BrotherMaynard

Best Investments for Rising Oil

btw, i never understood why oil (or other commodities for that matter) were such a great idea when it came to the falling dollar? Why not just bet against the falling dollar in...the forex market? At least in the forex market you don't have to deal with non-currency related issues like OPEC or EIA demand statistics, or driving habits of americans, or how many cars chinese consumers bought? just a sloppy way to hedge in my opinion.

seriously, though, how many 10-k's has anyone read where currency risk was hedged away by buying commodities?

Best Investments for Rising Oil

RE: Nelsanity

"Oil being priced in dollars is not comparable to your house (assuming you live in the US). When Saudi Arabia sells a barrel of oil in dollars what are their costs in?"

Look...the currency markets are seperate from the commodities markets, fundamentally speaking.

There is no fundamental reason for the commodity/currency trade other than speculators think it is a better store of value than the dollar (or whatever currency happens to tickle everyone's fancy).

The dollar movement has nothing to do with fundamental supply and/or demand for the commodity, any more than it does any other asset on the planet.

The dollar can go all over the place, but commodity prices are ultimately a function of supply/demand, not currencies, despite their obvious correlations. Somebody must buy or sell the actual commodity to set the prices...the prices just aren't "adjusted" by a market maker.

Again, the dollar/commodity trade Its merely a speculative store of value. It is not an axiomatic price-setting mechanism like supply and demand, and therefore buying/selling commodities becuase of currency movements is more noise than signal. And if it goes on long enough, you start to get large dislocations.

Best Investments for Rising Oil

Not a very good -- these sort of platitudinous assumptions offered up by the author are similar to the idea that trees grow to the sky and its amazingly easy to see how this sort of careless temperatment got us into the housing mess.

"Almost every investor is aware that oil supply is getting harder to find, while oil demand from growing economies is rising."

Well, if you are a contrarian, this is a red alarm. "Almost every investor..." is like saying "everybody knows land is finite and population is growing, so housing prices are going up forever." In addition, the author didn't really offer any evidence/data to support his statements, much less for anybody to refute, but I guess just assuming he is right is good enough? That's how you lose money, in my opinion.

"Furthermore, underinvestment in oil industry infrastructure leaves open the door for an energy shock if a global economic recovery"

Again, this guy is bringing nothing to the table...no statistics, just a headline that you can read on most any newspaper or blog...in other words, every capital market on the planet has priced this in. Nobody should risk capital (short or long) based on these platitudes alone.

"Barrels are priced in dollars, so as the value of dollars fall, the price per barrel will rise."

I understand this correlation is undeniable. But the causation is flat out erroneous. Look for this correlation at any time during the 90's...it didn't exist, and for good reason. Pricing oil higher because the dollar fell is double counting. The currency markets, prima fascia, are responsible for repricing all things on a relative basis. For instance...my house is priced in dollars, so ceterus paribus, my house is worth more because of the dollar fell? You never hear Shiller or CR talk about the dollar being a tailwind for houses. It's fundamentally no different for oil and investors are asking to get burned by assuming this is a sound fundamental reason for risking capital.

"Remember that the next time some part-timer tries to sound wise by pointing out that the leveraged ETFs are calculated on a daily basis -- as if you didn't know that by now, and as if it means they can't work for periods beyond a single day."

This author could've offered some valuable insight, but instead decided to drop ad hominems. So i will attempt to add some insight to leveraged ETFs...Going long a leveraged fund is being effectively short volatility. As volatility falls, you should do OK. But as volatility rises, your returns will indeed erode. So for example, when the VIX hit 90, people lost money hand over fist, no matter which side of the leveraged bet they were are on. In the world where VIX is 20-30, they should probably do OK. But again, doing the leveraged thing is taking on unecessary risk because it adds the fate of the VIX into your total return.

Is Oil Going the Wrong Way, Or Do We Need to Adjust Our Perceptions?

i would be scared to death to do anything other than follow the trend with tight stops. this oil market makes no sense. fundamental/technical drivers seem to always be ex-post. no positions.

Oil at $50/bbl: Where to from Here?

"why oil is not at $30/bbl or below? Because the general mood is that the economy is bottoming out, we will soon see recovery and then"

You are making an eggregiously wrong assumption by saying this. "mood" implies that there is some sort of future discounting happening at spot prices. but that's impossible. there are no future cash flow in spot prices to discount. i don't know why this equity mentality continues to show itself in commodities. equities and commodities are apples and oranges. if you don't understand that, you shouldn't be talking about oil as if you do.

you need to go back an reformulate your entire argument based upon the fact that there are no future cash flows in spot prices and therefore no such thing as future assumptions in spot prices.

What Really Caused Oil to Boom?

Please be careful with what you state. Let's not forget the oil bubble started after physical de-coupling in the Futures markets in 2001. And it stopped extremely abruptly... when credit and leverage ran out, and not only for oil, but all commodities. With the IMF stating that worldwide listed derivatives now totaling 542 trillion and OTC derivatives totaling 863 trillion ignoring that the bubble was largely driven by speculators is well ... just as naive as thinking it was driven by a "worldwide conspiracy mwouhahahaaaa".

excellent points. oil price volatility has not gone away despite the fact that every exchange member and commodity dealer said it would (back in june/july 08) when markets became more loose...well, here we are, 18-year high levels of US storage and boarding on record opec spare capacity...yet oil moves 8-10% a day. take a look before 2000 and you will see this type of volatility was the exception, rather than the rule that it seems to be today.

