Do we have an oil bubble?

[Supercilious]

Re: Do we have an oil bubble?

For what its worth:

And my 2 cents for what are they worth:



http://static.seekingalpha.com/uploa...ubblegains.png


Some insight from the down under:

http://www.businessspectator.com.au/...cument&src=sph

Across the board, however, energy and commodity prices have been falling against the backdrop of a slowing world economy and continuing credit market instability.

That has created a "triple whammy" for the hedge funds, which had leveraged exposures to commodities inflated by their own speculative activities in a sector where commodity trading has experienced (until recently) relatively low margin requirements. All those things – values, leverage and margin requirements – have been reversing.

For some funds that were running long/short strategies – long commodities, short financials – the outcome will be even worse, given that financial stocks, while still weak, bottomed in July.

In one sense this was yet another disaster waiting to happen. When the credit crisis closed credit markets, smashed equity markets and engulfed property markets, commodities – buoyed by the China story – was the only hot market left to play in. A market with good fundamentals was turned into a casino as the funds piled in.

The resources sector, despite a recent modest slowing of China’s economic growth rate (from very high levels) retains good fundamentals. There is still an imbalance between demand and supply in many of the key commodities and some major impediments to boosting supply in the near to medium term.

That isn’t sufficient, however, to sustain the levels of speculative activity.

[Supercilious]

Re: Do we have an oil bubble?

Now there is a a very interesting time. If Fannie&Freddie's bailout happens over the weekend (and probably it does), and depending on how exactly it is done, a lot of hedgefunds may take some hits ... banks (swap dealers) involved in commodities hedging (OTC futures investment instruments) will have to deleverage. As a result after the initial dollar shock (if there is one in case the debt structure of F&F is not well conserved by the bailout) the price of oil should take a sharp dive.

(Being long on airlines is essential after this weekend )

That would be the first experimental proof of the oil bubble....:cool:

[Supercilious]

Re: Do we have an oil bubble?

Bragging time in quotes:

http://seekingalpha.com/article/9490...s#comment_form

Today's release of the weekly oil inventories showed a larger than expected draw in crude stockpiles (-5,428K barrells vs. -3,500K estimate). Two months ago this type of news would have caused a sharp spike higher in crude oil prices. Today, this news and the announcement of an OPEC cut in output is only good for a gain of 8 cents.
click to enlarge

http://seekingalpha.com/article/9478...must-know-news

Commodity funds sold $39B in crude futures between their July peak and Sept. 2, adding fuel to the theory speculation - not supply constraints - drove prices up. "The speculators that drove prices up basically deflated the bubble," Oppenheimer's Fadel Gheit says. After the CFTC ramped up its monitoring of oil trading, "They said, 'That's it, the game is over. We are going to bet on another horse.'" Some analysts insist energy traders have no more effect on oil prices than weather forecasters do on the weather; with oil at $95 in January, $150 in June and back to $100 in September, one wonders.

And now the icing on the cake !!!!!



http://seattletimes.nwsource.com/htm...oilspec11.html

Speculators' role in crude-oil prices under examination

By Kevin G. Hall
McClatchy Newspapers

WASHINGTON — Federal regulators have uncovered evidence that oil speculators operating in unregulated "dark markets" may have helped drive the price of crude oil to record highs this year, McClatchy Newspapers has learned.
The Commodity Futures Trading Commission (CFTC) is expected to issue a long-awaited report before Monday, perhaps as early as today, on what role oil speculators played in the 50 percent rise in oil prices earlier this year. The report isn't expected to declare that speculators are the main cause of the price rise, a conclusion the agency rejected in an interim report in July.
But unregulated markets account for about two-thirds of oil trading on financial markets, and they could be used to manipulate oil prices on the regulated exchanges that account for the remaining oil trading.
The finding that some speculators exceeded positions in regulated markets is sure to spark debate about how much the CFTC knows about the markets it regulates, whether more stringent reporting requirements are needed, and whether the government should require more disclosure from speculators and investment banks.
In a recent interview, CFTC Commissioner Bart Chilton told McClatchy that his agency lacks tools it needs to gather market information.
"It's not responsible to reach conclusions about speculators based upon current data."
It's not entirely clear how the CFTC, which is under heavy criticism from Congress, will portray its findings about the large dark-market positions in the report. The agency's interim report found soaring oil prices earlier this year were due to underlying fundamentals of supply and demand.
[...]
Swap dealers
Specifically, the agency is looking into swap dealers, who enter into complex private contracts for oil sales away from the peering eyes of regulators.
McClatchy has learned that some of the speculators doing business with swap dealers — who generally are large investment banks such as Goldman Sachs and Morgan Stanley — have built positions that would be banned in regulated futures markets.
Swap dealers such as Goldman are exempt from position limits because they enter into private contracts in the over-the-counter market, and then hedge the risks from those contracts in the regulated futures market.
Regulators know what swap dealers' positions are in regulated markets, but they have far less information about who's on the other end of a swap deal and what their positions in futures markets might be.
In a swap deal, an investor agrees to plunk down a fixed amount of money on a specified quantity — say $100 for a barrel of oil — over a fixed period.
The investor is seeking to limit the risk of being exposed to prices going above that point, and the swap dealer hedges the cumulative bets it's made by taking positions in the regulated futures markets, as well as smaller regulated futures markets abroad.

