What Determines The Price Of Oil

On February 11, 2014, I wrote:

The most noteworthy data point this morning: the price of oil continues to melt up without a good explanation. I posted this two days ago, and the sentiment remains:

The major factors affecting the price of oil:

• Mideast politics and hostilities (Syria, Iran, Israel); sabre-rattling
• strength of the dollar
• US economy six months out
• Chinese manufacturing index
• global economy six months out

Of the five, I think the US economy six months out as telegraphed by the Fed's actions is the most important (on the day of posting). On a day-to-day basis, all things being equal (e.g., no report of a war breaking out in the Mideast, it is the strength of the dollar).

I received a note from a reader suggesting that Mideast politics will be the major factor affecting the price of oil going forward, and sent a link to this article: 

• Headline: Iran flexes muscles in Gulf 

• Story: 

The Iranians now feel confident enough to attack Sunnis openly - scary for the Saudis. For the first time, the Iranians are attacking not just the Saudi government, but also the Wahhabi extremist Sunni sect that is the ideological underpinning of the Saudi regime. Wahhabis have been declared to be "worse than Jews" and heretical.

"If they refuse to convert (to Shi'ism) killing them is not a sin." Of course, to Shi'as, all Sunnis are heretical, as they in turn are considered heretical by the Sunnis, but until recently the ayatollahs have been cooperating with Sunni governments and terrorist organizations such as Hamas and Islamic Jihad to confront the Israelis and the West.

This tactic is apparently now ending, as the Iranians feel themselves capable of confronting their Sunni rivals as well as secular regimes and Western governments, given what they see (and proclaim) as their "victories" in the negotiations with the six powers.

It was just the other day that I suggested that one of President Obama's lasting legacies will be a Mideast nuclear arms race. Saudi Arabia will go nuclear before the decade is out. History will look back on this period as a lost opportunity: the Obama administration and Israel had a window of opportunity and did not take it.

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A Note to the Granddaughters

I finished The Girl With The Dragon Tattoo this afternoon in between activities with the granddaughters. An incredible book. Very good. For me, I would not have enjoyed the book half as much (I might not even have completed it) had I not seen the movie first. 

The director said the movie was five acts which made it a difficult movie to write and film. According to wiki, a five-act play: exposition, rising action, climax, falling action, and dénouement. The challenge with Dragon Tattoo there were two stories, but the bookends story -- the libel suit was overshadowed by the story in the middle: the serial murder mystery.

I've moved on to The Great Gatsy, the book, and the 2013 movie.