Do we have an oil bubble?

[GRG55]

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:

What you should understand is entirely at your discretion. My views about the short term movements in the price of oil are well documented and well known around here.

[Supercilious]

Re: Do we have an oil bubble?

What you should understand is entirely at your discretion. My views about the short term movements in the price of oil are well documented and well known around here.

Please don't be upset. I was just trying to highlight the general decreasing trend of the oil price.

Surprisingly nobody seems to be amazed about how "cheap" is the oil today.
Now it's $98/bbl.

I'm preparing to launch a new theory called "Deflation Ratchet and Peak Cheap Index Fund Money"

[Supercilious]

Re: Do we have an oil bubble?

GRG please help me with this. The oil price is now $92/bbl.

This decrease not only can't be explained by physical supply and demand fundamentls, but it can't even be explained by a severe unwinding of Index Investment money.

I looked at the open interest and my jaw dropped.

Do you perceive people are running from futures oil in panic, because they recession?

If it's not panic, it can be just one possible explanation: the same players who drove the price up with long positions, are preparing to drive the price down with short bets.

And that's exactly what we need now. To have the dollar pushed higher just because somebody needs to make a buck by driving the price of oil down.:mad:

[FRED]

Re: Do we have an oil bubble?

Back when this thread was opened it was originally titled "We have an oil bubble: the proof" which we changed to "Do we have an oil bubble?" because it's an important topic and deserves serious discussion for what it is, a question which can be argued several ways based on evidence not a fact for which there is any proof.

The oil markets delivered evidence yesterday to support our contention that oil is not a bubble.

Oil Prices Explode
September 23, 2008 (BusinessWeek)

Prospects for a weaker dollar and worries about the Wall Street bailout send investors flooding back into the oil market

Crude oil, the newest safe haven? Amid high-profile implosions on Wall Street and the prospect of massive new U.S. government debt, investors rushed into crude oil futures on Sept. 22, sending prices up a record 16% in one day. The price of a barrel of West Texas Intermediate crude oil surged more than $25, to $130 on the New York Mercantile Exchange (CME), before settling at $120.92. The one-session rise of $16.37 rise set a record.

No bubble in history has "popped" as the so-called "oil bubble" was purported to do months ago and then recovered to exceed previous highs. It has not done so yet, but when it does then we will have our answer: We did not have an oil bubble but instead a complex set of factors driving oil prices rapidly upward, mostly due to expectations about future dollar purchasing power.

If and when oil prices exceed their previous $147 "bubble" peak, we will have our answer and can close this thread.

[c1ue]

Re: Do we have an oil bubble?

It seems clear - at least to me - that while oil prices were not a bubble, nonetheless that there was a grain of truth in the assertion that there were manipulative elements in the previous price rise up to $147/barrel.

The deleveraging process appears to be the culprit.

However, $#*'s original assertion of ETNs being a Ponzi-esque scheme to make money on the bank's part is also still open - it is with great interest that I watch the unwinding of LEH's ETNs and ETFs.

[Supercilious]

Re: Do we have an oil bubble?

Back when this thread was opened it was originally titled "We have an oil bubble: the proof" which we changed to "Do we have an oil bubble?" because it's an important topic and deserves serious discussion for what it is, a question which can be argued several ways based on evidence not a fact for which there is any proof.

The oil markets delivered evidence yesterday to support our contention that oil is not a bubble.

Oil Prices Explode
September 23, 2008 (BusinessWeek)

Prospects for a weaker dollar and worries about the Wall Street bailout send investors flooding back into the oil market

Crude oil, the newest safe haven? Amid high-profile implosions on Wall Street and the prospect of massive new U.S. government debt, investors rushed into crude oil futures on Sept. 22, sending prices up a record 16% in one day. The price of a barrel of West Texas Intermediate crude oil surged more than $25, to $130 on the New York Mercantile Exchange (CME), before settling at $120.92. The one-session rise of $16.37 rise set a record.

Fred, I've never said there was not a dollar sliding, or a there was not a real bull trend. All bubbles start as legitimate bulls . On top of that there you add the bubble component.

About the $130 hike, the CFTC finally decides to look into it after too many people were shaking their head smelling a strong whiff of of short squeeze "shake". Incidentally this "recovering" happened at the expiration of October contract:
http://ap.google.com/article/ALeqM5i...BB-tAD93CFDAG1

The October contract, which expired Monday, surged as much as $25.45 to $130 a barrel before falling back to settle at $120.92, up $16.37 — the biggest one-day gain ever.
Analysts said the hyperbolic move was likely the result of an unusually severe "short squeeze," a trading occurrence that happens when investors who bet that oil prices would fall rush to cover positions before the contract's expiration. Failure to do so would require them to take delivery of the physical crude; traders almost always cover their positions rather than take delivery, even if doing so means taking huge losses.
Tuesday's trading essentially brought prices back to where they were before the rally began, further suggesting it was the result of a technical phenomenon. Nonetheless, prices have moved higher over the past week amid greater uncertainty about the economy.

