Oil is a Barometer of Economic Times as is Gold
Standard & Poor’s downgraded Japan’s sovereign debt rating last week. It was the first cut in Japan’s rating in nine years. Japan now joins Greece, Ireland, Portugal, Spain — all of which have been downgraded.
Everyone is also looking toward the U.S. fiscal situation, given the massive policy responses to the financial and economic crisis. There’s been speculation of imminent bond market collapse, hyperinflation and an exit of the dollar — so far, none of it has happened.
In Europe, there are already crises, as bond market vigilantes have expressed their view on the unsustainable sovereign debt situation in Europe through a mass exodus. Now the European Central Bank and the European Financial Stability Fund have stepped in.
Oil is an Interesting Commodity
It looks to us as if the price of oil has to keep stable or increasing. Perhaps you believe in the theory of PEAK OIL. We don’t, but we do acknowledge that the supply of oil is finite and when the world uses 83 million barrels of oil a day, it is getting perilously close to a supply shortage. The problem will be solved by natural gas, alternatives and conservation, but in the short term, the price of oil will not fall. It will rise.
Perhaps you believe that the debt crisis will provoke inflation, or perhaps currency devaluations, or instability. In all of these events, the price of oil will rise.
Oil – A Place to Invest?
We face a strange conundrum in the price of oil. The world uses roughly 83+ million barrels a day, although demand is less at this time than it was expected to be, mostly because of the recession. Yet new demand from China, India and others is growing quite quickly. As the Western world recovers from the recession, demand will increase in the future.
Although demand is temporarily weaker, still the price of oil stubbornly continues to rise with many pundits prophesying a return to the $140 price of the last oil shock.
Buy Canadian oil sands companies. Buy oil producing companies. Buy oil in any manner that you wish. It seems almost a universal bet to hold or increase in value.
We are off to Mexico.
A bit of fun.
A bit of business visiting mine site and prospective mine sites.
Next blog will be in March, 2011
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