OPEC Ministers Blame Speculators… You Know They Might Be Right

Yet another reason why the government is currently failing consumers with its Strategic Petroleum Reserve policy, and why investors in green stocks should tread carefully at current prices. Forbe’s article outlines how Opec’s president has made the argument that speculators are driving the current high prices for oil. And in all fairness he has a point.

Whether you look at year over year data, or at data since October

when oil breached $70 there is little evidence to support the current spiraling of oil prices. U.S. consumption is down, global consumption is flat after spiking in the fall of last year, and OPEC and total world production is up 2MM barrels a day. Inventories are down, reflecting the non-US consumption spike in the fall. Assuming that the pre-October pricing was status quo (a big if) that would portend for lower prices sometime in the future (hard to say when though).

It also is a really good argument as to why the mismanagement of the Strategic Petroleum Reserve is a big deal. If the federal government wanted to take the air of the market and shut down the speculators it could do so easily by a.) suspending the stockpiling of oil for the SPR during this period of high marginal pressure on oil prices; b.) release a small portion of the oil into the market. Since the marginal price per barrel is so sensitive to supply and demand change right now these two simple steps would go a long way to making speculation much less attractive and far more risky – driving down non-consumption based demand for oil futures – and easing prices. Will they do it? Who knows…

This should be a big yellow caution sign for green investors – much of the interest in renewables is driven by current high oil prices – which would fade if oil were to fall back by 20-30% – which could happen quickly if speculators were to leave that market. And while some of the price jump in oil is attributed to a weak dollar, the sensitivity of oil prices at the margin right now are such that one can easily see how speculators being chased out would impact that market heavily. Something that OPEC could do by tapping its 3MM barrel production reserve, or that the U.S. government could do by getting out of the business of creating marginal pressure on oil prices – or selling just a small portion of iits stock into the market (at a hefty profit I would add)…

At the very least we can expect a great deal of volatility in these stocks until the oil market steadies itself. This doesn’t mean investors should run for the hills, but does mean that purchasers should be prudent about the prices they pay, and use patience and volatility to their advantage to move in and out of stocks.

Hello! I am the Chief Editor at greenstreetinvestor.com. Thank you for visiting our pages, where we try to show examples of earnings, investments and methods of trading on exchanges. Financial markets are also accessible in simple terms.

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