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POLL: CLU08 went through $127/bbl today..so, in the next 60 days, the front month price of CL will...
Posted by Prof. Goose on July 23, 2008 - 9:00am
Topic: Sociology/Psychology
Tags: original, peak oil, poll [list all tags]
In our last poll on 27 JUN, 61% of you predicted that CL would hit $154 in the front month before it hit $126, and only 9% of you predicted that CL would hit $126. Well, we've briefly broke that number today, though we closed back above it, so I'll use the same numbers I used two polls ago with $127 as the basis.
Our last three polls have predicted 10% rises within 60 days of each poll and were on target, and now we have had our first 10% decline. Past performance is not a predictor of future values, YMMV, and as it says in the disclaimer, nothing here should be construed as investment advice.
As I said last poll, this is the point about a plateauing oil supply to me: increasing uncertainty and volatility over time. As far as I am concerned, it's a guessing game right now...and will be for the foreseeable future. I mean, what if the psychology changes because of government intervention in commodities trading and money flows out of those markets, etc.? (which I don't think will matter, folks will just go to London to trade oil instead of here, idiots...talk about a symbolic gesture...) Who f-ing knows?
One other thing to note, in a press release issued by the CFTC today, the CFTC report that they found little evidence that the recent price rise in oil was attributable to speculation. Here is a link to the press release which says:
Speculation? Yeah right. It's called supply and demand. Look it up.
And here is a link to the actual report (thanks Nate):
http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfi...
The question is ... will you ... or anyone elee put your money where your predictions are? I don't mean a five dollar bet, either.
Only a fool who is well capitalized ... will attempt to predict prices of anything ... rice, interest rates, gold, uranium ... in a narrow time frame. Markets will fluctuate.
The trend in petroleum is up; higher highs and higher lows. Ditto gold. Is there a 'bubble' in commodities? Is it possible for there to be a bubble in commodities? (There is a negative feedback mechanism in commodity price rises that does not exist in internet stocks or real estate.)
As far as the CFTC report; what do you think they are going to say? Their interests are aligned with the big players who are making the NYMEX and other exchanges into bling machines. "Yah, it's all fundamentals of supply and demand and let's not look at the man behind the curtain!" Lenin was half right; the capitalists are in the rope business and they will sell enough to hang everyone in sight including close family membars.
Question? What other exchanges are arenas for maximum profit? How about ANY profit? Who is making money, today? There is the 'Hot Money' ... this is going to China, which is trying to corral it .... and into commodities. Commodities is a small market. Big, hot money can distort those markets just by showing up at the door.
Gold is going up too. Are we nearing peak gold? (Probably ... ditto peak water.) Real estate is taking a nose dive, stock markets around the world are tanking, bonds are looking crappy ... the central banks are creating money ... where does it all go? Not to me! Not to you, either. The Chinese and Japan are swimming in dollars; 'native' currencies can only be repatriated to their countries of origin. (You cannot buy a loaf of bread in Kansas with Britixh Pounds or Euros) If you have dollars and are overseas, what can you buy ... for trillions of dollars? Treasury securities? Yield on the 10 yr today is 4.10 pct. Oil has doubled ... since last week!
The trend is up, higher highs and higher lows.
Oil and gold. Copper and iron ore. Buying oil allows Saudi Arabia and China to launder the dollars. The Chinese buy Saudi oil with dollars and the Saudis repatriate them by buying Fannie Mae bonds. They're backed by the US government ... it sez so on the box!
The Chinese have a trillion US cash dollars in reserve! They can outbid us for oil or anything else. Yes, we can print ... we can repatriate all of our 'discount4d' money, too; our Treasury bonds and notes by printing all the money we need ... but ... if it ever gets to that point ... and we are getting there, fast ... the world that we know is coming to an end ... even if oil costs $50 a barrel. Nobody will have any money or it won't be worth anything.
Welcome to Zimbabwe! When we have to sell apples, I have my spot already picked out!
:)
So . . . are non gambling addicts no longer permitted to make non monetary wagers? Go ahead and gamble your money. I'll keep mine.
