OPEC Signals U.S. Rally 23 comments
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The headlines stating that OPEC President Chakib Khelil believes oil could hit $200 a barrel are completely misleading. What he’s really doing is posturing the US Federal Reserve to stop cutting rates because the low dollar is killing the rest of the world. The real theme from his comments are that oil supply levels are great, in fact, he said that US gasoline inventories are at 5 year highs with easing demand.
"The prices are high due to the fact of the recession in the United States and the economic crisis which has touched several countries, a situation which has an effect on the devaluation of the dollar, and therefore each time the dollar falls one percent, the price of the barrel rises by $4, and of course vice versa," Khelil was quoted as saying in brief remarks to journalists on Sunday. "If this [the dollar] strengthens by 10 percent, it is probable that [oil] prices will fall by 40 percent."
Linking the price of crude to the rise and fall of the dollar is a brilliant move. OPEC has lost control of oil price; it’s 100% in the hands of the speculators in the futures market. He is doing everything he can to lower oil prices and regain pricing control of his commodity. Sharp rises in crude are not conducive to OPEC’s long term strategy. I’m sure the Fed is listening. I’m sure the Treasury is listening. I’m sure all of Europe is listening. As well as the Chinese. Everyone will be trying to get their hands on the almighty dollar in order to lower oil prices.
I’d like to thank Mr. Khelil for giving us the green light. As a result, we’re going to see domestic stock price multiples far outshine those that we’ve had over the last few years without the foreign capital in our market. America’s on sale and the world is buying. Time to buy the S&P 500 (IVV).
Disclosure: none
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This article has 23 comments:
As far as stock price multiples increasing, isn't the market still historically overvalued? To increase substantially from here would be another bubble! What is the technical term for bubble stacking?Aside from the financial sector, have we even had a significant correction yet? The total market cap is still over 120% of GNP. Warren Buffet has stated that you can find good value investing in the market at 70% to 80% of GNP; historically, the market averages closer to 50%. Pretty general, but a good indicator of where the market can go from here.
Last time a check, forex gains are the biggest part of earning of major companies and more importantly, the index are denominated in dollar. So when the dollar reverses, the index has to be lower.
They claim, they have 260 billion of oil, and that for 20 years in a row. Well that is some miracle.
If the Saudis really are so concerned about the world economy, then why the hell don't use their infamous '3 MILLION BARREL SPARE CAPACITY' and crush the price of oil, like they did in the past.
Because they don't have any spare capacity. Not a barrel not cup.
Or does anyone think, that they would invest billions to bring a field online, they abandoned years ago, because it was to expensive back then?
At 120 Dollar Oil every field on this planet produces at the limit. If anyone thinks otherwise, than i am sorry.
And again i have to bring following argument:
If revenues of oil-service companies around the world multiplied over the last couple of years, then why didn't production?? Because for the last 50 years the world lived in this unnatural state, where oil came from several giant fields. These fields were every oil companies dream.
Huge and easy to deplete. And they made oil cheaper than Coca-Cola.
These fields are gone, or about to be gone.
Easy oil is gone, now comes the hard part.
Folks wake up, these are not the eighties, when Reagan gave the Saudis a call and they crashed the oil-price in a heartbeat.
Four misconceptions by the author are plain obvious:
First: the high oil price is not just due to speculators and hedgefunds. a truly seismic shift in the supply-demand equation has occurred over the past 5-10 years and given the very high inelasticity in demand as well as supply(!) this picture is not going to change significantly for several years to come.
Second: the high oil prices are not just a result of a weak dollar (i.e. producers demanding a higher $-price as compensation for a fast depreciating currency) rather, they are a result of the higher costs in dollar terms for finding, drilling and shipping oil. profit margins may still be high for CURRENT oilfields, especially in the middle east. However they are much, much lower for future production. talk about replacement costs for existing reserves! it is not just much more expensive in $ terms to buy oil, it is even more expensive to hire drilling equipment, tankers, build pipelines etc.
Third: It is not that the entire world will start buying dollars to bring oil prices down. Come on, have you even thought about this silly notion? Europeans pay higher oil prices, too, but to a much lesser extent since oil in euro terms hasn't risen as much. WHY on earth should they susidize the U.S. by buying their green toilet paper?? they have hardly anything to gain from it! oil prices would decline in $-terms but would decline much less or nothing at all in euro terms. in exchange for gaining almost nothing, Europeans (and Asians) end up holding even more of junk treasury bonds with zero-negative real yields and which will depreciate further long-term?
Fourth: Even if massive new dollar buying would occur (plenty does occur regularly, or else the euro would have crossed 2$ long long ago and the $ would hover at about 50 yen) only very little will flow into u.s. stocks. Central banks' money will go into treasuries, as always. The rest will rather serve to acquire real assets when the valuations are right, such as plant, equipment, commodities, real estate, companies or parts thereof. the money will not flow into Citi's stock or into BAc or the likes.
so before you load the boat with S&P index stocks you might first examine your thesis and really think about it
Well, it seems to me Mr. Schwarz is having a bit of fun with us...if you are going to tell a lie, be sure to include some truth.
