Do we have an oil bubble?

[c1ue]

Re: We have an oil bubble : the proof

Your chart isn't granular enough to show the price action.

Weekly closing price of Brent Spot on Friday, August 11, 2006 = $77.33 per bbl. Weekly closing price of Brent Spot on Friday, January 19, 2007 = $50.98.

A drop of 34% in 161 days, based on the weekly. The absolute range was larger. WTI was similar of course.

GRG,

Large pension funds and Warren Buffet don't move in and out of stocks in just 6 months.

These entities move in year timeframes - once a decision is made then there is basically a 3 year commitment (or longer), if for no other reason than the positions taken are too large to liquidate quickly without potentially saturating the market and taking outsize losses in the meantime.

The graph I put up is pretty low resolution, but on the other hand isn't that far off from the time scale which institutional sector rotation would operate in.

[Supercilious]

Re: We have an oil bubble : the proof

Wow! The oil is getting fast into the final shakes phase... That is happening much earlier than I though .... Now we we'll see one or more spikes in which misguided small investors who though they can make a fast buck by shorting will be cleaned by other eager equally misguided small investors that think they can make a good buck by buying into a really good bargain price... and while this drama unfolds the big boys are quietly exiting the market laughing their way to the bank ...

Tomorrow all the Cramers of the world who are talking today about an oil bubble, probably will talk again about global shortage of oil and solid fundamentals for high oil prices...

[Guest]

Re: We have an oil bubble : the proof

Wow! The oil is getting fast into the final shakes phase... That is happening much earlier than I though .... Now we we'll see one or more spikes in which misguided small investors who though they can make a fast buck by shorting will be cleaned by other eager equally misguided small investors that think they can make a good buck by buying into a really good bargain price... and while this drama unfolds the big boys are quietly exiting the market laughing their way to the bank ...

Tomorrow all the Cramers of the world who are talking today about an oil bubble, probably will talk again about global shortage of oil and solid fundamentals for high oil prices...

$#* -

With all respect, you were probably the most predictable candidate on these boards to crow a the current decline in oil prices. They have been at nosebleed levels for many weeks now, and the correction occurring is probably the most long-forecast event in commodities going back a couple of years. This thread has extracted a good deal of mileage from the "oil bubble" thesis, but (to some of us at any rate) it's one long boondoggle.

What you are witnessing which has you all agog is a correction, due to the elementary observation that whenever a commodity doubles in less than a year it is well overdue for some pressure release. The speculators will get duly shorn, and within six months to a year we'll see an upward surge resume. Meantime you are engaging in the time hallowed pasttime of extrapolating volatility with "new macro trends" to fit your thesis.

Would you like to place a gentleman's $200 bet with me, that the petroleum price is at $200++ by the end of 2010? If it does turn out to be (or if you are not confident betting against that), what point is there in all this endless discussion of 'bubble oil" today, as it's merely noise in a five year trend which describes an oil price which is in fact going parabolic?

You will be exceedingly fortunate to see petroleum decline below $100 in the next six months, and if it were to, it would react (upwards) off that level in a real hurry. What's to write home about in regards to an oil bubble if that is the extent of it's decline after the past year's run-up?

[Lalit]

Re: We have an oil bubble : the proof

This paper is asinine - he is talking about a bubble due to increasing inventories; he just refers to it as keeping the product in the ground as if that is somehow different.

There is also a big assumption he is making which makes his paper completely ridiculous: that the oil can be pumped out of the well arbitrarily quickly when the demand curve changes slope. This is not at all true. If a producer is artificially keeping supply low, at some point it may increase to maximum capacity - but not some arbitrary capacity that releases all of that crude that was previously kept off the market.

I have not seen evidence for an artificial constraint of supply. Further, the spot price has been above the futures price which makes the hoarding of oil stupid.

It seems that the minipaper suggests:
"speculation" can change the forward curve => this can change the producers' expectations on future spot prices => change in investments and production policy (these must depend on the expectations).

So, forward curve is just one fundamental factor and therefore it might change the market participants behavior (it gives new information about the future).

[Supercilious]

Re: We have an oil bubble : the proof

$#* -

With all respect, you were probably the most predictable candidate on these boards to crow a the current decline in oil prices.

