Tuesday, June 17, 2008

Congress Considers Yet ANOTHER Bad Idea...

Reacting to popular resentments over up soaring oil prices and with lots of people blaming Wall Street speculators, Congress is considering a host of rules aimed to limit the inflow of investor money into oil contracts.

But oil traders rightly caution that while more disclosure is a good thing, making it harder for speculators to invest in oil futures could have the opposite effect intended, and send prices higher.

High prices stimulate the parameters that create lower ones. When profits are high, it’s advantageous for Big Energy companies to embark on expensive new projects that bring more oil to market. It also encourages OPEC nations (like Saudi Arabia) to consider that higher prices stimulate alternative energy research which would ultimately greatly reduce demand for their product, which stimulates a surge in production.

Ironically enough, Congress is considering these kinds of Bills at the same time many analysts are warning of a price crash for oil.

The Fed's recent comments about inflation fears, have many savvy investors believing that interest rates could soon be lifted. A boost in interest rates will immediately lead to a stronger dollar, and could (and should) result in a sell off in crude.
For instance, Scott Wren, senior equity strategist at Wachovia Securities, believes that "commodities are likely to be flat to down over the next year or so, and falling oil prices are going to help the better economic scenario we're projecting."

Moreover, the Supply of Mideast Oil has risen and NOT gone down over recent years.

In fact, Saudi Arabia that promised a 300,000 barrels a day increase in production in response to Bush’s recent visit has upped that to over 500,000 barrels a day!

Even Iraq’s oil production has increased over levels PRIOR to the U.S.-Britain led invasion in 2003. In fact, according to the International Energy Agency (IEA), Iraqi oil production is above the levels seen before the US-led invasion of the country in 2003.

The IEA said Iraqi crude production is now running at nearly 2.5 million barrels per day, compared with 1.9 million barrels at the start of 2006. This is higher than pre-invasion production levels!

One of Murphy’s Laws states “When a politician gets an idea, he usually gets it wrong.”

That couldn’t be more true in this case.

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