I'm wondering which benchmarks we're using for the oil price, because Tapis closed at US$152.38 on 16Jul08, I didn't watch for it but it may have hit $154 the next day before this week's drop.
So rather than saying that the price of crude dropped to $126, I think it would be more accurate to say that since your last poll, the price of crude rose steadily from $126 to $154, but in the last week has traded in the $126-$154 range.
I think it might be worth making these polls on a regular schedule - every month, or every quarter. Any period chosen is arbitrary - 15Jun-15Jul is neither more nor less meaningful than 01Jun-01Jul - but having the polls at these random intervals turns it into a cherry-picking exericse. By bringing up a poll on a price high we overemphasise the rises, by brining it up on a low we overemphasise the drops.
For example, because you put the poll today at a low you're getting a poll result of around 40% saying it'll rise; had you put the poll a week ago when Tapis was near the $154 mark, I think you'd have got the old results of 60% or so saying it'd rise.
It'd be a bit like polling Americans on how they thought WWII was going after the battle of Monte Cassino, and then a week later after the landings at Normandy. By choosing when to do the poll you'd get different results.
It'd be better to have the polls at regular intervals.
NYMEX CL, or the oil price that is in the yahoo box in the right. We have a new poll a) when 60 days have expired without hitting a boundary from the previous poll, or b) when we hit a 10% boundary. We did not hit 154 in NYMEX CLQ/U08 at any point, but we did go through 127 today briefly, therefore we hit a 10% boundary from the previous poll.
Regular intervals would be just as, if not more arbitrary; at least with these conditions, we have conditions for expiry. If oil goes through 114 tomorrow, then we will have another poll tomorrow night. If nothing happens in the next 60 days, then we have another poll then.
A Poll is a "sampling"exercise, and I agree with Kiashu that it would preferable to sample on a regular basis ..... and otherwise to sorta pay tribute to the sampling theorem in organizing the interval not only to be regular(ized), but also to be sufficiently fine to display the underlying process you want to elucidate ....
so as to avoid alias distortion.
I can assure you that there are few polling agencies out there who consistently use "time" as the basis of putting multiple polls into the field, even if they end up being non-random or event driven. If anything, the method I am employing here is more valid than what you propose because it attempts to capture the motivation/momentum after large moves in the market if they occur. Otherwise, it is exactly the design you propose with an interval, mine just happens to be 60 days instead of 30.
This news about Oman production and exports came out a couple of days ago, however I have not seen much discussion about it in the relevant energy website, the information reported may seem trivial since Oman daily production is quite small (739k bpd), however the trends demonstrated in the numbers have big implications for future oil prices:
Oman oil production rose by 3.6% in the first 5 months of 2008; however oil exports declined by 5.1% compared to the first 5 months of 2007, due to high domestic consumption, fueled by 12.9% growth in GDP due to the high oil prices.
In the Export Land Model developed Jeffrey Brown, oil exports are expected to decline at a faster rate then production, once a nation experince post peak oil production combined with rising consumption, however the trend with Oman is quite different and even more alarming, as oil exports may decline even if the country oil production is rising, due to internal consumption growing faster then oil production.
There has been other countries with flat production that had a decline in exports (most notably Russia), but I have not seen a country with 3.6% production growth, experince a 5.1% export decline, if this same trende continue and expand to other Gulf countries, the implications for oil prices will be very signifcant.
Regards,
Nawar
Oman news:
http://www.tradearabia.com/news/OGN_146785.html
The US is the prime example of rising production and declining net oil exports. We went from a leading exporter, and the primary source of oil for the Allies in the Second World War, to net importer status in just a few years--in the late Forties, more than 20 years before our production peaked.
Of course, as you noted, when we see a combination of declining production and rising consumption, we tend to see an accelerating net export decline rate, which is of course what I believe is driving oil prices. I think that we are seeing brief periods of stability between supply & demand, and then net oil exports fall again.
I can't imagine how declining oil prices to prop up the US economy will play on the Arab street, more importantly, how should it??
US politicians seem never willing or able to accept less revenue than last year, quarter, etc...
Going to get interesting.
