Investment guru Dennis Gartman says the spike in oil prices has created a perfect storm that could turn into a hurricane — unless Washington acts quickly.
Gartman wants the government to lower crude prices by selling 100 million barrels of its Strategic Petroleum Reserves, something he doubts will happen.
Selling oil from the reserves would make it much more difficult for speculators to remove oil from the market by “storing” it for long-term positions, Gartman asserts in his investment letter.
He believes Fed chair Ben Bernanke has totally misread energy markets.
“Dr. Bernanke and others at the Fed have it now, and have had it in the past, entirely wrong regarding energy, and the term structure of the futures,” Gartman says.
“If we have trouble in subprime lending, we don't need problems at one of the commodity exchanges or among the commodity-market hedgers, who are normally of inordinately small concern,” Gartman says.
Traders and analysts agree that much of the turmoil in oil markets comes from a new class of investors — led by hedge funds and pension funds — which are placing huge long-term bets that crude prices will continue to escalate.
This new investor group should be halted in its tracks, according to hedge fund manager Michael Masters.
Masters recently advised Senate leaders to stop pension funds from investing in oil and other commodities, a force he says is now as powerful as demand in driving oil prices.
Masters refuted the most common explanation given for rising oil prices, which is the rapid economic growth rate in China. He cited data showing that the increase in demand from index speculators over the past five years is almost equal to the increase in demand from China.
A growing chorus of voices both here and abroad is criticizing the Fed for not recognizing the inflationary danger higher oil prices pose and for driving up commodity markets by failing to protect the dollar.
French Finance Minister Christine Lagarde — who recently urged the world’s central banks to realign currencies — also blames the dollar's decline as the central cause for the oil spike.
It could get a lot worse: Warren Buffett recently told European reporters that he expects the U.S. dollar to continue a long-term slide without a major change in policy.
The International Energy Agency, meanwhile, is preparing to release a study with significantly reduced projections for long-term world crude supply. However, the group’s chief economist says the study’s results are still inconclusive, the New York Times reports.
The IEA has long forecast a slow but steady increase in production that would keep pace with demand, projecting output of 116 million barrels a day in 2030, from 87 million barrels a day now.
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