FAO Food Index Predicting A Reversal In Crude Oil Prices?

By: Andrew_Butter

This is a chart of oil prices (Nominal-Brent-30 Day Moving Average) superimposed on the FAO Food Price Index (Nominal).

Three points:

1: Given that energy (mainly oil) accounts for 30% of the cost of food, it’s not surprising that when oil prices went up by a factor of about five since the average in 1990 to 2000, food prices about doubled (5/3 = 1.67…plus whatever).

2: In spite of the dire predictions, the world probably isn’t coming to an end…just yet.

3: The peak in food prices in 2008 slightly preceded the peak in oil prices (by about a month)…so perhaps the food price index (one measure of what the world is ready to pay for oil), is a leading indicator for the oil price?

That’s a thought, the Saudi’s are saying that the current spike is all because of (Zionist) speculators and that the “fair price” is about $90 (they changed their minds on that one, a year ago they were saying $75 was “fair”).

Perhaps they are getting freaked-out by Donald Trump who’s big idea (after he get’s Obama classified as an illegal alien) is to TAKE THE OIL! His argument is that (a) the correct price of oil as far as he is concerned is $40 and that (b) it doesn’t make any sense to have the largest army in the world, and spend trillions invading countries, if you don’t make a profit on the enterprise.

http://latimesblogs.latimes.com/washington/2011/04/donald-trump-still-wants-iraqs-oil-calls-fox-analyst-a-sad-fool-for-disagreeing.html

There is a certain logic in that argument, although another option might be to stop spending trillions of dollars invading other countries, and to either drill more oil in USA and/or persuade Americans to drive Fiat’s or Lambrettas.

One wonders how much the price will have to go up before he starts winning votes; perhaps he should have Ron Paul as a running mate?

Meanwhile, in my humble opinion the correct price of oil right now is $90 (Brent), that’s as determined by “Parasite Economics” (where America is “Daisy” and the oil producers are the parasites).

I’m sure Donald would love that analogy, come to think of it I’ve been saying for years that I can’t see the point of the “Crusade” to destroy the non-existent Al Qaeda (in Afghanistan) and the non-existent WMD without getting a pay-back; unless the whole point was to “deal” with the inflation in the cost of heroin?

http://www.marketoracle.co.uk/Article16901.html

And unless the schizophrenia about replacement cost takes hold, that story-line along with BubbleomiX says oil prices are going to $70, someday soon.

http://www.marketoracle.co.uk/Article24849.html

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2011 Copyright Andrew Butter- All Rights Reserved
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