Who is that guy who always says "have popcorn roll film"
FF
I think that looking at monthly data tends to smooth some of the noise out, and it is more representative of what is actually going on regarding supply & demand. Since May, 2007, oil prices have increased on average at about 6% per month. Within this time frame there have been two down months, followed by strong rebounds. In any case, note that oil prices probably averaged around $140 for the first half of the July, and by the way, we did not average over $100 for a full month until March, 2008.
http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_m.htm
It was silly to think that the price would be a curve almost straight up without a break. And it was for quite a while, so its no surprise to me that a fall back occurred. Now we can play the game of predicting how deep the retrenchment will be. I have to admit that so far it is more than I expected.
OTOH, all the Saudis have to do is close the valve just a tad . . . . Will they do it?
I'm convinced there really is a $120 price floor. But prices may go lower because the futures dealers won't necessarily realize that. The market isn't perfectly information-efficient. Expect oil to hit $110 and the bears to lose their fur when it goes up $30 the next week. Also I'm still bearish on the tropics, because I'm not seeing upper ocean heat content in the Atlantic basin sufficient for rapid intensification. On the other hand, I voted for $154 the last time, because I wasn't sure serious demand destruction was possible. I still don't think it's possible...
Of course it isnt possible. Demand is on the march like never before seen in world history. 10.5m vehicles will be sold in China this year, double the amount from only 4 years ago! Annual vehicle sales in China is on the way of reaching a whooping 20m in 5 years, surpassing America by a wide margin. Vehicle sales in Brazil: up 30% from last year, sales in Russia: up 40%, on the way of becoming the biggest market in Europe this year. Demand destruction? I see massive demand boom.
I agree with you and when Hurricane Dolly hits it will be the excuse again by TV's talking heads when the bounce occurs. In Australia they are now saying the bubble is bursting and lower fuel prices are on the slide!! And most will believe them !!
G'Day Cooma,
Commenators should be licensed - there was a raving idiot who got air time on Radio Aunty this morning saying words to the effect of..
"Oil prices will fall further as the US$ STRENGTHENS".. Surely a recovering US economy would stimulate demand???
The paradigms people use to understand events are so broken people cannot make sense of the data. In some books, if the US economy and dollar strengthened, then yes, prices of imports would fall.
In a world without limits, that is. But we're past peak everything - because energy underlies everything. Peak economy - in the biggest sense of economy. The attempts to force facts into old paradigms will get increasingly absurd - like all those epicycles pre-Galileo. This commentator, the politicians, the media, the public.
A square peg doesn't fit into a round bump. But if all you have is a hammer, you will cause immense destruction trying to make it work Until you change paradigms, all you can do is cause damage - and the harder you hammer, the worse it gets.
cfm in Gray, ME
It is truly totally irresponsible of these people to even suggest such a thing. The demand boom is just getting started. The average Chinese uses only 2 barrels, while the American uses 25. The average Mexican uses 7 barrels, while the average Indian uses 0,8 barrels. The room for further demand is just incredibly huge and we're seeing it in the vehicle sales and energy demand across the world. And now the Tata Nano car is about to be launched as well, the "people's car". India has 40% more people than all the western countries combined...
Waterpump,
I also agree with you. Not only millions of Chinese, but also millions of Indians will be buying cars for the first time thie year.
Matthew Simmons has me convinced. Oil-based products, such as the case for my notebook PC that I'm using to type this, fertilizers, pesticides, asphalt, and many more necessities are produced from oil. People are fools if they think that if everyone used electric light rail powered by nuclear energy, demand for oil will fall so dramatically that prices will be $10 per barrel. I cannot see oil ever going back down below $100 per barrel again.
I'm buying my oil stock on the dips. My oil trust stock has a yield of 14.75% rignt now. I haven't bought any stock for several months and I'm happy to see that it dropped 15% lately.
In the long haul, I hope we build nuclear power plants like crazy. We are running out of cheap oil. I think investors are seeing that Bush wants to drill, but the reality is that it will take ten years for the first drop of oil to come from the new digs. This drop in crude oil prices is wishful thinking. The alcohol will wear off and the hangover will take over. oil will certainly go up above $140 again this year. Bye bye $114!
