[CrudeAwakening]

Richardmmm, I'm still a bit confused as to what you're suggesting. Are you saying that

1. Oil prices have been manipulated to their present levels, and

2. Soon we'll see oil prices drop back due to demand destruction

Just trying to clarify your position.

[richardmmm]

look, it's a hard call and I am no master economist but I have been following oil for the last 5 years and shorting the tops. I never went long which was probably dumb, it was easy money, but I wanted to be able to see the tops rather than get carried away with the bull run. I am not an investor, I invest in nothing in the markets. I am a speculator. I go in for profit and then I leave. If I take a hit then I jump out as soon as I know I am wrong.

Everything goes to extremes and the eventually switches back to opposite extremes. It was the same in Soybeans in 2004. The prices ran and ran and finally there was a huge strike in docks in Brazil and the soy beans were all rotting in the docks. The spike on that news was short lived and simply a chance for all the players who had bought at the bottom of the market to exit their positions in a market with heavy liquidity and lots of "dumb" money running in. The players running into the market at the top simply gave the hedge funds a chance to exit huge positions without impacting the prices too much. Once they were out, there were no buyers left and the prices collapsed. Check out a chart of 2004 soybeans. When the wosrt bad news came that should have doubled the price again, everyone sold. It is just a basic reverse psychology that the experienced players use. Something I am trying to learn and master.

Economists would have you believe that the increasing prices of oil over the last few years has not been a drag on the economy, but I believe that this is only the case because of hedging and subsidies that are all coming to an end. No one in the papers is really talking much about this which I find strange. Looking at the figures of major airlines their fuel bills have only increased slightly and they have added on some fuel surcharges, fedex for example also has a fuel surcharge. So basically they have been pretty well covered. But you can only be hedged for so long. 3-4 years is a pretty good mark I reckon. There was no one hedging in the recent spike, infact since $62.50 no one has been hedging. It's all just speculation. The prices are too high for hedging and too high to be sustained. Don't forget that people have been long since before you or I even dreamt of trading futures contracts. At one point tey have so much profits they have to exit. Many of the money managers are taking 20-25% of profits. If you held oil from $10 or even $30, at one point you are going to close so the open trade is finsihed goes onto the books and you get your commissions. You can't get commisions on open trade equity. Only on net profits.

You are not going to see oil prices drop in one day or even one week, it will gradually come down. Read The Remisanaces of a Stock Operator (he traded many commodities as well, it's not just a stock book.) The big longs who need to exit their positions which they opened at $10, will not let the market collapse. They will slowly reverse the market down, closing out longs in chuncks. Even buying more contracts to prop up the market if it goes too low. That way they they keep the new bulls hopeful of easy profits, dangling the $75, $85, $105 carrot, whilst the market slowly sags and sags. When oil hit about $58 after Ivan, it came back to $56 and Goldmans comes out with the $105 oil spike prediction...........why, because they use their power to hold the market up to create more buyers.........it's just salesmanship. In 10 years time when oil is $105 they can say they were right, but in the moment of the release, it was a massively bullsih statement in a declining market to create foolish buyers. Oil fell back to $50 with barely a bounce after their fantastic bullish announcement. It's been the same story this time. Suddenly Goldman, Morgan, Lynch etc. announce and increase in their target price for oil to $60. Right at the top they announced that. This means that basically that many inexperienced players will stay bullish and keep buying even as the market falls.

Soros and Gates and Buffet one at a time also announced they were hevaily long the Euro, and guess what each announcement marked a major top on the Euro. Dumb money ran in, they closed out. Thanks for the tip guys..........Long term they were right, but short term they made the announcement to create buyers so they could book profits for themselves at a major top.

The premise of this is that the markets are manipulated and that the big players pick a market and go long right at the bottom. Oil was clearly at a bottom in the late 1990s. They have huge amounts of capital and can build enormous positions, on futures contracts 5-10 years out and be able to hold them long term. Also as exhange members they only need about 50% of the margin of smaller players, so their abilitiy to hold is doubly increased.