Look, I'm quite busy lately, and there is a lot happening with Bennis the Menace, but soon if you feel you would like to know more about commodities trading (in order not to confuse a "hyperbolic" "technical incident" with a real recovery process, I could start a thread on which I can explain basic elements of "nymexing" in very simple an dacesible terms.[/quote]

No bubble in history has "popped" as the so-called "oil bubble" was purported to do months ago and then recovered to exceed previous highs. It has not done so yet, but when it does then we will have our answer:

Combine a bull trap with people scared about a crash and guess what it may happen....

We did not have an oil bubble but instead a complex set of factors driving oil prices rapidly upward, mostly due to expectations about future dollar purchasing power.

Let me guess... you continue to believe that there was no "under the table" deregulation, the "swaps loophole" never happened , CFTC is awake alert and doing its' job in a very professional manner (not sleeping at the wheel and not looking the other way) , Goldman Sachs (and others) doesn't have both hands into the market, with the right hand pretending to be "commercial" swap dealer and the left non commercial managed money... and of course the right hand has no idea what the left does

Just tell me more. I love to listen to a soothing voice saying : "Once upon a time on the oil markets ..."

If and when oil prices exceed their previous $147 "bubble" peak, we will have our answer and can close this thread.

Oookkkey! I understand that it is very important for you to close this thread . I think we've talked about this issue before.

(Anyway Fred, thanks to replying on this thread. I really do appreciate your insights and the tread was being abandoned because nobody wanted to debate this issue anymore. Looking forward again to continue a vigorous, educational and entertaining debate with you .)

[FRED]

Re: Do we have an oil bubble?

Oookkkey! I understand that it is very important for you to close this thread . I think we've talked about this issue before.

(Anyway Fred, thanks to replying on this thread. I really do appreciate your insights and the tread was being abandoned because nobody wanted to debate this issue anymore. Looking forward again to continue a vigorous, educational and entertaining debate with you .)

It is important to us that we remain consistent. Other sites frequently re-define terms to fit events into faulty analysis when events don't go their way. To remain credible, we have to define our terms and stick to them.

There is no standard definition of a bubble. The iTulip definition of a bubble is clearly explained in the Harper's article. It was arrived at through a decade of work and experience. That is the reason EJ was asked to write the article.

You have come up with our own definition of a bubble which is not consistent with the one that we use here, then you have argued that oil meets your definition.

That's fine, but as in the case of Finster's personal definition of deflation, which is neither the standard definition nor ours, we need to make sure that readers are not confused.

Members bring a lot of misunderstandings into iTulip from other sites. We try to clear them up, and treat topics that remain open to debate in a self-consistent way.

On the topic of bubbles you are a tourist among tour guides. If you were in Paris but are not from Paris and you tried to tell your fellow tourists on a tour of the city where the back alleys go and the best place to go for foie gras, you can expect the tour guides to instruct your fellow tourists to regard your advice with caution. On topics that we are not experts on, however, we're all ears.

[Supercilious]

Re: Do we have an oil bubble?

There is no standard definition of a bubble. The iTulip definition of a bubble is clearly explained in the Harper's article. It was arrived at through a decade of work and experience. That is the reason EJ was asked to write the article.

Correct. I can't argue with that. It may be very well that all this dispute is nothing than a typical case of "you say potatoe, I say potato"

If by saying "there is no oil bubble" you mean "there is not iTulip (EJ's definition) oil bubble", I can't argue with that.

You can also say that the yesterday's hike to $130 is (iTulip, or Fred or EJ) evidence there is no oil bubble. I can live with that, even if for me it is obvious it was a ... errr... "technical phenomenon" ... on the base of a short squeeze and rush to cover in the last day of the contract ....

You have come up with our own definition of a bubble which is not consistent with the one that we use here, then you have argued that oil meets your definition.

Basically, I came with a definition that is not identical with EJ's

That's fine, but as in the case of Finster's personal definition of deflation, which is neither the standard definition nor ours, we need to make sure that readers are not confused.

I think that is a very reasonable position. I agree completely with you here. Let's use common sense and settle this in a very simple way:
-You changed my original tile from "We have an oil bubble: the proof" to "Do we have an oil bubble?"