Indeed, and its not just these countries either. There's huge growth in a lot of countries, from latin america, eastern europe, middle east, southeast asia, combined they add alot of weight as well. There's less than 50m vehicles on the roads in China today, but that number is set to triple by 2015...Add in the rest of the world and the new "people's car" by Tata, we're looking at adding another America to the global vehicle fleet in the next few years.
In retrospect the US hit the 'sweet spot' in the decades after the 2nd world war as there was very little global demand for a product that was in massive potential supply. The leverage cheap oil/energy has given enabled the country to keep its #1 status.
It remains to be seen whether the intellectual base built in the latter half of the 20th Century can help the US maintain its hegomony going forward or whether the inneficiencies its reliance on cheap oil has bred will be its undoing.
Nick.
In the short term, I can see only one way for oil prices to fall drastically, and that would be severe global recession (or even depression), which remains a distinct possibility. But that's the only way I can see demand slackening. And as soon as any recession ends globally, the Chinese and Indian people will be off to the demand races again. China says that 300 million Chinese have entered the Chinese "middle class" and there are 35 million of them that own cars so far. China has another billion people wanting into that same middle class. Even if car per capita ratios do not expand, that's another 105 million cars minimum.
As Prof. G. notes, markets can be short term volatile. But the longer term trend line has not been seriously broken yet, anymore than the quiet period in 2007 when many thought oil had "stabilized" in the $60 range was a break in that same trend line.
Note: I should say I see only one peaceful way for prices to collapse, that is via a global recession. If we decide to throw a global nuclear bomb party, all bets are off.
If China is at 10.4 million (and rising fast) and the US down to 12 million from 16 million- then maybe the poll should be on which of the following months has China with a bigger monthly sales figure than the US.
Don't confuse us with the facts. Be like CNBC this morning and use no facts, just that the market says the bubble is bursting. I guess all those people buying new vehicles in China and Russia plan not to drive them. Also ignore the fact that we are adding 70 million people each year to the planet's population.
The problem is that $110 oil seems cheap from $140 but seems like a scary breakthrough coming from $90. My fear is that people are psychologically adjusting to these new prices, especially if they go down.
We need a permanent price floor for oil.
There is NO (short-term) futures price floor, nor ceiling - for two major, reinforcing reasons:
1)oil is priced at the marginal above ground barrel. Markets care about how much is available this week/month. If the market is oversupplied, prices will drop until supply and demand equal out. If demand drops alot (due to some exogenous event), prices will freefall - there is no correct fundamental price for oil. If there was it would be a great deal higher than here. The markets do a very good job of pricing current supply and demand correctly. (And, contrarily, the markets do a terrible job of pricing in long term scarcity.)
2). The amount of dollars that have been printed over the years and the amount of credit that has been 'created' absolutely dwarfs the amount of open interest contracts available on various commodities, especially oil. As we saw with Amaranth (whose nat gas portfolio has STILL not been entirely liquidated but subsumed by JP Morgan and Citadel), prices will move in futures as a reaction to supply and demand of securities representing commodities as opposed to supply and demand for the commodity itself. I am hearing rumors that the natural gas selloff this past week is due to some large hedge funds selling large amounts of $10 puts and as we approach $10 they have had to sell futures to hedge. Remember - for $7,000 you can control 1,000 barrels of oil - which if we have 1 trillion barrels extractable left is about 7 times yours and your descendants all-time allotment.
Supply of money is greater than supply of futures. Prices can (and will) move way further in both directions (in the very short term) than anyone can imagine.
Agreed! And neither are we.
Nate,
I asked you the other night about this whole supply/demand vs. speculators issue. I find it very interesting because this seems to be the new "its all fine" excuse like the "Jack" discovery was touted earlier.
When I first started lurking before I actually logged in to comment it was the strength of the arguments against the deniers that made me keep up with the whole PO thing. And as things started to pass, I started making changes in my life. When you guys used to crush Freddy (who by the way now is in the peak oil camp--HA!) it was the ability to knock down his weak arguments that won me over.
