Saul Sterman

Oil Hits $140: What Could Trigger a Reverse?

jjason,

I fail to comprehend your comment.
You are entitled to your opinion as I am entitled to mine.
If it annoys you that I think that a correction is forthcoming ONLY when certain conditions are met, then so be it.
If it annoys you that I disagree with Lien's assertion that the correction will last forever and oil will never go up again ("will result in a sharp and lasting reversal") then so be it.

Since I seem to have gotten your attention, here's how I see it playing out...

1) Eventually there will be a major correction once there is evidence that there is a surplus supply of oil OUT OF THE GROUND that has no takers. This in turn will force the hand of the speculators.

2) I first noticed in May that a large number of mutual funds and institutions were selling XOM aggressively. I then realized that there are actually two opposing forces at play. First, the expectation that oil and NG prices would drop. Second, though seemingly contradictory, there was a marked increase in drilling activity. My conclusion was and still is that the drop will not be back to 45 or 60 but closer to 85/100.

3) Using XOM as a benchmark, when oil is on the rise, XOM trades at a 1.15/1.20 multiple to oil. This means that if oil is selling at 60, XOM will trade at 60x1.15=69. When oil is stable, XOM trades at a 1 to 1 ratio. When oil is coming down, XOM trades at a 0.85/0.90 multiple. XOM is now trading at 88, so this would be 88 divided by 0.9 = 97. This is how I know that oil is going to correct to 97 or there abouts. This isn't a pure science and I wouldn't bet the house on it, just for the past 25 years has been a reliable directional indicator like brokers use the DIA, which is a totally flawed weighted index...

4) As an investor, fund manager, sell side analyst or whatever title you want to apply, I couldn't care less about GS or Morgan Stanley ripping off the public as long as I can legally, ethically and morally read the market trend ahead of time and use my analysis to the advantage of my clients and myself.

5) As a private citizen, I would demand that anyone who has committed a crime, regardless of stature, be held accountable and reconciled with in accordance to established legal procedures.

6) On a personal level I am a Liberal Democrat which includes the belief that all are innocent until proven guilty. I do not bend my convictions when it is inconvenient for me. I have mentioned to Phil Davis in the past to show more respect to President Bush, not that disagreeing is disrespectful, it is how it is done that matters. If this bothers you, then so be it.

7) Last but not least - just to annoy you ;) - even if I was 100% certain that GS is the mastermind behind this horrific energy bubble and have colluded with certain U.S. politicians, selling out the country to certain Middle East partners and perhaps helped orchestrate the housing bubble with or without the assistance of the former or present Fed chairman, I would still say "innocent until proven guilty".

If we get an undeniable physical surplus, the game is over - at least for now. However, this mini crisis is a sign of things to come. The next time will be for real, no bubble.

Saul Sterman

Oil Hits $140: What Could Trigger a Reverse?

DRich,

Thanks for the reply.
I am aware of the calls by several brokerage houses as you mentioned. My point was, why should it stop at $200? The brokerages gave a time related price increment based on current pricing models whereas Lien is talking in conceptual terms not relative to a time factor.
In theory, based on Lien's hypothesis, the price of oil should be rising continuously without limit.
In summary, either Lien should state a time frame for her $200 assessment and either base it and/or peg to other analysis, or say 'to prevent oil from rising continuously'.

Saul

Oil Hits $140: What Could Trigger a Reverse?

Pardon my ignorance, but why $200? Why not $169 or $255? Is this an arbitrary number or a target that is based on something? Perhaps you mean to say 'to prevent oil from rising a lot' instead of 'to prevent oil from rising to $200'.

Now for the crux of the matter:
The Saudi announcement means nothing. In the past, Saudi has stated increases and decreases only for the market to find out months later that they did the opposite of what they said they were going to do.
This time around the market will be looking for tangible evidence that there is an actual surplus of refine-able crude building. Once that happens, we will get a correction. By how much and how quickly is another story.
We are still at the 'prove the production' stage and 'show us that you really understand that you are destroying your customers (worldwide) ability to continue buying your product'.
The market also takes into account the Chavez wild card. He just might CUT to match any Saudi increase...then what? Bottom line, it isn't happening until it happens.
Will it happen - yes. The question is - when and for how long will it last?

Saul Sterman

Oil: Feed the Machine, America - You Have No Choice!

Hey buddy,

I was going to write: PDA also stands for; put down anyone (Whitaker’s wake), piss Davis (off) a-lot (my favorite!) and primate delinquent approach (Pinelli’s preach)!

I chickened out after having visions of Gale hunting me down with her automatic!

So you like cheesecake – huh!
- Saul

Oil: Feed the Machine, America - You Have No Choice!

Phil,

Don’t forget that President Bush is your President too. I’m not saying that you can’t disagree with him or argue a point. Just keep in mind that if we Americans don’t show respect for our elected leaders then why should the rest of the world do so?

I actually thought that in this article you were more revering (in your own way) in comparison with your previous critiques. Apparently most readers are not aware of what a Phil Davis Admonition (PDA) sounds like.

For the love of Moshe, Jesus, Muhammad and Cheesecake – SHOW SOME RESPECT!

irregulartimes.com/che...

Saul

Readers,

PDA also stands for; put down anyone, piss Davis (off) a-lot, primate delinquent approach, etc. Choose your side of the coin, Phil can take it.:)

(This is a ‘no-reply’ comment)

SA editors,
If you’re not chuckling, then delete this one.