 | Short USOby cuervoslaugh on June 8th, 2008 at 6:18 pm |
(13 votes, average: 4.69 out of 5)
Loading ...<current trading meme>Oil is going higher. It jumped higher than it has in history.
It’s going to $200 next month. If you don’t get in on this you’re crazy.
Buy! Buy now! Sell you house and invest in oil. That way you can overcome the depreciation due to the subprime.
</meme>
Whatever.
I’ve been saying it one way or the other for several weeks now. I’m not the only one that sees the same thing. This frothing hysteria over oil prices is going to give and I expect that by the end of the summer it should.
I’m not usually given to commentary - I prefer to let the information I’ve culled speak for itself but the range of the articles below spans disparate points of view and media outlets.
But I do have to say that when [[DUG]] gets around $15 as it’s P&F chart indicates we should see a radical shift back up. In fact, if one examines the trading in June for this ETF one can see that the rapid buy in was almost immediately swapped out by a selling frenzy last week.
That was all the retail suckers getting out of the game and once again taking a beating on their “wise investing”. I called that one as well so now I’m expecting a slide to the near $20 range at which point that ETF or anything which shorts the Oil and Gas industries will be reasonably cheap to make a nice profit on.
The only caveat (and it’s a big one) is if there is an incursion into Iran by anyone. If that happens than any purchases into aforementioned investment materials will either need to be sold at a loss or held until that particular madness stabilizes.
Read on for the “show and proof”:
He noted that some emerging Asian countries are gradually abandoning their fuel subsidies and that – together with American motorists changing their habits in light of the high gas prices – suggests to him that the growth rate of world oil demand will likely soon fall below the growth in supply, and knock prices down.
Mr. Gignac also attributed some of oil’s price rise to the desire of some market players to hedge against a slide in the U.S. dollar.
“Under these conditions, disciplined investors should not hesitate to take profits on resource holdings….”
————–
Oil takes biggest jump in History
The strong volatility in energy markets in recent weeks have continued to puzzle investors and traders. Prices keep rising despite a lack of shortages in the market, and strong evidence of lower consumption in industrialized countries. But investors seem to be caught in a bullish mood, focusing instead on perceived risks to future oil supplies and continued growth in oil demand from emerging economies that subsidize fuels.
—————————
In a normal oil market, the cost of producing the last, most expensive barrel of oil needed to satisfy worldwide demand sets the price for every barrel the world over. Other auction commodity markets work much the same way.
So even if Saudi Arabia produces at $4 a barrel, if the final, multi-millionth barrel required to heat houses and run cars costs $50, and is produced, for argument’s sake, at a flagging field in West Texas, the world price is $50. That’s what economists call the equilibrium price: It’s where the price that customers are willing to pay meets the production cost, including a cushion, naturally, for profit or “the cost of capital.”
A big swath of the market isn’t really paying that $125 a barrel number you hear about seemingly every hour. In China, India and the Middle East, governments are heavily subsidizing oil for their consumers and corporations, leading to rampant over-consumption - and driving up prices even more. But sooner or later the world won’t keep paying those prices: Eventually, the price must fall back to the cost of that last barrel to clear the market
“Historically, the oil market has under-anticipated the amount of conservation brought on by high prices,” says Brown. Sales of big cars are collapsing; Americans are cutting down on driving. The airlines are scaling back flights.
It’s even possible that, a few years hence, we could see a sustained period of plentiful oil supplies and low prices, meaning $50 or below.
The price spike caused the world to cut back sharply on oil consumption. By the mid-80s, oil prices had fallen from almost $40 to around $15. They remained extremely low for two decades.
——————————
Gasoline Prices Adjusted by Inflation
Theme Song to this post
***************
Disclaimer: Do your own freakin’ homework. I came in last in an election on this site and generally less than ten readers rate my articles. You have been warned.
the chosen people will not go after iran, that would be left up to us, their guardian angel, and we’re not anytime soon, thanks to our fuck ups in iraq.
June 8th, 2008 at 6:33 pmbtw, i gave you 5 stars.
June 8th, 2008 at 6:34 pmExcellent and 5 stars. The information I have seems to be congruent, and I would personally not be surprised to see $70, even though 98% of the people would be. Around the end of April I talked about a coming top in crude, and I definately expected to see more of an extreme jump in prices then the one we got, but I still thought we had seen a top setting up. As the momentum upward was getting extreme Thursday and Friday so I sold my intermediate and shorter term puts on USO, however I will hang onto my 2009 puts on USO because really, the potential is just to great to worry about them losing half their value. But there is also great potential for gains if oil skyrockets, so refinery puts are still nice to hang onto. I didn’t think I will place additional bets against oil, but this post reminds me that my initial view was not neccesarily proven wrong, in fact, such a quick sharp run up in 2 days is significant evidence that the price can be bid up dramatically without any kind of event needed. It only proves my timing is not precise. I still believe that oil is not sustainable in the $135-140 range which is why I was able to short right near what was the top for a couple weeks. However that does not mean that it can’t spill over significantly from there.
June 8th, 2008 at 7:30 pmFor now, no way did I want to fight the momentum. I still won’t, shorter term, but $75 a barrel longer term only becomes a more profitable target. I still do not think oil in any way can sustain $135-140 for much longer than a month at most, but now’s where speculative bets could definately take over and create a blow off top. It could sell off just short of the $150 target, or surge past. Short term there’s too much momentum to really bet against oil right now, but since I managed my money well in my bets against it, I’m reconsidering the addition of longer term, and maybe intermediate-longer term if the momentum starts to overheat. I will be selling a few puts and continuing to take profits off of CLR, So it won’t hurt me to use those profits to add a couple LEAPS on USO puts if we see greater and greater gains in crude on Monday and Tuesday.
GL…With no place to invest in a falling market hedge funds, pension plans and overseas $ mangers will pour money into oil as a new currency.
While I believe oil should go down logically the world is convinced thanx (sic) too T-Bone that consumption is driving the prices. Alledgedly our slack is picked up by countries hoarding and dispersing subsidies.
Why would GS place a $200 price target with a range of 6-24 months? My guess is their crystal balls are telling them it will happen sooner rather than later so as not to freak out the public they give a range of 6-24 months. If they came out and said 6 months people would freak!
Also with the dollar in the toilet oil is being used as a subsidy for the dollar. How many dollars are generated everyday to sell oil? Alot I’m guessing. So these countries would rather not hold dollars and buy more oil futures and gold.
While I do not think we can handle Iran I’ve got a neighbor who is worth $50 million + and he has stated for 5 years that Iran is next. This all coming from his friends on the hill.
I pray your are right, but I believe any sell off as we have seen so far is ephemral.
My local gas station people are being told for two months now to expect $5-$6 at the pumps this year. That equates to at least $160 pbo.
I say we go to $140-$142 and then have a sell off to $125 - $135…then back to the uptrend.
BTW that is the second chart you bit off GW…I don’t mean anything by this…I thought I’d be the dick everyone perceives me to be.
June 8th, 2008 at 7:58 pmPeace
Plus inflation adjusted oil from the 70’s comes in at around $155-$160 so my guess is we will see that soon.
Again I pray you are right, and I will probably kick the rest of my USO to the curb tomorrow or tuesday and wait for a pulback.
June 8th, 2008 at 8:02 pm$138.50– Good Post.
June 8th, 2008 at 8:21 pmhow to trade commodities…
Love that info. After reading your blog I now understand “best online stock trading”. Thank For the great post!…
July 15th, 2008 at 7:50 pm[...] I suggested to short USO on June 8 Short USO [...]
July 24th, 2008 at 6:20 am