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Cameron Hanover Perspectives On 2011 Energy Markets

Tyler Durden's picture


From Peter Beutel of Cameron Hanover

Morning Petrospective – December 31, 2010

We are officially on vacation, but had originally expected Friday to be an exchange holiday. Why? Oh, just because the Nymex had always been able to place greed on the back burner for at least one final day at the end of each trading year, in a sort of sacrificial immolation of that most valuable of all commodities – time. It seems a strangely appropriate summation of 2010 that the exchange’s final act for the year has been the cruel and spiteful denial of a day off, a move from the sacrifice of time to human sacrifice - at long last. And that was 2010.

Where 2008 had seen the almost accidental move of investors from stocks to commodities, 2010 saw the almost willful, wide awake version of that. In 2008, investors woke up and noticed, “Wow, we aren’t buying Exxon or Chevron any more to get long in oil; we are actually buying oil.” In 2010, investors just bought oil, knowing that that buying would push prices higher. It seems likely to continue in 2011.

As we end the year, prices have sold off on their penultimate day of trading, on profit-taking and because prices were overbought and in resistance. This week’s DOE report showed a smaller drawdown in crude oil stocks than had been expected, and that was slightly bearish. But, traders and investors will be going home … another day later than in any previous year … armed with a supportive weekly unemployment report. This week’s report showed the fewest number of workers filing unemployment insurance claims in the last two-and-a-half years, Dow Jones noted. Even though the numbers no longer mean what they say they mean, we are still comparing apples to apples, albeit (or all-be-they) like comparing Red Delicious to Crab Apples at this stage.

Fewer people looking for jobs could be construed as positive news and is being seen that way in the context of the latest employment report. We will get a bigger and more comprehensive look almost right away at December as a month. But, in another glaring example of zeitgeist – or a sign of the time we live in – people who have stopped looking for work are no longer listed as unemployed. They have given up and therefore must be happily unemployed. Oh, dear. Where does one begin? Indeed, where does it end? These statistics, and ones like it, are driving oil prices higher as we end 2010.

Investors, who really do not want any large amounts of physical oil and who often are the very ones at greatest risk of being looted by inflation or a weaker dollar (union pensioners, college foundations, and mutual fund refugees), are the same ones bidding oil prices higher. They are using oil or other commodities futures or options to hedge against inflation, a weaker dollar, stronger precious metals prices or an economic recovery. It is hard to go a week without one of those pushing quotes higher.

But, wait … aren’t there even deeper, broader markets in actual instruments designed to protect against inflation … in currencies that are not the dollar … in gold and silver … and for the shares of companies … traded under an old buttonwood tree at Broad & Wall? … Yes … although the buttonwood tree died a while back, so they moved indoors, and they called it a Stock Exchange. It actually does quite a brisk trade in equities, we’ve been told. But, rather than buy Exxon or Chevron, investors buy oil.

So, at least in theory, couldn’t we actually hedge against inflation by buying gold or even silver? And, not to be contrary or revolutionary or anything, but couldn’t we hedge against weakness in the US dollar by buying (you might want to sit down, first) foreign currencies? Or, couldn’t we prepare ourselves for stronger economic growth by buying and actually participating in the capitalization and running of internationally-known companies whose shares are listed on any number of stock exchanges instead of jeopardizing the economic recovery by taxing the economy through higher oil prices?

Sure we could, in theory anyway, but why use a perfectly good market designed for businesses with daily exposure to the risk of rapidly-changing oil prices for hedging against that very problem when we can muck everything up by using oil derivatives to hedge all these other risks as well? Wouldn’t that be fun? We could watch investors try to squeeze massive trading volumes designed for larger currency or equities markets into markets like heating oil and gasoline. Who doesn’t love watching sausage packers trying to get 20 pounds of trimmings into five-pound casings? And, what possible harm could there be in shaking down consumers for hundreds of billions in unexpected and “unelected” tax increases – right after they went to vote and told everyone that they are not especially fond of undiscussed, undisclosed and lavishly disguised taxes?

No wonder the exchange wouldn’t give us the day off; imagine if we had had time to think about any of this stuff? It is why higher prices, at some point, seem certain this coming year.


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Fri, 12/31/2010 - 10:33 | Link to Comment wiskeyrunner
wiskeyrunner's picture

The trend is up, go with the flow. Making money in this market is easy. Stop reading and listening to financial news. There job is to keep you off balance. Learn technical analysis, and good money management. You can make money in this market if your are disciplined. Hanging out on this site or any other site that has a bias is no good. Tune out and away from the noise.

