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Gold 1, Oil Analysts 0

You can now monitor the deflation/inflation cylcle in real time. The monetary inflation rate will be updated daily as a headline in each Brad's Desktop article on Hard Assets Investor (www.hardassetsinvestor...).

On Nov 16 08:02 PM otbricki wrote:

> Gold has nowhere to go but down from here. We are in a deflationary
> spiral for the next year because of massive deleveraging destroying
> money faster than the Fed can force-feed it into the economy.
>
> Longer term though the pendulum will swing the other way and gold
> become a good investment as oil skyrockets and the dollar tanks.
>
>

Gold 1, Oil Analysts 0

The relationship, I'm afraid, cannot be annuled. Goild and oil are wed for life. Bottoming in the gold/oil ratio, in fact, is a herald of impending economic slowdowns.

The last five US recessions followed 20 to 30 percent declines in the gold/oil ratio from then-recent highs. The current market got followers of the ratio particularly nervous. The ratio nearly 50% from its February 2007 high to a trough at 6.4-to-1. If nosedives in the ratio are indeed predictive, the recession forecast then would figure to be a real whopper.

And why would a dip in the ratio predict bad times to come? Put simply, rising oil prices – relative to a monetary constant like gold -- slows industrial and consumer demand, choking off economic growth.




On Nov 13 08:10 PM The hand wrote:

> maybe it is time for gold to leave its relationship with oil. this
> marriage should annulled as they have little in common except a coincidental
> relationship that has little love.
>
>

The Politics Of Oil

Street -

Precisely the point if you read the column below the graph ("Better to keep an eye on market fundamentals" et seq.).

As you can see from the remarks made by User 224899, there' are folks who believe the occupant of the White House somehow determines the course of oil prices.

There may, in fact, be better correlation between Superbowl wins and oil price trajectories. I haven't run those numbers.

Oil Analysts' Forecasting Average (1-for-4) Holds

Jet fuel is kerosene, not a fuel oil like heating oil or diesel, so its not counted in the distillate fuel category. Jet fuel is indeed down. By 9.2% year over year, in fact.

As for the crude oil/natural gas spead, you said "Nat. Gas has gone down approximately the same amount from its peak as has crude, just because it is closer means squat."

If you want to compare oil and gas on a dollar-for-dollar basis, that can't be true.

In September, the ratio was 15-to-1 in oil's favor. The ratio, as you point oit, now about 10-to-1. That means oil's premium has diminished. And that DOES mean something. Specifically, it means it was profitable to buy natural gas while selling crude over the past couple of months.

If your statement: "The old BTU generation equation of 6-8 times nat gas puts crude in the $40 to 52 range or some 30% lower than crude's current price." is a forecast, then remaining long gas/short oil would be warranted.

Oil Analysts' Forecasting Average (1-for-4) Holds

Keep in mind that the oil analysts reference in this report are NOT EIA employees, but representative of sellside (brokerage) firms and research organizations.

With that in mind, it's probably better to inquire into the credibility of these prognosticators.

A Giveaway Oil Market

But here, were discusssing THIS year's oil price. The year-to-date aveerage price of spot WTI crude is now $112.73/bbl. EIA is essentially saying that oil price action price for the balance of the year must such that the average will fall another 73 cents. If prices, however, stay at the current sub-$90 level, the average price will end up lower. Oddly enough, crude prices must RISE at some point to LOWER the average. Capice?

More Off-Base (Way Off-Base) Oil Forecasts

Not oil price predictions. Not even too high or too low. Just that consensus expectations of production and suppliy are notoriously inaccurate.

In recent weeks, the best Oil Patch prognostications have been 1-for-4 (oil stocks, gasoline and distillate inventories and refinery utilization).

The predicitions are made on the eve of the weekly EIA report's release. They're simply not good guideposts for trading.

More Off-Base (Way Off-Base) Oil Forecasts

Pautaut -

If you don't follow the numbers, you also don't follow the trends.

These numbers aren't isolated one-offs. They're the continuation of a trend that began before Ike was spawned.

