Growing Fears in Oil

It really is interesting to read and watch the activity in the various commodity markets. What is becoming apparent is that Oil traders and commodity speculators are paying top dollar (a nice play on words) for options to protect their positions in the price of crude (or they are selling naked).The fact is the price of oil is up almost 62% this year. Comparing this to the S&P 500 or many other markets, this rise in the price of oil is what commodity traders - that are trend followers - are looking for.

It is really anyone's guess if the price of oil is a so-called dead cat bounce, if there was a rational reason the price of oil jumped, or if the price of oil will drop. To trend followers it absolutely does not matter. What matters is that price moved and depending on their trend following system, these commodity trading advisors took pieces out of the trend.

It is quite possible there can be a retreat in the price of oil if one wants to predict (heaven forbid trend followers react, not predict) when looking at a simple weekly MACD. True trend followers just follow the price and are willing to give back some of their profits. Compare this to those traders who might not have a plan, and who are just fearful and are currently paying a lot of money for puts.

Currently there is a premium for Dec. 09 as well as other strikes. This shows the market is worried. The speculators are betting on lower prices. If I would bet, I would take low risk bets following the trend as a pose to try to predict one. All one has to do is compare the returns of so called Oil gurus - Amaranath/T Boone Pickens (who experienced tremendous draw downs) to trend followers who made a fortune following the trends in the price of oil.

Comments

[jerrydd:]

I've been saying oil will drop this winter for some time as demand is way too low to support such prices we have now. It's only speculators that have kept it as high as it is.

While I can see long term bulls on oil, short term is rather shaky. It won't be until late next yr before oil demand picks up enough to justify higher prices as the economy recovers. So I'd invest in something else now until the winter lows and buy then for the long haul, 5-8 yr after which oil will decline in price as other fuels, eff takes it's place.

Sep 22 09:17 AM

[akapital:]

"The fact is the price of oil is up almost 62% this year."

That is certainly a fact that I will not dispute but to put in context oil is well below its all time high. But perhaps both of those price points (both the all time high and the price as of Jan 1) are anomalies. And that is why the short term oil trade is befuddled me thinks.

Sep 22 01:41 PM

[Vuke:]

For those awaiting big declines in the oil price consider:

China now has 120 million autos. Chinese growth is forecast to be 8% plus for the next two years. New auto sales have been outpacing US ones periodically.

India is selling over 100,000 new autos a month.

Sales in Africa and elsewhere are growing while usage is not declining.

Any U.S. slowdown is a drop in the consumption bucket. Meanwhile, oil production is diminishing from many fields. Any "new" fields coming will be high cost fields.

We have reached "peak cheap" oil and can look forward to only higher prices, with the odd blip.

Sep 22 07:19 PM

[Ryu Mei Co:]

China may have so many autos, but Shinopec had announced huge oil inventory and less demand in China. OPEC had announced lesser demand for oil for the Winter too and maintained daily supply output. Why?

Consider:

Oil efficient technologies are showing up in every sector of the markets you can see.

China and India may be selling more cars everyday, but their fuel consumption is way more efficient than the fuel hog Ford F150 trucks or the Hummer that many Americans likes to drive.

Also consider these, Japan has drastically reduced fuel consumption in every areas possible by educating household to use less electricity, implementing solar and installing wind turbine. Big corporate companies installing "natural light" and purchasing smaller and more fuel efficient trucks and cars for companies employees. People are travelling less, and travel by bus, trains and the go to work by bikes are still very popular in Japan.

The only reason Oil is up is because of China and India, but I dont buy that crap reason. It is all due to the cheap USD and some greedy commodities traders pushing the oil price higher. If it is due to China and India, then please tell me why the global oil supply is still over crowded?

On Sep 22 07:19 PM Vuke wrote:

> For those awaiting big declines in the oil price consider:
>
> China now has 120 million autos. Chinese growth is forecast to be
> 8% plus for the next two years. New auto sales have been outpacing
> US ones periodically.
>
> India is selling over 100,000 new autos a month.
>
> Sales in Africa and elsewhere are growing while usage is not declining.
>
>
> Any U.S. slowdown is a drop in the consumption bucket. Meanwhile,
> oil production is diminishing from many fields. Any "new" fields
> coming will be high cost fields.
>
> We have reached "peak cheap" oil and can look forward to only higher
> prices, with the odd blip.

Sep 23 01:09 AM