QED!

[Supercilious]

Re: Do we have an oil bubble?

Oil is below $100/bbl

It's just fundamentals:Hurricane Ike is threatening the Gulf oil production....

[GRG55]

Re: Do we have an oil bubble?

Oil is below $100/bbl

It's just fundamentals:Hurricane Ike is threatening the Gulf oil production....

Ike is threatening the refineries. Shut them down and you don't need the goop that feeds them...

It's all in the fundamentals...

[zoog]

Re: Do we have an oil bubble?

Ike is threatening the refineries. Shut them down and you don't need the goop that feeds them...

It's all in the fundamentals...

According to MarketWatch:

Analysts said Hurricane Ike may damage refineries in the Gulf region, reducing demand for crude oil.

Oh is that how it works? A reduction in production supply triggers a reduction in demand, and therefore (implied) a reduction in price? I could have sworn that reduced supply causes an increase in price. I get so confused.:rolleyes:

As Jim Sinclair said yesterday

Winds are at 100MPH and strengthening. It will plow directly through a flotilla of oil rigs with reports surely to be spun that there is no problem even if the rigs are upside down or in downtown Houston.

[raja]

Re: Do we have an oil bubble?

According to MarketWatch:
Oh is that how it works? A reduction in production supply triggers a reduction in demand, and therefore (implied) a reduction in price? I could have sworn that reduced supply causes an increase in price. I get so confused.:rolleyes:

I think what this means is that the refineries that buy oil are not buying it now, so the price of oil goes down. But for the people who are buying the products of the refineries, the price of those products goes up because of reduced supply.

[Supercilious]

Re: Do we have an oil bubble?

In order to reach the refineries isn't Ike supposed to plow through the off-shore rigs ????

Hmmm... or maybe the rigging was done somewhere else

[GRG55]

Re: Do we have an oil bubble?

According to MarketWatch:
Oh is that how it works? A reduction in production supply triggers a reduction in demand, and therefore (implied) a reduction in price? I could have sworn that reduced supply causes an increase in price. I get so confused.:rolleyes:

As Jim Sinclair said yesterday

1. There is no supply problem. Never has been. Even when oil was $145 per barrel did anyone hear about line ups to buy gasoline? [this is not the first time I have posted this observation]. The supply and demand balance has been close for some time, until the recent accelerated demand destruction created some inventory room.
2. The demand falls off first, not the supply. It takes very little time to shut down an oil production platform; many of them are unmanned and operated remotely through SCADA systems (supervisory control and data acquisition). It takes much longer to shut down a refinery, and even longer to start it up again. The refineries start a controlled shutdown early. Any refinery that was shut down for Gustav is unlikely to have seen much, if any, uptime since. That's one reason gasoline prices are spiking even as oil falls.
3. The refineries are much more vulnerable than an offshore platform. A Cat 2 hurricane is no big deal for a shut-in production platform. If the refineries are damaged they take a very long time to come back online. I was in Houston in winter '83/84 and many of the refineries were still down after the damage from Alicia. Now it will take even longer to repair and restart if needed. The refining industry is acutely aware of the public fallout from another accident like BP Texas City. Nobody wants to have to testify in front of Congress. The safety procedures and processes in place now are far more rigorous, and costly, and time consuming than those in place in the early 1980's. Alicia was a Cat 3 when it hit the shoreline; Ike is only a Cat 2 but the current forecast is Cat 3 when it hits Galveston. We'll see how the infrastructure weathers it.

