Oil price discussion and analysis

[numbercruncher]

Re: OIL AGAIN!

numbercruncher
You need to crunch some numbers.
Annual population growth has not fallen below 75 million for the past 20 years. The rate might be declining, but the actual total numbers each year have increased recently.


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Hi Red ,

Maybe I worded that in unclear terms, I was talking growth in percentage terms had fallen, but its growth none the less, much of that growth is in the Middle East and Subsahran africa, so how much Oil demand this adds would be debateable, and lets face it , the swelling population of Sub Saharan Africa is never in your life time going to experience the standard of living that you do.

 

[Kauri]

Re: OIL AGAIN!

Kauri
The "correlation" is important because it supports the price of gold, not vice versa.
A meaningful disconnection of the oil:gold correlation is most likely to see gold prices decline and may well be the trigger for gold's next spell in the wilderness.
I have responded to your other points accordingly.

If indeed there isa correlation between oil and gold I would like to see a chart demonstrating this over a period of several years.... if they are moving in tandem over the recent short term time frame could it possibly be that they are both in fact actually responding/following some other factor, and that thier co-relationship (correlation?) is incidental?? If the posted estimates for poo are time-wise loosely in years would it not make sense to base/back this up with an historical chart using the same time-frame??
As the cost of buying and holding oil over the long-term would I imagine be quite prohibitive for most people I imagine that a short-term view would be more appropriate/helpfull for people trading here??
As Tim Treadgold(chickens mate ) recently penned... brokers price-targets stating a price expectation for 12 months time-frame is misleading and in his opinion should be banned.
Most people would agree that oil is going to be more expensive into the unqualified "future", any arguments quoting a myriad of reasons, whether they be right, wrong, or indifferent, is pure genius... in 3,4,5+ years oil is e.g.150% more than it was today so see,I was right... in the meantime people actually trading on poo are working on for example the recent "short-term slide??" of roughly 14% from $100 to $86... and its subsequent recovery...
Cheers
........Kauri

 

[rederob]

Re: OIL AGAIN!

Kauri
You have the opportunity to show there is no meaningful correlation over the longer term.
Your other points are somewhat gratuitous.
I have held WPL for many years, OSH for several, and BPT for around a year.
I have a very long term investing time frame, so when I buy an equity I like to give it several years to prove itself, unless it's very cyclical and the odds are against me.
I will add to my oil equity holdings this year and the only issue will be how much I pay at the time.

 

[Kauri]

Re: OIL AGAIN!

Kauri
You have the opportunity to show there is no meaningful correlation over the longer term.

Hi Red.. thanks for your replies... I am simply stating that I do not know if thre is a correlation, and unfortunately oil is not one of the commodities I chart or trade. You on the other hand, I think, have/are asserting the correlation exists, I am only asking if you can back it up with a simple chart that runs preferably for more than a couple of months, preferably a couple of years or more...
Thanks in advance
Cheers
.........Kauri

 

[ithatheekret]

Re: OIL AGAIN!

If I were to say the latest economic events in the financials markets , which have spread across nearly every sector so far , position resizing or whatever right . Just agree and bear with me here for a few moments .........

Now do you know what type of inflation has been at the force of the last run ?

I do , it's called demand - pull inflation . It's coming about Ben .

The economic shift caused in the markets by some of its participants , has also changed that inflation on a global scale .

There will be ripple effects , it's unavoidable and physically impossible to change or deflect in a way that is suffice .

We've watched a period where the Fed has raised rates , an administration that has cut taxes and a country go to war .

All costly to an economy in the first place .

The so called bull run was poured out of a bucket and turned into steam , equity that never existed was created .

The Fed tightened like the Almighty to slow it down , until it finally choked it , it's like interrogation gone too far , whoops .

Someone else on this site mentioned this in a thread prior to my sub. on stagflation , that's what America is faced with , the stimulus packages are a wild bet on a hand played too far .

Asia , more so China in this mention , which has boomed and will probably see continued growth as it spreads inland , albiet at a slower rate in the future , will have that inflation monster turned on them in the shift aforementioned to .

