Sunday, February 27, 2011

Oil Prices To Rise Dramatically

originally posted 2-20-11 

Many people don’t understand anything about markets so let me help you help yourself by explaining one market that is about to teach you some important things.
The oil market is offering an easy trade right now.  We have already covered the spreads between WTI and other blends of crude.  If you don’t know what a blend of crude is do a Google search and read up on it, then just trust me that there has been a huge effort to suppress the price of the one blend of crude that the American markets use as their pricing proxy.
Now, there are approximately 21,000,000 barrels per day of oil used in the US.  That represents about 25% of the world’s daily usage.  OPEC countries produce just under 30,000,000 barrels per day.
A little background might be helpful here.  The US has spent many years helping important families in oil producing countries gain and hold power in order to keep supplies of oil stable and predictable.  There are really 3 keys to maintaining social order, stable energy supply, stable food supply and reliable currency.  (I am not even touching the last one in this post!)  Also, a great book to learn about how these arrangements work is http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man
I must say that towards the end of the book he turns into a loser and wants to make political statements which are useless to us here at The Kwan Box as we have not discovered a way to make money in that realm.  If you read the book just take the facts and toss the rest.
Here is a great video of some items that Ben Ail, the ousted leader of Tunisia, didn’t have time to steal before fleeing the country.  PS he did take a massive quantity of gold with him:
http://www.alarabiya.net/articles/2011/02/20/138358.html
Anyway, this has been a good strategy because we pretty much take care of the people in charge of these regions and they keep their people suppressed with enough bread and basics to keep them sedated yet poor enough not to get any ideas.  That is becoming a problem.  Northern Africa and the gulf are in major trouble.  People are hungry.  The leaders are being challenged.  There is something big happening that is making my bullish case for oil.  The concept of Peak Oil is upon us.  We are facing a major change in the chess board that is our energy supply chain.  These leaders have not invested properly in infrastructure and we are not finding excess new supplies of oil.  Just to be crystal clear for new readers, if world oil usage grows by 3,000,000 barrels a day and new discoveries are 2,000,000 barrels a day of supply, that is a major problem.  These leaders MUST raise the price of the oil they are exporting in order to get enough cash to suppress these uprisings and feed their people.  Last year Egypt became a net importer of oil.  The game changes when the leaders don’t have enough surplus cash to suppress the people.
I don’t see any reason why oil will not take out it’s previous high on the chart.  

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