Oil price discussion and analysis

[ithatheekret]

Re: OIL AGAIN!

Greenspan's Latest: Oil Boom Will Likely 'Go on Forever'



http://seekingalpha.com/article/659...boom-will-likely-go-on-forever?source=d_email


Alan Greenspan is made headlines again on Monday after statements he made in a speech in Saudi Arabia. The former Fed Chairman said that economic growth in the US has stalled and that the recovery, when it happens, will take longer than usual. Even more interesting, however, are Mr. Greenspan's comments regarding oil. Even though he sees a more protracted than average decline in US economic growth, he believes the boom in oil prices is likely to "go on forever" because demand for the commodity is unlikely to weaken.

Before we all go out buying oil futures on Greenspan's comments, we would remind readers of some of his other calls. First, in December 1996 he made his famous irrational exuberance speech where he implied that the market, especially tech, might be overvalued. The bull market went on for another three plus years. While Greenspan seemed to be bearish on tech stocks in 1996, in March 2000, he couldn't stop singing tech's praises. As a result of technology's productivity enhancing characteristics, he said that "it has become increasingly clear that this business cycle differs in a very profound way from the many other cycles that have characterized post-World War II America." We all know what happened next.

Regarding interest rates, in February 2004, Greenspan highlighted the evolving trends in the mortgage industry and said "there are lots of innovative programs, especially targeting low-income and first time buyers." He went on to suggest that homeowners could save thousands of dollars by switching from fixed-rate to adjustable rate mortgages (We won't even go into how those comments were basically an endorsement about what is going on in the sub-prime mortgage industry).

Below we highlight a chart of the Fed Funds rate over the last eight years. Almost right after Greenspan suggested homeowners switch to adjustable rate mortgages, the Fed then went on to raise the rates that these adjustable rate mortgages were tied to! While his ill-timed calls regarding the stock market are understandable, Greenspan's comments regarding short-term rates are especially puzzling. Unlike the stock market where he had no direct control, Fed Chairman Greenspan had ultimate control of where the Fed Funds rate was headed.

Suggesting that homeowners migrate out of fixed rate and into adjustable mortgages right before a three-year 5.25% increase in the key short-term rate was not only a bad call, but also irresponsible.

 

[rederob]

Re: OIL AGAIN!

Greenspan or not, the oil price has shown little weakness, and little volatility during a remarkably weak and volatile period over the past few months.
My sense is that the surprises ahead will be to the upside.
The downside remains well bought into.
Although I won't yet concede $80 is confined to history, it would be a brave short to pull.
I will put up a chart over the weekend to get a better idea of support.
Otherwise it's more blue sky ahead.

 

[56gsa]

Re: OIL AGAIN!

any thoughts on this article - specially given the fall in energy stocks on US last night... coming on northern summer? etc etc

also does anyone know how to get oil and/or gold price charts on incredible charts (or is there another free charting service that gives you these??)

thanks

Why The Market Has It Wrong On Oil Prices
FN Arena News - February 27 2008

By Chris Shaw

Oil has again pushed above US$100 per barrel with Nymex West Texas Intermediate (WTI) futures for April closing at US$100.88 last night, but in the view of ANZ Bank senior economist Katie Dean the market has got it all wrong.

Dean suggests it is an anomoly that oil prices are rising at a time when the underlying fundamentals are moving the other way as global demand for oil, which continues to be driven primarily by demand in the US, is actually weakening. As for the China effect, Dean argues this too is being overplayed as the US and Europe, where demand is also slowing, account for 50% of global demand while the Chinese account for less than 10%.

As well, Dean doesn't agree emerging world demand is impervious to the global economic cycle as while it is reasonable to expect demand to increase as incomes rise in these nations there will still be an element of volatility based on business and consumer spending cycles.

Recent figures suggest US oil inventories are rising at a faster rate this year than any time in the past five years and Dean expects this trend to continue, an outcome that would be disappointing to speculators in the market taking the long side of the trade in the expectation of ongoing market tightness.