Do you know how it will turn ? I do , and I know they can ride it out .

They will see what's known as push - cost inflation , the US will just have to add that to their stagflation .................

I think this would be another catalyst for the carry trade to unwind again eventually , and hedge positions would be critical .

Why ? Because we have seen magical data from Japan that the herd has ran with and it has disappeared quicker than the Trillions of dollars on the markets last week . Japan is a model failure , you can't print your way out of a mess for twenty years .

So this weeks data and Fedspeak , will see a stampede either way on the Yen , we can be sure of that .

But ........ Japan will be and still is in deflation , US rates being dropped won't help it one bit .

This will see tightening controls in oil by certain countries , anything that upsets the apple cart , which is probably why there a $20+ Delta out there in the oil futures , will push oil prices harshly , for my view if it get's tighter it will get uglier , if it get's uglier , oil will rise .

This has nothing in relation to the summertime driving , heating , bear markets or recessions in the US , etc. etc. , it's about demand and the swing in inflation .

 

[rederob]

Re: OIL AGAIN!

Hi Red.. thanks for your replies... I am simply stating that I do not know if there is a correlation, and unfortunately oil is not one of the commodities I chart or trade. You on the other hand, I think, have/are asserting the correlation exists, I am only asking if you can back it up with a simple chart that runs preferably for more than a couple of months, preferably a couple of years or more...
Thanks in advance
Cheers
.........Kauri

Kauri
You can google for information on the gold/oil correlation.
Correlations break down, and can turn negative: Time frames can be manipulated a little to give a preferred outcome, but negative correlations are typically brief in recent years.
UF mischievously used indexes and not correlations to make his point - which in principle I agree with.
My point about correlating oil and gold is that when a clear divergence occurs, that is a trend to the negative, the price of gold tends to meander.
The attached chart (a 4-year term based on weekly light crude and gold spot prices) shows both the overall positive correlation, and the importance of divergence:

 

[ithatheekret]

Re: OIL AGAIN!

I see exactly what your referring to Red , but correlations aren't always what they seem , and sometimes coincidental . I'm not directing this at you Red , but please feel free to debate this with me and whomever wishes .

It could also be argued that the moves are purely contemporaneous price shocks , which for some that would be a hard case to debate . Output shocks , there's another one .........

But that leads us to ..... what is the numerator in the correlation coefficient ?

That's a hard one to get past right there , I've spent hours on it already and still have got no closer than when I started , I've got a computer earning its cost right now , it's evaluated completion time states 19 hours . Even then it is only another piece of the jigsaw puzzle .

Even if it could be found relatively easily it would be of little value , unfortunately it is an important side figure needed for solutions elsewhere .

A sign of a correlation between output and prices by itself reveals nothing about the relative importance or frequency of supply and demand shocks.

We are then faced with the questions of whether they are output shocks , or just a kink in the aggregate supply and aggregate demand curves .

I know I'm talking talking about curves again .................


But , when a short run aggregate supply curve comes about into a long run aggregate supply curve , prices and output go in opposite directions .

Next question that then springs to mind is , what is the dynamic adjustment ?

We can strip down output and price , but it's a guesstimate which then has to calculate the effects of shocks in both supply and demand .

We can produce our own model using a VaR system , but first we'd need the variables . Of course we must be able to agree on which scenario we are rolling into , mine is the " their scared chitless about deflation and have let the dogs loose " . this has turned a demand - pull dream for the Fed , turn into a push -cost reality that will see shocks in both the supply and demand aggregates .

How can we then correlate that with the price movements in gold within the terms of definition ? Are any variables present that show this , is it random or reoccurring ? A random variable should be able to give us a quantile and value , we could then find the parameters . That's a lot of work though .

Anyone got a couple of months to compute the distribution alone ?

What is its mean and what is the standard variation ? Are we looking at a long or short horizon ?

If it is a correlation there must be a risk evaluation that can be computed , would one think ?

Just for another prospective correlation , try laying a composite of IPL over the oil , gold layout .

