Bloodbath in the Oil Trading Pits
Back in March I said that a good bit of the price in oil was being driven by speculation. If you are an oil trader with a long book, the last two days have been brutal. It is dawning on folks that this could be a worldwide recession. Yesterday the largest Spanish construction company went bankrupt. Today the Wall Street Journal says that Europe could experience “a hard landing and perhaps recession.” As the Journal reported OPEC says their is a worldwide drop in oil demand.
The group said demand for OPEC crude, which meets about 40% of the world’s daily oil consumption, could decrease by around 700,000 barrels a day next year amid rising output of non-conventional oil and natural gas liquids and rising oil conservation in consuming nations amid high energy prices. A drop in demand for OPEC crude by that amount would be the biggest since 2002, it said.
John Kilduff of MF Global reports that William Burns, Undersecretary of State for Political Affairs, is to meet this weekend with Iran’s nuclear negotiator. Kilduff thinks this is “the most significant US diplomatic contact since the 1979 Iranian revolution and represents a dramatic shift in US foreign policy.” No guarantees, but a successful meeting could go towards reducing the geopolitical risk premium in oil.
My sense is that there are a lot of hedge funds heavily leveraged in oil futures. A $15 drop in three days will force a big reverse in these positions. This growing realization that the recession will be long and brutal is borne out by today’s retail numbers. Despite all of the rebate checks, retail sales were off .5% if you take out oil. What is encouraging from my point of view is that for the first time in two years personal savings rose strongly (to 5%). This means that the consumer is finally getting the message.
The party is over.
Speculation no doubt drives the price up in the current balance of supply and demand, but I’m still convinced that the Saudis have closed off the spigots and enforced that policy across OPEC, and that is why we have prices where they are.
The Saudis run OPEC and OPEC runs the oil market.
Speculation no doubt drives the price up in the current balance of supply and demand, but I’m still convinced that the Saudis have closed off the spigots and enforced that policy across OPEC, and that is why we have prices where they are.
The Saudis run OPEC and OPEC runs the oil market.
Uh, you also said the economy was roaring forward in Europe. London was a blast, remember?
Uh, you also said the economy was roaring forward in Europe. London was a blast, remember?
Turns out it was only the Russians in London who were doing well. The average bloke was broke.
Turns out it was only the Russians in London who were doing well. The average bloke was broke.
Well I’ve found a report that may or may not bear my theory out, but it’s full of great information, as a start.
Well I’ve found a report that may or may not bear my theory out, but it’s full of great information, as a start.
Great post … I’ve added a link to it from my post of a few days ago … Media Bias: Offshore Drilling Wouldn’t Lower Gas Prices for Ten Years … I think this is going to be a topic well into the election.
Great post … I’ve added a link to it from my post of a few days ago … Media Bias: Offshore Drilling Wouldn’t Lower Gas Prices for Ten Years … I think this is going to be a topic well into the election.
The Saudis are at war with us, but they’re smart enough to let others waste the bullets and lives. They’re using oil and money. They want a Wahabbist world, and they’ll get it unless we wake up and pull the sweet crude IV out of our collective arms.
The Saudis are at war with us, but they’re smart enough to let others waste the bullets and lives. They’re using oil and money. They want a Wahabbist world, and they’ll get it unless we wake up and pull the sweet crude IV out of our collective arms.
Dan, right you are! True or not, it is at least a good suspicion to have.
Iraq is going to keep that problem from being amplified to 11.
We’ll be incredibly glad to have that oil on the market. It will save many American lives from ruin.
Dan, right you are! True or not, it is at least a good suspicion to have.
Iraq is going to keep that problem from being amplified to 11.
We’ll be incredibly glad to have that oil on the market. It will save many American lives from ruin.
Should I follow my calls with a put or should I follow my puts with a call. I think I’ll just call my broker and put it to somebody.
Then again.
You should just putt.
Wonder what effect Brazil’s offshore finds will have on speculation, and on the whole peak oil debate. Big Oil would love to find a way to retain their cat bird seat in the energy industry.
Also makes an interesting counter argument to exploiting the very limited offshore and ANWAR fields, since both those and Brazil will have similar long development cycles before they impact supplies.
Personally would hate to think we go through the 70s cycle of fear and slowly building reaction with CAFE standards, and smaller cars, only to follow with the SUV madness of truck based “cars” to avoid CAFE standards when the OPEC “spigots” got turned on again.
It’s not like we don’t have options to pursue.
USGS report “Bakken Formation” April 08′
http://www.nd.gov/ndic/ic-press/bakken-form-06
.pdf
Just one of many.
Their are options Google the “Bakken formation”
Ken, if we rely strictly on the “market”, then that is precisely what will happen; there is no other possible outcome. Endless cycles of gluts and crunches, with concomitant wars.
This is where the “all government is bad” philosophy breaks down.
A little bit more of the fine print on Pickens’ mighty wind project emerges. Talk of eminent domain?