Crude Oil = $140 June 16, 2008 1:18pm by Barry Ritholtz Well, almost — it hit $139.89 earlier today (July contract, expiring Friday June 20th) Spread the wealth. twitter facebook linkedin What's been said: Discussions found on the web: John Wellman commented on Jun 16 appears to be sloppy trading ranges at these levels. Me thinks exhaustion gap soon, followed by a plunge to $100! johnnyvee commented on Jun 16 $150 a bbl. = R.I.P. for U.S. economy & world economy. Bob Abouey commented on Jun 16 And back down again… I am probably missing some obvious answers, but am curious if people have any good prallels in other “bubbles” for the lead supplier who would apparantly benefit from the high prices itself attempting to pop the bubble. Ie the actions and comments being taken by Saudi Arabia. DL commented on Jun 16 Stock market bulls have made the observation that each unit of GDP growth requires much less energy than was needed back in the 1970’s. However, the fact of this can be used to support the argument that the price of crude can go substantially higher before GDP growth becomes clearly negative. Boone Pickens’ (earlier) prediction of $150/barrel in 2008 now appears conservative. TheUnrepentantGunner commented on Jun 16 @bob: How about anyone issuing extra shares when they know their company is trading 3x over what it should be at? Or Cuban selling broadcast.com for $1 billion to the Yahoos? AGG commented on Jun 16 Barry, Sorry for this off topic thing but I thought you might enjoy this name asociation: Supreme court returns Habeas Corpus to America in 5-4 vote. The 4 who voted against were RRRRoberts, AAAAlito, TTTThomas and SSSScalia. Since these “Judges” are all Federalist Society Republicans, we can now officially group them with an acronym composed with the first letter of their surnames….i.e. RATS michael schumacher commented on Jun 16 no coincidence that the latest round of “alphabet soup” money drops is happening today…yes that’s right a fresh set of $75 B courtesy of the Fed (and the Bank of Japan) to go with the daily drops (today’s was $11b) to fuel this madness. I guess LEH can just not answer any questions, not post a 10-K (that’s any good or relevant) and the criminals continue to be rewarded (compensation up $500m while headcount down 1900) in both share price and salary. Disgusting…… Ciao MS The Great LIBOR commented on Jun 16 I don’t have a horse in the race, but I am wondering what to make of the fact that posts or comments related to oil here and at your better financial blogs everywhere, get far more comment responses than from average posts. There seems to be both a comparably high degree of interest and a high level of polarization: people declaring oil prices are here because of either 1) fundamentals and are going to $150-200 or else 2) damn speculators and about to crash. I ask, what does all this blog reader interest and polarization mean? Rich_Lather commented on Jun 16 The Great LIBOR, everyone has a horse in this race, since everyone uses petroleum products in one way or another. That’s why more people comment. jombi commented on Jun 16 The reason why is because life is simple and so are prices.. Oil is a major commodity and it affects the end-price of a lot of things.. Yet, for some reason oil prices are argued to not be simple and everyone you talk to has a reason/excuse/argument/theory as to why they are complicated and why their reason/excuse/argument/theory is correct. Yet, for those who we empower to produce facts and make things right, don’t seem to have the knowledge or know how on how to make things factual/right….. No one knows for some reason why prices are soaring… Here’s a quick solution (which I don’t see anyone pursuing)…. 1.) If you participate in any way in the determination of oil prices, you must be either a supplier or a buyer (YOU MUST TAKE DELIVERY OF A CONTRACT)… What does this due? This eliminates speculation….. Who the hell deemed it the right of some gambling clown to make money from betting/speculating on oil prices and translating the cost to consumers? O’ it’s only 2%/3% of the oil price picture? Cool, I want it to be 0% …. Go gamble in a casino if that’s how you want to make your money. 2.) Get together a global committee and once and for all develop a system which indicates supply/demand. What does this due? Eliminates the b.s and uncertainty regarding global demand and supply. Solve this two and you will have less clowns presenting their grand theories. It will be what it is. And everyone can go home and stfu… Until then, you have what you have. It amazes me how we as a species have continued to flourish amidst a system built to reward lazy gamblers with the largest fruits in life…. O’, I know how, we decide to pass the (-) effects on to the lower class individuals via poverty,starvation, and sub-standard ways of life. Ying/Yang.. I guess things balance themselves out and we term it as “They way things have always been”. What a sad realization for me indeed.. A hopeful 24 year old tried to make a difference in the world Lurker commented on Jun 16 What would Jesse make of today’s action in Oil??? Wasn’t an new intrady high followed by a down close one of his favorite warning signs? Japanese