The $55 USD/barrel pact

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Source: Stockcharts.com

I was quite annoyed the other day; oil prices had been steadily falling and had breached the $51 USD support. Suddenly, prices reversed, with unusual strength, recovering and climbing all the way to $55. Needless to say, I didn’t like it because I got caught on the wrong side of a strong move.

Later, I would find out that the US government had announced
that they would double their strategic oil reserves… within a period
of twenty years; which represents 100,000 barrel per day, a pittance
compared to the 85 million consumed each and every day.

So, why in the hell was the US government so blatantly supporting the price of oil with their unnecessary announcement?
It sure didn’t make sense to me. Unless… one considers that W, the VP
and now Mr. Paulson, the new Treasury Secretary, were all related to
oil dealings in the past… Could the US public and gas consumer be so
obviously manipulated?

I forget, Goldman Sachs, the banking investment firm, which Mr. Paulson headed until recently, also announced
that they expected oil prices to rise. They’ve supported oil prices in
the past, with their famous $100 oil forecast of 2005, and most
recently and coincidently recommended investors to double-down, that
they would recuperate their 15% loss in the GSCI commodity index,
assuring investors of an 8.1 % profit on the fund during 2007.

Cheneyabdullah

Dick Cheney visits Saudi Crown Prince Abdullah,
28 November 2006.
Source: Think Progress

Here’s my theory, VP Dick Cheney, during his November visit to
Saudi Arabia, agreed to support a $50 oil price, whilst king Abdullah
agreed to resist oil prices at $60. It makes sense, even to us the
American sheep; a $50-$60 price level helps to continue energy
alternative ventures, which would otherwise be scrapped away if oil
prices were lower.

Am I being too foolish, apart from candid?
Or is China’s 10.4 % yearly growth demanding so much oil to make $50 too good a price for oil?
Oil prices seem to be picking up speed in earnest; it’s the
end of the winter season for oil and the Chinese demand is ever so
healthy… a lot of tankers headed in that direction.

We should expect to see a test of the recent $51 lows, which should define the direction of the market.