"YES, I HEAR YOU - I'M LISTENING...."
Source of picture: New York Daily News
How ridiculous does crude-oil pricing have to become before regulatory reforms occur that limit the role of financial speculation in a helpful way?
This was the question being asked by a refining industry source today after he had read this story from the Financial Times.
Call options are about to kick in which could drive the price of oil even higher even though the fundamentals are "mildly bearish", according to the FT.
Put options, when they take effect in significant numbers, have the opposite effect.
Real demand is still a long way from catching up with oil markets so heavily influenced by the financial or non-commercial players.
"Whatever too ridiculous is, and I'd argue last year was a stupid as it can get, the Saudis are likely to get on the Bat Phone to the White House at some point and demand some changes. The US government will be obliged to listen," added the source.
Inability to plan an economy because oil is so out-of-sync with the fundamentals is playing havoc with the Saudi budget-planning process, he continued.
The same applies to every government. If the other major oil producers backed Saudi Arabia, we might seem some useful changes.
This year is a positive for the world's biggest crude producer - as we discussed on Monday. The Saudi government had budgeted for an average oil price in 2009 of $40 a barrel, but this is likely to be closer to $70 a barrel, giving more leeway for infrastructure spending.
But the unpredictability of a market skewed by short-term financial sector interests could just as easily work against the Saudis.
They are pursuing a hugely important economic and social agenda which requires constant and steady funding.
At a chemicals industry level, tracking activity on the Nymex, the International Continental Exchange and the Dubai Mercantile Exchange is critically important if you want to make meaningful financial forecasts.
These forecasts should influence chemicals pricing decisions. Why push for an increase that isn't in line with the fundamentals in your markets if you believe that a spike is entirely paper-trade driven and won't last?
The danger is that if you ignore what might be underlying weaknesses in your markets, you will suffer on the downslide as customers attempt to recover their losses.
I am still thinking, as we've also mentioned before, that this rally will continue until the New Year at least - when all the fund managers' bonuses will be in the bank.
Profit taking could take place in Q1. Positions could then be rebuilt when another bottom has been reached in crude and equities ahead of the 2010 bonus payouts!