Then the market starts running and you have huge paper profits right from the bottom, but with huge positions you cannot close out without collapsing the market, so you create a hype a lot fo buyers, you run the thing to silly levels. Then you close. Look at google. They didn't want to close at $280, no they created a lot of hype ran it up to $330, everyone was possesed with greed buying in at $320, $330, dreaming of $500, whilst the insiders and big investors were exiting huge positions. On average they probably got out at $250-$275, but they needed to the market to got to silly levels to get new blood in.

I am only running on this premise really. I am just a speculator. Where oil goes further into the future I cannot say, but $55 right now is not out of the question and there are so many people running in long now, increasing oil is on everyone's breath so basically you can be sure it's coming down.

There doesn't have to be an economic collapse for oil prices to drop. Only the futures traders need to anticipate the possibility and start building that risk into the prices. Thus prices drop.

There has been a lot of scare, a lot of rumor and a lot of manipulation to get prices to these levels. Every scare went away, Yukos never stopped pumping, neither did Chavez or Nigeria. Ivan came and went, etc etc etc. Every excuse under the sun in the media. Yet the prices carried on high as though everyone had forgotten about the inital reasons for the increases in the first place.

When they ran out of reasons to hold oil prices high they started with all this refinery stuff. They have been exporting gasoline out of California by the boat load every week.........why would they be doing that if refinery capacity is so tight ? To keep the price high. To keep the local stocks on paper low. It's the same with Tomatoes in Italy. They dump half the crop in the sea if it is a good summer, rather than let the prices fall. Otherwise next year, when the crop is smaller people will only pay the old price which is too low for them to make profits. It's a long term strategy.

When there was trouble in Ecuador recently with it's massive (NOT) 200,000 barrel a day production I was rolling about laughing as oil prices shot up. It would take a week to fill one tanker at 200K barrels a day. The strike didn't even last that long. It made no difference.

It's all just hype and scare. When you look into it, it makes no sense.

Katrina comes along and suddenly Kuwait is talking about increasing production for the US. Canada also sunddenly has extra production, so do the Saudis. Funny because at $40 they didn't want to annnounce that, rather let the prices run, but at $70, they'll sell you all the oil you want and then some...........

I expect you'll see Shell revising it's reserves upwards soon. It's all a rather dubious game.

[richardmmm]

This is a very interesting snippet as well (below in italics). And I also think that Soros's book The Crisis of Global Captialism is looking more and more on the money lately. So often speculators are often just a bit ahead of themselves. I remember reading a story of how the Quantum fund was shorting gold at $600/oz back in the day. And they were crapping their pants as it carried on running to $800/oz. But as you do, they just threw another few hundred contracts at it and waited for the collapse they knew was coming. Pretty soon Gold was back to $450/oz.

I am not saying you'll never see oil above $70 a barrel again. What I am saying is that this is a major shake out. If oil comes back it will kill off all the alternatives, kill all the indepedant expolartion companies who'll have to sell their research to the majors for pennies, kill interest in investing in alternative companies. It will restore everyone's confidence in oil, etc etc etc. More than that, it has got people acustomer to paying a higer price and also started to make them thing about paying more to use less. This is very good for business, and helps the oil companies to prolong things if the oil is actually running out.

It's a great power game to play if you have the resources and the patience to do it. It stops anyone else from getting their foot in. You draw him out and then you crush him. It's basic tactics really.

We know that the oil business is a very dark business so I would expect them to be playing it like this. Their war chests are full, They are selling product for top dollar, now they are all primed for a drop in price and to snap up all the competitors.

Peak Oil is another matter altogether. It's a really hard call, and I don't think anyone can really say for sure what is going on. It's more of an ideology than anything else. Certainly there is a max. production level that the planet can physically produce. Whether we have reached that or not, or whether it has simply been made to appear that we have reached that, but cutting back US production and making it look like the US has peaked...............who can say.






