Wednesday, October 11, 2006

Oil, Oil Everywhere and Prices Just Keep Falling...

Well, it seems the Oil at $100/barrel!! guy has finally taken his seat next to the Dow 36,000!!! guy and the BUY A CONDO IN NAPLES!! girl in the timeout chair.

As I said in the spring, the global economic backdrop supports oil around $55/barrel and anything above that is fear of hurricanes, war with Iran and 29yr-old hedge fund managers chasing the dream.

Cheney et al stopped bad mouthing Iran, Goldman lowered their weighting of Unleaded Futures in the commodity index, there wasn't a single meaningful hurricane in 2006 and poof --- Oil is heading to $55. But wait, OPEC is going to enforce quotas!! Trust me, all of these countries cheat and that is why the market didn't buy their quota press release today.

So, this is the situation - the global economic outlook is actually weakening so oil should continue to slide toward $50. Anything lower than that and OPEC will get serious, but I think we're going straight to $50. In fact, the November elections and hedge fund managers with itchy trigger fingers (who might start dumping positions in mid-Nov) could really impact prices as well (There is a 20% chance we're in the $40's by 2007).

This of course is good news for consumers, Walmart, and Applebee's because now that you're saving $7/fill up on gas we know you won't save your new found wealth. You and I and every other "Spend 'til we drop American" will spend the $$$ as fast as possible which should help some low-end consumer related stocks.

I stay as politically neutral as possible on this blog, but I'll point out that if the Democrats seize control of either the House or the Senate, look for Iran to become a MAJOR issue again very soon. I'd expect the Republicans to turn up the heat to make the Dems look weak on Terrorism (bonus points if you can tell me how the two are related!! lol) before the 08 election cycle begins.

This could mean a real threat of military showdown in 07/08. If that happens - Oil is at $80 again in a flash. Just one investment opportunity to watch for as you watch the pundits spin themselves silly on election night.

Cheers!

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