At a certain point, the falling dollar and runaway Oil prices are going to have to take precedence over the economy and credit crunch.
Are we getting closer to that point?
This morning, Crude touched $143.67
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August Crude Oil Futures, Intraday, June 30th, 2008
click for up-to-date chart
via Barchart.com
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Related:
Fed’s Priority Is Likely to Be Oil-Price Shock
MARK GONGLOFF and JON HILSENRATH
WSJ, June 30, 2008; Page C1
http://online.wsj.com/article/SB121478525202814621.html
An article on the Business Week site today mentioned that the CFTC does not have to report about the effects of oil ETFs on oil prices until mid September. Oil $200 coming in August. I’m not kidding. These fuckers are going to steal until they sound ‘last call’. And there will probably still be a few certifiable idiots who claim it is all supply and demand, the dollar, and slap fights in Nigeria.
REPOST ..Green lies..Brazil ethanol miracle..look again…http://www.economist.com/world/la/displaystory.cfm?story_id=11632886…typical lie repeated over and over taken as truth…Brazil cut down the Mata Atlantica a rain forest that was at one time as big as the Amazon running along most of the coastline ..to plant sugar cane ..certainly not an environmental success story on any level..second ..this was built on the backs of slave labor ..when oil was cheap…literally ….third …the vast majority of Brazilians do not own cars..the workforce is a bus economy..there is very little upward mobility possible…
If I’m trading this market, the trend is pretty clear. (Ignoring the fundamentals and the fact we have a bubble in oil prices.) Buy! Buy! Buy! As it goes up, keep buying. Sell the reversal. But who knows when that will be.
(Maybe curbing speculation in a market that “everyone is short” is not a terrible idea.)
Seymour Hersh’s article in the New Yorker about escalation of the covert U.S. war against Iran is being reported in the MSM (for example, on CNN this morning).
Unlike the case of the Iraq war, which some wrongly thought would lower oil prices, no one is under the illusion that a conflict with Iran would do anything other than boost oil prices.
Unless, that is, it scares the American consumer so silly that the savings rate soars to 20%, the malls close, and the economy collapses.
Nice set of choices, huh? Kind of like punching the accelerator as a hairpin curve approaches and the wheels fall off. YES, WE CAN FLY!
Flower prices will go up when the Iranian people greet us as liberators.
Barry,
What do you mean “the falling dollar?”…I saw a headline this morning that said “Henry Paulson reaffirms strong dollar policy”….this morning….
However, the same source also had these headlines in the past:
Lizzie Borden reaffirms no ax policy….
Titanic captain reaffirms unsinkable status…
Bill Clinton reaffirms no female intern policy…
George Bush reaffirms IQ over 100….
..you get the idea……
This is Nasdaq 1999/2000 all over again.
Demand has got to be down and going down further all over the world. If the US is slowing down, then that means China is slowing down.
If this price increase is based upon fundamentals, (assuming a constant supply) where is the increase in demand coming from. It certainly isn’t coming from the US or China.
I have noticed clear changes in behavior here. People are just not driving like they have in the past. I live near a large lake and you no longer hear any boats out on the water. Everybody and most everything is in a holding pattern here.
Also lots of good stuff for sale on the side of the road. Need a SUV, boat, PWC, car, truck, mototcycle, tractor, backhoe, bulldozer, dump truck, pickup, hydralic lift. Hell, one guy’s even got his damn couch on the side of the road!
You never know what you’re in until sometime after you’ve gotten out of it. I wonder how far along we are in this process. The Israeli/Iran situation could quickly drive this thing to a worse case scenario.
Oh by the way, I am not being pessimistic here. Everything I have said is a freaking fact. A Pie Chart is not going to fix any of this.
BR:
Quoting you in Money Magazine now, huh?? Look at you Dude!! Congrats!
Source:
Inflation Survival Guide
Money Magazine, July 2008
Hey,
Anybody wanna go bomb the shit out of some brown people?
Given the absolute disaster that awaits us if the U.S. and/or Israel attack Iran, is there any surprise here? Personally, considering the consequences of such an attack, and the fact we have the president and vice president that we do, is the risk premium that goes into the price of oil high enough?
