Oil to $60.....by January?

[jk]

Re: Oil to $60.....by January?

Now why on earth would Saudi "want" $60 oil?

the theory behind "the saudi's want $x oil" is that they believe a higher price will lead to demand destruction, possibly in the form of recession, and thus drop prices radically in the future. further, the theory says that the global economy can tolerate $x oil, and that doing so maximizes the present value of the saudi's revenue stream.

[GRG55]

Re: Oil to $60.....by January?

the theory behind "the saudi's want $x oil" is that they believe a higher price will lead to demand destruction, possibly in the form of recession, and thus drop prices radically in the future. further, the theory says that the global economy can tolerate $x oil, and that doing so maximizes the present value of the saudi's revenue stream.

The analyst stated that "$x" = $60. My question remains "What's so magical about $60?" Certainly any rational producer or group will generally want to maximize profits - but oil more than any other commodity has a large political component in addition to the economic criteria you outline above.

Who actually knows what "x" should be? The IEA? OPEC's economic analysis section? The Saudi Oil Ministry? Dick Cheney? Everyone uses complex models. Everyone tries to compare the results of their models with the results of others. The latest model results that I have seen, from a consulting source that I think more believable than any analytical firm foolishly broadcasting an oil price forecast, implies that the Saudi fiscal budget goes into deficit at WTI prices just below $50 (Saudi doesn't get WTI prices for its oil). That suggests, to me, that $60 WTI is too low as a realistic target for Aramco oil.

However, just like the quants that got crushed this summer, all this stuff is just models.

[GRG55]

Re: Oil to $60.....by January?

in one of ej's old comments back when the site was this ugly puke yellow before it "improved" to garish green he wrote that you can't get mining stocks right. crooked management. goofy hedge books and other nut-ball financial engineering. stupid buyouts. etc. buy the metal. did rogers say the same?

this George Littell is a big swinging dick in the business. is his rep less important to him than his giant short? that's all i can think of to justify his $60 call.

metalman: Just wanted to point out the same applies to the junior oil and gas stocks as well. Certainly there are a few excellent companies in mining and in oil and gas, with class management teams running companies for their shareholders, and holding good assets. But they are not plentiful and they are hard to find and buy at decent prices.

My observation is that far too many of these companies are being run solely to support the lifestyles of the executives and Board members. Their business plan consists of raising money and diluting existing shareholders when capital markets are receptive, and live off the proceeds of previous raisings when times are a bit tighter. Here's a good article by John Hathaway, Tocqueville Asset Management, along the lines of this topic as it applies to gold mining companies (but the same applies across the resource sector)... http://tocqueville.com/article/show/214

[Tulpen]

Re: Oil to $60.....by January?

Interesting, I am currently both short oil and gold.

[Guest]

Re: Oil to $60.....by January?

Tulpen -

I realise both markets may be ripe for a pullback, but I can't for the life of me understand why people here want to venture into shorting the two sectors with the single largest potential to boom over the next decade.

I very rarely fool around with a short (not nearly smart, gutsy, or agile enough), but it seems to me, if you are going to short a sector, to restrict yourself to shorting only those sectors with the weakest fundamentals? Gold and oil have about the strongest fundamentals of any sector looking out for many years into the future, as far as I can see. Gold must follow oil, which is one of the prime inflation causers (maybe eventually THE inflation causer), and oil is locked and loaded onto a rail running straight up to $300 per barrel in the next 5-10 years. Gold must follow it.

I think when oil gets to $300 per barrel we'll be well on the downslope of global oil production - it's only going to keep right on chootling upward from there until it's history as a fuel. Why would anyone want to short oil, other than as a hedge for their long positions? This is how Jim Rogers sees it, and I completely agree with that vewpoint.

[bart]

Re: Oil to $60.....by January?

It has been consistently dangerous to one's financial health over the decades to ignore Groppe.

Fibonacci ratios for the 2007 oil move:
100.0...... 99.29
76.4........ 87.90
61.8........ 80.85
50.0........ 75.16
38.2........ 69.47
23.6........ 62.42
00.0........ 51.03


Also note that oil dropped from about $34 to about $17 during the late 2000 to late 2001 period.

[Guest]

Re: Oil to $60.....by January?

Oops. posted a later comment in the wrong place!

[Guest]

Re: Oil to $60.....by January?

OK, the 'futures guru' has spoken, and I for one take Bart's input on any futures very seriously. My only point is, I'd short to hedge, but I'd consider naked shorts a poor risk/reward in this sector going forward.

[bart]

Re: Oil to $60.....by January?

OK, the 'futures guru' has spoken, and I for one take Bart's input on any futures very seriously. My only point is, I'd short to hedge, but I'd consider naked shorts a poor risk/reward in this sector going forward.

I couldn't resist:
You don’t know who’s swimming naked until the tide goes out.
-- Warren Buffett
:cool: ;)




I also didn't disclose any positions I may or may not have in oil, mostly since the majority of my trades are short term... but Groppe is not a short term guy.

[Tulpen]

Re: Oil to $60.....by January?

Tulpen -

I realise both markets may be ripe for a pullback, but I can't for the life of me understand why people here want to venture into shorting the two sectors with the single largest potential to boom over the next decade.

