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Oil news is no news - Views on News from Equitymaster
 
 
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  • Mar 28, 2007

    Oil news is no news

    Old news is no news, they say. True. But we have another one for you: oil news is no news. And what do we mean by that?

    One year ago every one was writing about the fact that the world would be facing an energy shortage - an oil shortage. Oil was poised to break through the US$ 100 barrel mark and maybe even cross US$ 150 per barrel from the US$ 60 levels where it was then trading. Well, it flirted with the US$ 70 levels, and then magically - as if "oil news was no news" it plunged all the way down below US$ 60 by the end of 2006. And why?, we asked. Because the US and the western world in general has had a mild winter. Hence demand is less, hence the price of oil is less.

    We read of a new sport discovered in the USA. Apparently, teenagers in the US, bored with all their wonderful electronic games and gadgets that wealth (real wealth if their parents are working on Wall Street and wealth borrowed from the Chinese if their parents are the typical Americans who spend more than they earn), have discovered a new way to entertain themselves. Its called "fence-butting". Probably inspired by the antics of superstar and ace footballer Zedan, the teenagers stalk the neighbourhood for a wooden fence framed around a house (probably borrowed on Chinese credit) and then proceed to charge at it with their head down like some mad, raging bulls. The person who makes the biggest dent in the fence is the "coolest". We presume that the person with the biggest dent in their head is dead.

    But what does that have to do with "oil news"? Well, we know these teenagers will grow up one day and they will realise that they have to go out and get a real job and if they are lucky they will end up working for a large, global private equity firm about to IPO at the top of the market, they will end up rich and the poor idiots who end up buying the IPO stock at the top of the market will end up like, well, poor idiots.

    But at that point in time the future, rich teenager is acting like a current, silly teenager. He has to. His karma is to behave like a teenager till he gets on with life. And such is the karma of the hedge fund maniacs. They have to spin a story around everything. They have to do something with those fidgety fingers of theirs. They have to press those "buy" and "sell" buttons as if they are still teenagers playing those video arcade games. So, because one winter is supposedly warmer than expected (so far), they sold oil and it declined in price. Their chatter-box brethren in the electronic media - who have to fill every second of visual with knowledgebale hmms and pondering nods and have to talk about something and anything all the time - followed suit and stopped talking about oil. Soon oil news was no longer any news.

    But the last time I looked, the Indians and the Chinese were still buying cars and motorcycles and the trucks an buses are still whizzing goods and people all across the country and still guzzling oil.

    Our views on Auto stocks.

    As were the Russians and the Latin Americans and anyone with any decent job and a credit card. And no one has yet discovered a practical and inexpensive alternative to oil as yet. Of course, if every Indian and Chinese decides to adopt the fashionable game of "fence-butting" and ends up with dents in their heads and, by virtue of being a corpse cannot really buy a car and consume any oil, then, yes oil demand will decline.

    But the Indians and Chinese are not fence-butting as yet, they are just plain butting - taking away the wealth from the folks in the developed worlds slowly and steadily - chipping away at the great world economic order carved out so neatly since the Industrial Revolution. They are getting richer and adding to global oil demand.

    So, when there was a rumour that Iran and the US had a skirmish in the seas, oil jumps US$ 5 a barrel to US$ 68. The rumour is denied and oil declines back to US$ 62. Ho-hum. Oil news is no news. Sleep well, everyone, there is no world war over oil today. The Indians and the Chinese will wait in long queues patiently. Iraq is secure. The Saudi oil fields will keep on pumping oil for all of us - and they are well protected by the military might of uniformed soldiers.

    Now if you were a teenager heading for that fence at full speed you would believe anything - even the lie that your empty head was stronger than that fence. Too bad, those corpses will miss all the fun and action in oil. For others, there are sensible investment decisions to be made

    Our views on Oil stocks.

     

     

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