Gold Forecaster -
Global Watch -
The oil price rose to $139 on Friday and looked like
it was ‘spiking’ to over $150. But is it? That’s a rise of
44% this year. A great deal more than technical chart pointers will be needed
to understand where oil, food, gold and silver are headed in this
environment. If this is the time when consumer and investor demand will rise
beyond supply’s ability to provide enough, then this is not a
‘spike’ but a structural change in the market. It will produce a
systemic crisis that has to be resolved in collaboration by the world’s
governments. Are they capable of such cooperation? The prospect of $200 oil
then comes into view.
If national action is to be taken against
“investors”/”speculators” by the regulatory
authorities to prevent them from partaking in this market, then demand will
drop for a while and the present price will be seen as a “spike”.
But be surprised if this goes below three figures. For this will release oil
to the market [the balance between demand and supply on COMEX] but in a relatively
short time demand from the emerging nations will inexorably continue to rise
and take up that too. That will be if worldwide investment demand is curbed.
With the inventiveness of the U.S. investors, they
will surely find a way to protect their assets possibly by taking them abroad
and then investing in the same markets [oil and food], unless prevented by
Exchange Controls. They do need to do this thoroughly, and not just
superficially; amateur attempts will be outlawed quickly. Whatever way it
pans out, the collateral damage of such action to the monetary system will
still be large and diverse from confirmation of recessions to currency
crises. If the controls wait ‘until the Fall’, as was put forward
by some observers to the Senate hearings, it may well prove to be too late
and the global economy would require far more than just remedial regulation.
The
sheer volume of liquid funds globally will react to oil prices between $150
and $200, to any regulations reaching global investors, and to the weakening
of currencies paying more than twice they were at the beginning of last year
for their imported oil. Such pressures are more than global, financial
stability can bear!
Where is the Oil Market Now?
·
Supply
Some
tell us that there is a cushion of 3 million barrels a day, but there is
little doubt that within a couple of years this cushion will be absorbed by
emerging nation’s demand. But remember that a large amount of this is
in oil that is difficult to refine and unpopular to consumers. That is why the oil market reacts so
strongly to threats against Iran [who have said they will suspend their 2
million barrels a day production if they are attacked], or a strike by
Chevron’s workers that postpone a new supply of 250,000 barrels a day
from the new Agbami oilfield, or Norway's
suspension of crude output at three platforms, cutting supply by 138,000
barrels a day, or the news that O.P.E.C. oil shipments fell by 1 million
barrels per day in the four weeks to May 4, confirming suspicions that the
market has been chronically short of supply.
·
Demand
Full-year,
global oil demand is now expected to total 86.95 million barrels per day,
against previous expectations of 86.97 million barrels as higher prices bite
hard. Demand for OPEC crude is seen at 31.8 million barrels a day in 2008,
down from 32.0 million barrels last year. Non-OECD countries [chiefly China,
the Middle East, India
and Latin America]
are expected to account for almost all of this year's growth in oil consumption.
The dramatic rally in oil prices is due to rising demand in China
and other developing economies as well as an influx of cash from investors
seeking a hedge against the weaker dollar and inflation. The demand from
emerging nations will rise to absorb all available supplies in the near
future, but the demand from investors has clearly brought that day forward to
now. These speculators, however, are not confined to investment
managers.
If
you were a big consumer of oil, what would you do now? Airlines can’t
afford to run out of Avgas, so they would buy forward to protect the flow of
it to them. Now add to that: miners, other industrial users and the rest. They
would buy ahead of their needs not as speculation, but to buy cheaper and
ensure supplies and so the demand is brought forward to a time when the
supply is available and before it is cornered by the emerging world [which
would also buy forward for the same reasons]. This is not speculation or
investment buying, but a result of the certainty that supplies will run low
in the intermediate future.
Now
what about normal consumption demand? The States is entering the
‘driving season’: the time when petrol demand is at it’s
highest through the summer so consumer demand is very high right now and it
continues to rise.
Now
you do your homework as a Pension Fund Manager; you see the collateral damage
to currencies [not just the $] and to global growth and you see that
commodities, including oil and food, are an excellent alternative to stocks
and currencies. You naturally try to protect your pensioners by taking
positions in them. Eminent reporters have largely discounted the role that
futures buyers have on these prices, but they are real.
All
Commodity Exchange will hold sufficient stock to deliver to buyers who cannot
be supplied by sellers on their books. If the buyers predominate, an Exchange
will not hope that they close their positions before taking delivery. The
Exchange officials have to assume that they will take delivery and so hold
that amount in stock. They calculate this on a daily basis; therefore, rolled
over positions continue to affect these stock levels. If they were caught
unable to deliver what had been bought, what then? I
Investors/speculators have a very
real affect on prices.
But we have not seen any significant affect on
the gold price from the oil price since the oil price passed through $90 and
gold started to descend from $1,035. Will it from now on? Many feel the oil
price is in a bubble, the same that happened to the housing market could
happen to oil, and that’s why gold hasn’t reacted more
directly? Wouldn’t it be
nice if the oil ‘bubble’ burst? But wouldn’t that be
unrealistic given the above information?
More to the point is the time the oil price holds
these levels. If it persists at this level or higher, the concept of oil
being in a bubble evaporates and it becomes a structural cost adjustment
in our lives. Once this happens
the markets will then readjust gold and silver prices accordingly.
In the final section of this article [for
subscribers only] we conclude with what is likely to happen to the gold and
silver price from hereon.
Are you and your
investments effectively structured to avoid the pernicious effects of Capital
and Exchange Controls? Subscribers, contact us for more information
on this.
By : Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
GoldForecaster.com
Please subscribe to www.GoldForecaster.com for the entire report.
|