When this site first came online there were no ad banners on the site. Now it's covered with the very sponsors they write about....hello people wake up!!!!

Fri, 12/31/2010 - 10:43 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

I recall Tyler's first pomo post...... Robo went long & Turd closed his shorts, great info-

Fri, 12/31/2010 - 11:26 | Link to Comment terryg999
terryg999's picture

You are 100% correct.  Good analysis and money management are the keys to the kingdom. 

I do enjoy ZH, and am on it all day, but it doesn't interfer with my rules of trading.

Fri, 12/31/2010 - 12:17 | Link to Comment wiskeyrunner
wiskeyrunner's picture

Deep in your subconscious it will effect you. Unless you are 100% mechanical. I never read the articles here, I do scan the member comments.

Fri, 12/31/2010 - 10:38 | Link to Comment snowball777
snowball777's picture

Yes, there's a bubble in some commodities, but no, equities are not the answer.

Who wants to partner up with inside-selling wankers heading into a double-dip when you can charge usurious interest instead?


Fri, 12/31/2010 - 10:48 | Link to Comment FoieGras
FoieGras's picture

“Wow, we aren’t buying Exxon or Chevron any more to get long in oil; we are actually buying oil.” "In 2010, investors just bought oil, knowing that that buying would push prices higher. It seems likely to continue in 2011."

These investors lost 3.2% buying their crude oil contracts in 2010 YTD thanks to the curve structure.  The XLE (oil industry ETF) is up 20%.



Fri, 12/31/2010 - 11:48 | Link to Comment firstdivision
firstdivision's picture

They simpletons that jumped into commodities are about to get the shaft in the A.  There is too much speculation that commodities are going to keep flying up due to consumption.  While yes I do agree that consumption will go up, I fear that commodities went well past their acceptable levels.  I believe that China's next rate hike will come sooner than people believe and may even come in higher, in their attempt to put the brakes on inflation problems.  If that happens, look out below in the commodity sectors. 


No I am not recommending going short as there is easily a chance that the bubble can inflate further and last until late summer.

Fri, 12/31/2010 - 11:55 | Link to Comment ZeroPower
ZeroPower's picture

We saw what effect the (albeit minimal) rate hike had last week - zero. Small drop in ES which was quickly bought back up. Shy of a rate hike >200bps, i don't think any small rate hike will have a real effect on the inevitable surge on commodities.

Fri, 12/31/2010 - 12:21 | Link to Comment wiskeyrunner
wiskeyrunner's picture

Fighting the market affects your judgment, and causes you to try to confirm that your judgment is correct, or persist in fighting a trend so that you will eventually prove to be correct. 

Fri, 12/31/2010 - 12:06 | Link to Comment pslater
pslater's picture

Some of these comments miss the real point.  I've been buying oil for my client accounts because a) I want exposure to the raw commodity unfettered by the vagaries of various gov't taxation, nationalization, and environmental bashing schemes b) ZH has been rife with reasons as to why the stock markets  are broken (HFT, Fed intervention, flash crashes, etc.) and c) whether you believe we are experiencing 'peak oil' or not, I believe we are definitely experiencing 'peak cheap oil'.  Given the fact that EVERY apsect of the modern society we live in is built upon and depends on the availability of the product with the greatest energy density ever discovered, this is a 'must own' (along with PM's and the rest of the commodity complex) for anyone looking to protect the purchasing power of their wealth from govt's determined to destroy (confiscate) said wealth.

Simply put oil is indispensible for the continuation of the world we live in.  This is the most compelling 'buy the f#$%^*ing dip' asset available.

Fri, 12/31/2010 - 13:01 | Link to Comment dark pools of soros
dark pools of soros's picture

'couldn’t we prepare ourselves for stronger economic growth by buying and actually participating in the capitalization and running of internationally-known companies'


what??  you mean stop hoarding *BEFORE* TEOTWAWKI happens??  

Fri, 12/31/2010 - 13:31 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

BTW Sportsfans, oil is spiking into the close and is poised for what appears to be an all time record yearly close.

Fri, 12/31/2010 - 13:43 | Link to Comment TexDenim
TexDenim's picture

Why is oil going parabolic up above 91?

Fri, 12/31/2010 - 13:42 | Link to Comment TexDenim
TexDenim's picture

Why is oil going parabolic up above 91?

Fri, 12/31/2010 - 13:47 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Because buyers are more urgent than sellers.

Fri, 12/31/2010 - 18:12 | Link to Comment pslater
pslater's picture

Tex, would you send me a REAL pic of your avatar??????

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