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TALF Funded The Latest Oil Hijack: Time The Fed Ran The SPR?

Commodities / Crude Oil Apr 20, 2011 - 01:59 AM GMT

By: Andrew_Butter

Commodities

Best Financial Markets Analysis ArticleGoldman Sachs’ recent pronouncements on the price of oil (allegedly) caused a 6% drop. Apparently there is more to come?

http://www.reuters.com/article/2011/04/12/us-goldman-brent-recommendation-idUSTRE73B3EN20110412


They say the “right” price is 20% lower than where it is today and also that the NATO inspired Libyan Civil War was just an excuse for speculation. I agree, right now (18th April 2011) the “Fair Price” for Brent is $88.23 $4.345.

And on the other point, if they had given the “Mad-Dog” safe passage to a villa in Tuscany and restored his access to the money he and his cronies looted from his country (without any of the countries that helped lauder that money complaining), then there would not have been any of all that “unpleasantness”.

http://www.marketoracle.co.uk/Article26603.html
http://www.marketoracle.co.uk/Article27155.html

Barclay Capital say Goldman got it all wrong, which means? Perhaps they are the guys organizing the “hijack” and God’s Workers are really the good guys?

And then the latest news is that Saudi’s pumped 10% less oil in March than it did in February; they say it’s because they couldn’t find buyers. Mm…maybe they had a sulk to “teach” the critics of their valiant efforts to dissuade Iran from “invading” Bahrain (or something), a bit of a lesson?

http://www.ft.com/cms/s/0/28e6c444-6a50-11e0-a464-00144feab49a.html?ftcamp=rss#axzz1JzSExtNa

http://www.marketoracle.co.uk/Article26603.html

Either way, this is how the system is supposed to work, and how to hijack it:

Ever since the little “misunderstanding” that happened ages ago when the Saudi’s temporarily stopped pumping oil to USA, well…America has cultivated really sweet relations with the Saudi Royal family…they provide “protection” and in return, the Saudi’s keep oil prices “fair”.

Sweet deal!!

Until some hijackers come along and find a way to buy Saudi (and other) oil, and keep it in tankers (or anywhere else where the end users can’t get their hands on it); all you need to do that is a “contact” plus easy money to finance the trade. That’s (allegedly) what happened last time.

So how come the Saudi’s couldn’t find buyers in March?  One plausible explanation is that (a) the hijackers started to sell (b) they stopped buying the Saudi stuff; another explanation is that the Saudi’s had a problem pumping…who knows?

Either way, if oil is really 20% above its “fundamental” then America will pay $75 billion more for imported oil in 2011 than it should have.

Wouldn’t it be ironic if the main reason for that was the 0% or so Fed rate and the easy-money policy (particularly TALF which allowed banks to be “forgiven” for their previous bad-bets), so that speculators could borrow to hijack America’s oil supply?

And the net result of all that will be that “someone” is going to have to find some foreigners to buy some more American debt so as to finance the trade deficit…and wouldn’t it be even more ironic, if the only foreigners who can afford to do that are the ones selling America its over-priced oil?

Two points (a) perhaps that’s a matter of National Security (b) perhaps if as part of it’s mandate to micro-manage the US economy via the somewhat tarnished techniques of monetarism and “inflation targeting”, the Fed should be handed over the keys to the Strategic Petroleum Reserve, just like they have the keys to Fort Knox?

Might that work?

Well perhaps, looking at the chart there does seem to be some sort of a link between spikes in the price of oil (up and down), and the activities of the SPR, even though the historical fill/discharge rates are small compared to America’s imports of 9.7 million barrels a day.

But a quick sharp turn of the tap for a month or two might easily be enough to wipe out the speculators, even talk of doing that might work wonders.

Two problems:

1: The speculators might be the same people the Fed had lent money to at 0% or thereabouts, so if they got wiped out the “someone” might have to bail them out again.

2: The Fed; and every single one of the 20,000 or so PhD economists that work directly or indirectly for the US Government, all swear blind that they haven’t got a clue how to spot a bubble. Or in other words they haven’t got a clue how to do a valuation using International Valuation standards, to figure out the “fundamental” (or other than market value). Or in other words they haven’t got a clue.

But there again, that never stopped them from “doing their job” in the past.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2011 Copyright Andrew Butter- 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.

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