Price of Oil Will Not Hit $200 per Barrel
TrimTabs , June 26th, 2008
TrimTabs Predicts Price of Oil Will Not Hit $200 per Barrel Because U.S. Economy Would Crash and Burn Before That Happened
Says Commodity Futures Trading Commission Must Boost Oil Futures Margin Requirements to Curb Rampant Speculation
Santa Rosa, CA - June 25, 2008 - TrimTabs Investment Research today predicted the price of crude oil will not reach $200 per barrel because the U.S. economy would be broken before that happened.
"If oil prices hit $200 per barrel, America's oil bill would be equal to a staggering 23% of the after-tax income of all Americans who pay taxes," said Charles Biderman, Chief Executive Officer of TrimTabs.
In a research note to its clients, which include many of the world's largest hedge funds, TrimTabs explained that the U.S. consumes about 21 million barrels of oil per day. At $200 per barrel, the cost of oil would reach $1.5 trillion annually, which would be equal to 23% of the $6.5 trillion in after-tax income of all Americans who paid individual income taxes in the past 12 months.
The research note pointed out that when oil prices averaged $70 per barrel in 2007, America's oil habit cost just over $500 billion, or 8% of after-tax income.
"At $135 per barrel, America is already spending $1 trillion per year on oil, which is equal to 15% of after-tax income," said Biderman. "Such massive spending on oil alone is completely unsustainable."
TrimTabs also urged the Commodity Futures Trading Commission to boost the margin requirements on oil futures to at least 25%.
"The current margin requirements of no more than 7.5% must be increased to stem the speculation that has inflated oil prices," said Biderman. "Stratospheric oil prices are destroying the U.S. economy."
Biderman disagreed with claims by large oil futures exchanges that high margin requirements would drive trading offshore.
"What really worries officials of the New York Mercantile Exchange and the Intercontinental Exchange is that higher margin requirements would prick the oil bubble, reducing the huge revenue streams of their exchanges and traders," said Biderman.
He expressed skepticism that if the CFTC reduced margin requires, Dubai, where the volume of oil futures trading is a small fraction of the volume on the NYMEX and the ICE, would allow itself to become the dominant market for oil futures trading because of the political pressure such a move would attract.
The high price of oil has already inflicted tremendous damage on the U.S. economy. The income and employment taxes withheld from all U.S. workers on payrolls rose less than 1% year-over-year in the past two weeks, and the TrimTabs Online Job Postings Index is down 6.7% from its interim peak in mid-March.
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TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. For more information, please visit www.TrimTabs.com.