The drumbeat for war is certainly on the ascendency. CNN had this video this morning:
http://edition.cnn.com/video/?/video/world/2008/06/29/henry.lok.hersh.iran.cnn
And this story gives some idea of the caos even a small (5% or 10%) disruption in oil flows might provoke:
http://www.tmcnet.com/usubmit/2008/06/27/3521248.htm
cinefoz,
Open interest on oil is down and falling. It has been ever since oil hit 100. Its not the speculators that are driving oil up. In fact, there have been less and less speculation when it comes to oil.
http://bloomberg.com/apps/news?pid=20602099&sid=aKAOLTd34y4o&refer=energy
I’m seriously considering putting a little money into DUG (ultrashort oil producers ETF). I can’t see oil going up from here (mid term timeline) without war in Iran, and if there’s war in Iran, my investing plan is out the window anyway.
Talk me out of it!
Good article by Krugman about so called speculators driving up prices:
http://www.nytimes.com/2008/06/27/opinion/27krugman.html?_r=2&oref=slogin&oref=slogin
He points us that iron ore, which is not traded by “speculators” is up more than oil. How could this be??? Umm, its called supply & demand.
Henry Paulson, speaking in Russia said speculation was NOT to blame for high oil prices…
Roman, My apologies. Rising oil prices are probably a prelude to invasion from outer space. They want us weak and desperate for the perpetual energy machines they will offer. We will send millions of people to their planet in an intercultural exchange. Those people will really be eaten in delicious recipes as their part of the exchange. Thanks for the enlightenment. I’m glad oil isn’t really a ponzi plan.
catman,
Paulson is an idiot. His former employer is making trillions on the oil scheme. Reclassifying Goldman as retail speculators from commercial investors will drop the price by a lot .. possibly to $75 a barrel. It kind of reminds me of Cheney looking out for the oil companies. Paulson is protecting Wall Street profits of his former employer.
roman,
BTW, Krugman is also an idiot. Multiple reasons apply here, too numerous to mention.
Krugman aside, it doesn’t change the fact that iron ore is up 500% without a single futures contract being traded on it.
cinefoz..
nobody in the world knows much about the reality about oil, except for you, do you work for the saudis?
dude…..how about you put some money where your mouth is, i have seen that you can put a bear spread and end up in profit even if oil goes to 170.
you can go all the way in a option contract in jan 2010, because by then you are sure this bubble will be burst.
i am not saying oil cannot be due to all the money flowing in to it, but it can also be due to monopoly pricing and supply restricting by the owners….
if the difference between demand and supply is barely 2-3%, and there is no way to account all that……how can you make those people pump more.
for all i know, it may be their money jacking up the price of oil.
in other words…..you dont have oil, so stop whining about it, people who have oil dont want to give it in exchange for that worthless dollar anymore.
so are you going to put some money?
Renting in Mass:
Not yet. I bought some DUG when oil was 125 and logic dictated it couldn’t go any further. Down about 20% from there. No doubt it will eventually come back, but that could take months. DUG does sometimes move contrary to oil, explanation in the media being that high oil is hurting refiners because it turns out demand does have some elasticity after all.
Just remember the old saw that I forgot: The markets can stay irrational longer than you can remain solvent. The saving part is that ETF’s don’t generate margin calls so you can afford to be patient, but why give up the points?
Of course, by CNBC’s logic, the fact that I’m saying don’t buy yet means it’s time to buy :)
“the falling dollar and runaway Oil prices are going to have to take precedence over the economy and credit crunch.”
I suppose you mean in the Fed’s eyes? Because regarding the hierarchy of people’s preocupation, this turning point has been passed for 18 years.
Have a look at the meeting of 116 central bankers in Basel this sunday. They say (it’s official, check Reuters) the main monscern is inflation, but they are anxious about the credit crisis beginning to release a new layer of consumption credit shorting…
They also say that they could not agree on a coherent worldwide policy.
Stocks and oil are already often moving tick by tick in the opposite direction. Oil is already the number one driver of the stock market.
and there’s so much further to run. oil is just now hitting ‘inflation’ adjusted highs. but who’s inflation? the 3% top line that the BLS collects? hmmm, given the flaws in how they collect data (wonderfully exposed by your blog barry), one wonders what the real inflation adjusted high is, if you plug in a more believable figure (say 5, 6 or 7%)?
Most analysts keep calling for a top in oil and a bottom in financials.
We’ve seen how well that has worked out.
The Bank of International Settlements just released its annual report about global growth. The section about EMs reveals an fascinating factoid about global oil demand. Oil bulls always point towards demand growth in EMs, in particular China, as their fundamental case. This study kills their case. According to BIS and IEA data oil demand growth in China averaged 6.7pc from 2001 to 2007. Here comes the interesting part. Demand growth averaged 7.6pc annually from 1991 to 2000. At the same time demand growth contracted from 1.4 to 1.3pc in North America and 0.9 to neg 0.2 in OECD Europe. Global oil demand in the last twenty years remaind relatively stable increasing only by two tenth from 1.4 to 1.6pc.
