Tuesday oil briefing

Oil prices have fallen back below $80, but the overall trend remains bullish, and the Agora Financial editors are on top of both the short- and long-term factors.

We'll start with the short term.  Byron King from Outstanding Investments says what's brought down oil for the time being is the growing realization that as far as Iran goes, the emperor has no clothes:

Looks like Gauleiter Ahmadinejad talked about $2 off the price of a barrel of oil yesterday.  The world got a look at him, and realized that he really is the dolt that some have long suspected.  So some of the risk premium is vanishing.
When he gets back to Iran, I suspect that the adult supervision will come down hard on the guy.  We might not have Herr Ahmadinejad to kick around much longer.  He might have to join up with those gay people who do not exist in Iran.
Oh well.  Live by the sword, fall on your sword.
This is such an important thing to remember.  Ahmadinejad is a blowhard who wields relatively little power in his country — far less than the title of "president" conveys.  He doesn't even command the armed forces.  War between the United States and Iran remains a distinct possibility, especially as the result of some sort of provocation, but it won't be because Ahmadinejad poses a menace of Hitlerian proportions.  That reality is finally starting to dawn on more and more people.
Another reality dawning on more and more people is Peak Oil… and that's what makes the long-term oil outlook so bullish.  Strategic Investment editor Dan Amoss draws our attention to a piece today by "a mainstream economist who happens to have constant contact with institutional investors/hedge funds."  That would be none other than Ed Yardeni, formerly with Prudential, now running his own firm.  Dan says he agrees 100% with this statement:
The [energy] sector currently accounts for 13.8% of the earnings of the S&P 500, up from 6.0% at the end of 2003. It accounts for 11.7% of the market capitalization of the S&P 500, up from 5.8% at the end of 2003. If the Peak Oil Club continues to attract more members, I could see the sector accounting for 20%-25% of the S&P 500’s market capitalization before the end of the decade. In other words, the next bubble in the stock market might be in Energy stocks as their valuation multiples expand.
The Peak Oil Club is indeed attracting new members, albeit not as quickly as I'd forecast earlier this year.  Still, the trendline is up.  And with the Fed seemingly bound and determined to flood the market with more liquidity, it's gotta flow somewhere.
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