I think that a small victory march is a natural reaction when reality confirms a theory (or a hypothesis in my case, because as long as I don't have any solid data on deficit inflows recycled into commodities futures market I don't have solid proof to transform the hypothesis into a theory). Isn't in the very spirit of this site to have a small celebration when calls of a "major correction" (ahem ... you know ... the B word ) are confirmed?

They have been at nosebleed levels for many weeks now, and the correction occurring is probably the most long-forecast event in commodities going back a couple of years.

Isn't this a strange twist reversal of Fred's chart argument that oil prices will keep rising?

This thread has extracted a good deal of mileage from the "oil bubble" thesis, but (to some of us at any rate) it's one long boondoggle.

I apologize for any discomfort I have created. I apologize if my ideas unintentionally contributed to the difficulty of accepting reality at the expense of faith based beliefs in solid fundamentals for the current oil prices.

What you are witnessing which has you all agog is a correction, due to the elementary observation that whenever a commodity doubles in less than a year it is well overdue for some pressure release. The speculators will get duly shorn, and within six months to a year we'll see an upward surge resume. Meantime you are engaging in the time hallowed pasttime of extrapolating volatility with "new macro trends" to fit your thesis.

Sorry Lukester, but replace oil with housing and you will see the same kind of arguments here:
"The problem the bubble heads have is that housing prices for the most part are still collapsing upward." by Carl Steidtmann April 2007

Would you like to place a gentleman's $200 bet with me, that the petroleum price is at $200++ by the end of 2010?

I may be a gentleman, but I'm not stupid. If, for another two years, they let Ben to have his kinky ways with the treasuries printing machine, by the end of 2010, we may very well have oil at $10000++ . Of course, by then, a bottle of Stella Bud Light may cost $500++ and you will read about the falling dollar in Wall Street Pravda (a financial paper with a long tradition, now, under new chinese management)

You will be exceedingly fortunate to see petroleum decline below $100 in the next six months, and if it were to, it would react (upwards) off that level in a real hurry.

That depends only on the dynamics of recycling US deficit into oil futures-hedged debt-paper. If oil futures are abandoned in a hurry and everything is crammed into similar paper betting on the inevitable evaluation of the yuan, that may trigger an economic collapse in China, and we may very well have low oil prices for a decade or so....

[EJ]

Re: We have an oil bubble : the proof

I think that a small victory march is a natural reaction when reality confirms a theory (or a hypothesis in my case, because as long as I don't have any solid data on deficit inflows recycled into commodities futures market I don't have solid proof to transform the hypothesis into a theory). Isn't in the very spirit of this site to have a small celebration when calls of a "major correction" (ahem ... you know ... the B word ) are confirmed?


Isn't this a strange twist reversal of Fred's chart argument that oil prices will keep rising?



I apologize for any discomfort I have created. I apologize if my ideas unintentionally contributed to the difficulty of accepting reality at the expense of faith based beliefs in solid fundamentals for the current oil prices.



Sorry Lukester, but replace oil with housing and you will see the same kind of arguments here:
"The problem the bubble heads have is that housing prices for the most part are still collapsing upward." by Carl Steidtmann April 2007




I may be a gentleman, but I'm not stupid. If, for another two years, they let Ben to have his kinky ways with the treasuries printing machine, by the end of 2010, we may very well have oil at $10000++ . Of course, by then, a bottle of Stella Bud Light may cost $500++ and you will read about the falling dollar in Wall Street Pravda (a financial paper with a long tradition, now, under new chinese management)



That depends only on the dynamics of recycling US deficit into oil futures-hedged debt-paper. If oil futures are abandoned in a hurry and everything is crammed into similar paper betting on the inevitable evaluation of the yuan, that may trigger an economic collapse in China, and we may very well have low oil prices for a decade or so....

We just received an opinion on the cause of rising oil prices from insider and expert, Martin Mayer.

Commodity prices have since the dollar depreciation began in 2002 been driven by rising demand and dollar weakness. But the trend was made much worse inadvertently by the Fed starting mid 2007.

Giving commercial and investment banks treasuries in exchange for junk was a clever way of avoiding defaults. (He believes, by the way, that lack of certainty about derivatives exposure was indeed the reason why Bear was bailed out the way it was.) What the Fed did not anticipate is that the banks were then going to find a way to use the Treasuries as cash in the commodities market. You may see some corrections in commodity prices as the Fed wrestles with regulations to prevent this in the future.