Moreover according to the CFTC the relationship between speculative and commercial trades (take physical delivery of oil) inverted. In 2000 30% specs 70% commercial in June 2008 70% specs and 30% commercial.
The real price of a barrel of oil is closer to $40 than it is to $140 and it is only to the ahole authorities at the Federal Reserve that we owe this distortion of reality. This is unprecedented even for the egomaniac nature that inhabits Wall Street these days.
” BP chief blames inadequate supply for soaring oil prices
http://www.chinaview.cn 2008-06-30 20:16:52 Print
MADRID, June 30 (Xinhua) — The chief executive of the energy giant BP said on Monday that soaring oil prices are a result of an inadequate supply rather than speculation.
“These prices are a signal that is telling us that supply is not responding adequately to rising demand,” Tony Hayward told delegates at the 19th World Petroleum Congress (WPC) being held in Madrid.
He suggested politics rather than geology is the reason behind the supply shortage.
“The problems are above ground not below it,” Hayward said.
“The problem is not a geopolitical one. It is a political one,” he added.
Meanwhile, Hayward rebuffed the claim that speculation should be blamed for the price hike.
“This is not a speculative bubble,” he said, warning of the end of cheap oil due to fundamental factors.
“The era of cheap energy is probably over, at least in the medium term,” Hayward said.
The WPC meeting, which opened on Sunday night, is the biggest gathering of leaders from the world oil industry held every three years.
The meeting for this year is being held against the backdrop of the international oil price hovering above 140 U.S. dollars per barrel, sparking calls for something to be done to cool the market. ”
http://rss.xinhuanet.com/newsc/english/2008-06/30/content_8466438.htm
A Saudi Oil Minister indicated that he expects oil to be at $170US/barrel by December because of the declining dollar and geopolitical instability.
I suppose that puts the Saudis “on the record”? The Fed should jack up interest rates to 14%…wouldn’t that result in a much stronger dollar and also cause the price of oil to plummet to $40/barrel.
Isn’t this obvious – go long the US dollar and short oil. This isn’t a free market…the laws of supply and demand aren’t working right now. The Saudis are saying that isn’t about supply and demand. This is all about the US $.
“At the same time demand growth contracted from 1.4 to 1.3pc in North America and 0.9 to neg 0.2 in OECD Europe. Global oil demand in the last twenty years remaind relatively stable increasing only by two tenth from 1.4 to 1.6pc.”
HUH? Demand growth contracted. This tells you nothing.
Moreover according to the CFTC the relationship between speculative and commercial trades (take physical delivery of oil) inverted. In 2000 30% specs 70% commercial in June 2008 70% specs and 30% commercial.
OK, how does this make prices go up?
The real price of a barrel of oil is closer to $40 than it is to $140 and it is only to the ahole authorities at the Federal Reserve that we owe this distortion of reality. This is unprecedented even for the egomaniac nature that inhabits Wall Street these days.
Alfred, you are not talking rational. Net exports is down 4.1% over the past two years. World Demand is up whether demand growth is up or down is irrelevant. It’s not that complicated.
Demand has got to be down and going down further all over the world. If the US is slowing down, then that means China is slowing down.
If this price increase is based upon fundamentals, (assuming a constant supply) where is the increase in demand coming from. It certainly isn’t coming from the US or China.
These are feeling statements not based on data. Yes US demand is down 1.3% YOY. The east is still up. Still NET EXPORTS is down. Less and less oil for importers every month. That is driving the market. Let me repeat for you guys. There is LESS AND LESS OIL AVAILABLE TO OIL IMPORTERS EVERY MONTH. Let that sink in.
Arraya:
The sole case of the bulls is based on insatiable demand for oil in China and other EMs. Yet the BIS report, which came I have to admit as a surprise to me, killed that case. Demand for oil from China grew even faster in the 90s than it did from 2001 to 2007. Yet the price of a barrel of oil has averaged about $10 in the 90s. I don’t know how I can make this any clearer: The current price of oil is not based on fundamentals.
To your point about ‘net exports’ which I think refers to the supply side again I would like to attract your attention to the data in the BIS report. According to the report global oil stocks have remained steady at 100 days forward demand throughout the last 20 years and remain so to this day. If exporters have problems keeping up with demand it would have to show up in the stock data. Moreover OPEC and many others, heck even most oil bulls, do not base their case on supply which is plenty and has outgrown demand at any time during this oil shock.
