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JREwing
146 Comments
NYMEX: Speculators Aren't Driving Oil Market
Do You ask the fella from the grocery store: Dude, what is the real price of that gallon of milk over there? You know, without your cut, and the wholesale guys cut and the farmers cut.
YOU WANT TO BUY OIL? THAN PAY THE PRICE ON THE PRICE TAG!
YOU THINK IT IS TOO EXPENSIVE? THEN DON'T BUY IT!
Vikram: You are correct, we ship a fortune over seas for oil.
And you get the greatest natural resource in history for that. That is a fair deal.
You don't want ship a fortune overseas? Don't buy their oil!
Oil producers, where ever they are, provide the most important product there is. The very foundation of our civilization.
IF YOU WONNA HAVE IT, YOU'RE GONNA THE PAY FOR IT!
YOU DON'T LIKE THE COUNTRIES OIL COMES FROM?
THEN DON'T BUY IT!
Commodities: Bubble or Not?
I am not saying, that prices will never come down. That would be illogical.
I am saying that the world is not used to the additional demand from emerging economies. If the entire world economy were in recession prices will come down. Since this not the case, as the Baltic Dry shows impressively, I will stick with my investments until I come to the conclusion, that the boom is over.
Considering, that the economic boom of Germany and Japan after WWII lasted more or less 20 or 30 years, I think, this one's gonna keep goin' for a while.
Hell, they are building almost a hundred major airports in China. Lots of stuff to be consumed there. Love it!
This is not house flipping. The Chinese fought with Rio and BHP for month now about the price for iron ore. And now they pay what Rio and BHP asked for anyway.
There is real demand. They are building actual stuff over there and not just the silly olympic crap.
I know, that this has never happened in our lifetimes, but nevertheless it is happening.
Many key minds throughout history predicted, that the world would tremble, when China awakes.
Only the Oil Companies Win
Record High Crude: Free Markets Meet the Cartel
Why don't you ask your parents, what happened in the 70s, when price controls were in place.
Oil companies didn't make any money and stopped investing in Exploration&Produc... then people stood in line at the gas stations.
THINK!
Why doesn't a Philippine rice farmer sell his product in the Philippines? Because there are price controls in place. He sells his stuff in Chicago, because he gets a decent price for it. Because he doesn't want to work is butt off, while others profit from his work and investment. Oops! And looky here, suddenly there is shortage of rice in the Philippines.
Can your socialist brain comprehend that?
That's the problem with socialists. Their arrogance outweighs their intellect. That's why every socialist system in history was a failure.
Keep blaming others for your shortcomings.
Nothing you proposed would achieve anything but total disaster.
And what the hell has Dick Cheney to with this? He was the boss of Halliburton, which is not an oil company, but an oil service company. They don't own a single oil field. They just get hired to work the fields.
And even if Dick has the USO in his portfolio. Why not? This is perfectly legal.
If you poetry socialists out there weren't such a bunch of losers, you would ask yourself: HOW CAN I MAKE MONEY OF THIS???
Then you wouldn't have to blame others.
Commodities: Bubble or Not?
When I was a kid, and I've seen something on TV from China, all I have seen on their roads were scooters and old bicycles. When I see stuff from there now, all I see is traffic jams with lots of cars. I don't know about you guys, but I always thought that the average car needs more raw materials and once it's on the road more gas than the average scooter or bicycle. Since it takes years to develop new mining projects (The Rio Tinto website has interesting videos on stuff like that) or oil fields, I asked myself: 'Why wouldn't commodities appreciate in price?' Just because Jim Rogers says it? Hardly. It is just supply and demand.
Of course there are speculators involved, including myself. But I wouldn't invest in commodities, if it wasn't making sense to me.
There were lots of people, who told folks in October, that this was a once in a lifetime opportunity to buy financials. I didn't, because it just didn't make sense to me. Luckily so. Financials obviously were a bubble, back then.
What I am saying is: Speculators may jump on booms like the commodities boom. But they don't cause it.
This commodities boom is for real. Just because we didn't have a boom in commodities for so long doesn't mean this is a bubble.
Think about it. The last hundred years or so the western nations enjoyed the mineral wealth of the entire planet. Is that normal?? It's not. On the contrary: I think the way it is today, is normal. Demand from all parts of the world not just demand in the west and supply in the rest of the world.
The fact that this sucks for us here in the west, doesn't make it less true.
An Energy Policy That Makes Sense, Revisited
Fact is, people don't want to see the problem, and anyhow, it is much easier to pull a 'COMMY' and blame the oil companies.
Your points are well taken, FITZ. I commend you on your thought process. But: People won't buy it.
Here is how I think this is gonna play out.
First, I don't want to play the arrogant European here (We got a lot to learn from America/and we are only free peoples because of you guys),
but 3.51$ a gallon is so cheap, I just can't believe it. Every time I go on vacation, I usually go to the US, and I rent the biggest damn car there is (funny enough: last summer I was Dallas and rented a HUMMER)- because it is paradise for me.
So, before people really, really gonna start to think about this is, when gas cost 9 or 10 bucks a gallon.
