Friday, August 29, 2008

Ominous sign for the world, long-term bullish for oil

The world woke up today to the scare that Russia may use its oil as a weapon. In addition to the geological peak oil thesis that I have espoused before, this Russia development is a form of the political peak oil thesis, which Fabius Maximus has been beating the drums on for some time in his blog.

Another example of political peaking occurred in April 2008, where

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations…


This “we want to keep the oil for ourselves” policy would exacerbate any shortages, especially if it started spreading to other countries (Brazil, Mexico, Norway, Canada, etc.) The Saudis have already indicated that they want to diversify away from oil. While we’ve heard that before, but combined with the April 2008 announcement it may be an indication that they are preparing for a time when the oil runs out.

These developments are long-term bullish for the oil price. In the short term, however, oil appears to be undergoing a relief rally from an oversold condition from storms in the Gulf of Mexico and geopolitical considerations – I would be less inclined to chase it here.

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