 

[Uncle Festivus]

Re: OIL AGAIN!

Kauri
UF mischievously used indexes and not correlations to make his point - which in principle I agree with.

Sorry, it's only that I couldn't find a suitable chart to show it directly, but the thrust was that over the last month oil has come off abit while gold has hit new highs. Again, we need more time to verify a secular divergence, meaning something more is in play ie gold hand in hand with oil because of the inflation correlation but now gold diverges because of economic disfunction?

We can produce our own model using a VaR system , but first we'd need the variables . Of course we must be able to agree on which scenario we are rolling into , mine is the " their scared chitless about deflation and have let the dogs loose " . this has turned a demand - pull dream for the Fed , turn into a push -cost reality that will see shocks in both the supply and demand aggregates .

The US in stagflation mode already, teetering on the deflation precipice? I still query the longevity of any meaningfull increase in the oil price (at least to test the recent high) whilever the severity of the US recession is unknown, perhaps which is being priced in now (from $100 to $88?).

It is a double edged sword, in that if the US only has a short soft landing recession then oil will continue to advance (from this elevated level), impacting on costs of everyone globally again (as per peak oil ideals).

What is the pain threshold for the world when it comes to paying for oil - was it $100? At what point do users look for alternatives, even though there may be none at this point in time? Were you/we happy paying $1.50 per litre for petrol?

Unlike gold, where speculation/fear plays a big part, would it be fair to say oil is priced on demand data these days, with a spec premium? And unlike gold, I would assume that there is an upper limit to the oil price because it simply becomes unprofitable to use it, whatever that price point may be. Are we now at a juncture where $100 oil is precipitaing a global reccesion, and hence will 'consolidate' for a while?

Is oil the culprit this time or is it just the sideshow when compared to the credit/derivatives contagion taking place?

 

[ithatheekret]

Re: OIL AGAIN!

They will see what's known as push - cost inflation , the US will just have to add that to their stagflation .................

I read your stagflation posts Unc , thoroughly agreed too . Just because some nancy can't see the fly on its nose , it doesn't mean we can't , we're just not in a position where we can take a swipe at it .

Ben placating a market is a fools errand , it will swing around and slap him in the face and roll over the top of the US economy .

They can point all the fingers they like at oil , it's not the culprit . It's a product of their worldwide dreams .

 

[ithatheekret]

Re: OIL AGAIN!

Good night tonight oil easing off ( not as much as I'd like ) , Skippy rising , hopefully it will equate to some relief at the petrol pump here .

Be even better if we had a snip off the excise too !

 

[So_Cynical]

Re: OIL AGAIN!

Hey Kauri Red and others

I Did have a 15 yr POG / POO chart that showed both sort of trending together..with the ratio
getting outa whack sometimes....lost it in the reformat i had to have last week.

2 year chart below...with an interesting gap opening of late with gold
clearly leading oil....Is this a decoupling trend beginning?

Yahoo USO V POG

 

[So_Cynical]

Re: OIL AGAIN!

Hey i found that gold / oil chart...its 10 yrs not 15 ....ends in 2006
just before gold took the lead...again.

 

[Smurf1976]

Re: OIL AGAIN!

oil from nigh on $100 bb to near $86bb.... what would you need to call a short term slide????
oil is going to meet some of the prices quoted when ... next week.. next year... next decade???
calling peak oil is as ingenious as calling peak analysts... we don't make them anymore, just cheep?? alternatives...
of course the price of oil is going to increase.. exactly the same as any finite resource that is not readily replaceable... but when.. my old father once told me to back Frontiersman, he was going to win a city race... and he did... eventually.. (ahhh loved the 66/1 )..
a coorrelation between oil and any other commodity is only use full so long as it lasts.. my limited experience tells me that once it becomes obvious to the masses it usually breaks down..
how much will my favourite bottle of plonk cost next year... should I stock up now... or will it rain...
Hicupping...
..............Kauri

Production peak was May 2005 on a monthly basis, 2006 on an annual basis. Pretty close to most estimates, some of which were made decades ago.