Test-Driving Some Exchange-Traded Oil Vehicles

Given the current volatility of spot futures, there's a 2% probability of oil rising above UOY's/DOY's upside trigger of $185 per barrel by year's end. The probability of crude punching through the $15-a-barrel downside threshold in that same time frame is statistically zero.

I'd say those are pretty good odds for a DOY play.

Oil Analysts: 1-for-4

WHAT excess oil?

You're right. We're profligate consumers of oil and apparently have a learning disability. After a couple of oil shocks, we jawboned a lot about alternatives but quickly reverted to our old consumptive ways.

There are two aspects to "political will." First, there's the willingness of developed countries to reduce oil consumption. Then there's the ability of developing countries to sacrifice their "catch-up" gains.

OECD countries, especially those with established mass transit infrastructure, are much more likely to conserve. What incentives exist for countries anxious for modernization to do the same?

Oil Analysts: 1-for-4

While our thirst for finished fuels has diminished from last year's level, it's hardly a wholesale destruction of demand.

Oil companies, like speculators, are easy targets for politicos. The oil companies are producing less because they're GETTING less. Oil, that is. Oil fields are increasingly subject to nationalization as reserves dry up.

Only two words are needed to describe the forces at work: "supply" and "demand."

Oil Analysts: 1-for-4

Redbaron -

You're not missing a thing.

Production is NOT keeping up with demand. There's a lot of idle capacity (see the drop from 93.6% to 87.2% in utilization) because margins are so low. With yesterday's price blip, refining margins shrank further to 6.9% or 21 cents a gallon.

And the Oil Derby's Off...Way Off

User 224526 -

Check one of your quotes for accuracy and your presumptions. You cite one source saying:

"When Enron failed and took its private, unregulated energy exchange to the grave, another rose to take its place. The Intercontinental Exchange (ICE) was the brainchild of

Morgan Stanley,
Goldman Sachs,
British Petroleum,
Deutsche Bank,
Dean Witter,
Royal Dutch Shell,
SG Investment Bank and
Totalfina. "

Enron entered bankruptcy in 2001. Dean Witter was merged out of existence in 1997 after combining with Morgan Stanley.

Yhe creations of ICE's backbone, the former International Petroleum Exchange, predates by decades the Enron mess.

Crude Oil Dances the Contango

Due Diligence -

Not really. Producers are capacity-constained. They can only sell their up to their production levels. The supply's in the back months. but demand from anxious buyers is concentrated in the nearby deliveries. Bid up the front, sell the deferred to sufficient size and--bingo--you have backwardation.

You also have spread traders taking both ends of the term structure on. Bull spreaders buy the near-term contract against a sale of a back-month delivery. For them, absolute price levels aren't so important. What counts is the size of the price differential. If the spread (nearby price minus the deferred price) becomes more pronouced becaue the front month rises more (or falls less)
than the back month, the spreader profits.

You can see the oil market's backwardation overlaid on top of oil inventories in the HardAssetsInvestor.com article "More Off-Base Oil Predictions" at www.hardassetsinvestor....

Deathwatch Redux: Oil Over $111

Thanks, all, for your comments. I stake no claim to a crystal ball, Phil. There are lots of pundits making oil forecasts (several are interviewed on HardAssetsInvestor.com).

One particularly prescient forecast was made back in 2005 cheaper, when a Wall Street investment house called for a $105 per barrel top. Noting that "oil markets may have entered the early stages of what we have referred to as a super-spike period," the firm's analysts predicted oil entering a "multiyear trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return."

The prediction was met with a fair amount of skepticism. A move to $105 would have represented a jump of more than 75% from mid-2005 price levels.

Here's the fun part: Analysts cast the possibility that their prognostication could actually lowball oil's ultimate price. Back in the late '70s and early '80s, gasoline spending was a much higher percentage of consumer spending than it is today, which for some observers explains the lack of impact that seemingly high crude oil and gasoline prices had on the economy. "Our new super-spike range," the doomsday forecasters said, "assumes a level of gasoline spending relative to the economy and consumer spending that is still below the heights reached in 1979–1981, suggesting our new range could prove conservative."

Now ... you tell me where you think black gold peaks.