-I was mistaken in believing it was a soviet-style act of censorship, derived from the insecurity in defending a "need for consistency" , which was incompatible with the development of reality. My suspicion was pushed further by the fact that the change did not happen in the first days of the thread, but only after the oil price had started to slide down, and you left no courtesy note explaining that the editing has been done by Fred (or EJ) in order to change the title (for a more accurate information of iTulipers etc).

-I do now realize I was completely wrong, and your intention was only to provide the best quality information and consistency (with respect to the official iTulip bubble definition) for iTulipers. I respect such a position and in this case I have to present my deepest and sincere apologies.

-It is obvious the whole issue has been completely blown out of proportion and I believe that in the interest of providing best possible information iTulipers and creating a positive environment for open and free exchange of ideas, a simple solution would be to have the title of the thread changed once more in:
"We have an $#* Oil Bubble: the proof"

On the topic of bubbles you are a tourist among tour guides.

Now ... now ... Fred, generally it is not a good idea to declare yourself a reinforcing of your formal authority status after making a potentially controversial statement (such as the one with the "technical phenomenon" and "The oil markets delivered evidence yesterday to support our contention that oil is not a bubble"). It can create informal doubts about the formal authority position. ... not good...

Secondly, I believe your formulation, is not particularly inspired, since many iTulipers have extensively traveled abroad and they know very well not all tour guides are competent and even the most competent ones make mistakes from time to time. Erare humanum est, perseveram ....

(Actually, a few years back I was on a guided tour of Florence, organized by the hotel, in which lost in the cosmopolitan crowd there was an academic from Madrid. I had a lot to learn from that visit at the Uffizi Gallery and I'm sure our tourguide picked a few things and corrected some of his fact base too.)

On topics that we are not experts on, however, we're all ears.

Good. That is a very positive attitude. If that's the case, I do have to say that what happened yesterday was a proof of ... nothing ... and had nothing to do with the existence or nonexistence of any kind of (iTulip, $#* or even Crammer style) oil bubble.

It was just a "technical phenomenon" occurring in the last day of the of the October contract "when investors who bet that oil prices would fall rush to cover positions before the contract's expiration. Failure to do so would require them to take delivery of the physical crude; traders almost always cover their positions rather than take delivery, even if doing so means taking huge losses."

[metalman]

Re: Do we have an oil bubble?

Correct. I can't argue with that. It may be very well that all this dispute is nothing than a typical case of "you say potatoe, I say potato"

i'll take warren buffett's idea of a good company to buy over ej's. i'll take ej's definition of a bubble over buffett's and i'll take ej's definition of a bubble over yours.

If by saying "there is no oil bubble" you mean "there is not iTulip (EJ's definition) oil bubble", I can't argue with that.

You can also say that the yesterday's hike to $130 is (iTulip, or Fred or EJ) evidence there is no oil bubble. I can live with that, even if for me it is obvious it was a ... errr... "technical phenomenon" ... on the base of a short squeeze and rush to cover in the last day of the contract ....

not what he's saying. he says its evidence. if oil goes to $147 again it was not a bubble. bubbles are mean reverting. there is no mean price of oil. oil going to $147 and then $200 means you're barking up the wrong tree.

Basically, I came with a definition that is not identical with EJ's

yeh, we noticed

I think that is a very reasonable position. I agree completely with you here. Let's use common sense and settle this in a very simple way:
-You changed my original tile from "We have an oil bubble: the proof" to "Do we have an oil bubble?"

-I was mistaken in believing it was a soviet-style act of censorship, derived from the insecurity in defending a "need for consistency" , which was incompatible with the development of reality. My suspicion was pushed further by the fact that the change did not happen in the first days of the thread, but only after the oil price had started to slide down, and you left no courtesy note explaining that the editing has been done by Fred (or EJ) in order to change the title (for a more accurate information of iTulipers etc).

-I do now realize I was completely wrong, and your intention was only to provide the best quality information and consistency (with respect to the official iTulip bubble definition) for iTulipers. I respect such a position and in this case I have to present my deepest and sincere apologies.

can't speak for fred or ej but you are one of the reasons i come here. don't aways agree with you but you make well thought out points and definitely know more than a thing or two about trading and markets.

Now ... now ... Fred, generally it is not a good idea to declare yourself a reinforcing of your formal authority status after making a potentially controversial statement (such as the one with the "technical phenomenon" and "The oil markets delivered evidence yesterday to support our contention that oil is not a bubble"). It can create informal doubts about the formal authority position. ... not good...

Secondly, I believe your formulation, is not particularly inspired, since many iTulipers have extensively traveled abroad and they know very well not all tour guides are competent and even the most competent ones make mistakes from time to time. Erare humanum est, perseveram ....

