Market Intelligence Report August 14, 2012 Posted by John on August 18, 2012

“This is no time for a spike in oil prices, at least politically in the U.S., for the world economy and in regard to food prices which seem destined to go higher. The good news is Libyan and Iraqi oil supplies are coming back on stream and so with world demand held in check by slower economies, a price spike could be short lived. The bad news is I see just that explanation for the future course of oil prices, over and over in the media and in popular research. Don’t worry, be happy, the world energy industry can make-up any production shortfall. Until they can’t. If the world is awash in oil, why is Brent trading at $115? Supply is falling from the North Sea and Iran. Brent crude is in backwardation and has been since July. Shipments from Syria have been disrupted, as has supply from Yemen and Sudan. Throw in a QE on top of the supply situation in Brent crude and we could see a move in oil which halts the advance in equities at least temporarily. See the following chart of the S&P 500 divided by VIX. The S&P can trade a bit higher, but then should sell-off.”