To the point of your silly comment about statements not based on data please read the BIS Annual Report yourself you can find the data there.
again, the Saudis are saying that this is not about supply and demand. They are seeing demand destruction – they called an emergency meeting of OPEC to discuss. Despite the concern of demand destruction the price of oil continus to increase. They are now on the record as saying that the high price of oil is due to the weak US dollar and geopolitical risk.
Raise rates…the high price of commodities is now a greater risk to our overall economy. I think the market can digest the liquidity crisis…let’s move on to the bigger problem now.
we aren’t closer to that point. Just this morning I heard for about the tenth time in the last week someone suggest again that the Fed would…. ease…. because of how weak the economy is.
bernanke is a zero
Arraya wrote:
“Moreover according to the CFTC the relationship between speculative and commercial trades (take physical delivery of oil) inverted. In 2000 30% specs 70% commercial in June 2008 70% specs and 30% commercial.
OK, how does this make prices go up? ”
That’s easy. Ever since the Fed changed into higher gear and started to slash interest rates in the face of rising inflation the trade in the oil pits is a one way bet. Traders are drawn to this kind of speculation holiday like moths to fire. Eventually like the moth they will get burned but for now they only see the bright light.
As subsidies come off in China and other counties oil demand will rise there not fall. This was the message in the video posted here recently.
The big money speculators have made a bundle already. They will be looking for safe havens as the risks of being caught standing when the music stops increases.
An Iran war will stop the music because not matter how high the price goes nothing will be deliverable therefore the exchange will stop operating.
When it opens whatever is in store for us all will have been done and most likely all those with option or calls or puts or whatever will be out of the money.
Despite the run-up in oil prices over the last year, a number of oil stocks don’t look expensive at all. One example: this royalty trust I own, BPT, is trading at little more than 9x next year’s estimated earnings. I’ve seen similarly low forward earnings multiples (especially when measured by enterprise value/forward earnings), with some radically different oil stocks — small cap E&Ps, large cap integrated majors, etc.
The current high oil prices don’t appear to be priced in to the stock prices of a lot of oil companies yet.
If I were long the commodity itself, I’d consider selling and buying selected oil stocks with the money instead.
With his reference to iron ore, does Krugman bother to mention or consider the existance of an at least de facto iron ore cartel?
Price rise here does not conform to the diktats of free market theory and surely fails to disprove financially driven prices in other commodities such as crude oil where we see that both OECD and non-OECD demand growth has been slowing while, same time, a rising rate of OPEC and World production growth.
Global inventories in days of forward supply are well above same period last year and 5-year average.
And price?
Roman, your Bloomberg link involved trading on the NYMEX. That exchange is regulated by the CTFC. The ICE exchange is not. That exchange is the one in the cross hairs of Congress.
The fact that there are fewer trades on NYMEX tells me there are a whole lot more on ICE.
Two of the ICE exchange’s biggest owners are Morgan Stanley and Goldman Sachs. They made about $8 billion off selling commodities on the ICE exchange, and oil was their most popular trading item. Whenever I read a bullish market report for oil, I now expect to see GS or MS at the bottom of it. Who said China’s cut subsidy would be no big deal? Who called for a spike in oil to $200? And who just upgraded PBR this weekend?
According to a WSJ article, “Bruce MacPhail, who manages Enbridge’s U.S. oil-terminal leasing, estimates financial firms now lease 25% to 35% of the company’s storage.”
And guess which financial firms those are?
☺☺”If I were long the commodity itself, I’d consider selling and buying selected oil stocks with the money instead.”–Posted by: DaveinHackensack | Jun 30, 2008 8:42:27 PM
I’m with you, Dave. Many of the oil company stocks haven’t moved that much since lasst year when oil was selling for $70 a barrel.
But I would offer some caveats. Some of the E&P’s don’t have a whole lot more going for them than a hope and a dream. Others require increasingly higher and higher oil and gas prices to justify the low-quality and low-return prospects that they drill. And the major integrated oil companies are getting dragged down by their refining and marketing segments. (That said, if oil prices do trend back down, these R&M operations should again become profitable, offering a hedge against the lower profits of the E&P segments.)
So I would agree that there are some opportunites out there, but it’s kind of a minefield.
As an example of the type of oil and gas stock one definitely wants to avoid, I would cite this one:
http://online.wsj.com/article/SB121322733549566143.html