Friday, June 24, 2011

Price response to IEA move higher

Take oil from the strategic oil reserve and the market will react. Prices fell by over 4% but the today they are slightly higher. Why? The answer is simple. The stockpile is too small and the the size of the release is worth about 1.5 days of US use, assuming the 30 million barrel US release. The reaction from producers will be simple. Stop helping the west and reduce production.

Saudi Arabia stated that they would add to production to make up the shortfall of Libyan. It has been a slow process because turning on of an oilfield is not a slip of a switch. However, the 4% decline hit all oil producers with a loss. Why not let the US use all of its oil first?

Have oil prices slowed global growth? Of course, but bad governance with the EU and Greece may have had a bigger effect. Do not watch our bad fiscal behavior, we will try and punish speculators.

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