Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Oil's Middle East Fallacy, Egypt Crisis It`s Jobs Stupid…..

Politics / Crude Oil Jul 17, 2013 - 10:30 AM GMT

By: EconMatters

Politics

A couple of weeks ago Egypt demonstrations led to the Mursi administration being removed from office, who was elected from the last set of demonstrations. What Mursi and many media analysts failed to realize is that the demonstrations weren`t really about democracy, religion, philosophy or ideology but were actually about jobs.

It’s the economy stupid, that is what the Egyptian people really care about, which is ironic because without a major overhaul in their country`s entire business structure, the one strategic advantage the country has is the tourist industry.


The tourist industry brings in revenue, and supports many types of jobs all throughout the Egyptian supply chain. The irony is that the prolonged demonstrations, and cases of violence reported only hurt the tourism trade even further.

This is something the military has understood, and why they are taking measures to stop the demonstrations, and get back to normal as soon as possible in being an attractive destination for tourists once again.

It will take twenty years to reform Egypt for example to focus on an alternative industry like technology, and being a technology hub in the Middle East. And even if that was a goal to produce jobs in the country they need money to transition from a tourist based economy to one that provided opportunities for their young people.

This is only going to come from one place, the tourist industry so the government needs to eliminate the demonstrations at all costs, attract tourists once again, and get people back to work. Why do you think there were so many people demonstrating? It is because they didn`t have jobs to keep them busy and fruitfully employed.

The military and temporary government realizes that the most important thing is the economy, get people some jobs, and they are much happier. It isn`t about governmental corruption, all governments are powerful and corrupt. It`s the economies that don`t provide business opportunities and jobs that make citizens unhappy and unruly.

Why the Middle East Supply Shortage Argument is Vacuous
Point #1

This brings me to the recent spike in oil on the Middle East demonstrations which have happened every year for the last four years. There is always some reason in the Middle East why oil has to spike higher by $5, 10, 15 dollars a barrel.

Whether it is Israel bombing a few weapons caravans, Egypt demonstrations, Syria civil war, Libyan insurgents attacking Embassy personnel, etc. But this is all noise, and completely irrelevant to the supply of oil in the marketplace.

When was the last time in 30 years where the world actually had a supply disruption from the Middle East? Never, the reason why and the Fed president James Bullard put it quite well the last time oil spiked on middle east nonsense is that whoever is in power, needs money, and oil is the one commodity that these countries have to get money.

I don`t care if a bunch of mercenaries took over power in some oil rich country, you can bet they are going to be selling oil to support the need for money. People in power will protect the oil infrastructure at all costs, because it gets them money which controls their livelihood.

If there is a powerful overthrow of a previous regime, the conquering power will then protect the oil fields so that they can then stay in power through the money generated from the oil resources. This is why you will never have a major supply shortage in the oil industry from Middle East flair ups.

Point #2

Here is the adjacent point that makes this even more salient, if let`s say something crazy happened like the Saudi oil fields were attacked and damaged, and some crazy group started burning the oil fields. Yeah, that is how far-fetched an event would actually have to happen to actually have a major supply shortage from the Middle East.

This is just a hypothetical because one call to the US would bring in all hell, and the oil fields would be protected by US troops. But let us assume that this event did happen. Well oil prices would immediately spike, but the conundrum is that prices would be so high due to speculators, that nobody on a wide scale could afford any oil, and the entire global economy would come crashing down into a depression, and then you couldn`t give the stuff away because of the damage of the depression to the world`s economies.

Further Reading: The Bernanke Conundrum 

You wouldn`t need middle east oil at all, because there would be more than enough supplies in the rest of the world for what is left of the global economy. Most people just fail to understand this point. Oil is only valuable in the current scale of supplies at a certain price point once it goes too high it destroys the very demand that is necessary for its wide spread adoption as an everyday staple by consumers.

Above certain price points the majority of people simply cannot afford it, so then it has no demand on a large scale. Thus the global economy implodes, and no need for gas anymore because nobody has jobs in a global recession.

This is the Yin and Yang of the oil industry which 99% of business people fail to realize about the commodity. The scale of the oil market ultimately limits its upside in price, and it is only valuable if there is a vibrant market for its use.

Too high prices by a catastrophic Middle East real supply shortage actually spell the death of the demand for the very commodity that at first spikes because of said event. It is the ultimate paradoxical rationale for why any real supply shortage in the Middle East is actually meaningless for the price of oil.

Further Reading: Lumber Prices near the Top of their Historical Range

Under both scenarios the price of oil will ultimately be lower. This is the major misunderstanding of the oil market, and historically during the first Iraq war people made a fortune, shorting the spike in oil prices.

Oil only remains valuable given the scale of the market, if there actually is a large, thus scalable market in place to provide consumers for the wide spread production of the commodity.

High Gasoline Prices Just Killed the Summer Driving Season!

You see this phenomenon played out on a small scale here in the US each of the last four years. Every time gasoline prices spike, after a few weeks demand for the commodity starts dropping, and then prices start coming back down.

Moreover, this is in the wealthiest country in the world. Just imagine what happens in China, India or parts of the third world on any type of price spikes.

This is why with plenty of supplies, the summer driving season was actually starting to experience a slight pickup in demand because gasoline prices were lower than they had been for a while, and sure enough the prices spike, and we have killed another summer driving season with high prices.
Mark my word; we have already seen the peak demand for the summer driving season. It is all downhill from here due to the pullback from the incredible spike in gasoline prices.

In a couple of weeks, wholesalers will not be able to give the stuff away as demand craters for the remainder of the summer driving season. They will be stuck with all of this inventory that will be decreasing in prices.

The old adage always applies with regard to oil and gasoline prices “there is no cure for high prices, like high prices.” This is why the Middle East can never truly have a prolonged supply shortage. They will price their customers out of the market!

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2013 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

EconMatters Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules