Chronicles Of Depression 2.0: #112

Ambrose Evans-Pritchard brings up some new factors in the global oil market.

Asian countries begin to burst the oil bubble

One by one, countries across Asia and the Middle East are being forced to abandon price controls on fuel and energy, bringing hundreds of millions of consumers face to face with the true market cost of oil. The effect has already begun to chip away at world demand and may ultimately trigger a slide in crude prices.

Egypt - the most populous Arab state - has raised petrol prices by 40pc, despite protests in Cairo. Sri Lanka lifted diesel and petrol prices by 25pc over the weekend. India may have to follow soon to prevent its trade and budget deficits climbing to dangerous levels. "The situation is alarming. We need to stem the rot," said India's energy secretary, MS Srinivasan.

Indonesia has raised petrol prices by 33pc in order to restore fiscal discipline (subsidies are 3pc of GDP). Taiwan has mooted a 20pc rise, and Malaysia is to peel back controls. While China has so far resisted calls for price freedom, the policy is becoming unsustainable. Analysts predict a change in tack after the finish of the Beijing Olympics at the end of August.

The fast-changing politics of the emerging world has started to chill enthusiasm in New York and London for oil futures contracts. West Texas Intermediate has so far slipped $5 a barrel from its all-time high of $135 last week as hedge funds lock in profits, although analysts warn that it is too early to tell whether the 30pc spike in oil prices since March has burned itself out.

Oh boy.

There aren't any details on whether or not these price increases came over a period of time or at a heart-attack-inducing one-time shock.

This has been generating some unrest in countries whose governments suppressed the market price of oil to the end consumer.

So far, no riots along the lines that have been had for food.

This is interesting:

For now, traders are keeping a careful eye on politicians in Europe and the US as they call for curbs on the derivatives market for oil futures. The Hunt brothers in Texas were ruined attempting to corner the silver market in 1980 when the COMEX exchange suddenly changed margin requirements, and then suspended trading altogether. The pair failed to heed the warning signs.

While most people out there are deciding between McCain, Hillary, or Obama, the only way to really tell the markets the game has changed is to vote for Nader.

Let the speculators have the heart attacks instead of us.