Different This Time?
Editor's Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
I find it very interesting that commodities of many kinds (soy, corn, oil) are dropping sharply this morning in light (it is claimed) of a demand crimp brought on by London.
First, we know that isn't a consequence of such attacks. In fact, oil continued to rise even through the very real slow down initially after 9/11.
Odder still - oil's pullback comes on the heels of the Saudis (finally, just this morning) fessing up that they do not have the ability to supply the world's demand even 10 years out. That should be the most bullish of news and yet here it is being sidelined.
There seems always some noise around such events. I personally don't think reaching in to buy makes sense here for me. Recall when we were hit our markets had already been tanking for a year and more. In this case, London was at a new multi-year high.
It's going to be different this time.
Goldman Sach's analysis that oil could hit $100 in the next year is very plausible, according to our work. 2007 could be a year where oil exploration and new supply coming on line is superceded by higher demand.
We also think that the reason that new refining capacity coming on line is insufficient supports that view. Companies are not going to invest immense capital for a new refinery if they believe that the supply of oil will decline.
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