Outcome of Annapolis Conference Could Affect the Price of Oil

THIS article from the LA times suggests that the fundamental price of oil should be between $45-50 dollars per barrel. The rest of the premium on oil comes from several other economic factors, likely including:

1. Central banks dumping their US dollars as a reserve currency.

2. Venezuela and Iran conspiring to keep prices high.

3. Terrorism, threats of violence and rumors of war, particularly in Israel-Palestine and the Straits of Hormuz.

Oil economists calculate that on a supply-and-demand basis alone, the price of oil would be about $50; the remaining $45 in the current price is a political premium caused by uncertainty in the Israeli-Palestinian conflict, Iran’s suspected nuclear plans, the wars in Iraq and Afghanistan and social unrest in Pakistan, Nigeria and Venezuela. But where the world sees a threat, Ahmadinejad and Chavez see opportunity: Civil discord lines their pockets.

Two important events are coming up in the next month.

First, the Mid-East peace conference at Annapolis Maryland, on the weekend of November 27th. If it brings peace to the Middle East, part of that war premium will come out of the price of oil. Old Pooty in Russia was keen enough to throw a monkey wrench into this process.

Second, as the LA Times article discusses, the national referendum on Venezuela’s Constitutional reform will happen on December 2nd. LINK

Retail sales in the US will continue to decline as oil eats more out of consumer budgets, but I suspect most of this decline will be blamed on fake terror alerts.