candlestickers call it a bearish engulfing pattern and perhaps with all the hype now would be the “best” time for a reversal. I saw an option expert on CNBC giving “long-only” advice on oil options, which seemed kind of reckless to me after such an overhyped and breathless runup in prices, but what the heck do I know??? What say you VT trader and the other wise posters here? jombi commented on Jun 16 Lets look at a human’s basic needs : -> Food -> Water -> Shelter -> Energy Beyond that you have excess… There was enough excess companies on wallstreet from which money multipliers could make money…Times got tough… So, they decided to break some moral hazards and dip their hands into the basic needs…. Hmmm, housing.. That’s not off limits (pump/dump)…. That cash cow died. -> Food -> Water -> Shelter (X) -> Energy … Hmmm, what’s next? Food/Energy.. Yeah… lets go for it… I am sure in the next 1/2 years after that is done it will be on to water. People laugh but I don’t/won’t. You want to fix a large number of our problems? Stop making it possible for people who don’t contribute anything to society to profit and make tons of money… O’ but I give millions to charity? O’, that’s nice… So, steal ($10 million) .. give back ($2 million), and be declared a saint.. wow, that’s just nice.. cbit commented on Jun 16 To add my two cents regarding the polarization of opinions on oil, I would venture to say most here are professional or sophisticated investors of some sort with a vested interest in oil’s directionality. At this point in the game, I woiuld say that the bears are bears and the bulls are bulls. Out of pride or pure stubborness, we are not changing our minds. Yet for some reason we continue to think that we can change others’ minds with our “unique” perspectives – I put that in quotes to empahsize the sarcasm. These arguments rarely include any new info that has not been heard 1000s of times already. Our opinions are formed. Speaking for myself, I have been wrongly bearish on energy for at least 3 years. This was likely due to a ridiculous set of personal reasons initially, but with time I data-mined enough arguments to support my case. I think I may have even convinced myself too. I completely lack any remote objectivity to listen to any counterpoints without sneering and guffaw-ing. Everyone else is an idiot or a groupthinker. My reward? Severe underperformance. Women tend to be less stubborn (generalizing a bit). Are there any ladies on the board here? Can I get an objective opinion from someone who has heard both sides? zackattack commented on Jun 16 Oil is a very polarizing issue in society at large as well. Lately, I’m getting all kinds of email, from people smart enough to understand how things work, showing me that I’ve overestimated them. Under stress, people resort to comforting dualisms. So they talk about boycotting Exxon, beheading the envirowackos, jailing the speculators, making sure Obama/McCain doesn’t get elected. Last week, I even heard a belief system I’ll call abiotic theism – the belief that God’s in the center of the earth, making more for the benefit of his followers. michael schumacher commented on Jun 16 >>bearish engulfing pattern and perhaps with all the hype now would be the “best” time for a reversal>> Yep that’s what it is however we’ve seen (countless times) that tech patterns do not and cannot account for massive manipulation. With how eagerly the Bushies have sacrificed our middle class (with the same high oil prices) only a person who wanted NO sleep in the next 9 months would dare short oil… I’ve been tempted to do it but I like sleep…. Ciao MS zackattack commented on Jun 16 I think it’s coming back too, but I have only the sack to hedge my longs and sell a little coal. I’d likely be a buyer again in the 90s. Like I said in an earlier post, we’ve never really seen a bubble before in something essential to the world’s continued operation. No way of knowing where it ends up. On the great roulette wheel, I’d be picking $250 at some point before 2010. austincompany commented on Jun 16 Though I a no expert, it does appear through simple logic that this run-up in oil prices is a complete fabrication. The proof is that the price has increased over 50% in the last six months; however, demand has not gone up 50%. Nor is there any prediction that supply needs will go up 50% in the next few years (maybe 3-5% per year). Therefore, if oil is truly a traded commodity based on supply and demand, the run up is false and not attributable to supply issues. Nor is it attributable to “world events”, for in many ways, the world is calmer than it was just six months ago. Since the world is now awash in cash, and rates and the markets are bearish, the money is being plowed into oil futures. It is a false high and will (at one unknown point in time) drop to where it should be which is somewhere in the $70 – $90 range. Shameless Hussie commented on Jun 16 Do yourself a favor and read ” Iraq and the International Oil System: Why America Went to War in the Gulf ” by Stephen C. Pelletiere. Understanding the underlying machinations of one of the most important industries on earth will ultimately help people make better decisions. The Great LIBOR commented on Jun 16 I guess everyone here without a long position in oil of some sort is net short oil due to eating, driving, home heating, etc. Makes sense; I guess all of a sudden its a case where everyone from my mom to congress has a book to talk, even if they don’t know that phrase. DownSouth commented on Jun 16 ☺☺”At this point in the game, I would say that the bears are bears and the bulls are bulls. Out of pride or pure stubborness, we are not changing our minds.” Posted by: cbit | Jun 16, 2008 3:40:41 PM “In his many battles his tactical genius is apparent in the lightning-like speed with which he adapted his actions to novel circumstances.”