Big Mike's Contrarian Investing Blog

Are geopolitical tensions responsible for high oil prices?

According to OPEC, geopolitical tensions are causing a $15/bbl premium.

The implication here is dire for oil investors. As soon as the geopolitical tensions end (presumably we are talking about Nigeria and Iran) the price of oil will plummet by $15/bbl.

When interpreting OPEC statements, one should always assume they are self-serving. OPEC wants the world to think that oil prices will soon plummet in order to discourage non-OPEC investment in higher oil production.

One has to assume that the price of oil is driven by supply and demand. If the price is too high, then consumers of oil will consume less and a big stockpile of oil will build up or producers will have to cut back on their production. However we don't see rising stockpiles of oil, nor do we see declining production.

For the above reasons, I don't buy into the various theories that factors other than supply and demand are responsible for high prices. (The usual bugbears are OPEC, geopolitical tensions, hedge funds, and price fixing by big oil companies). Prices are high because the world is closing in on the peak of production of conventional oil, while at the same time demand is rising around the world, especially in China.

Companies that produce oil remain a sound investment.

Gold down $26.90

Gold has plummeted today.

I know that no one wants to read a blog about a guy complaining everytime his investments go down, but this is painful.

Is it safe to invest in South Africa?

In my other blog I commented about the problems in Zimbabwe and wondered if South Africa might be headed that way also.

Being heavily invested in a particular South African gold mining stock, DRDGold Limited (NasdaqSC: DROOY), this is something I worry about. My conclusion is that in the long run, say more than a decade, South Africa is not a place I want to be invested. But the hope here is that before a decade has passed, a big spike in gold will result in big profits for investing in DROOY which is highly leveraged to the price of gold.