Oil – What’s Happening?

As you’ve seen, the oil price is dropping through the floor. Given we are told Peak Oil is behind us, surely we are running out of oil?

Yes, we ARE running out and should be preserving it for future generations. After all, the difference between a Third World country and a Developed country is based on having power to multiply human effort. Coal is a bit offensive to the environmentalists and hell on the lungs yet Australia burns it with reckless disregard, providing cheap electricity. So cheap, the supermarkets leave the lights on 24/7.

When something is expensive, we treat it with reverence and care, when it is cheap, it is squandered. Watch out for sales of Hummers going through the roof anytime soon.

Oil is the financial lifeblood to the Arabian and Middle Eastern economies, and Russia too. America though, has an agenda – Restart the Cold War and steal the coveted ‘World’s #1 economy’ prize. To hell with common sense, logic and the environment – Let’s steal oil from Iraq and sell it so cheap that everyone else goes out of business! Then we shall resume our rightful place at the top.

Errr, no, it does not work like that. Whilst some economies will surely benefit from cheap oil, they are unlikely to do so – Vested interests and time to change course will prevent that.

Russia and the Middle East will hurt, but they’ve seen worse and will survive. Once the oil in Iraq is gone – Russia is sitting on a very valuable asset. It’s a waiting game.

The US have also annoyed the Saudis – their once staunch ally. This will not help when they need another World Trade Centre blown up (Though the Israelis are always keen for a spot of nefarious business).

The US economy is almost dead, money grabbing antics abound as they try to keep the music playing a little longer (’till their mates purloin all the state assets and dollars for themselves, leaving the population high and dry).

This market play is designed for political ego reasons alone – Has Obama or Putin got the highest mark on the restroom wall?

The general population might enjoy the brief respite but the price will return with a vengeance – No oil baron likes to see their profits eroded on this scale. Texans will be closing up shop and having a holiday rather than sell at this crazy price.

Prepare for a gouging before year’s end when the oil companies seek to recoup their current losses. Obama’s competition with Putin will be paid for by Joe Average and the wealthy shall not suffer in the long run. It may be burgers on Texan tables today but the days of fine dining shall return before the fourth tuesday in November and much thanks shall be proffered to the play makers who have restored the temporary profit drop to even greater heights.

Interestingly, tax takes in most European and Australasian economies will suffer little – the Governments make a percentage AND a fixed fee on each litre sold. Will goods with a high component of shipping cost reduce in price? No – Profit taking is the order of the day, and when fuel returns to yesterdays prices, it will make perfect fodder for the rise in prices demanded by all corporates.

Want a stock tip? – Woolworths and Coles Australia own 80% of the food, fuel and alcohol markets – Never shy to rort the public – they will be back before Christmas to plunder our pockets for the sake of ‘Recovering from the oil price drop that cost us¬†dear’ (It hasn’t cost them a cent in lost profit – they make a nice fee on top of the cost price and certainly don’t suffer at any stage.). So, watch out for massive Q4 profit announcements!