I asked about ETNs and they are an insignificant contributor to oil and commodity price increases.

Will publish the interview next week.

[metalman]

Re: We have an oil bubble : the proof

We just received an opinion on the cause of rising oil prices from insider and expert, Martin Mayer.

Commodity prices have since the dollar depreciation began in 2002 been driven by rising demand and dollar weakness. But the trend was made much worse inadvertently by the Fed starting mid 2007.

Giving commercial and investment banks treasuries in exchange for junk was a clever way of avoiding defaults. (He believes, by the way, that lack of certainty about derivatives exposure was indeed the reason why Bear was bailed out the way it was.) What the Fed did not anticipate is that the banks were then going to find a way to use the Treasuries as cash in the commodities market. You may see some corrections in commodity prices as the Fed wrestles with regulations to prevent this in the future.

I asked about ETNs and they are an insignificant contributor to oil and commodity price increases.

Will publish the interview next week.

didn't hudson say a similar thing, that the banks were sending the bailout money overseas?

[Supercilious]

Re: We have an oil bubble : the proof

We just received an opinion on the cause of rising oil prices from insider and expert, Martin Mayer.

A prophet is a knowledgeable man form another village.

I asked about ETNs and they are an insignificant contributor to oil and commodity price increases.

In my pseudo-intellectual ruminations I was using ETN's only as an example. I was talking about ETN-like paper ie US deficit held by foreign banks, governments and funds that is recycled into tax-exempt structured-debt instruments hedged in commodities futures. I'm talking about the new financial engineering technology that allow banks and private equity funds to get loans at zero or negative interest rates (the interest/coupon being paid by futures contracts)

The ETN's one can buy through an E-trade account are just insignificant small change, but they can be used to study the behavior of their much larger and secretive siblings.

[metalman]

Re: We have an oil bubble : the proof

A prophet is a knowledgeable man form another village.

you do know who mayer is, right?

In my pseudo-intellectual ruminations I was using ETN's only as an example. I was talking about ETN-like paper ie US deficit held by foreign banks, governments and funds that is recycled into tax-exempt structured-debt instruments hedged in commodities futures. I'm talking about the new financial engineering technology that allow banks and private equity funds to get loans at zero or negative interest rates (the interest/coupon being paid by futures contracts)

The ETN's one can buy through an E-trade account are just insignificant small change, but they can be used to study the behavior of their much larger and secretive siblings.

i'm looking forward to the interview with mayer. i bet this has zero to do with secrets and everything to do with a bunch of bureaucrats who never thought what banks might do with the tbills they got from the fed for crap. now they know! they'll use 'em to buy gold, oil, and other stuff.

[Supercilious]

Re: We have an oil bubble : the proof

you do know who mayer is, right?

I don't know. Who is he? A knowledgeable man, unemployed for a long time who comes from the Brookings Village?
Regardless of who he is, please, metalman, be polite and don't ask him to "talk to the hand" if he says something you disagree with

i bet this has zero to do with secrets and everything to do with a bunch of bureaucrats who never thought what banks might do with the tbills they got from the fed for crap. now they know! they'll use 'em to buy gold, oil, and other stuff.

It has nothing to do with secrets, but has everything to do with dirty little secrets. If you imagine everything like a monstrous DaVinci Code of global finance you would be absolutely wrong.

A more appropriate model would be that of a bunch of kids who are in a house supervised by an old and incompetent nanny. The nanny is snoring or simply too absorbed with her Sandra Brown novel to bother to check what the irresponsible little devils are doing. It's enough for one of the kids to test the limits of his confinement and find that the attic door is unlocked. He gets inside finds some matches and he is having a good time.

Other kids find the secret and soon all are in the attic having a hell of a good time playing with matches and gasoline. Suddenly, the old incompetent nanny stops snoring and wakes up to find the whole house on fire and the kids crying for help or hiding in a corner, being afraid of punishment.

Before the nanny is able to figure out form where is all that smoke, a fire engine arrives, and fireman Ben uses a direct Fed line as a water hose hose to extinguish the fire with taxpayer's money. Plus let's not forget it is his duty to save the mischievous and irresponsible kids.

It's really that simple, but most people cannot believe it can be that simple. Global Peak (Cheap) Oil sounds much better and it can be supported with very nice charts :cool:

[c1ue]

Re: We have an oil bubble : the proof

I would be interested to see what Mayer says about the specifics on the treasury/MBS swaps and how it has affected the overall market.

What $#* and I have been talking about is a possible mechanism for manipulation, but both of us have been very clear that the scale is what ETNs are doing is completely unknown.

Martin Mayer may - hopefully does - have this information.

I look forward to the exposition on this statement:

What the Fed did not anticipate is that the banks were then going to find a way to use the Treasuries as cash in the commodities market.

At first glance it seems that indeed there was manipulation - or at least significant distortion - just not via the ETN route. Hmmm...

[metalman]

Re: We have an oil bubble : the proof

I don't know. Who is he? A knowledgeable man, unemployed for a long time who comes from the Brookings Village?
Regardless of who he is, please, metalman, be polite and don't ask him to "talk to the hand" if he says something you disagree with

there is a difference between speculation and knowledge. in a contest between his information from old pals who work for the fed and your speculation, i'll go with what his friends are saying... unless you got pals over at the fed, too.

It has nothing to do with secrets, but has everything to do with dirty little secrets. If you imagine everything like a monstrous DaVinci Code of global finance you would be absolutely wrong.

A more appropriate model would be that of a bunch of kids who are in a house supervised by an old and incompetent nanny. The nanny is snoring or simply too absorbed with her Sandra Brown novel to bother to check what the irresponsible little devils are doing. It's enough for one of the kids to test the limits of his confinement and find that the attic door is unlocked. He gets inside finds some matches and he is having a good time.

Other kids find the secret and soon all are in the attic having a hell of a good time playing with matches and gasoline. Suddenly, the old incompetent nanny stops snoring and wakes up to find the whole house on fire and the kids crying for help or hiding in a corner, being afraid of punishment.

Before the nanny is able to figure out form where is all that smoke, a fire engine arrives, and fireman Ben uses a direct Fed line as a water hose hose to extinguish the fire with taxpayer's money. Plus let's not forget it is his duty to save the mischievous and irresponsible kids.

It's really that simple, but most people cannot believe it can be that simple. Global Peak (Cheap) Oil sounds much better and it can be supported with very nice charts :cool:

sounds like geeks and jocks theory to me.

[Supercilious]

Re: We have an oil bubble : the proof

there is a difference between speculation and knowledge. in a contest between his information from old pals who work for the fed and your speculation, i'll go with what his friends are saying... unless you got pals over at the fed, too.

What can I say about this statement ???!!!! :eek:

I think I want to give a speech:

I have a dream! ... that one day this forum will rise up and live out the true meaning of its creed: "We hold no truth to be self-evident and all views are created equal."

I have a dream! ... that one day on the green pages of iTulip, the non-paying contributors and the Select Premium Members will be able to sit down together at the table of common sense and sound reasoning.

I have a dream! ... that Junior iTulipers will one day write in a forum where they will not be judged by the positions of their pals but by the content of their posts.

sounds like geeks and jocks theory to me.

Sorry, I can't give an answer to that because I'm not a Premium Member, therefore I can't read the whole theory. But, if EJ has the same views as me, that's good .... because at least on this particular point nobody will have the courage to patronize me with with the blessings of cheap cynicism ....:rolleyes:

But going back to oil, have you seen today's volumes on Nymex? ... with no great changes in price ....

[metalman]

Re: We have an oil bubble : the proof

What can I say about this statement ???!!!! :eek:

I think I want to give a speech:

I have a dream! ... that one day this forum will rise up and live out the true meaning of its creed: "We hold no truth to be self-evident and all views are created equal."

all analyses are not created equal nor are analysts. an analysis that predicts accurately is better than one that does not and analysts who are repeatedly correct are better than those who are chronically wrong... i concede that to idiots who cannot tell the difference both are equal, and god knows there are plenty of idiots to keep a thousand quacks and charlatans in green. how else to explain the popularity of cramer or stein?

mayer is what used to called a 'scholar' back in the days before any asshat with a computer and a blog claimed to know all about banking after reading about TAFs on some other asshat's blog. mayer's written a dozen books on banking. he writes, for example...

The problem is that credit derivatives tend to be sold on a total-return basis. In some cases, you’re not swapping portfolios of loans. You’re gambling on the relative return of a risk-free instrument against an equity portfolio, a portfolio with junk bonds, a portfolio of foreign currencies or whatever, in which there is a larger risk.

