[pup55]

Mr. Bill:

Do you have access to open interest numbers for crude oil? I recall dimly last week or so on this board the statement was made that there are a lot of open naked short sales outstanding at the moment, but would like more detail on this.

NYMEX.com has the open interest, which is greatly higher for March than it is for February, which is what we would expect as we approach the expiry, but it's not given whether the open orders are long or short.

Anyway this would be interesting to know, as a potential indicator of a change in market emotion, also as an idea as to whether or not a short squeeze is imminent.

[MrBill]

$this->bbcode_second_pass_quote('pup55', 'M')r. Bill:

Do you have access to open interest numbers for crude oil? I recall dimly last week or so on this board the statement was made that there are a lot of open naked short sales outstanding at the moment, but would like more detail on this.

NYMEX.com has the open interest, which is greatly higher for March than it is for February, which is what we would expect as we approach the expiry, but it's not given whether the open orders are long or short.

Anyway this would be interesting to know, as a potential indicator of a change in market emotion, also as an idea as to whether or not a short squeeze is imminent.

[shakespear1]

$this->bbcode_second_pass_code('', 'US ethanol margin drop to negative levels

The increase in natural gas prices along with the sharp rise in corn prices and the decline in the oil price has put enormous pressure on ethanol margins, which dropped to negative levels over the past week. We believe that negative margins are not sustainable and will have to reverse in coming weeks, as ethanol output (not capacity expansions) will likely be impacted. ')

This is very interesting. It show the impact of weather and harvest level impact on ethanol profitability.

[DantesPeak]

$this->bbcode_second_pass_quote('', 'D')ecember total OECD crude stocks drew by over 47 mln bbls or 5%, scoring one of the largest draws in the past 15 years for December. Despite the record warm temperatures, the total OECD hydrocarbon stocks declined by over 41 mln bbls, or 1.5%.

[pup55]

$this->bbcode_second_pass_quote('', 'T')hey show commercial hedgers increasing their net shorts while large traders/speculators are increasing their longs. However, this is futures only and does not include OTC deals or option contracts

[MrBill]

$this->bbcode_second_pass_quote('DantesPeak', '')$this->bbcode_second_pass_quote('', 'D')ecember total OECD crude stocks drew by over 47 mln bbls or 5%, scoring one of the largest draws in the past 15 years for December. Despite the record warm temperatures, the total OECD hydrocarbon stocks declined by over 41 mln bbls, or 1.5%.

[pup55]

My other favorite commodity expression is: "every rally sows the seeds of the next crash, and vice versa". In the world of the grains, a price of $7 for beans and $4 for corn induces every farmer in Iowa or elsewhere to go out and plant to the hedgerows and if the weather cooperates, the prices are right back down where they were by the following fall. The farmers quit planting, there is a shortage, and the cycle starts again.

In the case of oil, it works the same. high prices mean more production, more debottlenecking, more security guards in Nigeria to protect the platforms from the local militias, and less consumption in places like Japan where they are smart enough to do without it, but the price goes down and people stop doing all of that stuff and before you know it, the prices back off, and people go back to normal and the cycle starts again.

The minor exception to the whole thing will be when "the peak" as we have grown to know it, finally hits for real, and no amount of extra drilling or effort on anybody's part will cause production to go up and satisfy the demand panic. Then we're off and running.

[cube]

$this->bbcode_second_pass_quote('DantesPeak', '.')..
I still have difficulty believing the markets are truly efficient, perhaps mostly efficient and partly backwards looking would be a better explanation.
...

[MrBill]

Don't forget every post from now on has to start or end with the economic ramifications of post peak oil depletion otherwise I will be forced to move you to the Open Forum. Come on guys, no talking about markets in the abstract.

Back to Pup55's comment that every rally sows the seeds of its own destruction. Ditto for peak oil. Had we never drilled that first hole in the first place we would not be worried about running out of plentiful, cheap energy now. Wow, cosmic! ; - )

But seriously post peak oil depletion is about markets. Markets for physical assets like food, clothing, shelter, heat and the basics we need, plus those things we want. That means that just as the present reflects the past, the future will look at least somewhat like the present. We all agree the current system is unsustainable, but our institutions, religions, cultural practices, nation states, governments, etcetera will either guide the future or haunt it.

