Minyanville professor Adam Michael is commenting on the Geopolitics of Peak Oil.



Oil Price Sensitive to Geopolitics



A few weeks ago, I highlighted the fact that the US Government was topping off the strategic petroleum reserve at a time when oil prices were over $100 and during an election year. I also mentioned that Vice President Cheney was in the Middle East at the end of March and I would add that President Bush met with Vladimir Putin just a few weeks ago. Something didn’t smell right and based on the trading in crude in the past few weeks, we're starting to understand why.



This week, we learned that the Israelis did in fact bomb a Syrian nuclear reactor last year and the United States in now claiming that the North Koreans were assisting the Syrians in their efforts. Today, the Chairman of the Joint Chiefs of Staff accused the Iranians of increasing its efforts to train and arm insurgents in Iraq and Afghanistan and there are rumors of an American ship firing a warning shot at the Iranians.



Folks, the saber rattling is getting louder and its no wonder that crude is back to all-time highs. I’m not sure what the agenda is, but it does appear that the Bush administration is trying to 1) force a confrontation or 2) get everyone to the negotiating table. This feels like high stakes poker to me.



The crude oil market has shown how sensitive it is to every little supply disruption. There simply is not enough product to go around and demand has shown no sign of abating. So how do you play the energy markets? I’m not sure you do…sometimes it's better to be on the sidelines. Right now may be one of those times.

Crude Thoughts



Today we found out that the U.S. Strategic Petroleum Resource (SPR) rose to a record 700.9 million barrels, and is increasing at a rate of 62,000 barrels a day. Why would the U.S. be increasing reserves with oil over $100? The government’s own Energy Information Agency projects crude to fall for the next two years, why wouldn’t the U.S. wait for lower prices to top off our SPR? It didn’t feel the need to keep filling after Katrina and oil was only $50/barrel.



With gasoline at $4/gallon, you would think the political forces would want oil down going into an election, not the other way around. Perhaps there is something the government knows that we do not???



I would also note that I have been hearing increased "Iran chatter" again. All these rumors regarding Iran over the past year have proven false, but the fact that the US is increasing oil reserves has certainly got my attention, especially after Vice President Cheney was in the Middle East in the past few weeks where you would think lower oil prices would have been one of his objectives. I would also note that President Bush is meeting with President Putin this weekend - I wonder what they will be discussing.



Something is not adding up here...

Twilight In The Desert

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