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Tuesday, June 28, 2005

Contrarian take on Oil

Primer on my investment outlook

Andy Xie of Morgan Stanley says :

China's oil imports declined by 1.2% YoY in the first five months of 2005. US oil inventory increased by 6.4% in the first quarter of 2005. However, oil prices averaged 46% higher in the five months of the year and 50% higher in the first quarter, on a YoY basis. How to bridge the gap between rising prices and weakening demand? The answer, I believe, is that there are too many oil traders engaging in oil price speculation. They will likely keep prices up until an oil market collapse. That day is not too far away, I believe.

Hmm! This would be a repeat of the early 1980's. However it does look as if a general slowdown is enveloping the world. Whether this develops into a recession or not, the ball is out on that opinion. Most of my energy positions are in natural gas, which may decline less than oil. Especially since supply/demand equations are more local until LNG picks up. The US has definitely a supply deficit of nat gas.

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