Saturday, June 28, 2008

OIl Futures Boom or Bust

Is oil speculation a boom or a bust. This is a difficult question, but here is the answer. Oil Speculators are betting that the sanctions on Iran and a withdrawl from Iraq will essentially shut off the oil spigget in the middle east. Why are they betting this? The reason is simple they believe that I ran will not be able to export oil in the quantities that they have in the past. On top of this withdrawl from Iraq, which is second only to Saudie Arabia in oil supplys, will fall into a civil war when the United States withdraws. A civil war in iraq could end production from that country and may lead to control of Iraqs oil by Iran.
It's a risky bet considering the politics of the region and it's dependency on the outcome of the election in the U.S.. There is definately a bubble factor here with the potential of a huge drop in oil prices. This would make sub-prime mortgages look like a blip on the radar. Why would the bubble burst. There is one prime reason and his name is George Bush. The whole middle east except Israel hate him and have rained in supplys to punish the United States. When george bush leaves the middle east will open the spiggets and the price of oil will drop. The rate at which it drops is the unknown factor, But it could tumble in a series of sharp drops within a month or two. A drop like this could measan that oil prices drop by 40 dollars a barrel leaving investors who have flocked from wallstreet desperately selling oil futures in an attempt to hold on to or salvage some of their investments.
People do not understand the politics of this oil crisis and oil unlike gold is not a limited supply. At any time oil producing nations could increase their production by 20% eliminating the shortage for the short term, So while oil is a boom now the bust could occur at any time.
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