Dan Walker

Getting Out of Today's Bear Market

I am growing tired of 'happy hour economists'. If you look at import/export data from EIA, you will see that the US EXPORTS 1.44 million barrels per day. (I did not abbreviate since I will assume that is why most of you did not understand the first time). Another article posted here today charts that in May, China imported 3.8 million barrels per day. That means the the good old United States of America exports almost 40% of China's daily oil needs. Admittedly for the most part we import crude and export refined product, but the gross raw flows still hold. We are burying a bit under half of China's oil imports in our own and claiming there is a shortage, and that the world is about to run out of oil. I also noted that Goldman's stock declined 4.5% today, getting tossed in with the universal financial equity rout which has been exacerbated by the rise of crude prices. Since their traders and management are undoubtedly holding a fair amount of their stock from their incentives (those are stock options exercised for you 'peak oil' devotees), how much longer do you think THEY will continue to flog a bogus oil rally for 'the good of the enterprise'?

As Global Demand Rises, Oil Production Remains Flat

Curious how everyone with any media access, shilling for any speculator(s), has stepped up the parade of 'facts' about how the run up in oil is not because of speculation. The reason these 'facts' can be tossed about is the way it occurred. ETFs can invest in oil and many do via, ironically, 'derivative contracts' with securities firms. Pension funds have jumped on this band wagon to the tune of Billions of dollars. The problem is they 'buy and hold'. This is supposedly a sound financial tactic for stocks, real estate, etc. In the commodities market, this is called HOARDING. The reason the flim-flam artists can disguise this is that these 'customers' don't take delivery because there is no place to store the oil. The securities firms issuing the derivatives just roll the contracts into the next month (320 million barrels in June).

The next problem is you have Goldman and Morgan (the two who still appear solvent due to their long oil profits) buying oil both to facilitate the trading market and for their own account. They are allowed to ignore the normal position limits because of the 'Enron Loophole' which, when it was 'closed' excluded crude oil.

The solution is fairly straightforward. Pension funds and primary dealers are both regulated as well. Forbid pension funds from buying oil ANYWHERE. While you are at it, throw in insurance companies as well (just in case). If they are genuinely looking for protection against inflation, gold will substitute nicely and no one needs it to get to work. Re-establish the position limits which were eliminated with the Enron loophole. The CFTC now has the emergency powers to do that TOMORROW. If we want to address the problem quickly, release the strategic petroleum reserve at about 40 millions barrels a month, physical delivery on NYMEX. As already mentioned, the storage facilities are full (a dead giveaway of a phony shortage and rampant speculation). Since the storage facilities are full, when tanker trucks start backing up on Broad Street in front of Goldman HQ, the NYPD will take care of oil prices by hauling all the traders off to jail for blocking traffic . (Again, I am being facetious, but not by much). If all the President's buddies weren't in the oil business, he could have the Fed short oil futures before this happened and pay down the national debt significantly by the time oil hit $30. THAT would bring the dollar roaring back and in large part solve the crisis which is about to unfold (but that is for another rant).

Oil's Supply and Demand

It doesn't look as if anyone has added that China's economy is headed to the outhouse. Half of their invested capital has evaporated in the last 9 months, their inflation rate is running around 7-8% and they are in better shape than most of their neighbors. Sadly enough, they are sitting on a pile of our currency, which, if they revalue the Renminbi, will drive our currency down even more. You also obviously posted this before they removed their latest oil price supports. It ain't looking pretty here no matter which way it goes.

What’s Driving Oil Higher? It’s the Dollar, Stupid!

"Yes, I do understand that it REALLY is not that simple, as the dollar has risen in recent weeks and so has oil, but you get my point, right?"

No I do not. Go back and look at the charts you posted above. Markets do not go straight up exponentially (as every one of the charts above show) under normal circumstances. Go back and read "Extraordinary popular delusions and the madness of crowds". I smell tulips. There weren't any hotshots wanting "to be the first one to buy a contract at $127 as there was at $100 today, were there? This may not top out until the end of the month but if you look at the charts, the brazen are becoming a bit more cautious at the highs. When even the bulls start becoming more skittish at "Going where no man has gone before" it is because the guys in the pits are acutely aware that there is almost no one left to buy. Wired.com featured an article Tuesday saying "oil would just keep going up" Since when did they know energy futures from ESD?