|
| September
2006 |
|
| The Casey
Files |
|
| I recall asking
my father, many years ago, his opinion on some matter of world affairs.
He was a man of broad knowledge and experience but few words-at least when
he was talking to me. His answer was: "It's all a matter of economics."
Cryptic, in that it didn't answer anything, but profound, in that it answered
everything. |
|
| A couple of
years later I asked him another question, on another big topic. His answer
was: "It's all a matter of psychology." Both answers were absolutely
right, of course, and equally applicable to every field of human action. |
|
| It would be
so much neater if I could just leave it at that but, at about the same
time I received the "psychology" answer, I was talking with a Sgt.
Major Max Trujillo about a related question. Max was quite philosophically
inclined, especially for someone with his background. His answer was: "It's
all a matter of semantics." |
|
|
|
|
|
| The fact of the matter
is that all three answers are correct, depending on the circumstances you
are confronted with. |
|
| Which brings us to the following
essay by Dave Forest, editor of our Casey Energy Speculator. As you’ll
read, he has come across some interesting data that suggests that politics
may have more to do with the recent pullback in oil prices than meets the
eye. |
|
| And, as we all know, politics is
just an extension of psychology. |
|
| Doug Casey |
|
| Who’s Keeping Oil Down? |
|
| Oil had energy investors reaching
for the Tums the last few weeks. |
|
| After crude tagged a record intra-day
high of $78.40 on July 14, it drifted lower through the end of summer and
on August 29 closed below $70 for the first time since June 20. On September
4, the sell-off accelerated: WTI closed at $68.60 and continued falling
throughout the week, finally bottoming below $61, a price that hadn’t been
seen since March 10. |
|
|
| Along the way, it helped pull the
TSX Venture Exchange—which tends to live and die at the hands of energy
and resource stocks—down more than 10%. |
|
| So, what happened? Mainstream financial
media blamed crude’s tumble on everything from Iran playing nice with the
U.S. to a so far hurricane-less hurricane season in the U.S. Gulf of Mexico.
But any intelligent observer can see that the fall was too hard and too
sudden to be caused by these factors alone. |
|
| More than anything, this sell-off
looked like it was caused by seasonal and technical factors. Crude is almost
always weak in the fourth quarter, and the price had gotten ahead of itself
in recent months—not surprising, given Israel and Lebanon going to toe-to-toe. |
|
| But the timing of oil’s decline
also coincides with another event: U.S. mid-term elections. Although these
two things sound unrelated, oil and politics in fact go hand in hand. |
|
| In fact, there is an eye-opening
correlation between U.S. president George Bush’s popularity and American
gasoline prices over the past four years. As the chart below shows, the
higher the price at the pump, the more people think of Bush as a chump. |
|
| Which begs the question: with elections
looming, might the Republicans be trying to bring down oil prices (and
therefore gasoline costs) in an attempt to cull favor at the polls? |
|
| While we’re generally skeptical
of conspiracy theories (after all, if the government can’t deliver mail
on time, how could it organize a large-scale covert action?), it’s
a known fact that the feds have several mechanisms by which they could
nudge crude lower. |
|
| The Strategic Petroleum Reserve,
for one. Release of crude from this stockpile helped push oil prices lower
last fall in the wake of hurricanes Katrina and Rita. |
|
| Another lesser-known influence on
oil prices is the “crack spread.” |
|
|
|
|
|
| This is the difference between the
price that oil refiners pay for crude and the price they receive for the
gasoline they produce. Put another way, it’s the profit margin that refiners
make on their products. |
|
| Currently, the crack spread is at—in
the words of the U.S. Energy Information Administration—“unusually low
levels.” This means that refiners are selling gasoline for little more
than the cost of the oil they purchase. |
|
| This makes no sense from a business
perspective… generally in such a situation, refiners would simply up the
sales price of their gasoline, improving their margins. |
|
| However, it does make sense if the
refiners are purposely attempting to keep a lid on prices. |
|
| Why would these companies voluntarily
take lower profits? There’s no way to know for sure, but it’s a certainty
that the White House and Big Oil are close friends. Witness Dick Cheney’s
ties to Halliburton, and George Bush’s background in the Texas oil patch. |
|
| Might the Republicans be calling
in a favor from their refinery manager pals, asking them to keep gas prices
down until November 7 has passed? |
|
|
| Of course, there’s no way to prove
this. But for energy investors, it’s worth considering. |
|
| If gasoline prices are being artificially
depressed, we can expect a rebound during the last few weeks of the year. |
|
| Which—judging from the historical
relationship between gasoline and crude—would lift oil prices, and therefore
oil stocks. |
|
| If such case does present itself,
now might be the time to buy oil producers, many of which are selling at
fire sale prices. |
|
| This is a story we will, naturally,
continue to follow in the pages of the Casey Energy Speculator. |
|
| Don’t miss the follow-on story,
as well as multiple other energy play opportunities poised to double or
more in 12 months, it could cost you! Click here to sign-up for a
6 month, risk-free trial subscription to the Casey Energy Speculator and
learn for yourself why Doug Casey is one of the most respected natural
resource speculators in the business. |
|
|
 |
|
|