So to look at the future we need to look at trends in real estate, interest rates, commodity prices and other economic indicators like inflation and money supply or foreign exchange rates. These are not constants, but they guide our forecasting. Just as 16th century banking looks very much then as it does today, and we still refer to the bubbles in South Seas real estate or tulip bulbs in the same breath as the dot con bubble. Each was caused by different events, but they also had many similarities.

Even if post peak oil depletion causes a discontinuous change as a ready substitute for our current energy needs is not available we will fall back on what we know in response, and we have real time examples of various worst case scenarios like Zimbabwe and Rwanda or Argentina. The developing world offers us many clues to what our collective future may look like if we fail to adjust our energy needs lower while continuing to look for effective alternatives.

I dislike talking about these things in Trader’s Corner because many of those type of conversations risk getting seriously off-track and ultimately dying on these boards as the posters cannot agree what the future will look like and/or lose interest. While new posters want to have a conversation in real-time and are not particularly interested to wade through long, rambling posts from others where there is no editing or summary and each valid point of view is mixed-in and diluted by an opinion lacking in fact. The reader is left to decide which is which.

I prefer to concentrate on the here and now by talking about what is happening in the markets at the moment. In the overall context that decisions made in Russia, Iran or Nigeria do affect energy security and therefore are important in the discussion about peak oil. I do not find it necessary to draw that line in each and every posting. High prices for energy lead to the search for more oil as well as for alternatives. Those include clean burning coal or coal to liquids as well as reassessing the viability of nuclear energy.

The electricity grid in Europe runs on the least cost substitution of coal for natural gas as well as linking into alternative sources of power such as wind and solar as well as hydroelectric. It is not the single variable, oil, it is the energy mix that matters. The more infrastructure that runs on alternatives the less it depends on oil or gas. That energy is then available for the search and development of new sources of energy. It does not free us of the need for reliable energy any more than the large dinner I had last night means I do not eventually have to think about eating today or tomorrow at the latest.

If you believe that no alternatives exist to petroleum. And if you believe the system cannot continue to function as it is. Then the conversation about the economic ramifications of post peak oil depletion is a very short one. Economic collapse and massive die-off. You do not have to endlessly debate which industry will succumb first or whether some of you or any of you will survive. There are millions of variables and no forecast can hope to be accurate with any degree of certainty. You may as well find religion and hope there is a life after death. There is no use pretending you’re more clever than the next and writing about all the symptoms of post peak oil depletion.

We have collectively gotten ourselves into this mess, like wandering through a very dark, dense forest. My only compass are the markets that tell me what is happening today. They may or may not help me to find my way, but walking around in circles is no solution either. Anyone that pretends they know what the future looks like without understanding how markets works today is just kidding themselves. That is dangerous in itself. Especially if they make sound, logical arguments that are not grounded in facts and supported by the data. And if they convince others that they alone are right about the shape of the future.

[pup55]

Sorry for getting you back on task, but what do you make of the big runup today?

It looks like some of it is due to people rolling out of February contracts and into March.

Also, this issue of the SPR refilling may provide an opportunity for the DOE to support or tame down oil prices by timing of these purchases.

[mefistofeles]

What's going with oil prices am I imagining things or were they $51.00 on the Nymex last week? I just checked the Nymex and now oil's at $55.00.

Anyone havve any ideas on what might be going on?

[pup55]

Possibilities:

a. The fundamentals have been going this way for awhile. I did not think it would happen until March or so.

b. Bloomberg thinks that it is due to the forecasts of colder weather, on top of the additional anticipated purchases for the SPR that are supposed to be announced tonight.

c. This has some characteristics of a proverbial "short squeeze" where there were a lot of open orders going short, which had to be covered all of a sudden when the market reversed.

d. Also, the February contract expired within the last day or so, I think, and the march contract, which was always a little more expensive, became the "forward month" contract, which is reported in the media, making it look like a jump..

It will be interesting to see in the next few days whether this backs off. The inventory report tomorrow should show a little build in inventories, if my calculations are right, so that will be a test of whether this is a true reversal, or just a sucker rally.

[MrBill]

$this->bbcode_second_pass_quote('pup55', 'S')orry for getting you back on task, but what do you make of the big runup today?