The lie: "If this [the dollar] strengthens by 10 percent, it is probable that [oil] prices will fall by 40 percent."
The truth: "America’s on sale and the world is buying. Time to buy the S&P 500 (IVV)."
Mr. Schwarz completely ignores the impact of supply and demand on price...the price of oil may 'correct' temporarilly due to (either or both) a stronger dollar and worldwide economic slowdown; but it will surely resume its upward climb until massive amounts of alternative energy sources are in operation.
Surely America is on sale, with our deficits, the dollar cannot get so strong that our goods, or real estate, and our companies are not attractive acquisitions to foreign peoples and companies.
p.s. The rest of the world is laughing at the Americans...we are whinning about the cost of carbon-based energy, while they have less disposable income and have adjusted to gasoline prices equivalent to $10/gallon. Get over it! Institute a "Manhatten Project" for alternative energy, and secure your independence from Middle East oil!
My take: the US imports only 3% of its crude from Saudi proper. The bulk of our imports come from Lord Hugo,Mexico and Canada. While the economic arguments are fair...there are some powerful forces in the NYMEX casino,Rotterdam and Moscow who want the
US dollar "tubbed" as the international settling currency for crude oil purchases and sales. You missed that one,men ! However, on the home front..the costs to drill,complete and produce ANY new well..from a posthole depth to an offshore deep probe have sextupled(or greater) in the last 8 years. Whether it is greed,inflation or the other guys on the upstream or downstream side of oil and natural gas E&P wanting their share of the pie...
it now takes a hell of a well to generate a 3 year cash-to-cash ROI.
There are no more BIG vertically drilled wells in the continental US.
Out here in the trenches(and out there in the Never-Never tranches)
the oil & gas game at these idiotic prices is the tail wagging the dog.
The only price-at-the-pump "lifejacket" left is abolition of all fuel taxes until this madness turns. But, governments never make sacrifices..do they? No more rambling..Fred X and fxtrader said it all..
Therefore, whether Saudi Arabia can produce more or not (and I'm undecided on this question) is irrelevant--they have served notice that they won't do so.
As to cutting gas taxes in this country--that would be the biggest mistake we could make. We have to take our pain now--or take MUCH MORE pain later. If we had taken our pain 3 decades ago, we wouldn't be addicted to oil now. We use several times more oil per capita than Europe--we could eliminate imports entirely, and still be using much more oil.
We need a Manhattan-type project to get off this addiction, and do it quickly, and high oil prices is exactly (and unfortunately) what Americans need to motivate them to decrease demand.
Jack Yetiv
You want to blame Bush? No wonder things are a mess.
How about blaming the oil companies that make billions? Ot the suv drivers? Or your own lack of driving knowledge? Or the motor companies? You want to blame Bush? lol lol lol
McCain wants to help by not taxing us during the summer months. That would be a plan for some savings.
Oil @ $70? We should be so lucky! While I can't dispute that chance of a fairly sharp drop in oil, should the global economy were to take a big hit, I'm thinking a "floor" somewhere in the $90 range, and as the economies resume perking, the price goes back up, up, and away. As a previous poster (actually, a couple of 'em) pointed out, the price of "new" production has gone through the roof.
jan
Ethanol, wind, solar, biofuels will not displace more than 5% (if that) of our energy requirements anytime soon. The only realistic fuel alternative is nuclear energy. However we still suffer from the "Three Mile Island" Syndrome despite the fact that nuclear plant technology has advanced generations from the past. France now derives almost 75% of their energy needs from nuclear plants without one accident. An aggressive schedule for the building of nuclear plants is our only alternative to possibly avoid $200+ oil in the future.
Oil at $115 trades 12% above the 1967 CPI Index after trading below it for the better part of 40 years. Due to our lack of an energy policy here and the growing worldwide demand for oil I dont see oil ever trading below $100 for any length of time as is inexorably marches to much higher levels.
Boy are you guys confused, but I guess finding yourselves at the beginning of genuinely stressful times can do that. Why all the crying about oil @ $100+ per barrel? You all need to face-up to the new reality, that the price of oil is esentially linked to the value of the US$. And for that you should remain so very happy, for if OPEC were to price oil, as some members have proposed, in a "baseket" of currencies, the US$ would most likely sink even further and that price of $150 per barrel would be the "floor" not the ceiling.
Besides, US multinationals absolutely need a weak US$ to remain competitive today, in a world where they must increasingly sell their products on price. Forget about "made in America" as a sign of quality! Junk bonds, junk cars, junk food...follow the bouncing ball!