I very rarely fool around with a short (not nearly smart, gutsy, or agile enough), but it seems to me, if you are going to short a sector, to restrict yourself to shorting only those sectors with the weakest fundamentals? Gold and oil have about the strongest fundamentals of any sector looking out for many years into the future, as far as I can see. Gold must follow oil, which is one of the prime inflation causers (maybe eventually THE inflation causer), and oil is locked and loaded onto a rail running straight up to $300 per barrel in the next 5-10 years. Gold must follow it.

I think when oil gets to $300 per barrel we'll be well on the downslope of global oil production - it's only going to keep right on chootling upward from there until it's history as a fuel. Why would anyone want to short oil, other than as a hedge for their long positions? This is how Jim Rogers sees it, and I completely agree with that vewpoint.

Interesting topic, let's see where we have a fundamental disagreement.

My viewpoint:

The USA is out of money, in fact the USA deep in debt. If that is not enough the USA is actually starting to default on some of that debt (CDO's).

The inevitable consequence of this is that the rest of the world is no longer going to net sell goods to the USA.

Now how could that possibly be bullish for commodities?

[metalman]

Re: Oil to $60.....by January?

Interesting topic, let's see where we have a fundamental disagreement.

My viewpoint:

The USA is out of money, in fact the USA deep in debt. If that is not enough the USA is actually starting to default on some of that debt (CDO's).

The inevitable consequence of this is that the rest of the world is no longer going to net sell goods to the USA.

Now how could that possibly be bullish for commodities?

i've never bought into the rogers mantra of ever increasing demand. demand WILL fall when the next global recession hits. that is as certain as death and taxes. the ONLY question is: will the dollar and commodity supply fall even faster?

[Guest]

Re: Oil to $60.....by January?

The global commodity story has lots of layers. There's more there than meets the eye. Especially Oil. Most people in this community still don't 'get it' what's happening when even countries like Russia are scrambling to open new north-of-the-arctic-circle gas fields, because their traditional fields are now also in decline.

As the major fields tip into decline one after the other - and that story is OLD NOW - it's old news now - the scramble to open secondary and tertiary fields is going to be in a race against what you see as overwhelming, structural decline in demand brought on by global recession.

iTulipers don't get it. You are still thinking in the cyclical terms applicable to oil when it's extraction rate was formerly unconstrained. You won't have to wait long (another 2-3-4 years to start seeing how the cyclical dynamic is affected by the major oil fields winking out now. It takes a rude shock for people accustomed to a long standing cyclical paradigm to 'see' what's changed.

Of course, we could even see a 'brutal' correction in oil down to $70, but i would absolutely not want to be on the short side of betting it's A) going to stay there long, and B) will revisit that number ever again when the coming global recessionary blow to consumption gets eaten up by 6% - 12% gdp growth rates in the developing world.

"Mark my words" is an overused, worn out admonition. I'll restrict myself to archiving some of these comments and then ask you what the heck you were thinking, when you see what I'm sketching out here actually borne out in two three years. You ain't seen nothin' yet.

[GRG55]

Re: Oil to $60.....by January?

i've never bought into the rogers mantra of ever increasing demand. demand WILL fall when the next global recession hits. that is as certain as death and taxes. the ONLY question is: will the dollar and commodity supply fall even faster?

Let's not forget that Jim Roger's demand isn't the only variable. It's demand in relation to ability of supply to meet that demand, and what happens to the currency in which commodities are denominated.

Commodity pricing has an interesting dynamic - "the first barrel of surplus reduces the price of all the barrels", and vice versa. That goes a long way to explaining the volatility and also why its a mugs game for anyone to try to forecast how far prices may rise or fall in the future.

The next year or so is shaping up to be a potentially rough time for us commodity bulls, and nimble, attentive, talented traders (and I don't fit that description at all) can probably make some serious money being short at the right time. But I still think that Rogers has the secular trend correct, and this will be the strongest asset class in the closing years of this decade, just as it was in the opening years.

[Gordo]

Re: Oil to $60.....by January?

Lukester,

At the closing bell today, I was able to purchase 71 March 70 (Strike price) crude oil put option contracts at $.35 per barrel premium (down from $.40 earlier in the day).

This now gives me 100 70 strike price crude oil put option contracts (29 June puts expiring on May 15 and 71 March puts expiring on February 14.)

My total investment is $52,500 including all brokers fees.

Thus, I have a good chance of losing the entire $52,000 or at least a big part of it.

However, if Mr. Groppe and Mr. Littel are right (i.e. oil to $60 by January), I will have the good fortune of making $1,000,000.00.

We'll find out alot more tomorrow, December 5, with the OPEC meeting.

[Guest]

Re: Oil to $60.....by January?

Gordo - My view (may not be worth much), vs. Henry Groppe's? I think we are not going to break below $75 oil, so you just threw some change away after some other substantial money you already committed.

$50,000 is the better part of the cost of another associates degree or a liesurely budget to get another major certification under your belt - to add to your existing qualifications. Or it's probably the better part of $200,000 in Silver, if you bought it, and had the patience to wait five to seven years.

My two cents is, it's always wiser to stay on the skimpy side of the "hail Mary" bets.

Of course if you win it, you'll have my sincere congratulations, but I don't really understand what you are doing.

If you have a lot of dough to sling around, the best way to get more, is to think as though you were still poor.