"There was an interview on CNBC of the renowned funds manager Julian Robertson. He is one of the greatest of the old-timers. 53 years on the [Wall] Street. He manages the Robertson group of funds. They used to call him, still do call him 'Never Been Wrong' Robertson. He has predicted every economic cycle, every debacle, every bull market, and every bear market. Of course, he´s a very old man now. But his reputation on the Street is like nothing you could imagine. When the segment of his interview was through, his comments alone took the Dow Jones down 50 points. Just on his comments alone. That's how powerful this man's reputation is.


"Robertson was actually a teary-eyed, an old man. When Ron Insana asked him about his predictions, he said that he´s worried about the speculative bubble in housing and the fact that more than 1/4 of all consumer spending is now sustained by that bubble, plus the fact that 20 million citizens could lose their homes in a collapse of the speculative bubble in housing, and that the Fed and, indeed, central banks worldwide would act in concert out of desperation to reinflate the global economy in the process, creating an inflationary spiral unheralded in the economic history of the planet.

"Insana then asked, "Where does it end?" And he said, "Utter global collapse." Not simply economic collapse; complete disintegration of all infrastructure and of all public structures of governments. Utter, utter collapse. That the end is collapse of simply epic proportion.

"In 10 years time, he said, whoever is still alive on the planet will be effectively starting again.

"And the comments were so negative. I´ve never heard anything like it. From a guy who was 53 years on the Street. This is Julian Robertson, the renowned Republican. And yet he blamed everything on "the Bushonian Cabal," that the Cabal has now consolidated power and money on the planet to the maximum extent possible. That the planet's net liquidity--that is, net free cash flow--is now a negative number. That the planet is not simply sinking into a sea of red ink; it is already sunk.

"The people just don´t realize it yet."

[richardmmm]

$this->bbcode_second_pass_quote('wildwest1941', 'T')o heck with gold, silver, and oil, invest in toilet paper. With all the crap going around this is where everyone's money will be most useful in the years to come.

[fossil_fuel]

richard appears to be correct, at least for the moment. Oil down a buck on NYMEX at the market opening at 7pm tonight (labor day)

[fossil_fuel]

what are your thoughts on the natural gas situation right now? it's up a bit more even though oil's down

[CARVER]

That's interesting.

I think the reason that OPEC now seems willing to increase production, could be to prevent 'deadly' spikes in oil prices. If you can make oil go up steadily people will hardly notice, because the day to day differences are so small, consumers will not change their oil consumption. However Katrina made oil and especially gas go up way too fast, which could cause people to change their oil consumption. This is unpredictable, but you could see sudden demand destruction. (How to boil a frog). The oil companies don't want that, because it could let the oil price drop a lot. So the oil producers make statements that they will increase production, too bring the price of oil down a bit, to a level that will not make consumers change their consumption of oil. It could be that OPEC will not be able to increase production like they say they can, but by that time it might be that oil production in the GOM came online faster than expected. That way they can prevent a price spike caused by speculation. I think they will try to keep this up as long as they can.

The question is: did they succeed in doing that, or were they too late?

I am not sure how low oil can go. The release of oil from the SPRs lowers the oil price now, but will increase the oil price when they need to refill those reserves. The US has wants to increase their SPR and I think they will also want to increase their gasoline reserves. Other countries like China are likely to do this as well. If possible I think they will want to do this without pushing the economy in a recession. So whenever oil prices seem to drop a bit, they will probably start buying (extra) to fill their reserves and so the oil price will not drop very much.

As we move closer to actual shortages, this will become more difficult to maintain (If the economies make it that far before they collapse).

[fossil_fuel]

i don't know how it's possible to keep a real large gasoline reserve, wouldn't it have to be rotated regularly since gasoline begins to degrade after about a year?

[fossil_fuel]

does this make sense?

gasoline on NYMEX is back down almost to where it was before the hurricane.