It's all in the fundamentals...

[GRG55]

Re: Do we have an oil bubble?

In order to reach the refineries isn't Ike supposed to plow through the off-shore rigs ????

Hmmm... or maybe the rigging was done somewhere else

Have a look at a map showing the location of the majority of the platforms (rigs do the drilling, not the production BTW) versus the path of Ike. That should answer your question...

It's all in the fundamentals...;)

[Supercilious]

Re: Do we have an oil bubble?

Quote:

Originally Posted by $#* In order to reach the refineries isn't Ike supposed to plow through the off-shore rigs ???? Hmmm... or maybe the rigging was done somewhere else

Have a look at a map showing the location of the majority of the platforms (rigs do the drilling, not the production BTW) versus the path of Ike. That should answer your question...

It's all in the fundamentals...;)

Therefore if Ike does little damage to refineries we should expect to see an increase in oil prices, because the glut of oil inventories will be processed with no delay.

As you probably know the oil inventories are at an all time high...




yup, it's all supply and demand

[GRG55]

Re: Do we have an oil bubble?

Therefore if Ike does little damage to refineries we should expect to see an increase in oil prices, because the glut of oil inventories will be processed with no delay.

As you probably know the oil inventories are at an all time high...




yup, it's all supply and demand

You're not listening. Go back and re-read what I posted. Carefully this time.

[Supercilious]

Re: Do we have an oil bubble?

You're not listening. Go back and re-read what I posted. Carefully this time.

Ok sorry if I've missed your point . I'll go back and read very carefully what you said. Let's start with this :

The supply and demand balance has been close for some time, until the recent accelerated demand destruction created some inventory room.
It's all in the fundamentals...

Please look again at the chart. Where exactly is that inventory room? Was the demand destruction responsible for a decrease in inventories ????:eek:

Hmmm... I'm thinking to launch a new theory called... the Inventories Ratchet ....

[GRG55]

Re: Do we have an oil bubble?

Ok sorry if I've missed your point . I'll go back and read very carefully what you said. Let's start with this :



Please look again at the chart. Where exactly is that inventory room? Was the demand destruction responsible for a decrease in inventories ????:eek:

Hmmm... I'm thinking to launch a new theory called... the Inventories Ratchet ....

This is what I posted about inventories:

...There is no supply problem. Never has been. Even when oil was $145 per barrel did anyone hear about line ups to buy gasoline? [this is not the first time I have posted this observation]. The supply and demand balance has been close for some time, until the recent accelerated demand destruction created some inventory room...

I do not see anything on the chart you posted that conflicts with that.
Inventories have risen through the year, except for the usual seasonal drawdown for the summer gasoline runs. All the statistics show final demand declining in the OECD, including the USA.



Apparently you disagree with some aspect of this. So let's see if we can figure out where:

1. Do you think there is a supply problem? I don't recall hearing about any sustained shortages of petroleum products in the USA or anywhere else in the world. If you don't think there is a supply problem then we must be in agreement. If you think otherwise, I look forward to your evidence.
2. The supply and demand balance has been close. Although there have not been any sustained shortages of products, there have been numerous localized short-term shortages when a major part of the supply chain has been disrupted - unsheduled refinery outages in both the USA and Canada being the most prominent examples
3. Demand destruction is creating inventory room. Seems to me your own chart shows inventories higher than they were when the year started. Your sarcastic comment about inventories being at record highs demonstrates nothing more than a consistent reading comprehension difficulty on your part. "Inventory room" is not the same as "record high"

The refiners will be in no hurry to come back on line after the storm. The crack spreads have been terrible, and it's likely they'll do what they can to support the improved margins. The market seems to be betting that they will have some success looking at the equity price moves in the last two days.

[Supercilious]

Re: Do we have an oil bubble?

So should I understand that after the storm if refineries will be hit, we will see more decrease in the oil price while if the refineries will escape without any major damage the oil price will increase ?

If the oil price will continue to decline regardless what happens to refineries, maybe the hurricane hit on refineries has no influence on the oil price ...:eek: