Oil up 5%, gold down 9%

[GRG55]

Re: Oil up 5%, gold down 9%

I think this is hot money chasing alpha.
Commodities are very volatile. There was uranium bust in 2007. Then we had the gold mini-correction recently. Time for oil and energy stocks take some rest now. The Bush team has a nice pre-election tool at their disposal: U.S. Strategic Petroleum Reserve. Open the spigots and oil goes down.

But for how long? A few weeks? A couple of months? What happens to oil prices when the market realizes that the US is consuming it's previously hoarded oil and the underlying conditions that forced the decision are not necessarily temporary?

I think an argument can be made that oil prices have not spiked higher because of the threat of opening the SPR. Once you play your ace you better hope your opponent doesn't have a pair of them.

[metalman]

Re: Oil up 5%, gold down 9%

I think this is hot money chasing alpha.
Commodities are very volatile. There was uranium bust in 2007. Then we had the gold mini-correction recently. Time for oil and energy stocks take some rest now. The Bush team has a nice pre-election tool at their disposal: U.S. Strategic Petroleum Reserve. Open the spigots and oil goes down.

remember that global cb intervention in the dollar a couple weeks back that sent gold, silver, oil, etc., down at the same time new margin rules were rumored? many pundits predicted a 6 wk correction at least.

lasted about 6 hrs.

expect future tests of new combinations of attacks on the commodity price complex but don't expect miracles. the dollar is toast.

[c1ue]

Re: Oil up 5%, gold down 9%

But for how long? A few weeks? A couple of months?

That of course is difficult to tell.

But GOOG got up to $700, then promptly fell below $500.

It is again on the move, but the spike up absolutely was hot money.

I'm still agnostic as to whether it is truly a supply/demand issue driving oil prices - I merely note that single digit % gains in oil consumption in Asia don't warrant the moves we've seen - unless indeed there has been the oil equivalent of interest only mortgages at work.

Then again, maybe there has been - on the upside.

[FRED]

Re: Oil up 5%, gold down 9%

The official position on these corrections, FYI:

Gold Update: The small trade within the big trade

[GRG55]

Re: Oil up 5%, gold down 9%

That of course is difficult to tell.

But GOOG got up to $700, then promptly fell below $500.

It is again on the move, but the spike up absolutely was hot money.

I'm still agnostic as to whether it is truly a supply/demand issue driving oil prices - I merely note that single digit % gains in oil consumption in Asia don't warrant the moves we've seen - unless indeed there has been the oil equivalent of interest only mortgages at work.

Then again, maybe there has been - on the upside.

Commodities don't behave like Goodle (or any) stock. The supply can't be increased as quickly as printing stock certificates. The first barrel/bushel of shortage (real or imagined) raises the price on all the barrels/bushels. Conversely the first indication of surplus depresses the price on all the barrels/bushels. Trying to equate it with some %'age increase in regional consumption doesn't usually work.

Being agnostic (or at least as objective as one can) is the best way to keep looking at things though.

[Guest]

Re: Oil up 5%, gold down 9%

Being agnostic (or at least as objective as one can) is the best way to keep looking at things though.

A interesting further question might be, what constitutes genuine agnosticism in the energy markets in 2008? I peer into that arena and see lots of fog around here. We already grimly and reluctantly swallowed "peak cheap oil" around here after EJ gave it his blessing. But we've apparently concurrently sanitized all actual reference of it's influence within our short term market assessments.

Peak cheap oil is the redheaded stepchild of iTulip acknowledgements. She is "grudgingly acknowledged" via iTulip editorials, but kept in a strict quarantine wherein she is referenced as a "possibility" within a duly "agnostic" world view. We put this doll on the shelf so to speak, to evidence a broad minded sort of decoration.

One of these days we'll pull this forlorn theorem-doll down off the shelf, give it a little dusting, and start timidly introducing "minor components" from it's input into our daily calculations, with copious disclaimers of our "full and rigorous agnosticism". This plain looking "peak cheap oil doll' will be put into circulation (eventually). But what a dowdy, plain looking doll she appears to be, on iTulip today! :rolleyes:

[metalman]

Re: Oil up 5%, gold down 9%

A interesting further question might be, what constitutes genuine agnosticism in the energy markets in 2008? I peer into that arena and see lots of fog around here. We already grimly and reluctantly swallowed "peak cheap oil" around here after EJ gave it his blessing. But we've apparently concurrently sanitized all actual reference of it's influence within our short term market assessments.

Peak cheap oil is the redheaded stepchild of iTulip acknowledgements. She is "grudgingly acknowledged" via iTulip editorials, but kept in a strict quarantine wherein she is referenced as a "possibility" within a duly "agnostic" world view. We put this doll on the shelf so to speak, to evidence a broad minded sort of decoration.

One of these days we'll pull this forlorn theorem-doll down off the shelf, give it a little dusting, and start timidly introducing "minor components" from it's input into our daily calculations, with copious disclaimers of our "full and rigorous agnosticism". This plain looking "peak cheap oil doll' will be put into circulation (eventually). But what a dowdy, plain looking doll she appears to be, on iTulip today! :rolleyes:

my take on peak cheap oil is as the good oil runs out it gets more expensive. as it gets more expensive we use less. as we use less the rate at which we run out slows and the rate of price increase declines. at some point the rate of price increases matches the rate of depletion.

as ej said, the trick is this... can the economy get efficient fast enough to cope with rapidly increasing prices by getting efficient fast enough? can the economy still produce enough output at higher oil prices to pay for energy? if not, then inflation.

[Guest]

Re: Oil up 5%, gold down 9%

We need to maintain a "healthy agnosticism", without any "alarmism" in our assessment of Peak Cheap Oil, "remaining aware of monetary inflation's leading role" Indeed - we remain "agnostic as to whether there is any supply/demand issue driving oil prices - as we note single digit % gains in oil consumption in Asia don't warrant the moves we've seen". We undertand that the more sophisticated market observer must always watch the hot money in order to always watch the speculation in the markets. This is how we can obtain hard intel as to the fundamentals driving price in the energy markets. Right now for instance, they are clearly 'overbought'. There is far too much silly talk of 'resource depletion', which to our view suggests an ingenuous or untutored understanding of how these markets really work.

[iTulip is all over this story!] :p :p :p
__________

APR 21 Mexican oil production falls 7.8 percent in first quarter (Associated Press) Excerpt: Mexico's state-run oil company said Monday that oil production fell 7.8 percent to 2.91 million barrels a day in the first quarter as current reserves dwindle... Pemex also said Monday that oil exports had dropped 12.5 percent in the first quarter.

AND THE WHOPPER "LIAR OF THE YEAR" PRIZE GOES TO SAUDI ARAMCO:

APR 21 Saudis Wary of New Oil Projects Pending Sales Forecast (Wall Street Journal) Excerpt: The multiyear plan is expected to be completed by next year. After 2009, the kingdom is putting a brake on new projects, because it fears rising output and consumption of biofuels and other nonfossil fuels will erode crude-oil demand and hurt the profitability of developing additional oil fields.

APR 17 Nigerian Oil Output Could Decline 30 Percent by 2015, FT Says (Bloomberg) Excerpt: Nigeria, Africa's biggest oil producer, could lose 30 percent of its oil output by 2015 due to funding problems, the Financial Times reported, citing a government report.

APR 15 Russian Oil Slump Stirs Supply Jitters (Wall Street Journal) Excerpt: Russian oil production, for years a vital source of new supplies for world markets, is showing signs of a slump... Russian output fell for the first time in a decade in the first three months of this year, according to the International Energy Agency, which represents industrialized oil-consuming countries. It said Russian production averaged about 10 million barrels a day, a 1% drop from the first-quarter of 2007.

MAR 10 Gas Prices Near Records, Following Oil (Associated Press) Excerpt: Gasoline prices were poised Monday to set a new record at the pump, having surged to within half a cent of their record high of $3.227 a gallon. Oil prices, meanwhile, surged above $108 to a new INFLATION ADJUSTED record and their fifth new high in the last six sessions on an upbeat report on wholesale inventories.

FEB 28 Norway state oil group Petoro's Q4 output falls (Reuters) Excerpt: Norwegian state-owned petroleum company Petoro reported a 6.7 percent drop in oil production for the fourth quarter... Oil and natural gas liquids (NGL) production fell to 664,000 barrels per day in the fourth quarter from 712,000 bpd a year earlier...

FEB 26 Mexico's Cantarell oil output slides further (Reuters) Excerpt: Crude oil output from Mexico's huge but aging Cantarell offshore field fell again to 1.243 million barrels per day in January, the lowest average monthly output level in several years, the energy ministry reported on Tuesday... Cantarell, which state oil monopoly Pemex sees declining at an annual rate of around 15 percent, produced an average of 1.260 million barrels per day in December...

FEB 25 Are the days of easy-to-reach oil at an end? (Gulf News) Excerpt: Jim Buckee, retired president and chief executive of major independent Talisman Energy, echoes van der Veer. "We're there [at peak oil] or close to it," he told Canada's Globe & Mail. "Mexico, the North Sea and possibly Ghawar [in Saudi Arabia, the world's largest conventional oil field] are all in decline. The truth is the world is producing 30 billion-plus barrels of oil a year and is finding less than 10 billion. This is the worry."

FEB 13 Up to $1.9B cost overrun on Horizon, Canadian Natural Resources cautions (The Canadian Press) Excerpt: As of Dec. 31 the cost estimate was 13.4 per cent or $900 million above the $6.8 billion authorized by the board of directors. But a recent review indicates this "overage" will swell to between 25 and 29 per cent - $1.7 billion to $1.9 billion.

FEB 7 Mexico oil production decline to increase in 2010 (Oil & Gas Journal) Excerpt: Mexico will face difficulties in producing crude oil over the coming 2 years, according to a media report, which claims that Cantarell and Ku-Maloob-Zaap (KMZ) fields will decline simultaneously in 2010... Although KMZ's oil production average increased by 123,400 b/d in 2007, representing a 30.6% increase over 2006, it is not offsetting much of Cantarell's decline because its increase made up for only a third of the decline in Cantarell, El Financero said. Officials at state-owned Pemex expect KMZ to reach its highest production level in 2010, averaging 800,000 b/d of crude oil. Thereafter, its decline will begin, along with that of Cantarell.

FEB 6 Sakhalin-1 Oil Production May Decline 27.6% In 2008 (Dow Jones) Excerpt: Oil production from the Exxon Mobil Corp.-led Sakhalin-1 project off Russia's Pacific coast may decline 27.6% (in 2008)to 7.9 million- 8.2 million metric tons, or 59.1 million - 61.3 million barrels in 2008, Russian news agency Interfax reported, citing an OAO Rosneft official.

FEB 4 Global oil production to fall short of rising demand - Chatham House (AFX News) Excerpt: One speaker noted that over the next eight years the world needs to discover and develop an extra 37.5 mln bpd to meet rising demand and diminishing returns from existing oil fields, but that global production is unlikely to increase by even half that amount in the same timeframe.

[ 37.5 MLN BPD = 13,687 MLN barrels per year of extra petroleum production will be required in the next 8 years ]

JAN 22 China's December Oil Imports Up 11.4 Pct (Associated Press) Excerpt: China's crude oil imports for December rose 11.4 percent from a year ago amid rapid economic growth and rising automobile ownership, according to government data reported Tuesday... December's imports brought the 2007 annual total to 1.1 billion barrels, up 12.3 percent from the 2006 total, according to customs agency data.

JAN 17 New Fields May Offset Oil Drop (Wall Street Journal) Excerpt: Output from the world's existing oil fields is declining at a rate of about 4.5% annually, a new study concludes,depriving the world of the same amount of oil that No. 4 producer Iran supplies in a year... Andrew Gould, thelongtime chief executive of oil-services titan Schlumberger Ltd., has estimated that the industry's average decline rate is closer to 8% a year and growing. Christophe de Margerie, the CEO of French oil company Total SA, warned in October that many existing oil fields are being depleted at rates that will do them lasting harm.

JAN 8 World dependency on OPEC to grow in '08 (Reuters) Excerpt: The world will be even more dependent on OPEC this year for its oil supply as production sags from key non-cartel members Mexico and Norway, the U.S. Energy Information Administration said on Tuesday.

JAN 7 A quantitative assessment of future net oil exports by the top five net oil exporters (Energy Bulletin) Excerpt: ... what really matters to oil importing countries is world net oil export capacity, and we are deeply concerned that the top five net oil exporting countries, Saudi Arabia, Russia, Norway, Iran and the UAE (United Arab Emirates), collectively accounting for about half of current world net oil exports, in aggregate are going to show an ongoing decline in net oil exports...

JAN 3 Oil market still skating on thin ice (The Australian) Excerpt: Some analysts have suggested that the world's biggest single oilfield, Saudi Arabia's Northern Ghawar field, has entered a period of irreversible decline. The field has for years been using water injection to raise the rate at which oil is extracted. A leaked Saudi report shows water levels in the field are now much higher than expected, suggesting there is less oil remaining.

JAN 2 OPEC predicts supply troubles (Associated Press) Excerpt: The report in the December issue of the OPEC Review, published by the organization's Vienna-based Secretariat, also says Kuwait is likely to be an extremely inconsistent and unstable supplier and questions Saudi Arabia's assertion it is capable of meeting world oil demand for the next 50 years.

[c1ue]

Re: Oil up 5%, gold down 9%

Commodities don't behave like Goodle (or any) stock. The supply can't be increased as quickly as printing stock certificates. The first barrel/bushel of shortage (real or imagined) raises the price on all the barrels/bushels. Conversely the first indication of surplus depresses the price on all the barrels/bushels. Trying to equate it with some %'age increase in regional consumption doesn't usually work.

