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Crude oil continues to march higher, May WTI taking out the $110/barrel level last seen in the...

Crude oil continues to march higher, May WTI taking out the $110/barrel level last seen in the summer of 2008 (it was on the way down then). OPEC contends the market is well supplied and thus cannot do anything to relieve prices. Perhaps Jeff Rubin and others are right and OPEC has no spare capacity. USO +1.4%.
Comments (6)
  • BRUCE LM
    , contributor
    Comments (42) | Send Message
     
    It's not capacity, guys, it's anxiety over capacity...and that draws the long money to the ETFs to make for a never-ending bid....
    7 Apr 2011, 01:19 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    If your assertion were correct, a profitable strategy would be to buy soon-to-expire contracts from the ETFs (who have no choice but to sell), take delivery of the oil, and sell it immediately on the spot market. Go ahead and try it if you really believe that today's prices are being driven by ETF-based spec longs.

     

    Oil is price-inelastic and as a result widely hedged. Those two factors combine to make the spot price volatile and to allow futures prices to have an outsized influence on the real economy. However, contango discourages hedging and by doing so provides a means for the reduction of the influence of futures contract pricing on the prices actually paid by commercial users. Therefore the impact of ETFs on real oil prices in the long term is small. Many studies, some empirical and some mathematical, have shown this. But if you don't believe it, you are, as I said, welcome to employ a trading strategy that would both profit from and reduce the supposed impact of ETFs and other spec longs.
    7 Apr 2011, 01:47 PM Reply Like
  • BRUCE LM
    , contributor
    Comments (42) | Send Message
     
    Ah, sounds like you trade futures; sorry, champ, but I don't buy the weak influence argument. Who needs to to get oily when we can just trade paper.... Most IBs and HFs would never trouble themselves with anything so complicated when they can get the exposure in an ETF, which is problematic, since these markets were never intended for investors with long only exposures, but were designed for actual hedges on actual needs. Hence the unending bid, as massive QE generated money flows in to an "asset class" and just stays there...until it doesn't.

     

    Best to you in your trading, and thanks for permission to do the same;) (lol)
    9 Apr 2011, 08:29 PM Reply Like
  • nightfly
    , contributor
    Comments (1017) | Send Message
     
    Everything is good for the consumer and stocks. Just keep buying!
    7 Apr 2011, 01:25 PM Reply Like
  • deeef
    , contributor
    Comments (8) | Send Message
     
    Perhaps it's because Iran is in charge of OPEC for the first time in 36 years and they don't mind inflicting some pain.
    7 Apr 2011, 01:32 PM Reply Like
  • wyostocks
    , contributor
    Comments (7620) | Send Message
     
    Geopolitical fear. Plain and simple. Stay long and ride the wave but be nimble.
    7 Apr 2011, 01:35 PM Reply Like
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