Saudi Arabia is offering benefits to the middle (lower) class. Libya is cutting taxes. Do you think that the ruling party in either country is going to take a massive hit to their lifestyle (birthright)?
If you haven’t read Robert Baer’s article Fall of the House of Saud from The Atlantic back in May of 2003, you must.
Each new royal child born is afforded a giant stipend at the time of birth. Can you imagine the King saying that we have to stop having babies? Having children in Saudi Arabia is a good investment. How much of that extra income is actually needed to raise the newborn child? Probably not a lot. So with each newborn, the extra per capital allowance goes to the parents.
Do you think any of the royal family – the ruling class – will take a pay cut or forgive their stipend?
Enter Libya.
Libyan ministers have decided to cut taxes and where is the money going to come from? Are they going to produce more oil to sell?
Both Libya and Saudi Arabia will benefit from high oil prices. With all the “new” benefits that they are going to pay out, and the fact that they probably will not be willing to undergo a substantial lifestyle change, it’s easy to see that crude can go to $200 and not retreat for some time.
It’s probably going to be a very bumpy ride. I’d think some bull put spreads or some other type of future/combonitation to avoid getting stopped out by violent corrections.
Can’t fault your logic. As a consumer, this sickens me. As a trader…I am salivating!
I agree. Ed Seykota: “to avoid volatility, stop trading.”