Finally, as higher oil prices directly impact on real income and spending levels the longer prices remain above US$100 per barrel the greater is the chance of a global recession, which in turn would see the oil price come back down as such an outcome would see demand fall.

As a result Dean suggests now is a good opportunity to take profits, with her forecast being for the oil price to fall back to around US$80 per barrel by the end of the year. The first potential trigger for such a move to weaker prices in her view is the upcoming OPEC meeting in early March, where it is expected OPEC will keep output at unchanged levels.

 

[Temjin]

Re: OIL AGAIN!

any thoughts on this article - specially given the fall in energy stocks on US last night... coming on northern summer? etc etc

also does anyone know how to get oil and/or gold price charts on incredible charts (or is there another free charting service that gives you these??)

thanks

Economists...don't they never learn??

“Markets are never wrong – opinions often are”

Who knows though, it could break over the $100 again and this time for good.

 

[ShareIt]

Re: OIL AGAIN!

Economists...don't they never learn??

“Markets are never wrong – opinions often are”

Who knows though, it could break over the $100 again and this time for good.

Totally agree! Play the price or pay the price

 

[rederob]

Re: OIL AGAIN!

Katie Dean might be an economist, but she is certainly ignorant of oil market fundamentals.
Her comments could have been made 3 or 4 years ago and, for her, been equally valid.
Although US oil inventories have some immediate impacts on price, these effects are shortlived as it's the global demand equation driving prices nowadays.

 

[kransky]

Re: OIL AGAIN!

Is there much speculation and manipulation in the oil market by big financials like there was in metals like Uranium and Nickel in the past year?

 

[Temjin]

Re: OIL AGAIN!

Is there much speculation and manipulation in the oil market by big financials like there was in metals like Uranium and Nickel in the past year?

Good question, not sure about that, would like to know too.

But if there are, it wouldn't be as widespread and as concentrated for the gold and silver future. Everyone knows "big drop without reasons" tend to come at a certain time in a particular market when "da boyz" try to pull them down.

On to oil, we are definitely going to feel the pain through our fuel price in the coming weeks. $1.40-$1.50/L here it comes!

 

[Uncle Festivus]

Re: OIL AGAIN!

any thoughts on this article - specially given the fall in energy stocks on US last night... coming on northern summer? etc etc

also does anyone know how to get oil and/or gold price charts on incredible charts (or is there another free charting service that gives you these??)

thanks

I think she has very valid reasoning. Yes, the fundamentals are changing, so to be an oil perma bull investor these days is a bit risky. Trading is another matter. For me to be an active investor in things like oil stocks again I would like to see a definitive break through the $100 'cap'. (Although WPL ex div is looking a good short play today)

On to oil, we are definitely going to feel the pain through our fuel price in the coming weeks. $1.40-$1.50/L here it comes!

The advance in the Aussie dollar has mitigated the upside somewhat, but the oil companies will still use it as an excuse to ramp the local petrol prices eg the price went from 1.32 to 1.47 in one day on Wednesday! And they say they can't prove coordinated price manipulation??

 

[Kauri]

Re: OIL AGAIN!

just a little unconfirmed rumour from someone I talk to who should know better than to talk to me about things that ... aaahhhhhh.. thanks Bro...

a report out of NZ today of a geological report suggesting the possibility of a huge NZ oil field in the Raukumara basin, off the North Island"s east coast.... that is in a lease held sfh4ej mfeuuh
..ebewe
.........Whare Tekau

 

[kransky]

Re: OIL AGAIN!

seems its not a rumour...

http://www.stuff.co.nz/4420818a13.html

 

[Smurf1976]

Re: OIL AGAIN!

I think she has very valid reasoning. Yes, the fundamentals are changing, so to be an oil perma bull investor these days is a bit risky.

???

Investor - someone with a long term outlook who won't be worried about what happens in the next year or 3. More worried about what's happening in 2015 or 2020.

Fundamentals of production - either past the peak or quite near it according to most.

That leaves demand. Are you saying that the fundamentals are changing in that we'll see negative world economic growth, that is recession, lasting more than a decade? Possible, but not exactly a common view. We'd need outright and steadily worsening depression in the US etc just to keep the supply and demand balanced post peak assuming moderate growth from developing countries.

