a compelling case that the long term price of crude will rise.
Dr. Moors is having dinner tomorrow with Persian Gulf ambassadors. I'd love to be a fly on the wall...
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