Farmer Invites Fox, Lions and Hyenas to Discuss Why the Chickens are Dead

I'd love to take the credit for this excellent article, but sadly not a word of it is mine, still if you read nothing else today read this....

Paris, France - A closed door meeting will be adjourned in Paris on Monday morning, bringing together the entities responsible for ridiculously higher oil prices, or at least all of the entities that are benefiting from them. To even suggest anything resembling an accurate assessment of why oil prices are above $110 will emerge from this get together is naïve.

This summit of sorts was put together by the world’s chief alarmist, the International Energy Agency that keeps warning everyone about low production soaring demand and the dangerous world we live in that has become a minefield of geopolitical firestorms that threaten that ever so fine line between supply and demand. They will seek to come out of this meeting with justification for their projections, which are at least somewhat responsible for the hype in the marketplace today.

Here’s what will be accomplished. All the nonsense and rhetoric such as Iran’s nuclear ambitions, Nigerian rebels recently celebrating 40 years of disruptive behavior, Turkey’s well rehearsed and permissioned stroll into Northern Iraq, Venezuela –ExxonMobil cat fight, Venezuela’s subsequent self-defeating threats to the U.S., failing infrastructure in the U.S., refining shortages worldwide, hurricane season each year, and a host of other issues that arise each week to justify the soaring prices will be cited and further exploited. That’s the real danger of this meeting. Justification for higher prices.

Here’s how the geopolitical roster should read. Almost on a weekly basis, Nigerian rebels of one faction or another attack someone. They do it for profit. Some do it for loftier humanitarian goals. Despite the highly publicized tempest in a teapot, Nigeria manages to produce its OPEC quota each month, and in many cases, exceeds that quota. Estimates that Nigerian production has fallen by 800,000 barrels per day in 2007 are absurd. The Nigerians know it. Shell knows it. I would even say OPEC hierarchy know it.

The Iranian issue is something that’s not going away anytime soon. However, the chances are remote that Iran would try and shut down the Strait of Hormuz, regardless of what happens in the future. Shutting the Strait would hurt Iran more than anyone else. It would also isolate Iran as oil would be withheld from its customers, and Iran would discover very quickly how few allies it has. Also, “Out of Gas” signs would populate the billboards in the country since Iran imports gasoline. Turkey would never have set foot in Iraqi territory if it didn’t receive permission from the U.S. government. I haven’t seen the memo, but I would bet it went something like this. “Get in and get out, kill a few Kurdish rebels and limit collateral damage, and whatever you do, do not break anything, like pipelines, oil rigs or other infrastructure.”

The Venezuela threats and fights with Bush, the U.S. generally and the more recent spat with ExxonMobil have included veiled and not-so-veiled threats about cutting off oil supplies to the U.S. This really does not deserve explanation as the chance that Hugo Chavez would actually follow through on this threat is as big a danger as the moon crashing into the earth. If he actually did cut the U.S. off, it would lead to more supplies of oil available as President Bush would have no choice but to open the Strategic Petroleum Reserve.

OPEC members are really enjoying prices at these levels. $100 per barrel oil has been a dream for some of them for 20 years. Other than Saudi Arabia, OPEC members don’t believe, or don’t care that $100+ crude oil is self-defeating and eventually will strangle the world’s economies. Live for the moment is their motto. Extend this bonanza is their goal.

The energy market has been hijacked by a financial industry that is trying to weather other storms. Most of these institutions are trying to recover from the mortgage meltdown that they engineered and have found the commodities markets, which lack oversight, an easy target. It’s like having an ATM card to an account that is infinite. If it’s allowed to continue, oil prices will achieve the targets they have assigned, such as Goldman’s predictions of $120 or $130 per barrel. Why not $200 per barrel?

It won’t happen. It cannot happen. The U.S. economy and the rest of the world cannot withstand these prices much longer. The problem is, as the U.S. faces recession or worse, the damage done before everyone wakes up and realizes whats happened will be astronomical. It will be a big bust, much like the dot-com bubble and the housing market. Everything these financial institutions engineer eventually blow up.

This why the meeting in Paris won’t solve anything. It may even make things worse. Unless and until the U.S., in concert with the UK government, step in and make it more expensive to play in the commodities markets, and subject that industry to critical oversight, they will continue to destroy the world’s economies, milk every dollar it can, and leave it for dead. Much like the fox, lions and hyenas did to the chickens.