My Oil Outlook 30 comments
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Here we go again....
First, read this post for some reasoning.
Some additional thoughts:
1- If successive quarters of -6% US GDP and a global recession cannot get oil to stay below $45 - $50, I'm not sure what can.
2- The world IS NOT a more peaceful place.
- Iraq still dangerous
- Afghanistan a mess
- Pakistan teetering
- Iran/Israel about to come to a head
3- Supply
Looked like world supply is cratering, Mexico continues to run out faster than anyone expected and Canada's tar sands are not profitable with oil at these levels.
I think any risk to oil prices is clearly a risk for a large spike to the upside.
How to play it then?
As I said before I am not doing the DXO again for a longer term play. It is a "double" ETF which is great for trading BUT bad for holding. The reason is that 2% of a drop > 2% of a rise. So even if the actual oil bounces around for 6 months, the DXO will lose ground to it.
So what then?
USO. It tracks the crude market.
Here is the catch. I am still anticipating a market sell off and money is not in infinite supply. So while I want to go long USO I do not want to tie up larger sums in case we get a sell-off and bargains abound. Dilemma? No.
Friday morning I bought Jan. 2011 $35 calls in the USO (symbol OLL AI). At the $35 price it equates to roughly $58 crude which I am rather certain will be easily lapped by 2011. By doing it this way it costs $1100 to control today, $6000 of USO, and it keeps money free for other uses.
It also frees me to use DXO for a short term play on occasion, which is really what it is meant for. I think I may find myself picking some up before the Obama/Netenyahu meeting later this month. I think the rhetoric coming out of that might make oil markets a bit erratic.
I think this is going to be a wild ride....
Disclosure ("none" means no position): Long USO through options, none
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Don't you pay enough taxes? Why volunteer more....I can think of better ways to spend my hard earned money than giving it to the government to waste on some bull shit programs!
Yes, we can all learn how to better conserve. But we also need to start building nuclear plants and develope our other resources like coal and natural gas.
This mentality of “just raise taxes” and “government knows best” - just continues to hold America back!
On May 03 01:45 PM Kunst wrote:
> This is an ideal time to implement a gradually rising gas tax. I
> know this raises hackles, but we have got to reduce our oil imports,
> and this is a good way to start. It will encourage conservation and
> energy-efficiency. A few months ago, I would have said it could be
> made revenue-neutral by lowering other taxes by an equal amount,
> but with the debt bomb going nuclear, it might be better to let it
> be a revenue source instead.
oil is a global market. it doesn,t matter what happens in the u.s.
On May 03 09:12 AM The Greatest Rip Off of our Time wrote:
> The best part about oil's plunge into the $40 and $50 barrel in about
> six months?
>
> A de-facto tax cut for American motorists. Each $1 per barrel drop
> in oil increases U.S. GDP by $100 billion per year and every 1 cent
> decline in gasoline increases U.S. consumer disposable income by
> $600 million per year.
> The last 20 years have been characterized by rising U.S. oil consumption,
> but now the U.S. Energy Information Agency. incorporating the most-recent
> changes in U.S. consumer behavior, says there will be no appreciable
> growth in U.S. oil consumption between now and 2030, with biofuels
> accounting for all of the growth in liquid fuels.
One comment on the oilsands - you need to take care to distinguish between existing producers' costs (including the costs of expanding their existing production) and those of entirely new sites. The former are currently running costs of between C$30 - $35/barrel (e.g., Suncor, Syncrude). That's about US$25-30/barrel at current exchange rates. Properly managed expansions will see their costs rise, but they will probably remain under US$35/barrel overall.
New sites, which require the full panolpy of infrastructure to process the product and bring it to market, do require higher prices. For them, they probably need long term prices in the US$60-70 range to justify their investment and risk.
I'm still more comfortable owning individual oil stocks, yet these certainly are not pure plays on oil and gas prices. I do use DUG as a very short term hedge against my oil stocks. At least with individual oil stocks I can pick and choose based on how well I understand their business efficiency. I'm still struggling to understand the price behavior of USO. For all I know, USO may have more upside potential than actual oil prices since USO is lagging behind oil at present.
The main reason why oil is stuck around $50 now while during a similar period around 1999-2003 it had gone below $20 is because ten years ago the US dollar index was over 100 then while now it's only hovering around the mid-80's.
www.insidefutures.com/...;MACD
Oil as a commodity will continue fluctuating between $ 52 and $54 till we get a clear picture of US unemployment report and US bank reports.
Traders are getting lost when it comes to future and forcast no one has certainty about the market directions
You have to pay for waiting.
My point is that the margin requirements only constitute a downside risk of 10%. While I can understand why these margin requirements are key for refiners and other "primary" users of Oil I find it unfathomable why they are pertinent to maintain for "investors" (speculators).
Let me explain, when the dow was ripping at 14,000k where was the risk premium? Putting more money into the equities market which had little upside potential (and by most people estimation a down side risk much grater- although I don't think anyone thought it would be 50+%) or, instead, become a pariah on the American consumer by buying up commodities- things the consumer has to have.
Then at what time does the feed back loop become a self fulfilling prophesy:
You buy commodities thereby raising the input costs for goods shrink the margins of corporations. This intern collapses the consumer. The equities market in turn falls down because the producers of products are him not just with margin compression but sales falling as well so earnings fall out of bed.
For a 10% downside risk I'm sure there were a couple of guys willing to bet on this theory. I wasn't one of them but am lived the pain of their exercise everyday at the pump and in my business.
I really want to get into the oil trade, but like the author, I'm waiting for the sell-off to get back in.
So I would ask you to get off the "right/left" thing.
On May 03 12:12 PM Cetin Hakimoglu wrote:
> yea...the only viable alternatives are despised by the left; nuclear
> and coal. Oil is going to 150 within 18 months. Too much demand.
>
Here a graph of USO in relation to the Crude spot price:
stockcharts.com/h-sc/u...
You can lose like 10% per month!
Better use USL instead:
stockcharts.com/h-sc/u...
Iraq was dangerous, Afghanistan was in a mess, Pakistan was teetering and Iran/Israel were being rude to each other when oil was $147 a barrel - so whats new?
So today, oil is around $54 and USO is around $31. I don't know what's causing this disparity but buying USO to track oil prices upward was a large mistake for me. I should have just bought more BP and got the dividend plus the CG.