I understand that one doesn't want to tie oneself to a price since they are as fickle as the weather and now that the peak oil idea is gaining credibility in larger circles then if oil goes to $50 and then everybody says HA! what a bunch of Chicken Littles.
I agree wholly that the market only cares about today and sadly does not price long term scarcity so I agree that prices can move up and down based on how the oil stocks are looking right now and traders perceptions. And now that we are in bigger prices, a $10 move today is less than 10% where it used to be 50%. So the nominal $ volatility certainly can be huge.
But I don't understand the other argument. I agree that the amount of credit and dollars created and in existence could buy all the oil trading on a certain day in an instant. I also agree that the price on the futures market is about the supply and demand for those future contracts. And a person can control 1,000 barrels of oil very easily.
I'm trying to understand the mechanics of trading oil futures.
Karl Denniger states that there was about $5 of speculation (trading in the supply and demand of securities) that collapsed on June 27:
http://market-ticker.denninger.net/archives/502-Frightful-Friday.html
He's smarter than me on these issues, but he seems to say that the supply and demand of contracts doesn't seem to matter much with prices.
He goes on to talk about the money supply. I agree the money supply can greatly affect the nominal price of oil, but I think he misses the boat a little along with Mr. Masters. They say the injection of credit to increase the money supply has raised the price of oil.
I agree sort of, but I think they are confusing causation.
In my opinion, the supply/demand issues require a larger portion of the money supply be devoted to oil. For instance, if I had $100 as my total money supply and oil was plentiful to satisfy all bidders then I might only have to devote $10 to buying oil. But if oil was scarce, and I wanted to outbid the other bidders, I might have to devote $30 to buying oil and cut back elsewhere. If my money supply dropped to $50 in the first case the % of money supply would be the same--except oil would be $5 in the first case and $15 in the second case.
Mr. Masters points to the huge growth in money invested in oil related assets and says "look at all that money--its the money pushing the price up!" But I think he has got it backwards and its "look at all the money, all this money needs to flow to oil now since its value has increased because of its scarcity."
Change in money value is simply the effect not the cause. The financial economy's tail does not wag the real economy's dog. It was the change in underwriting standards at banks (real economy) allowing people to borrow like crazy (I know when I talked to the loan officer to buy a house in 2004 I was flabbergasted they would loan out that kind of money on that kind of income with 0% down) that created the boom in housing prices (financial economy). It was the change in oil supply/food price (real economy) in the 1980's & 1990's that allowed a much larger portion of one's income to be dedicated to debt service creating asset inflation and allowing stocks to trade at a higher multiple of earnings than historically (financial economy).
The Fed's injection (and now soon the Treasury's :( ) was to keep stable/allow a controlled drain like in Japan of the money supply since the amount of credit is basically the money supply. This was done to slow the massive destruction of credit from the global housing pop and now that the Fed is exhausted they are digging into the Treasury.
So Karl's kind of right, without the Fed intervention in March we would have quickly went to depression dragging the money supply down and also the oil price. But I don't believe that the Fed's intervention expanded the money supply, only prevented it from quick and severe contraction, and its still declining--but at a more manageable rate--but now they need the Treasury money to keep another quick and severe contraction away. But the intervention did not artificially inflate oil prices, as I believe the money supply is lower today than last year. In other words, without the housing bust I think oil would nominally be much higher right now.
Basically I only see two main factors affecting nominal oil price--the money supply and short term supply/demand. Without increased production, however, the real oil price has only one way to go--UP!
Just my thoughts, I'm only trying to make sense of these events. I think I get my dopamine from better understanding how things work.
Contrast supply of dollars with supply of euros.
If the supply of dollars increased dramatically (the fed lowers rates), then dollars lose value compared to euros, and still more dollars are required to buy the same amount of oil as before, whereas the euro price has climbed just a little bit.
The same goes for roubles, renminbi, rials, pounds, yen, krugerrand, etc.
I think there are informal floors and ceilings out there. If producers and/or consumers overwhelmingly feel that today's price is too good to pass up, they will lock in the price for months (or years) in advance.