(Actually, a few years back I was on a guided tour of Florence, organized by the hotel, in which lost in the cosmopolitan crowd there was an academic from Madrid. I had a lot to learn from that visit at the Uffizi Gallery and I'm sure our tourguide picked a few things and corrected some of his fact base too.)

i thought he was being funny. if it was a parisian tour guide he'd insult you in front of everyone and then everyone would laugh at you

Good. That is a very positive attitude. If that's the case, I do have to say that what happened yesterday was a proof of ... nothing ... and had nothing to do with the existence or nonexistence of any kind of (iTulip, $#* or even Crammer style) oil bubble.

It was just a "technical phenomenon" occurring in the last day of the of the October contract "when investors who bet that oil prices would fall rush to cover positions before the contract's expiration. Failure to do so would require them to take delivery of the physical crude; traders almost always cover their positions rather than take delivery, even if doing so means taking huge losses."

if oil goes to $147 again, case closed.

[Supercilious]

Re: Do we have an oil bubble?

i'll take warren buffett's idea of a good company to buy over ej's. i'll take ej's definition of a bubble over buffett's and i'll take ej's definition of a bubble over yours.

I have no doubt about that and I have nothing against people freely expressing their opinions, convictions and faith.

not what he's saying. he says its evidence. if oil goes to $147 again it was not a bubble. bubbles are mean reverting. there is no mean price of oil. oil going to $147 and then $200 means you're barking up the wrong tree.

Correct with one qualifiaction, if oil goes soon to $200 expressed in July 2008 dollars (with Ben running amok in the Treasury we may soon have to specify even the day, hour and minute for equivalent dollar value )

can't speak for fred or ej but you are one of the reasons i come here. don't aways agree with you but you make well thought out points and definitely know more than a thing or two about trading and markets.

Thanks metalman, I also appreciate your knowledge, insights and exceptional sense of humor. It's a pleasure to debate with you (to be clear: this is not a joke or sarcasm).

i thought he was being funny. if it was a parisian tour guide he'd insult you in front of everyone and then everyone would laugh at you

I'm not sure we have the same basis of argumentation. In my recent two trips the guides were a young Irish student at Sorbonne and a very pleasant , not so young anymore, Slovak with a PhD in from the The Academy of Arts in Prague. They were very competent guides and I detected no sign of arrogance whatsoever. I've asked the Slovak lady a half-assed question and instead of irony I got a 5 minutes explanation about the evolution of empirical methods of measurement of the Weibul failure modulus of marble and its consequences on sculptural motion expresivity (or whatever) in medieval art... damn,... those commie bastards had pretty good schools and smart people...

If you ever think you are too smart, just try to talk to a well educated Russian of Eastie ... problem solved ...ego resized fast ...

if oil goes to $147 again, case closed.

if it goes back to $147 (in July 2008 dollars) and it's not a financial engineering fluke, i.e., it stays there or climbs, I agree: case closed and I was wrong all this time.

[Guest]

Re: Do we have an oil bubble?

Quote:

Originally Posted by metalman not what he's saying. he says its evidence. if oil goes to $147 again it was not a bubble. bubbles are mean reverting. there is no mean price of oil. oil going to $147 and then $200 means you're barking up the wrong tree.

Correct with one qualifiaction, if oil goes soon to $200 expressed in July 2008 dollars (with Ben running amok in the Treasury we may soon have to specify even the day, hour and minute for equivalent dollar value ) ].

No $#* - you are taking refuge in a cop-out argument. If oil's price easily surpasses the recent "bubble" high of $147 on the next massive leg up in this bull market in petroleum, you discredit the strength of your own arguments with mere rhetoric by claiming such an event "clarifies nothing" as an outcome because "it could all merely be the inflating USD at work".

This will not be a strong objection, and will become increasingly weaker as oil powers on up to $400++.

I repost here the basic (very simple) questions posted to Phirang on the commodities thread, concerning this same point. Petroleum can and will soar straight past the $147.00 in three months, or six months, or even 18 months from now. But that is precisely the point of this whole "is oil a bubble" interminable argument. As clearly oil is going to soar straight past this old high, that will render ALL of your vigorous defense of the importance of oil futures speculation largely irrelevant, as it powers right on up to $400 and $450 a barrel in another short span of eight years.

THIS is the only real point. Anyone arguing that oil has been a "bubble" due to this recent (or even ongoing) savage correction in prices is wasting their time. All they are hashing out is the presence of a lot of "froth" due to the futures speculation. Discussing all of that "froth" is fine, but it has absolutely nothing to do with the larger question of whether you have a bubble or not. All you have to ascertain is that it is nonsense to consider the present event a "popping bubble" which then "pops" but after 6 months soars into yet another "bubble".

