Friday, September 08, 2006

Defying the Law of Gravity

A very interesting article on the current Iran U.S. crisis and its impact on oil prices . The article has a dispassionate, for an American investment newsletter, analysis of Hugo Chavez and Venezuelas growth as a world player in the Petro-Economy. However this cracked me up....

Defying the Laws of Supply and demand

For the past two years, crude oil prices have doubled, while US crude oil inventories increased by roughly 22% during the same time period. Spot oil prices climbed the slippery slope to as high as $78.40 /barrel, supported by fears of supply disruption due to Iran's nuclear program, attacks on Nigeria and Iraq's oil pipelines, and political mischief by Venezuela’s Hugo Chavez. On the demand side, a robust world economy, growing at a 5% annualized clip, led by China and India has underpinned oil demand, enabling prices to defy the laws of gravity.

So much for the laws of capitalist economics. Monopolization and Oligopolies distort the market is the real law, not supply and demand. The investment newsletter goes on to explain what the U.S. strategy may be around Iran, the real politick.

If the US knocked out Iran’s oil refineries and interrupted both its exports of crude oil in the Gulf region and the import of gasoline to Iran, with unemployment rates as high as 20%, any disruption in both food and gasoline subsidies, as a result of the drying up of oil revenues, could trigger violent Iranian street uprisings and lead to the downfall of the Ayatollah’s regime within a few months.

Wishful thinking that. As our investment advisor says;

Does the Bush administration hold a straight flush, capable of beating Iran’s four aces?

For now, sentiment in the crude oil market is ruling out these dire scenarios, after placing great faith in them for the past 12-months.

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