IMO being a long term oil investor is pretty safe. Company risk sure, but are we really going to see an economy that is globally smaller 10 years from now than it is today? If that happens then somehow I think making a profit on investing will be the last of most people's worries.

 

[Uncle Festivus]

Re: OIL AGAIN!

???

Investor - someone with a long term outlook who won't be worried about what happens in the next year or 3. More worried about what's happening in 2015 or 2020.

Fundamentals of production - either past the peak or quite near it according to most.

That leaves demand. Are you saying that the fundamentals are changing in that we'll see negative world economic growth, that is recession, lasting more than a decade? Possible, but not exactly a common view. We'd need outright and steadily worsening depression in the US etc just to keep the supply and demand balanced post peak assuming moderate growth from developing countries.

IMO being a long term oil investor is pretty safe. Company risk sure, but are we really going to see an economy that is globally smaller 10 years from now than it is today? If that happens then somehow I think making a profit on investing will be the last of most people's worries.

Hi Smurf,

Yes, it is indeed a period of generational change, possibly not for the better. I am trading not investing at the moment. Investing entry point should still be relevant I think?

I guess that what I am implying is that, yes, there will possibly be a period of global recession to contend with in the short term and that to be actively investing now may not be wise, as it's maybe a cycle top. I would assume that if all the info were out there ie the pricing in factor, and the current fundamentals dictated as such that supply wasn't meeting demand then the oil price would not only have easily broken $100 but would be still steadily rising?

My view is that the 3 attempts at $100 may indicate a short term weakness. I'm no t/a expert, but a triple top is bearish, is that correct, anyone? Or is it purely a by product of $US weakness and speculators?

On the longer time frame, the alternative energy issue becomes more relevant also, ie if oil prices were to breach $100 and beyond then common sense would dictate that alternative energy will be more attractive. On a micro level as an example, Prius manufacture is ramping up to meet demand now. If you get enough groundswell/micro level change it adds up to a change in fundamentals for the demand side of oil.

It's not out of the question that the Chinese junta will put out one of their mandates proclaiming that all motor vehicles must use 50% less fuel (they did this with food prices - capping inflation??). A billion Chinese driving cars only means a billion more health problems (not that it's ever going to happen)

High oil price = lower economic activity. For oil it's a negative feedback loop.
Locally, it's been observed (by Gerry Harvey no less) that consumers scale back their spending when petrol goes above $1.50 or so. Only the $AU has saved us from a recession inducing high fuel price.

Right at this very moment, what would be the driving factor(s) to propel the oil price past this level, and sustainably keep it there ie apart from a geopolitical event? The peak oil theory hasn't been able to do so yet?

Rant finished now .

 

[Smurf1976]

Re: OIL AGAIN!

Right at this very moment, what would be the driving factor(s) to propel the oil price past this level, and sustainably keep it there ie apart from a geopolitical event? The peak oil theory hasn't been able to do so yet?

I'm thinking of actual peaking and decline in the years ahead as opposed to the theory that it will happen sometime.

Much like the action that results from an actual bushfire heading toward you as opposed to the knowledge that it might happen someday. If you've seen a situation like that then you'll know that rubbish gets moved, gutters get cleaned of leaves etc at incredible speed when the need is clearly visible and immediate. No panic even on a 40 degree day - until the smoke appears and then it's action to the max.

 

[rederob]

Re: OIL AGAIN!

I guess that what I am implying is that, yes, there will possibly be a period of global recession to contend with in the short term and that to be actively investing now may not be wise, as it's maybe a cycle top. I would assume that if all the info were out there ie the pricing in factor, and the current fundamentals dictated as such that supply wasn't meeting demand then the oil price would not only have easily broken $100 but would be still steadily rising?