You can't have two bubbles back to back in the same commodity separated by a year or 18 months. That is a contradiction of the most fundamental attributes of bubbles, that they never repeat in the same asset class back to back. Never.

So now that's clarified, what the heck else is there to argue about regarding bubbles in oil? It's that simple.

This was posted to Phirang's attention but never got a reply. Apparently Phirang concluded the points made had no merit. I suggest in the context of your long discussion of bubbles and oil, that it is in fact the core of the entire debate:

____________

Phirang - oil is very likely not done correcting. It could see a 50% retracement of it's $145+ high and even that retracement would in no way "prove" that the preceding high of the bull run was a "bubble". Of course you agree with this, right? I'm reasoning this is so because A) all commodity markets overshoot horribly both up and down, as is their long standing behavior, and B) because (few of us are left disagreeing) that oil can and will continue right on to $450 a barrel by mid 2020's. So if it has yet another 400% upside even beyond it's recent "wildly speculative bubble" top at $145+, then the recent top could by no means have been described as wildly speculative in the first place.

What's to ponder about that? Further, I'm spending several thousand dollars at this time to go far and wide and buy a half dozen sources of intelligence on where the CRB and oil and the PM's may go, because that is dirt cheap insurance for what I have at risk. And in the course of soaking up all this new analyst advice, it is becoming abundantly clear to me that ALL assertions (not your assertions, those of others ) that oil's rise to date has consisted of USD inflation are hogwash. The real price has risen massively. Fussing over what percentage that might be net of USD decay is missing the point - why do we need to fuss over "portions" of a 900%?

The complexities of whether the CRB leads fiat monetary abuse, or the fiat monetary abuse leads the CRB are a red herring. They are bound up tightly together. But a 600%-900% net real rise in the oil price to date in this bull market constitutes one of the six largest commodity bull markets of the past two hundred years, and is right now in the process of not just correcting, but collapsing. Yes, it's agreed, it will come down hard yet further. What's my point? Anyone who concludes from this that it's been a bubble, or will be a bubble is being illogical by not regarding this assertion in the context of it's full (future) trajectory. Meantime, all the endless ink spilled on these pages as to whether it's been a bubble due to the quite large and quite evident traces of speculative activity might try to broaden their thesis further out towards the implications in the 2020's.

Within it's full context all the talk of "bubble" is myopic and merely hostage to a much narrower thesis than the full event that is playing out. If the price of petroleum scoots up to $450 in another 6-8 years, all this talk abut how speculators have been driving would then appear short sighted. Massive speculation may be real, but the critical thing to grasp in larger terms is that it is not "leading" this bull market in oil one bit. That would be a very large misapprehension, which I am sure you agree, right? The above analyst has "myopic analyst's disorder", because in hot pursuit of the speculators (it's a very vogue subject right now apparently) he loses sight of the macro story. I find no reference to oil's future price likely dwarfing all of these numbers in his article. Therefore quite obviously what he is dissecting is the froth at the end of one of the biggest oil bull runs in centuries, while conflating it as one of the drivers of the main event.

And the thing to note here in terms of drawing a larger insight, is that we will have another such event in short succession in just another couple of years ( back to back colossal oil "bubbles" - who could imagine that - that one "bubble" in oil could after a really harsh correction be immediately succeeded by yet another "bubble" in oil - which would be unheard of in commodities history, no? ), due to the large anomaly of resource depletion and population explosion, which is reputedly a "hopelessly naive and untutored idea" that many technical or financial analysts by instinct will regard with blank incomprehension. This is why the bubble oil topic is so out of focus. Whatever we wish to "debunk" here about oil's price run-up, it is important to distinguish the locomotive of the train from the caboose. Real world factors together with a commodities supercyle are the "locomotive" and the speculation is the "caboose".

_____________

Here you go $#* - We need to defer to *T* on this point - as he puts it most succinctly of all of us, and this is the point which in all your championing of the futures markets manipulation of oil you never, ever mention. The primary causes of this oil bull market are due to market forces, in relation to oil consumption trends which have far larger fundamental underpinnings. Therefore by far the largest thrusts, backward or forward in the petroleum market are being driven by fundamentals which dwarf the futures speculation. The temptation is to ascribe to financialized components a significance far larger than they exert. The futures speculators in oil are like the pilot fish following the whale. They are following the geological / demographic / USD decay derived trends. So what the heck else is there to discuss?