–J.F.C. Fuller on Alexander the Great “The carrying out of a plan, from its very beginning to the conclusion of an operation, is another process of knowing the situation; i.e., the process of putting it into practice. In this process, there is need to examine anew whether the plan corresponds with the actualities. If the plan does not correspond or does not fully correspond with them, then we must, according to fresh knowledge, form new judgments and make new decisions to modify the original plan in order to meet the new situation.”–Mao Tse-tung “Victory smiles upon those who anticipate the changes in the character of war, not upon those who wait to adapt themselves after the changes occur.”–Douhet “The hope of the wisdom essential to the general direction of men’s affairs lies not so much in wealth of specialized knowledge as in the habits and skills required to handle problems involving very diverse viewpoints which must be related to new concrete situations. Wisdom is based on broad understanding in perspective. It is never the product of scientific, technological, or other specializations, though men so trained may, of course, acquire it.”–Wallace B. Donham “It is common to see men who have used all their limbs without once in their lives having utilized their minds. Thought, the faculty of combining ideas, is what distinguishes man from a beast of burden. A mule who has carried a pack for ten campaigns under Prince Eugene will be no better a tactician for it, and it must be confessed, to the disgrace of humanity, that many men grow old in an otherwise respectable profession without making any greater progress than this mule.”–Frederick the Great “Education is a two-edged sword. If it indoctrinates with rigid principles, constantly hammering home the fixed and immutable nature of those principles, and if it offers neat solutions to every human problem in terms of these fixed principles, then change and development can not take place.”–Dale O. Smith “A man who can’t make a mistake can’t make anything.”–Abraham Lincoln Alaskan Pete commented on Jun 16 Too much talk of a bubble/imminent correction right now for the top to be in. And the chart looks to be forming a bull pennant breakout if it continues any higher. Those two factors are enough to keep me out of the trade. cbit commented on Jun 16 Wow. Thanks Downsouth. I can’t believe that you wasted that much space (and time) cutting and pasting quotations from historical icons. All for l’il ol’ me. Let me see if I get the message. Are you trying to tell me that much wiser men than I have proven that adapting your strategy or decisions to the situation at hand yields the greatest rewards? In other words, God smiles upon those who are objective? I get that. My point (my self-deprecating point) was that it is the same people on the board trying fruitlessly to convince the same other people on the board the same argument. No one is budging. Will you be the first? Who should switch sides? Me or you? Let me ask this…has ANYONE here changed theirr opinion on oil recently? zackattack commented on Jun 16 Long-term, no. Just knowing how bubbles are usually a factor of 20, and counting the bottom as the Sept. 1999 Economist cover “A World Awash in Crude,” we’ve been calling for $250 oil since late 2004. Short-term, yeah, I can see the possibility that it can come down hard in a flash. You’re *starting* to see demand destruction. It’s not like people are carpooling to work or the grocery store, like you’d see among the many other indicators of a secular top. March miles driven dropped 4.3% YOY, largest drop since the 70s, continuing a trend begun in Nov 2007. Listen to the retailer con-calls, they may be universally full of crap, but they’re saying that a lot of discretionary side trips aren’t occurring. Other sentiment indicators… Truckers in Europe striking. A trucker getting killed in England for breaking strike. A “CNBC Special Report: America’s Oil Crisis.” Ben Steinery. Simon commented on Jun 16 That chart above does not look parabolic. It looks like a simple upwards channel. I’m no expert but people have commented that the moves as percentages of the base price have not been historically high. There seem to be good arguments that Oil has a good way to go yet. It will correct just like it did last time in the 70’s. Hopefully by then sufficient pain will have been inflicted that people will be really really serious about reducing their dependence on the stuff. rickrude commented on Jun 16 I don’t have a horse in the race, but I am wondering what to make of the fact