Oil Prices Seem Headed South

Several data points combine to convince me that oil prices are probably headed lower – perhaps by a lot – but certainly not up.  They include 1) the Saudi’s increasing daily production to 10 million bpd (the highest level in nearly 30 years!) 2) the IEA releasing 30 million barrels from its strategic reserves and 3) the U.S. releasing 30 million barrels from the Strategic Petroleum Reserve (only the 4th time in its history that reserves have been released – they are at capacity with 727 million barrels in storage).  These actions amply overcome the loss of 1.5 million bpd of production from Libya. Some of the implications from these points (in addition to the rally in the US$) are for lower crude oil prices =>lower gasoline prices => lower consumer inflation.  Sharp increases in oil prices have led to drops in equity prices and, importantly, vice versa.  The following chart from Yardeni.com depicting the Saudi daily oil production highlights the historical significance of the announced increase.  Jeb Terry, Sr. June 23, 2011

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