Wednesday, May 21, 2008

Oil at 130

Oil is in contango. Surprise for the Fed - which has been looking at future markets over the last few years to justify why it thinks oil prices will head down in the future. Not only have future markets underestimated oil prices , now they are in contango. So I am sure the Fed is in a dilemma.

Why are oil prices going up? I dont see any good reasons for it, except the so called supply-demand imbalance. But gasoline is overflowing - as WSJ points out today, Iran is storing gasoline in tankers because there is not enough demand. Apparent problem is with diesel. But is it suddenly so huge that oil needs to go up by $30 in 1 month? Bulls will argue that problem is not with near-term supply, but with long-term supply demand - as a market in contango indicates.

I think there is one big positive with high oil prices. This is much better than a carbon tax to cut down greenhouse emissions. As altenative energy demand increases and these business models scale up, they will become viable without government subsidies. Global warming activists should be jumping with joy.

1 comment:


Carbon taxes are a bad idea.