that posts or comments related to oil here and at your better financial blogs everywhere, get far more comment responses than from average posts. There seems to be both a comparably high degree of interest and a high level of polarization: people declaring oil prices are here because of either 1) fundamentals and are going to $150-200 or else 2) damn speculators and about to crash. I ask, what does all this blog reader interest and polarization mean? Posted by: The Great LIBOR | Jun 16, 2008 2:52:25 PM ???????????????????????????? Its all hot air, not many guys here have $$ to back up their mouth. We are nowhere near the top. Jack commented on Jun 16 TheGreatLibor, The fact that people’s opinions are so polarized on such of an important issue the answer as to why we as humans can’t prepare for a future certainty until it is thrust upon us. No one thinks about conservation at $20 oil and only a VERY FEW think about conservation at $140 oil. I hate to think what price it will take for EVERYONE to think about conservation in a serious manner. zackattack commented on Jun 16 One guy that hasn’t changed his mind… just a couple of weeks ago, pretty sure I heard Steve Forbes on TV still calling for $35 oil. He didn’t really state his reasons. Juan commented on Jun 16 austincompany, Whenever I say this, most think I’m nuts* but benchmark crudes’ prices are not determined by physical supply/demand; they are “market related”, i.e. made in financial markets which are taken to be efficiently ‘related’ to current and forward conditions. Historically, and expressed in way too schematic fashion, crude oils have been managed for over a century but ‘who’ does the managing has shifted from, e.g. the Standard to the Texas Railway Commission to oligopoly of international oilcos to OPEC to futures markets. That is, free market theory and industry reality did and do not correspond. It would be nice if all the pundits et al bothered with at least a small amount of study. *(which then means the IEA, Oford Instit. for Energy Studies, friends who were in the business for decades, etc, are also ‘nuts’) Karl commented on Jun 16 That’s not a bubble. If you want to see a parabolic bubble look at the human population on this planet. Another bubble is 30 year treasuries. I’m shorting those because nobody else appears to be. jz commented on Jun 17 The last few IEA reports have confirmed what Mike Rothman told Barron’s in Fall 2007. Demand is being revised down and supply is being revised up almost every month. Unlike in 2006 where it was really low, if you look at our own EIA numbers, there is more spare oil capacity now than there was in 2003. The smart oil traders were long then and are out now. There are way fewer traders with long positions. What has come in their place are the greedy, dumb followers who are not analyzing the data but chasing a trend. Today, the real news that Saudi Arabia was increasing production was greeted with skepticism, but the traders acted on the bullshit news: Britain’s raising the terror alert in the UAE, a fire in the North Sea that was easily handled, and a bill in Kuwait’s parliament calling for cutting oil exports. And the bullshit news is coming fast and furious. When oil in U.S. storage was down last week, the traders drove oil prices higher. No one noticed gasoline supply was higher nor the reason why oil supplies were lower. It was assumed there was no oil to buy. In reality, U.S. refiners have been exporting like crazy particularly diesel. For the first time, China was a net importer of finished products like gasoline. And then a WSJ article comes out yesterday and says no refiner in the world right now even wants to buy more Saudi crude. So the reason for less U.S. reserves was less demand not less supply. So every day I expect more fear mongering bullshit from oil traders to scare the market higher. That is the only bullet they have given the supply-demand numbers. Friday’s news was Nigeria nationalizing a part of the country that was not producing any oil, but sure enough, oil analysts said nationalization of this area would result in a decrease in production. I don’t know how you go lower than zero, but that didn’t stop oil prices from surging. Twice now, after hearing bullshit news about OPEC nations, I have shorted oil or an oil company and done great. I will continue to do so expect for Iran or Nigeria. When I hear Iran or Nigeria, I know the oil bulls are getting desperate and I will double my short bets. I swear every time oil prices drop Bush pushes up the tension with Iran. VennData commented on Jun 17 The WSJ on 6/17/2008 notes on McCain: “McCain says incentives for solar and wind distort the energy markets but strongly supports incentives for nuclear.” http://online.wsj.com/article/SB121366164848479237.html?mod=hps_us_whats_news Makes sense, logical, consistent. Good to see another GOP orthodoxist who says out loud that industrial policy is OK sometimes. Read this next.August 26, 2011 The Heart of the MatterFebruary 1, 2012 10 Mid-Week PM ReadsMay 27, 2012 15 Great Investor Quotes Posted Under Commodities Energy Technical Analysis Previous Post Metals Conference: Currency, Fed policy, and Debt Next Post Robert Novak is No Fed Expert !