What this means is that you can have a limited investment because you can pick up these risk-free instruments on borrowed money and then swap them on a total-return basis with a package of equities or junk bonds. Nobody knows what the hell is going on in these private deals, and nobody knows the volume of what is out there, including regulators. So nobody can have an informed opinion about what the dangers are. What has happened over and over again with these instruments is that people have assumed that there is measurable risk where in fact there is immeasurable uncertainty.

who else is going to come up with this but a guy who has spent a lifetime at it? a car mechanic? a dog trainer? an accountant? thanks, but i'll take my car to the mechanic, my dog to the dog trainer, my books to my accountant, and will avoid the ramblings of amateurs on how i invest my $$$.

I have a dream! ... that one day on the green pages of iTulip, the non-paying contributors and the Select Premium Members will be able to sit down together at the table of common sense and sound reasoning.

I have a dream! ... that Junior iTulipers will one day write in a forum where they will not be judged by the positions of their pals but by the content of their posts.

my post was not a reaction to your position but to your insistence that you or anyone here including ej knows as much as a world class expert on banking who, from previous interviews, knows guys who actually know first hand what is going on because they are there not reading about it on the internets or speculating or guessing or just talking shit. this is why, i assume, ej interviews these guys because they know things he doesn't.

Sorry, I can't give an answer to that because I'm not a Premium Member, therefore I can't read the whole theory. But, if EJ has the same views as me, that's good .... because at least on this particular point nobody will have the courage to patronize me with with the blessings of cheap cynicism ....:rolleyes:

But going back to oil, have you seen today's volumes on Nymex? ... with no great changes in price ....

now you got me baffled... the link i posted goes to free content. try it again.

[Supercilious]

Re: We have an oil bubble : the proof

all analyses are not created equal nor are analysts.

Metalman please try not to twist even my words to fit you arguments. Views are not the same with analyses. Maybe my formulation was too deep ...

who else is going to come up with this but a guy who has spent a lifetime at it? a car mechanic? a dog trainer? an accountant?

metalman incidentally I have a great respect for Mayer, but that doesn't mean your logic wasn't superficial and flawed because your original argument was quite different. You said:

Originally Posted by metalman
there is a difference between speculation and knowledge. in a contest between his information from old pals who work for the fed and your speculation, i'll go with what his friends are saying... unless you got pals over at the fed, too

Where in your initial patronizing dismissal was any reference to Mayer's brilliant intellect and competence or excellent track record? You were talking only about his ability to gather information from "old pals who work for the fed". Maybe I was again too deep, but I thought it was really funny to give credits to Mayer using a paris hiltonish logic...

my post was not a reaction to your position but to your insistence that you or anyone here including ej knows as much as a world class expert [...]

Ok I see where I made a mistake you are completely and consistently missing my points. I'll try for the future to use simple terms and plain language.

When I was talking about a knowledgeable man coming form another village and asked you to refrain from "talk to the hand arguments", I was trying to suggest that if Mayer has the same opinion as me about the correlation between high oil prices and the debt-treasuries recycling into commodities-hedged-paper it would be really funny to see the same people who were very dismissive of this idea earlier in the month, suddenly to accept it when Mayer supports it... That, IMHO, would be again very paris-hiltonish ....

now you got me baffled... the link i posted goes to free content. try it again.

At the bottom of the page there is a link for Read more…. which leads to Premium content. I though EJ's piece was longer. Mea culpa if all of it is available for free.

But let's go back to commodities:
http://online.barrons.com/article/SB...lenews_barrons

Adding to the downward pressure in the energy markets was the bankruptcy of SemGroup LP, a Tulsa-based transporter and marketer of petroleum products. SemGroup's acting chief executive officer, Terrence Rowan, said in the Chapter 11 filing the bankruptcy was caused by a "severe liquidity crisis" stemming from "margin calls of massive proportions." Its trading account at the New York Mercantile Exchange showed a loss of over $2.4 billion.
[...]
Indeed, commodities are plunging across the board, from crude to corn to cocoa, from metals to meats. Every one of these markets is headed lower in tandem, and quickly. Not even Washington pols would go so far as to claim credit for these pervasive moves.

Someone else makes the link between liquidity issues and rise of crude and cocoa prices...