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Never Trust A Banker About Oil Prices

Never Trust A Banker About Oil Prices

Shale

In recent weeks I’ve commented on the powerful bullish forces that have combined in oil and oil stocks and your need to increase your exposure to them. So, before going on to other topics, this has to be the start of any column until further notice, despite the weakness in stock indexes overall.

OPEC and particularly Saudi Arabia continue to drop not so quiet hints about the importance of higher oil prices – for the cartel and the upcoming IPO of Saudi Aramco. In case anyone might have forgotten about their one-shot chance to remake their entire economy and culture, another ‘leak’ of Saudi oil reserve numbers was served up in the past week – a positive one, of course.

Many of the analysts who previously were pessimistic about the rise in oil prices have been slowly and steadily raising their projections. That should neither encourage us or bother us, as bank analysts have a dismal record of correctly projecting prices much into the future. One should always trust a trader first; whose obligation is to his own investments and money and not to retaining the respect of the community or keeping the job. Always remember: An analyst’s first priority is not to be wrong, while a trader doesn’t care if he’s wrong or right, only if he’s got the right side of the trade and making money.

Similarly, the speculative trade from hedge funds continues to be almost uniformly long – a fact that used to bother me much more in the days when bank proprietary trade desks dominated the speculators. In those days, their own positions would often be in conflict with sales, and, Chinese wall or not – could make for some very sticky and fast reversals of positioning inside the banks.

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The Man Behind The Oil Price Rally

The Man Behind The Oil Price Rally

MBS

The OPEC meeting is over and the cartel has extended production cuts throughout 2018. The decision is obviously crucial to supporting oil prices, but perhaps an even bigger story is the relentless strategy from the young Saudi Prince, Mohammed bin Salman, being played out both inside OPEC and in his own country. And oil is the key to it all.

Last Sunday premiered the newly formed Islamic anti-terrorism coalition, putting together leaders from Sunni Arab nations to denounce and combat fundamentalist terrorism throughout the Middle East and the world. It was another bold initiative towards the West of the young and energetic Crown Prince of Saudi Arabia, coming on the heels of other bold moves that have looked to consolidate political and religious power in the Kingdom.

Together, all of these initiatives couldn’t be more transparent. They represent a movement of the most economically powerful nation in OPEC towards social, cultural and economic change, the realization of the Saudi “Vision 2030”. It is a top-down Arab Spring movement that likely has a better chance of success than the populist movements that resulted in more chaos than change in 2010.

However, the ultimate success for Vision 2030 will rely upon achieving the main economic goal of this revolution – the divestiture of Saudi Arabia from the singularity of oil revenues. Because we know that ultimately money – and lots of it – will be needed to drive the engines for change, we get a far better picture of just how important these latest production extensions agreed to in Vienna were for the young Prince.

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Olduvai IV: Courage
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Olduvai II: Exodus
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