Australian (ASX) Stock Market Forum

>$50 Oil anyone?

Jump to new
wayneL

wayneL

VIVA LA LIBERTAD, CARAJO!
Joined
9 July 2004
Posts
25,953
Reactions
13,247
Hi guys,

Anyone care to speculate on the prospect of >$50 oil and the effect this will have on rthe economy? It is certainly effecting my trading.

Stock traders (who generally want to push the S&P up out of the channel it's in, I feel) have one eye on the oil chart and are as nervous as buggerry...and getting themselves into a bit of a flutter anytime the oil chart starts tracking northward intraday.

November crude has already had a couple of prods at the psychologically important $50 barrier, and some "ex spirts" think this is only the beginning.

Technically, this is not looking toppy at all, but my "guess" is we may see a retracement from here before it blows thru 50.

Cheers
 

Attachments

  • ScreenShot007.gif
    ScreenShot007.gif
    26 KB · Views: 300
Wayne,

As you would have realised, Oil has closed above $50 for the first time. So things are looking grim.

Anyone care to speculate on the prospect of >$50 oil and the effect this will have on rthe economy? It is certainly effecting my trading.
Click to expand...
I've speculated over the effect of high oil prices in other threads and my oppinion remains the same. Oil will have a devastating effect on any economy if it remains above $50. And it just so happens to look like it's going to move higher. On the long run oil will remain expensive. It may be pushed lower every now and then but it will recover. The main reasons are China and the US. They just need too bloody much of that stuff over the next few years to satisfy their economy and (for China) their ever growing hunger for energy.

Now the US economy is at the brink of failure. It's like one of those huge monsters wobbling around tramping onto anything that moves without really knowing where to go. It will at some stage fall to the ground unable to stand up again for a long, long time. Why? Because without oil, nothing happens. And if nothing happens, then an economy already in trouble will come to a stand still quicker than you and I can say CRIKEY WHAT WAS THAT? ;)

I think we have a few more months to get our money in before the storm will hit our shores. It takes a while until the big pictures becomes clear. So far the US has done a good job in hidding the truth behind strange statements form the FED about temporary slow downs and other funny things.

The question is how quick it will affect the Australian economy which at this stage is booming based on resource companies and our strength in this field. If China gets hit (I somehow think they will go for a lot longer than the US) then things are looking VERY bad indeed.

So there you have my view of things to come. I do hope that I am very wrong with that. I really do.

Have a nice weekend

Stefan
 
Would just like to add a couple of further points to ponder,

China was a net producer of oil only a few years ago and is now a net consumer. Japan as one of the largest economies in the world imports almost all of its oil. In the slash overheads at all costs economic environment predominent in the latter half of the 1990s transport costs are one area that remained relatively fixed, and as a result for many companies they are proportionally higher now than ever before. Stefan has pointed out the negative effect the prolonged pricerise of oil will have on the economy - I agree however believe the effects are currently being diluted somewhat by stocks with the highest exposure to the oil price having hedged against a rise, for example Qantas having hedged its fuel supplies. I think there is a concern in the general market that transport & petrochemical companies who rely heavily on oil will be forced to purchase supplies at much higher prices than they are currently hedged for and some that are struggling to profitablity will fall behind as time wears on - even if we see a retraction in the oil price.
 
Anyone know where to look for information about what proportion of the world's oil use is as a raw material for plastics and what proportion is for transport?

Maybe it's time to look hard at investing in ceramics???

Ghoti
 
Remember to keep an eye on the type of oil; I don't know much about oil but from what I recall it's ligh sweet crude that is quoted generally and that's what they use for transport (eg fuel- trucks, planes etc). Correct me if I'm wrong but any figures/research should note that difference.

There is even an article about shale oil (??) in todays Sydney Morning Herald (apparently the govt was trying to subsidise an oil co to sue greenpeace http://www.smh.com.au/articles/2004/10/04/1096741931626.html)
 
Stefan,

I agree with you, and it seems most are in denial about this. Check out the s&p chart. I think they want to push it upwards short term, and I'll trade it long while its doing so, but no way would I be holding most stocks long term atm.
 
