icandoitdon

60 Minutes on Oil: Did Anyone Verify Anything?

"There was some speculative excess but to suggest that what happen in 2007-2008 was "speculators" lacks in any basis of fact."

sounds like you're confused. either speculation materially influenced prices during this period or it didn't. i believe it did. when a commodity doubles in a year (after having already doubled from a couple of years prior), then collapses, it's not a leap of faith to suggest that speculative money is involved. i don't know why it is so difficult for some to accept that speculation often drives markets in the short term....but not in the long term.

there is always a trigger for a speculative blow off. the trigger for oil was the emerging markets phenomena...including china....and related demand, coupled with known restrictions on short term supply. traders extrapolated this theme into the "known" future, driving prices into the stratesphere. but the "known" future of endless demand growth in emerging markets and their decoupling from slower-growing, developed economies, wasn't the story that played out. prices collapsed when feared demand destruction from higher prices, coupled with hard evidence of world economic weakness, started to gather steam. nimble traders who were long made their exit on the way up, profits intact, as did short sellers courageous enough to act on their convictions on the way down. latecomers, whether on the long or short side, lost big.

as an investor, i am neither resentful of traders who made money on the way up or sorrowful for traders who lost money on the way down. winners and losers is what makes markets.

Marc Faber, Jim Rogers and Boone Pickens - Bullish on Oil

i'm not familiar with the trading strategy of USO, and whether they use hedging techniques to nullify spot vs. futures differences. i do know that it is common in commodities futures markets for futures prices to exceed spot prices.

if you look at any reasonable period of performance of USO it closely tracks the performance of spot oil. that's exactly what it is intended to do. if price disparity of different contract months was an issue that could not be managed, you would see it in the performance of the fund. that hasn't been the case.

if i'm missing something here feel free to set me straight.

On Jan 11 03:00 PM mkreisel wrote:

> I'm bullish on oil for the long term, but I'm utterly bearish on
> USO.
>
> It's a trap for retail investors who cannot venture into the futures
> trading and do not understand the monthly roll of future contracts.
>
>
> Right now, oil of March expiration stands at 46.07, while oil of
> February expiration stands only at 40.83. If the USO has to roll
> from the Feb to Mar oil today, it will have to pay a ghastly 14-15%
> premium. Now repeat that 12 time during a year, you can see how much
> left will be there for USO holders.
>
> At this point, I would rather invest in oil related stocks than this
> USO trap.
>

Oil Stocks: Where Can You Find Black Gold?

many different views....that's what makes a market.

speculation drove oil to unsustainable heights and the withdrawal of speculative dollars drove it back down. current levels, however, reflect fears of a prolonged slowdown in world economic growth. i believe oil will remain weak unless/until we have clarity on the length/depth of what promises to be a worldwide recession.

as for development of new and/or alternate resources, those wheels grind slowly and are cost effective only at significantly higher prices. future generations might look to such ffactors as salvation but not the current generation.

one issue that hasn't received much comment is the increasing likelihood of significantly higher taxes on energy as both a conservation tool and a revenue generator to repair/maintain roads, bridges and related infrastructure. to the extent this comes to pass it will have a significant dampening effect on gasoline consumption. i would look for this while prices are low, but perhaps not before commencement of an economic recovery.