Oil Slides as the Debt Crisis Looms
Brace yourselves; this is shaping up to be a very rocky week.
Inside the Beltway, the children we call our “leaders” continue to hold their breath and throw temper tantrums in opposite corners.
While the gridlock continues, Asian and European markets are already sending clear signals that the combination of party games in Washington and continuing debt problems on the Continent is eroding asset value and confidence – and fast.
We are beginning to run out of time.
We're at A Political Deadlock
Congress needs to reach a compromise this week. If it doesn't, there is no time left to avoid a default.
(Hell of a way to run an operation, by the way. If this has been a business, it would have been in receivership long ago.)
That these idiots allowed it to get this far simply reflects one truth about the current political scene in Washington: Ideology is now the driving force. And that undermines the one thing essential for a democratic system to survive – compromise.
As we approach Niagara Falls from the wrong side, the morons on the boat are arguing over who misread the map.
Those who can't see the politics in all of this simply are not looking.
The Republicans want to pass a stopgap measure that guarantees this issue will be a pain in the anatomy during an election year.
The White House, meanwhile, wants a decision that “solves” the issue until well into 2013 – in other words, one that pushes it back until after the election.
Either way, there will have to be a combination of significant spending cuts and new revenue.
Today, as expected, the New York market opened with a downslide. Oil has gone along in the same direction, reflecting the overall market slide rather precisely. While prices began leveling off mid-morning, absent any signals that a debt ceiling accord is coming, the downward movement will intensify.
If we reach
next Tuesday (August 2) without an agreement, we are all going over the Falls.
I still don't think that will happen. Nor do I believe the current Washington political climate will result in any genuine resolution.
We'll just kick the can a bit down the street and live to fight another day.
Great News for Energy Investors
Now, the underlying dynamics in the oil market have not changed. The decline today of about half a percent only reflects what is happening market wide.
The indicators continue to point toward a tightening of supply, and that would normally mean a rise in price.
However, the calculus being applied sees a debt default as the cause of economic contraction, another round of employment losses and plant closures, and corresponding suppression of demand.
That means a sluggish economic recovery reverses, the feared double dip returns as a likely outcome and another recession hits.
The debt ceiling issue is not an ideological issue. It is a technical one.
Raise the damn thing and balance the budget in the course of a serious legislative session. If nothing happens, the asset destruction that is about to hit issuing from the short-sidedness and folly of these political prima donnas will be damaging, painful, and unnecessary.
This is not a grand game of “gotcha.” This is a real economy affecting real people.
But, as I still maintain, this will pass. Something will be worked out.
Given the current dimensions of the oil sector, there will be a swift upward response in both crude prices and share values once the accord is announced. Even with the ongoing debt uncertainty, the sector has exhibited a strong recovery over the past month.
That's great for us.
Now we just need the children to behave themselves.