Some readers may be interested in how/why this is:
Delta Hedge
Very true, and everyone needs to be constantly reminded of that fact. Drill, drill, drill (it into their heads). Sad but true.
The interesting thing is that the markets we get are the markets we want (or at least the markets that our politicians want). So sad.
As prices drop I am guessing many suppliers might start having 'outages'. Once you and others in your supply chain have tasted that sweet and very profitable $140/bbl there will be a cutback to keep the price where it belongs.
On the demand side, the price drops a nickle and it resets the consumer brain (if it can be called that) all over again.
"I wasn't sure serious demand destruction was possible. I still don't think it's possible..."
Really. So you believe that petroleum is somehow exempt from the law of supply and demand? For the record:
US: U.S. oil demand in April was 863,000 barrels per day less than previously estimated and down 811,000 bpd from a year earlier, putting petroleum consumption at the lowest level for any April month in six years, the Energy Information Administration said on Monday.
U.S. oil demand in April was revised down 4.2 percent from the EIA's early estimate of 20.631 million bpd to the agency's final demand number of 19.768 million bpd, and was 3.9 percent less from 20.579 million bpd a year earlier.
By the way a drop of 863,000 bbls is quite large. Worldwide growth in oil consumption from 2006 to 2007 was 990,000bpd, according to the BP Statistical Review 2008). It is enough to wipe out two years worth of consumption growth from China.
Japan: Japanese oil consumption has been declining since 1996. Think of this as peak demand for oil, Okay?
Israel: Demand in Israel peaked in 2001, and it is now 16% less from it's peak level in 2001.
Italy: Italy’s demand peaked in 1995 and it is currently down 14%.
Sweden: Demand peaked in 1996.
Denmark: Demand for petroleum is down 20% from its peak in 1996.
I suggest that maybe oil is a commodity that still obeys the laws of supply & demand, no matter if we “feel” otherwise.
Please note I happen to believe that the overall trend is up, but I am not surprised that we are now seeing a 20% “correction” in prices.
I think its certainly possible oil could go lower, and I've been prepared for this for a while so its not academic for me. I sold all my energy holdings back in April which turned out to be a good move as the producers never did benefit from the gap up in crude back in June.
I won't short crude but I will short something else dollar-dependent - gold. Last week I built a big short position in gold based on expectations that the EURUSD had completed a failed test of top.
So far, so good.
Commodities in general will be affected by the unwinding of the Euro trade if the rising wedge on the chart does play through - bringing the Euro to May lows as a first target and substantially lower - ~1.46 - the attached chart provides a clue:
http://64.21.147.48/tv-20080722-104403.gif
If the relationship between the Euro/dollar trade and oil were 1:1, a decline to May lows would suggest another 10 - 15% decline in crude.
A decline to Feb lows would imply a very severe correction in crude.
I am not suggesting this will happen; nor do I think the latter scenario is even likely as there isn't enough time, probably, before the weather changes in the high use countries.
That said the Euro, GBP, Yen - the USD has significant room to appreciate against these, and there is a dawning realization out there that other countries, with bid up currencies, are going to suffer just as much as the US from this recession.
Surely a short respite due to a small lessening in demand and a small uptick in stock level. What do the numbers tell us?
We'll certainly enjoy the 4 pence off a litre while it lasts, yay!
The real reason why oil prices are down is the fact that Mr Pembleton of Bognor Regis returned his garden chairs, his wife didn't like the colour, and that's just as good a reason as any proposed by the MSM.
Best
Actually, Professor Goose is the mastermind of a global oil price conspiracy, and he decided that it was best to have a short term retreat in oil prices.
In the immortal words of Homer Simpson, I'd like to say "Woo-hoo!" and "D'oh!"
Both astute phrases capture the grand sentiment I feel after being given such power.
I'd like to thank the Academy, Arthur Schopenhauer, Ali Al-Naimi, my mom, Karl Rove, Michel Foucault, Heidigger, Pootie-Poot, Che Guevara, Benito Mussolini, Jean-Paul Sartre, and the Beach Boys; without them none of this would have been possible.