It is the pain and nothing but the pain, the sheer necessity to change behavior, that brings change.
Darwin really got that right. Poetry socialists may like it not: In the end everything has to adapt to a changing environment or go under.
As long as gas is cheap - and don't get me wrong, it is cheap here in Europe as well, otherwise people wouldn't drive around in their convertibles for fun on a nice day like this - Detroit will figure it is more important to NOT get tough with their union buddies, instead of investing in R&D, Airlines will continue to ask their Unions for permission to become more profitable in order to buy at least on or two planes, that are up to date, when it comes to fuel consumption and so on...
Interesting, that the industries with the biggest need to improve are union dominated.
Bottom line: The market will take care of this. Should there be any government intervention, it will be aimed at the symptoms not the cause and will therefore be counterproductive.
Drive Diesel and save fuel!
Is Oil Bubbling Over?
The oil price on the other hand, is hated by everybody. There are even NYMEX floor traders, who call it crazy (I guess they went short and got their butts kicked).
That is not a bubbly environment.
The problem is, that people don't understand the oil business. The 30 year long underinvestment, the time it takes to bring new production online. Joe Kernen type folks, who neglect the fact, that in the time new production comes online, existing fields are being depleted. They don't understand refinery runs, that's why most people thought the last inventory data was bearish, when it was exactly the opposite.
By the way, I bet half of that price increase last week was because of all that populist talk of gas tax breaks during the driving season. You lower the price and demand destruction doesn't take place and then the price goes up again. Traders anticipate that.
Don't get me wrong. I guess they're gonna take 5 or 10 bucks of the barrel after every rally, BUT THE OILBOOM WILL ONLY COME TO END WHEN EITHER THE WORLD ECONOMY IS IN THE TOILET OR WHEN OIL IS NO LONGER THE PRIMARY TRANSPORTATION FUEL.
People in the west are used to, that only they take advantage of all the valuable commodities our planet has to offer. That is over, because 2 billion people want a piece of the pie and they don't care, if we here want commodities to be dirt cheap. They can pay for it and they are gonna buy the stuff.
GET USED TO IT!
A Look at Earnings from Transocean and Devon
Like many people, when it comes to oil, you seem to be guided by wishful thinking.
May be there is something in the bible, about oil having to be for free.
Fact 1: Easy oil is gone. Supergiants like Cantarell or Ghawar are declining in daily production. Easy oil, because an idiot with a straw could suck oil out of those fields.
Fact 2: 30 Years of underinvestment in the oil industry. Fields, infrastructure, workforce are old. Exploration has been neglected.
Fact 3: Consumption per capita in India and China are only a fraction of the OECD countries. On top of that, petroleum products in the BRIC nations are subsidized, therefore no demand destruction.
Fact 4: All significant discoveries are made in deep or ultra deep water.
Fact 5: Every oil company in the world is hiking their E&P spending, even PEMEX drills in deepwater USGOM now.
Now, Thomas, why would oil demand come down?
Or let me put another way, when demand for oil comes down, I want to be short every stock there is, because then the world economy has got to be in a deep, deep toilet.
A Look at Earnings from Transocean and Devon
I really tried to understand the 'Sell' rating from Mike Urban. He means the risk in the Jack up market is to big. Wow, that is breaking news.
RIG showed, that they don't hesitate to sell off non performing assets. Bob Long clearly stated in the conference call, that the cash flow produced by the Jack up fleet is to significant to sell it.
I am glad to be the company of so many RIG fans.
Is Oil Bubbling Over?
A Look at Earnings from Transocean and Devon
A Look at Earnings from Transocean and Devon
Sure they have cost increases, but they get great day rates across the board. Even in the jack up market. They have the biggest and most sophisticated deepwater fleet and they seem to execute well. I like the fact that they are not USGOM and Brazil centric. Also, they sold their shallow water USGOM business, because it has the weakest margin. Their business in India looks nice. Seem to be a lot of opportunities there.
I own RIG.
G-7 Central Bankers Stymied By 'Crude Oil Vigilantes'
But the author devalues the facts he presents in this article with his Bush-bashing.
While the author correctly cited a sharp increase in demand (and future demand) in the BRIC countries, he fails to understand, that the real reason for this seemingly indestructible oil market is not the FED or the Bush administration, but the governments in the BRIC nations, who subsidize petroleum products with their huge trade surpluses.
The high oil prices (along with the housing slump) destroyed demand for 400.000 barrels per day in the UNITED STATES.
How can there be demand destruction in the BRIC nations, when the governments there let the prices for gas and diesel appreciate only very slowly?
The BRIC nations act like a huge STOCK-BUY-BACK-PROGRAM for the oil market.
Just as a stock with a formidable buy-back-program in place is unlikely to collapse, so is the oil market unlikely to collapse.
Since oil is such necessity, it seems that any decrease in price would be met by an increase in demand, provided the world economy is not in a severe recession.
Stock Market Correlations and Media Muck
Where's the Bursting Commodities Bubble?
That's why I can't think of a single reason why commodities should not appreciate in price.