This morning Joe Kernan said something about my prior Oil calls and the involvement of Speculators. What he said was partially true — at $75, I claimed speculation was irrelevant. However, over $100, I changed my view. At $125-150, it was obvious. Once prices went vertical, it was apparent to me that speculators, at that point, were relevant.
However, we heard the speculators were what was driving the oil market (on CNBC and elsewhere) from $40 and up. I believe those calls were wrong. That changed at much higher levels. Hence, our sell call at $125-130 dollars.
Let’s clarify the past calls in Oil.
As I wrote May 09, 2008 — “Oil Bubble?”
The difficulty with the bubble moniker is determining exactly how much of the price is being driven by purely speculative factors. With Crude, a variety of forces are driving prices: A combination of both fundamentals (increasing demand, constrained supply, pipeline problems), technicals (Trend, money flow, etc.), along with the geopolitics of two Middle East wars — as well as some speculation.
Additionally, we have seen the general perception of commodities shift, where they are now seen as a more legitimate asset class for portfolio managers, along with Equities, Fixed Income, REITs, cash, etc. than it has been previously.
And this: What’s Next for Crude Oil ?
We have been Bullish on Oil and energy stocks for a long time. Our first recommendation of Crude Oil was back in 2003, when the price broke out over $32 per barrel. I picked Energy as my favorite sector for the Business Week forecasts for 2004 — something that more than a few people ridiculed at the time.
In 2004, we observed our target of Oil = $50 a Barrel was hit. I also explained why at $40-50 there was no “terror” premium (comments picked up by WSJ, Barrons, and Slate).
Early on, we recognized that it was Chinese Oil Demand underlying the increase in cost. We also looked at why Refining Capacity was a problem. We have examined Global Crude Oil Demand & Gasoline, we looked at Oil: Inflation adjusted.
We looked at whether Oil Jitters Gotten Overblown?. That answer was no. We also looked at the question: Do Higher Oil Prices Lead to Recessions? Turns out the answer is yes. Large Hedge Funds who had been ignoring our bullish energy advice did so at their own peril.
And then again on May 27, 2008: Speculators & Oil Price Spikes, Part II
My own view is that speculators have contributed to the price to some degree, but the tight supplies and freefalling dollar get more blame.
At $75, there wasn’t much speculation in the oil market. At $125, there was lots.
What’s Next for Crude Oil ? (May 09, 2008)
Oil Bubble ? (May 09, 2008)
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 29th, 2008)