It looks like some of it is due to people rolling out of February contracts and into March.

Also, this issue of the SPR refilling may provide an opportunity for the DOE to support or tame down oil prices by timing of these purchases.

[MrBill]

$this->bbcode_second_pass_quote('pup55', 'P')ossibilities:

a. The fundamentals have been going this way for awhile. I did not think it would happen until March or so.

b. Bloomberg thinks that it is due to the forecasts of colder weather, on top of the additional anticipated purchases for the SPR that are supposed to be announced tonight.

c. This has some characteristics of a proverbial "short squeeze" where there were a lot of open orders going short, which had to be covered all of a sudden when the market reversed.

d. Also, the February contract expired within the last day or so, I think, and the march contract, which was always a little more expensive, became the "forward month" contract, which is reported in the media, making it look like a jump..

It will be interesting to see in the next few days whether this backs off. The inventory report tomorrow should show a little build in inventories, if my calculations are right, so that will be a test of whether this is a true reversal, or just a sucker rally.

[shakespear1]

I suspect that if the media/politicians/actors were talking about Peak Oil and Global Warming perhaps they might change their minds. Or how about Schwarzenegger doing a futuristic film where he drives an economy car , "small und wiz hay gez milag"

He did wonders for cigar industry, Hummer etc.

[MrBill]

$this->bbcode_second_pass_quote('shakespear1', 'I') suspect that if the media/politicians/actors were talking about Peak Oil and Global Warming perhaps they might change their minds. Or how about Schwarzenegger doing a futuristic film where he drives an economy car , "small und wiz hay gez milag"

He did wonders for cigar industry, Hummer etc.

[pup55]

This is another example of why in the case of energy consumption, , for some reason, the market system does not work efficiently. People, apparently even Germans, do not necessarily make choices in their own best interest.

In the USA, even during the worst of the high prices last summer, people were buying SUV's for the "safety and comfort and power" factor. GM, incredulously, interpereted this as a sign that they should start to gear back up on SUV production.

I guess the consuming public has not yet reached the point of "capitulation" on this issue of fuel efficient vehicles. Until this happens, you will not be able to get them out of their cushy mercedes and beemers.

I think the bulk of the public, and also the traders (to keep this thread in compliance) are still with the old paradigm. This being the case, there will continue to be emotional restraint which will keep the market from blowing up exponentially.

[MrBill]

They interviewed one of the original founders of the SWATCH auto who along with Daimler-Chrysler turned it from a rechargeable electric vehicle into a fashion accessory. Yes, he is a little bitter.

But as in life as in trading timing is everything!

I stumbled across some notes scribbled into the margins of a magazine I was reading last summer. Apparently, I sold quite a chunk of crude up around $7728? Well, if I did, I did not hold onto that short long enough!

Now, I will go out on a limb and say we have probably seen the lows for now. But predicting the weather is a mug's game, so I will wimp out and stress the 'probably' part.

Getting some help in the energy from the base and precious metals, which are up 2-3% today as well. Strangely enough the dollar is also stronger today against the euro? Well, the trends are positively, not perfectly, correlated most of the time.

Oil equities have all jumped recently making-up about one-third of their slide since the end of last year. I am not adding to those positions, but just riding them out just in case as you say this is a fool's rally.

Crack spreads reflecting refining margins are stable at around $8-9 per barrel, which is about average, but nothing to write home about. I remember the day that Sunoco inside traders starting selling their shares last summer. Margins were around $20 per barrel at the time. I thought, hmm, strange? But their timing could not have been better. Something I will have to keep a closer eye on in the future.

Being back I have had triple doses today of both Kunstler and The Mogambo Guru. Doomer stuff. But many good points to keep in mind as the summer-like weather in mid-winter was lulling all the bulls into hybernation instead of vice versa. Well, no new insights, so I will just wait for the crude stock releases later. Cheers.

[cube]

$this->bbcode_second_pass_quote('MrBill', '.')..
Now, I will go out on a limb and say we have probably seen the lows for now. But predicting the weather is a mug's game, so I will wimp out and stress the 'probably' part.
....

[MrBill]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('MrBill', '.')..
Now, I will go out on a limb and say we have probably seen the lows for now. But predicting the weather is a mug's game, so I will wimp out and stress the 'probably' part.
....