Oil Is Years Away from a Meaningful Recovery

"It seems likely that the world needs US$75 to US$100 per barrel oil to encourage long term supply."

I don't understand why this holy rote is constantly spewed.

Using today's cost structure, that price range would be true. But if you look at the margins of nearly every oil service stock, they have triped and quadrupled over the last cycle (~5-6 years). there is no doubt those are coming back down (in half or even by 2/3rds), and with it, the cost of e&p and thus, the cost of the marginal bbl of oil. unconventional locations (deep offshore; oil sands) will still remain relatively high, but the tide is now shifting to the point where suppliers and servicers have lost all pricing power, and with it the cost structure of E&P's. The current cost of materials is still in the $75bll range, but keep in mind, the downturn in oil is but 6-9 months old (it started in July/August 08)...so in another 6-9 months, don't be surprised to see costs cut in half, to the point where new explo is feasible at $40 and $50bbl.

Oil Rises Again: What Does it Mean?

higher prices are not the result of anything fundamental. we still have massive oversupply, evidenced by the 80m bbl floating offshore; Cushing filled to the brim; ballooning OPEC spare capacity and awful demand numbers.

the bounce is dumb money flowing into etf products in the hopes of getting in on the "dollar weakness" trade. This trade is, in and of itself, ludicrous, as oil's appreciation is due to nothing more than paper chasing paper.

In fact, I would argue that these higher oil prices are going to impel the speculative oil that is in storage to be dumped on to the spot market, putting abnormal pressure on spot prices. The evidence of this could be found in the weekly EIA reports, which would likely show a downtick in cushing supply, but abnormally large overall builds in commercial stocks.

Until there is a genuine uptick in demand, oil is going to have a tough time sustaining itself above $50 for any multi-week period of time.

WTI and Brent Oil Prices Are Normalizing

Don't forget about OPEC. They are in massive pain given the cash flow they are giving up on b/c of production curtailments. Bloomberg quoted the Iranian Oil minister (see link below) the other day saying: "“I don’t believe we will go toward another production cut...In this meeting we will need to review the economic situation in 2009 and 2010." These are the guys that have been broken records when it comes to production curtailment.

Now, it makes sense that OPEC would show the most compliance early on. But as the world economy is not getting any better, and given that OPEC never diversified their respective economies (i.e. they are still 80-90% oil driven), it is conceivable that they start cheating to relieve the pain. So that is def. a risk that could provide the negative catalyst for another leg down.

here's the link: www.bloomberg.com/apps...

Too Much Oil (and Other Fuels)

BMW...you're not wrong. But what you are saying is synonymous with saying that the US and Global economy are going back to growth mode in the next 4-6 quarters. Its hard for me to imagine the US and global economy going anywhere without financing, given the awful state of banks around the world.

in addition, to your point about leasing tankers b/c of super contango... the near month price spikes are going to be capped given this massive build in inventory...if oil goes to 60, those ships will come to harbor or cushing will open the spigot and dump their supply...after all, why pay financing for another 8 months if they can recognize the gain 60 gain immediately. The point is, there is an oversupply problem. Oil isn't going back to 60 or 70 any time soon...not without a lot more pain to clear inventory out. That's why i believe equities, in general, will rebound before oil...equities are a function of future profits....oil is more a function of supply/demand (inventory)...not to say future expectations aren't included in oil, its just that (and i'm guessing) their effects are watered down during periods of oversupply.

Analysts Flip-Flop on Oil Again

I think Schork is probably the worst example of a flip-flopping analyst...the guy was calling for the oil bubble to burst months before it occured. He seems to be one of the few realists out there.

see here:

www.cnbc.com/id/158402...

"just like dot com and LV real estate...markets don't go higher forever" - Jun 08

and/or here:

www.cnbc.com/id/158402...

"there is plenty of oil...today its a traders market...whats a trader? nothing but a pavlovian dog...oil has no fundamental reason for being at these levels" - Apr 08

Oil's Rise Due to Fundamentals - UBS

John L pretty much summed it up. That sort of myopic point of view that UBS is pushing is a losers game.

In fact, the move just might be the complete opposite of fundamentals that drove the roundtrip over the past few days as USO and DJ-AIG Commodity trackers rebalanced their portfolios this week: FTAlphaville took a look at this: ftalphaville.ft.com/bl.../

Oil Speculators: Still Waiting for that 'Thank You'

"Speculators do not move markets they follow market movements they do not control markets."

just like tech and housing and credit and...

Oil Speculators: Still Waiting for that 'Thank You'

"you can't be serious -

thank speculators for shafting consumers, airlines, general motors, etc.?"


i agree. congress is a form of representation. The majority of the constituents that congress represents are net short oil. congress starts complaining when people start complaining. don't blame congress, blame the 300 million people that are being whacked for the sake of "market liquidity"...ubelievab...

Q4 Oil Price Targets

If oil is so dear, who is there a vacuum of m&a?