​Oil market nonsense

The oil rally isn't going to end well

I wasn't going to comment on this but perhaps I should. These oil bulls have too much money, and too little common sense. They are pissing into the wind, and wondering if it is raining. The supply side of the oil market is being killed by the fact that nearly all of the big oil producers need to sell as much oil as they can, and while they would like the price to rise, they cannot afford to cut production to cause that price rise. From Russia, to Saudi, to nearly every one of the Middle East oil tyranny, to Venezuela, to Nigeria, and on, and on, and on, these nations need oil revenue to stave off internal unrest. 

​More below.

One the demand side, there is only the US. The rest of the world is economically flat, or in recession. There is very little growth, and none of the growth needed to grow the use of oil. 

Regardless, of these fundamentals, the oil bulls continue to run up the price on even the most ephemeral whisper of oil production collusion. This would make an excellent psychological study in belief over reality.

I have dusted off my copy of  When Prophecy Fails, by Festinger, et. al. it is an excellent primer on why people believe crazy unfulfilled prophetic beliefs, and how durable those beliefs are. I think its findings are applicable here. Yes, the book was about a crazy UFO cult, but the oil bulls believe that the oil tyrannies will somehow cut oil production, although the basic economic position of these players is strongly contra, and the past 20 "attempts to cut" were ignored, not even discussed. 

Oil will never return to normal so long as these oil bulls continue to muck about in the market. Then again, the money will not last forever, so this too will end.

The investment world after the Tech bubble of the 90s has been off kilter. I have chalked this up to the fact that these investors became enamored with constant double digit returns, and the monetary bubble, blown by the central banks then provided money to fuel many follow on bubbles in housing, commodities, including oil, and other investments. But oil became the new tech because it shot up so dramatically mid 2000s, collapsed, and reshot again to dizzying heights. Housing ended so frighteningly, and the leverage rules changed making real estate less attractive. The bubble moved to commodities, of which, most have now tanked, leaving all hope in oil. 

Which has also tanked. Yet the true believers continue to seek to restart the double digit return pumps, and likely will continue to do so until they are completely tapped out.

This seems to be how the economy is dealing with the excess liquidity introduced by the Fed, and other central banks. This is an ugly way of dealing with it, but better than general price inflation which damages the average Joe. This is hammering the wealthy oil bulls. It is not what the Fed wanted, it wanted inflation, and a screwed middle class.

Sigh.

The takeaway from the article: "In short, crude oil is rising on hopes of talks between OPEC that may result in a production freeze but very well may not. And the supply imbalance in the market has not been dealt with."
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Dude!? Who would buy in this market except for the true believer. Even if production is reduced, it would have to be big, since the production is currently only supportive of a price in the mid $30s at best, and likely less.