While many refineries are supposed to be back up soon, at least 4 major ones are projected to be offline for quite awhile.

Has that much demand destruction occurred already?

[richardmmm]

there doesn't have to be demand destruction, only anticipation of drop in demand and more supply. That's why it's called futures. It anticipates the price and maintains a relatively lower volatility.

Imagine if there had been no anticipation of supply disruptions and no forward markets, oil would have gone from $40 cash price to $240 cash price in a day and caused absolute panic.

Futures were originally invented by the Samuri in Japan to prevent the price of rice racing up and down all over the place.

It creates a more stable price environment.

It's exactly at the moment of the most bullish events that the market has been anticipating for months, that prices take a dive.

How long they keep on diving is another question.

Personally I think it is going to keep on creeping lower and lower. If prices keep heading down with rapid spikes up, that's a sign of downward momentum. If they creep higher constantly with occasional massive drops, that's a sign of bullishness..

[richardmmm]

$this->bbcode_second_pass_quote('fossil_fuel', 'w')hat are your thoughts on the natural gas situation right now? it's up a bit more even though oil's down

[richardmmm]

natural gas also gapped up on the sunday / monday that katrina hit.

while oil had a pull in on monday and filled it's gap, natural gas didn't properly fill the gap.

gaps create vacums in the market that suck the price there.

natural gas is also notoriously volatile with massive swings and reversals, from the iraq war, 9/11 and Ivan.

the up trend on NG puts it at about $3, the move accelerated up trend parks it about about $7.50

anything higher than that is seriously over extended.

many of the power plants can burn both coal and NG and it's not like the US joined Koyoto or has any kind of CO2 restictions inplace.

although NG is cleaner, i am sure dubya will be more than happy to authorise a winter to smogs and acid rains to keep things under control.

[richardmmm]

$this->bbcode_second_pass_quote('kochevnik', 'V')ery good points, Richard.

Consider also that if TPTB was concerned about PO (and rising gasoline prices), what better way to calm the herd than to drop oil prices down to only $40 a barrel for awhile. Consider that a few years ago, saying that $40 a barrel oil is cheap would have been laughable, now people just wish it were so.

Traffic at this site would drop 75 percent if oil dropped to the 40's for 6 months. It does nothing to negate the PO thesis though, IMO.

Richard (and other's buying the idea that oil will go down for the near future) ... HOW LOW DO YOU THINK IT WILL GO ? (and what kind of time frame are we talking about ?)

My guess is certainly the high-50's, possibly high 40's and I'd say as long as 6 months, but more likely only 1 to 2 months.

Opinions ?

[fossil_fuel]

in light of this, wha twould be the best course of action to take? sell short retailers for march '06? buy whoever manufactures LNG tankers? or is all this already priced into the market?

[fossil_fuel]

this dow rally today is ridiculous. up 140 points just because oil went down $2? meanwhile new orleans is in ruins?

[fossil_fuel]

irrational exuberance indeed!

[richardmmm]

$this->bbcode_second_pass_quote('fossil_fuel', 't')his dow rally today is ridiculous. up 140 points just because oil went down $2? meanwhile new orleans is in ruins?

[seb]

Ok, wait for today's first post Katrina US petroleum report. If a sharp drop in gasoline stocks is reported (it may happen ), it would be interesting to see how the market react.

Once I read that everything is already priced in the market because investors anticipate the future economic situation. Nothing is as wrong as it. Nothing is priced, otherwise oil would cost 10 times what it costs now.

We don't know about the true situation of oil infrastructure in the GOM. We are still on very thin ice!

[KevO]

$this->bbcode_second_pass_quote('seb', 'O')k, wait for today's first post Katrina US petroleum report. If a sharp drop in gasoline stocks is reported (it may happen ), it would be interesting to see how the market react.

[Grimnir]

$this->bbcode_second_pass_quote('KevO', 's')tocks keep rising, oil keeps dropping down £4 today alone and not far form going back below $60.