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OIL IS BACK AND SO IS THE RUSSIAN BEAR

OIL IS BACK AND SO IS THE RUSSIAN BEAR

OIL PRICES ARE RAISING AND THE TREND WILL CONTINUE TO $70 OR SLIGHTLY ABOVE PER BARREL

It is not a surprise to us that oil is raising. One need only look at the recent revisions of the International Energy Agency (IEA) estimates, particularly for non-OPEC oil production growth. The IEA had estimated that non OPEC member’s production growth would be about 1.3 million barrels of oil per day in 2006. After repeated revisions, this number is down to about 600,000 barrels per day. On top of that the IEA had been predicting that in 2007 non OPEC nations would increase their oil production 1.7 million barrels per day. Today, their 2007 forecast is for only 1.2 million barrels per day. This continues a pattern of gross overstatements of supply from non OPEC members and has made energy economists understandably, increasingly skeptical of IEA estimates.

This is very significant when you consider that the IEA has also recently made a major upward revision to their estimates of China’s demand for oil and warned OPEC that production cuts could seriously tighten the market.

It is reasonable to expect that a lot of companies and countries who hire energy economists are buying oil. The economists are pointing out to their bosses that since production estimates are too high and demand estimates are too low, prices will rise.

RUSSIA IS IN TROUBLE AND MAY NOT REGAIN IT’S FOOTING……THIS COULD CREATE A PROBLEM FOR EVERYONE

Currently, Russia appears to be irritated and angry about many things. They have some money and lots of resources. They lack entirely a viable system of economic expansion that will increase the well being of the citizenry at large. Their economic system is a series of mechanisms to enrich elites.

Russia’s system of elites is a problem. The power struggles between the economic elite, military elite, former KGB elite and others, and the fact that they suffer from a distrust of the people create a tenuous situation. The elites do not have boundaries on their acquisition of wealth and power except where they step on the feet of the other elites.

Boundaries must be put on these elites. They can not keep taking resources from the country indefinitely. Russia’s past policies are damaging the public at large and are damaging the country’s future. Russia has no history of democracy, but there must be some restraints on these power centers, or the country cannot and will not act in a way that allows it to gain respect and influence in the rational and reasonable members of the family of nations.

The history of the Former Soviet Union and other states has shown that if you do not create economic benefit for your citizenry at large, in today’s world of mass communications the word gets around.

When your citizens learn that better opportunities exist elsewhere, they desire to leave. In order to hold onto you citizenry you will be forced to use repression, threats and hand outs in various forms to maintain your population and stimulate your birth rate. Without an economic system which benefits the masses to some degree, and simultaneously allows the nation to enjoy economic growth, this charade can only go on for so long. Eventually, the system will collapse, in our opinion.

We are concerned that Russia is in danger of becoming such a state.

Thanks for listening.