Oil Prices Have Topped Off

There’s an old stock market saying attributed to the late financier Bernard Baruch that goes something like this. “When I see it on the front page of The New York Times, I go the other way.” Today “it” would be the price of oil and the attendant hand-wringing that goes with it. Naturally politicians particularly Democrats are out in force calling for an end to this outrage. Some like New York Senator Chuck Schumer see collusion by the big oil companies and are calling for a windfall profits tax. Give it a rest, Chuck.
Needless to say the presidential hopefuls have gotten into the act. Hillary Clinton staged a photo-op at an Indiana gas station the other day excoriating the oil companies and calling for a summer suspension of the federal gas tax. By all estimates such a move might amount to a savings of about half a tank of gas for the average consumer. But it sure sounds good doesn’t it, Senator? You also had to love the Clinton entourage showed up at the gas station in eight Chevy Suburbans.
For his part, Republican John McCain chimed in with his belief it was time to give Americans “a little relief.” Well, he got the little part right. That’s the John McCain who has conservatives questioning his Republican credentials. Sen. Barack Obama, on the other hand, denounced the tax ploy as pandering and pointed out we should be looking to address energy dependency in the long run. He’s right of course but until the Democratic Congress does something about drilling for the oil we have, building new refineries and putting nuclear power plants back on line, we’ll still be at the mercy of the Saudis and whack jobs like Hugo Chavez.
One thing that will change in the short run is the price of oil. Remember oil is every bit a commodity as pork bellies and subject to the law of supply and demand. Currently everything that can go wrong is baked into the price of oil. You have political instability to put it mildly in the Middle East. The dollar’s plunge has driven oil higher while the burgeoning economies of China and India have created a strong demand for energy. On top of that a lot of hedge fund money, burned by the meltdown in the stock market, have found their way into oil futures and created a speculative premium.
Well kids, much of that is changing. To be sure The Middle East remains a cauldron but the oil continues to flow. Who else are they going to sell it to if not us which is why they’re cranking up production to cash in on the high price? The dollar has stabilized and is creeping higher. Demand is falling at these prices which guarantees a lower price shortly. The hedge fund boys will find out the commodity pits can be unforgiving in a pullback. When the oil fever breaks, it will look like a thousand elephants trying to get through a key hole.
It’s all very similar to the tech bubble of the late 90’s and the real estate bubble. When both were hitting record prices, there were a million reasons why the prices would never come down. I remember reading some genius in 2000 talking about “a shortage of equities.” I assume he’s driving a cab these days.
So if I’m Hillary Clinton, I’m on the phone to that commodities broker who turned her $1,000 into $100,000 years ago and telling him to short oil. She might be able to buy a few super delegates with the profits.