Ali Haider/European Pressphoto Agency

By John Galt

June 23, 2008

It was a dark and rainy night. Or at least afternoon here in the sunshine state of Florida. What was fascinating about this rainy, sleepy Sunday was waiting for the “big” news from the Arab division of the U.S. Central Banking Association and their meeting in Jeddah. The news you ask? Same news as we heard on November 26, 2007 where oil was at the shocking $97 per barrel level. Just to make sure I did not fall asleep into a time warp or suffer visual impairment from watching hours of Bubblevision broadcasting (remember, I watch it so you don’t have to), I broke out my DVD recording from November 26, 1997 and watched the entire broadcast day. Sure enough, there was the headline that the House of Saud had promised to boost production by 200,000 barrels per day and they thought that oil prices were unreasonably high and saw no reason for prices to be in the $98 per barrel range. Then the standard analyst spoke the “when adjusted for inflation” nonsense again and said that should bring prices back down to the $60 per barrel range. What was even funnier was the parade of other experts and commentators who said that oil at $98 per barrel was “unsustainable” and would not last.

That was about $40 ago and subsequently the oil companies installed one armed bandits at our local gas pumps to keep the numbers spinning and us locals guessing how much it would cost us that fill up.

It’s a funny thing. I watched all of last week’s broadcasts in the hopes of seeing him on again to tell us that the Saudi meeting today would bring oil back to the $60 per barrel range but I guess he was unavailable for Bubblevision or had become too much of a joke even for them. After all, they have credibility to maintain.

(Snicker)

So when you take the price of oil tonight and look at it hovering around $135 per barrel and adjust it for inflation  you would determine that even in 1979 prices we are screwed.

There’s your adjustment for inflation boys and girls. And that adjustment is about to throw another two million people out of work as companies eliminate all discretionary positions and expenditures in short order. That is what is called phase one of the inflationary fear cycle.  When inflation takes a death grip and applies it to an economy it can best be described as a multi-phased event and we have moved from the denial phase to the fear portion of our program. Yet tonight the idea that the supply demand paradigm can exist without the United States having an increase in demand still escapes many bloviating “experts” as though the three billion plus people in the rest of the world who are starting to drive cars, live in bigger homes and make mistakes on our credit reports prefer to live in caves and eat grog.

Well experts, this grogs for you.

Tonight just as this blog was being typed by yours truly, oil reversed from down about 40 cents to up about 37 cents. And that’s despite all the bluster from Saudi Arabia and the meeting in Jeddah.

Jeddah deepens oil price dialogue, but no quick fix

was the blaring headline from Reuters a few hours ago and with that big bit of news, and some in depth reading it was easy to determine that absolutely nothing has changed from this past Friday when the markets closed. Come to think of it, nothing has changed since the last announcement on November 26, 2007 except for Maria’s hairstyle during the 3 p.m. show.

The Saudis can only pump the sour crude now and they are doing what Matt Simmons warned they would do and that is to destroy the confidence of the markets ( you know the true determinant of price) by illustrating that the sway they held in the 1970’s is no longer there and that coordinated efforts to fix the supply end of the problem are somewhat moot unless the dollar is resuscitated and prevented from dropping any further than the anvil in a Roadrunner cartoon.

My money is on the anvil losing and the dollar cratering first.

So here we sit tonight, with the House of Saud promising to deliver more heavy while the world is screaming for more light sweet. Unfortunately a lot of the suppliers for light sweet are watching their pipelines and terminals go up in flames due to rebel attacks (Nigeria and Columbia) which in just one week has taken approximately 725,000 bpd off the market.

Oops.

Have no fear though gang. The politicians in D.C. will find a solution and the world’s first solar powered 747 will take flight any day now.

No thanks, i think I will walk instead of fly. Maybe, just maybe the camel riders will come up with a new solution for our oil problems. After they come up with that solution of course, the excess crude they pump will be sold to China using our own garbage currency because they are willing to pay 10% over spot(allegedly) to keep their economy rolling and gasoline in their tanks for the Tienanmen Square Olympic Event called “Mow Down the Protesters for the Gold.” Maybe, must maybe, we’ll get lucky and they’ll loan the U.S. a gallon or two of aviation fuel in August.

So President Bush can fly to Beijing for the Olympics without tapping the SPR.