We've been on the bumpy plateau for 3 years now. All this alternatives, economic theory that increasing price will mean increasing production etc simply hasn't worked in practice. Exactly as the geologists warned.

 

[rederob]

Re: OIL AGAIN!

Hey i found that gold / oil chart...its 10 yrs not 15 ....ends in 2006
just before gold took the lead...again.

So_C
Everything can be correlated.
But not everything is usefully correlated.
Correlating monthly moving averages is not handy because it can smooth out disconnections.
The point I make about "disconnections" is that where well established relationships begin to break down, a statistically reliable signal is given to take a position (equally I mean quit a position).
Oil and gold remain positively correlated and only when (in a meaningful timeframe) there is a clear disconnection would I be selling down my gold equities.
As Smurf repeatedly points out, peak oil appears to have come and gone, so my long term view is that oil will keep rising.
Moreover, my suspicion is that oil will rise irrespective of what the USD is doing. Whereas I suspect gold may disconnect from oil when the greenback gets on a more even keel.
My crystal ball tells me we have another year to go before the US situation begins to improve - and I think I might be an optimist.
If those scenarios play out, then gold will keep on its merry way, and so will oil.

 

[So_Cynical]

Re: OIL AGAIN!

Red
Gold is moving away from oil to the upside....oil seems to have hit a
wall at 100$USD while Gold is setting new records every week.

If the gold oil ratio is to hold, then gold will have to stall at 950$USD
or clearly decouple...at least for the short term.

 

[rederob]

Re: OIL AGAIN!

Red
Gold is moving away from oil to the upside....oil seems to have hit a
wall at 100$USD while Gold is setting new records every week.

If the gold oil ratio is to hold, then gold will have to stall at 950$USD
or clearly decouple...at least for the short term.

Decoupling is when they move in different directions.
There has been no recent decoupling of POGOO but gold has been moving much more strongly.

Oil is being driven by fundamentals - supply and demand Were this not to be the case, then the oil price would collapse sharply (and continue down) on each of the recessionary fears that have captured the markets attention of late. Instead, POO slumps for a day or two, then bounces back.

I don't expect oil to hit new highs until its fundamentals bite more firmly. That said, it will run very strongly when the time comes.

 

[numbercruncher]

Re: OIL AGAIN!

Looks like Oil may play out how many of us suspected

U.S. gasoline supplies hit a near-14-year high of 227.5 million barrels last week, helped by falling demand for the fuel, the U.S. Energy Information Administration said on Wednesday.

"Something dramatic is occurring with consumer driving habits," Geoff Sundstrom, a spokesman for AAA motor club, said in a telephone interview. "These numbers, if sustained over next couple of weeks, should set the stage for a reversal of price forecasts."

He said U.S. gasoline prices in the spring could fall 50 cents a gallon from Wednesday's $2.98.

http://www.reuters.com/article/newsOne/idUSN0628259020080206

 

[ithatheekret]

Re: OIL AGAIN!

If they are so worried about the oil price .

Why is there a small spread on oil contracts and a wide one on nat. gas?

 

[wayneL]

Re: OIL AGAIN!

If they are so worried about the oil price .

Why is there a small spread on oil contracts and a wide one on nat. gas?

Because it's just "us" in there most of the time with small lot sizes, and the MMs can get away with it. Watch it close up when "they" get active... 1-2 ticks.

 

[numbercruncher]

Re: OIL AGAIN!

I reckon Energy/Food prices are now permanently inseperable.

ie/ Natural Gas can make the fertilizer that grows the ethanol that takes away from food production .

The politicians obviously consider Oil prices too high, Geopolitically delivering to much financial clout to the Oil exporters, 3pc (ish) of the worlds energy needs coming from biofuel and rising rapidly. Western nations control the best farmland on the planet but alot is being lost to erosion, urbanisation etc as well as biofuel.

The human race is on a major collision course with reality imho, and as usual the people of the poorest nations are going to suffer big time, High Oil Prices = high food prices = famine.