We must be on different planets!
In some 15 months oil has doubled in price.
During these same 15 months the US economy has been unravelling.
The US has a long way to go...........down...........
Yet oil has acted as though the global economy was running strongly.
Not surprisingly, when oil came within a whisker of $100 late last year, it pulled back.
It has consolidated over the period and now continues to close over $100.
I can't see any changes to the global fundamentals, yet.
However, if emerging economies falter, then I think oil will fall below $80 - perhaps to the low $70s. But that is speculating on a grim future.
As the US economy weakens further, its dollar falls in value (coincident with Fed rate cuts), and its prospects of gaining previously lost exports will increase through price competitiveness.
I'm not suggesting the US will soon get out of its dire predicament, but I am suggesting that its infrastructure will allow it to quickly recapture lost markets: Thus, I don't see the US as slowing to the extent that it will have anything other than a marginal impact on global oil demand.
The maths that need to be done if you want to prove anything to yourself, relate to overall global trends. The most alarming of these "actual" trends is the increasing rate of oil consumption, which keeps catching-out forecasters who can't seem to throw away lineal growth models.
So we have some dumb forecasters, that get believed by dumb economists, who garner support from lying OPEC spin doctors, giving us credible headlines?
Now to the chart........

 

[lioness]

Re: OIL AGAIN!

No-one has been able to answer my question on here from 3 months ago.

If oil is heading to 120 plus which looks likely, why aren't the oil stocks whether producer/explorer moving much higher??

Instead, they are moving lower, some much lower.

No-one has bought into the trend yet, but why?

 

[Smurf1976]

Re: OIL AGAIN!

I'm not suggesting the US will soon get out of its dire predicament, but I am suggesting that its infrastructure will allow it to quickly recapture lost markets

Just one problem there and yes it relates to energy.

Right now, US gas production (which has peaked) is running flat out. Power generation is close to its limits in many parts of the country also. So to establish new productive industry, as in actually making something physical, they don't have the energy supply to do it. There's not much that can be manufactured without electricity and in most cases you need process heat (gas) as well.

So a bit of a problem there. They had the infrastructure but now it's used to supply houses etc and doesn't have capacity left for factories. Unless, that is, they run diesel generators on imported fuel...

 

[rederob]

Re: OIL AGAIN!

No-one has been able to answer my question on here from 3 months ago.

If oil is heading to 120 plus which looks likely, why aren't the oil stocks whether producer/explorer moving much higher??

Instead, they are moving lower, some much lower.

No-one has bought into the trend yet, but why?

You might not have noticed, but there is a bit of problem with world markets which is likely to dampen oil demand.
Oil equities are doing pretty well, all things considered. And WPL, our largest producer, is just a shade off its record high.
Different story if you got on AED?

 

[Wysiwyg]

Re: OIL AGAIN!

No-one has been able to answer my question on here from 3 months ago.

If oil is heading to 120 plus which looks likely, why aren't the oil stocks whether producer/explorer moving much higher??

Instead, they are moving lower, some much lower.

No-one has bought into the trend yet, but why?

I know what you mean, many producers collecting record crude prices are not appreciating in line with profit yet a sniff of gas from a pleb junior gets a s.p. multiplication.Oil and gas shares seem to appreciate in value when they `might` have something.

No-one has bought into the trend yet, but why?

It`s a state of mind and the overall market sentiment.

 

[ithatheekret]

Re: OIL AGAIN!

You might not have noticed, but there is a bit of problem with world markets which is likely to dampen oil demand.
Oil equities are doing pretty well, all things considered. And WPL, our largest producer, is just a shade off its record high.
Different story if you got on AED?

Sorry Red , I disagree . I believe oil stocks have been treated just the same as gold stocks , held back . I'm rather critical at the behaviour on the markets major particpants ( instos etc. ) , they try very hard to create false realities . It's the models they have I'm sure , well that would be the legal excuse .

If anything some funds etc. would be taking up the drops in oilers etc. , those that have allocation room . Lot of overweight financials still out there , but those models have been run for decades . Margin calls or just weak markets always see everything suffer though .

These stocks are talked down and bought , then talked up and sold , it's quasi legal ramping enmasse and Keystone cops police it , because it is a manipulation of a market .

If it didn't happen these sector stocks would be through the roof and the main market participants would have been caught under weight .