Faasscinating. Thanks Stefan, that's one more effect I'd never thought about.

Heck, if oil stays this tight for much longer we'll have to make sure management takes a very hard look at the cost justification for free annual reports!!

Ghoti
 
I have a theory regarding high oil prices and interest rates and I would like to discuss it with you guys.

So far we mainly hear that interest rates won't go up as long as oil prices remain high because it would put additional load onto an already suffering manufacturing industry.

I for one don't think that this is the whole story. I believe that rising energy prices have the potential of raising inflation expectations and therefore interest rates will have to go up. I base my theory on what happened in 2000 when oil prices went up. Interests went up as well. The impact is quite simple. As Ghotib already pointed out, it starts having an effect on areas which you wouldn't think at first. If money remains cheap, then things will start to get out of hands. Costs will go up too quick and money is losing buying power as you won't get much for it in exchange anymore. If the US economy can't grow, then the dollar will drop in value, supporting my idea that this will have to lead to an increase in interest rates.

Now the US has released their Strategic Petroleum Reserve (SPR). That will probably have an impact and already oil has dropped a bit. But since the oil released from SPR has to be replaced, the release is simply a timing shift. Without any further action the problem will return. China will only get bigger and so will India. How much room does that leave for the US economy to recover under these difficult circumstances?

Long story short, I believe there is a big problem ahead. Interest rates will have to keep going up, even so the world economies didn't have time to fully recover.

Happy trading

Stefan
 
Hit $53 today interday trade. Then settled back to around $52.62.
Dow and Nasdaq fell 1.1%.

Maybe time to tighten those conditional trade triggers!

AJ
 
why does everyone think oil is expensive?

its CHEAP

inflation adjusted, oil was $90 in 1991

we can easily go to $60-$70 on this run
 
crashy said:
why does everyone think oil is expensive?

its CHEAP

inflation adjusted, oil was $90 in 1991

we can easily go to $60-$70 on this run
Click to expand...

Very true Crashy, adjusted for inflation, its very cheap.
 
Just been doing some digging around the internet and found this chart of oil prices corrected to 2000 dollars.

Whilst agreeing with the thrust of crashy's post, this chart shows a lower adjusted highest high figureof under 60 2000 dollars. At a guess that would be around 70 2004 dollars.

Splitting hairs I know, but it confirms that we have had oil prices this high before, but it aslo shows that at $53 it is certainly not cheap. (I supect thet Crashy is suggesting that it is "cheaper" than it is going to be)

Previous spikes have of course, resulted in recessions and I suspect this one will have the same result, particularly if we go to 60-70 on this run as Crashy suggests.

The scary part is the preponderence of apocolyptic scenarios as a result of surpassing peak oil production...such as this one www.lifeaftertheoilcrash.net

Are they right? Well it is a finite resource, and as always there are countering arguments. But one day oil WILL be exceptionally rare and expensive. WHEN is the only question yet to be answered.
 

Attachments

  • ScreenShot009.gif
    ScreenShot009.gif
    22.2 KB · Views: 230
Oh by the way,

I am a qualified farrier, and I have been known to throw a leg over the odd buckjumper, when your carthorses need some attention, give me a call LOL.
 
Nice post WayneL.

One thing to remember with the dramatic recovery of markets from the 1981 peak in oil prices is that there was a comparativley huge buffer of undiscovered or un-tapped oil reserves around the planet.

However, we are now moving into an era when most of the world's oil fields have gone past their peak output - and oil prices keep rising. I'm not sure the planet has enough oil left in the tank to easily buffer or recover from this or any future big price spikes.

My 2c worth!
 
Hmmmm, oil now at $54... this is surely getting interesting.

Wayne, did you suffer a heart attack using your pushbike or are you still around? ;)

Happy trading

Stefan
 
stefan said:
Wayne, did you suffer a heart attack using your pushbike or are you still around? ;)
Stefan
Click to expand...

Nah! Wayne's around alright, he's finally left the warm confines of his US forum and is posting all over the site now. Last time I heard he was working on a masterpiece (probably an exotic, multicoloured version of some obscure US stock chart). He's probably just lost his way, should be back soon... he he he he..
 
Top