GRG,

It is the imagined part which concerns me. A concerted or even merely coincidental attempt to profit from rising energy prices is itself a self-sustaining price spiral - at least for a time. Note I am specifically excluding the tin-foil hat oil hoarders and/or Big Oil conspiracies.

The shortage in question, if imaginary, thus could very much cause an unwarranted large % increase in a commodity price.

This is why I point out that I have doubts as to whether the relatively small increase in demand in Asia should have caused oil to double and triple in merely 3 years time (2005 vs. 2008).

Certainly it is possible that the world has been balanced on the knife's edge between oil supply and oil demand for several years, but I find it hard to believe that only now this is becoming apparent.

Is the entire oil industry so poorly managed that a 10% or 15% increase in demand in one region of the world would cause supply failure in merely 3 years? Don't oil wells take a decade to go into production?

[Guest]

Re: Oil up 5%, gold down 9%

... attempt to profit from rising energy prices ... self-sustaining price spiral ... shortage if imaginary could cause an unwarranted large % increase in price. ... have doubts small increase in Asia caused oil to double and triple ... hard to believe only now apparent.

Doggedly discussing the technicalities governing petroleum prices while ignoring the wall of information appearing of structural issues spreading like long lurid cracks through the entire global petroleum production system, is somewhat akin to sitting in a burning house, while earnestly discussing the correct methodology (and reliability) of gathering carbon particulate readings in the air. :rolleyes:

_________

[ Meanwhile, iTulipers continue to wrestle with thorny questions concerning how to pin down the origins of observed "price irregularities" in today's petroleum market. The decimated ranks of petroleum exploration companies from a previous commodities slump have been identified as now calamitously affecting global petroleum production volume ...]

[GRG55]

Re: Oil up 5%, gold down 9%

GRG,

It is the imagined part which concerns me. A concerted or even merely coincidental attempt to profit from rising energy prices is itself a self-sustaining price spiral - at least for a time. Note I am specifically excluding the tin-foil hat oil hoarders and/or Big Oil conspiracies.

The shortage in question, if imaginary, thus could very much cause an unwarranted large % increase in a commodity price.

This is why I point out that I have doubts as to whether the relatively small increase in demand in Asia should have caused oil to double and triple in merely 3 years time (2005 vs. 2008).

Certainly it is possible that the world has been balanced on the knife's edge between oil supply and oil demand for several years, but I find it hard to believe that only now this is becoming apparent.

Is the entire oil industry so poorly managed that a 10% or 15% increase in demand in one region of the world would cause supply failure in merely 3 years? Don't oil wells take a decade to go into production?

The general answer to these two questions are, in order, no and yes. And therein lies the difficulty.

Going back a decade the crude oil price behaviour was low and declining, following on 15 prior years of generally declining prices amid a surplus created by the 1970's over-investment.

During the rise of the FIRE economy years the international oil companies (Exxon, Total, Shell as distinct from the national oil companies like Aramco & Pemex) started being managed to "maximize shareholder value". THere was a lot of pressure from Wall Street to justify why investors should support resource companies instead of much more fashionable tech companies. Maximizing shareholder value is not the same as maximizing reserves or production, at a time of surplus.

And the answer, to Wall Street's delight, was restructuring after restructuring, cost cutting programs and a seemingly endless series of layoffs. The most glowing analysts reports on any company always came right after the latest cost cutting purge. THey are all trying to avoid the same outcome this time. That's one reason there won't be another massive overinvestment cycle this time IMO. Shareholders are more wary of indiscriminate spending that destroys value (which is probably one reason the stocks lag the commodity prices) and are quick to move their capital to other sectors, so the resource companies have to compete harder than they did in the 1970's cycle. Yesterday's downward stock price action in Chinese controlled, Canadian listed Husky Energy, upon the CEO's announcement he is seeking a large acquisition, is a good example.

[friendly_jacek]

Re: Oil up 5%, gold down 9%

But for how long? A few weeks? A couple of months? What happens to oil prices when the market realizes that the US is consuming it's previously hoarded oil and the underlying conditions that forced the decision are not necessarily temporary?

I think an argument can be made that oil prices have not spiked higher because of the threat of opening the SPR. Once you play your ace you better hope your opponent doesn't have a pair of them.

Don't get me wrong, I'm bullish on oil and energy long term, but short term we will have a bust. At least between now and summer. It started already. That should help equity too, so the election year scenario plays out the way it was meant.