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Why Mark Anderson and I think an Obama Presidency Could Mean Less Expensive Oil (for the short term at least)

May 21st, 2008 · 1 Comment · Economics

Mark Anderson is the host of of the Future in Review conference and is best known for his powers of prediction. He is credited with being the first to predict $100 a barrel oil — something that seemed pretty crazy at the time.

He stuck his neck out yet again tonight, by making a prediction about oil prices that were dependent upon who was president in 2009.

Anderson’s prediction was that if McCain won the election we would see oil priced at an average of $125 a barrel for the year following the election. If Obama won? The price would be closer to $90 a barrel.

While I am no starry-eyed Obama groupie, and will most likely vote for McCain in November, I didn’t find much to argue with here. In fact as the words were coming out of his mouth, the $90 figure was the first number that sprung into my mind.

My reasoning is that currently, we are paying a significant premium over what the “market” price of oil should be. This is largely based on uncertainty over the stability in the Middle East (or lack thereof.) When you’ve got a very real possibility of Israel attacking Iran, combined with the fact that anyone with $100,000 can buy $1 million worth of oil futures, the speculative environment is causing big run-ups in the price of oil.

It’s not unlike the condo market in Florida. If you go back to 2006 you didn’t have a reasonable market where condos were being built just for residents to buy and move into. There was a huge speculative frenzy where a significant percentage of condo buyers had no intention of living in the multiple residences they were buying. Whenever you have many players entering a market with no interest other than reselling, you are going to see prices thrown out of whack. That’s what we’re seeing happen with oil today.¬†

There are a huge number of speculators that are buying oil just so they can sell it for a profit. As it was with condos in Florida, we’re going to see this bubble burst at some point. Ben Stein writes up his prediction of this.

Anyway, back to Obama. With his kum-bi-ya aura, it seems clear to me that for the short-term (one year) the current pressure cooker will be dialed back a bit. McCain’s hawkish stance will not relieve the pressure to the same degree. ¬†This reduction in pressure should cause some of the speculators to fall out.

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