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Update Oil: Those Simple Bear Necessities
While European leaders are still rolling over the floor about what to
do with Greece, the pressure on the international markets keeps on
rising. Unmercifully, the clock keeps ticking, with the moment of truth
for Europe just around the corner.
We will probably know within weeks if the Greeks will be receiving
another bailout, or if EU officials choose to haircut. We are still
counting on the first option, as a haircut implicates the end of the
European Monetary Union!
The ongoing uncertainty is starting to weigh on various markets.
Stock markets, especially in Europe, are almost dropping on a daily
basis, as most technical indicators are showing that we are currently in
a severe correction mode, following the post-2008-crash revival of
about 100 percent.
From the current levels, we could expect another downward acceleration of 10-15% for most indices.
Even commodities aren’t immune for the destructive market forces. We
have already been pointing at the weakness in copper. Today, oil is
taking it on the chin! Last week, the price of the energy commodity
dropped by 6 percent, already losing about 20% from its previous top in
April 2011. The price chart has arrived at its 200-day moving average,
the long term trend.
And all of a sudden, we start reading ‘doom & gloom’ headlines on
populair financial media outlets like Bloomberg. “Oil is about to go
into a new bear market!” Analysts are warning the masses: if oil prices
drop below their long term averages, better watch your back!
Before you decide to jump out of your window, please have a look at
the chart above. The experts have been overlooking the same period last
year, as oil was also cracking the 200-day-level. Following the downward
break-through, a fast correction of 10 percent took place.
But this fierce price correction only lasted a few months, as in
November 2010, the price of oil was simply resuming its upward trend.
This was the time when the Fed officialy launched its QE2 program.
Of course, many market observers are referring to the 2008 crash of
oil, when the price collapsed from $147 a barrel towards below $40! With
the acceleration of the European debt problems, we can see how these
professionals are having their flashback moments.
But we are not convinced, this time around, it will be 2008 all over
again. Back in those days, the Fed was completely behind the curve, as
they dodged a deflationary depression within just a few days. Ever
since, Bernanke and his team have been vigilant, closely monitoring the
stock and commodity markets, especially the price of oil!
The Fed wants to avoid a repeat of the 2008-drama at all
costs. If oil tumbles another 10%, rest assured the markets will receive
more dollar stimulus, as was the case last year, with the launch of
QE2, injecting another $600 billion.
We expect the current price pressure for oil could persist
for some weeks, even months, but we don’t count on another bear market
like most analysts are all of a sudden expecting. Even if oil drops
towards $80, the price would still be in its uptrend and the secular
bull market would stay intact.
We, on the contrary, are going to load up on positions in the
oil complex in the coming weeks, as we don’t see any bears down the
road.
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"The collapse of 2008 was only the first volley in the battle between prices and values." Correct, it is a battle....and profligate users of oil will lose.
There's plenty of oil. It's just that what's left is getting more difficult/expensive to extract.
The collapse of 2008 was only the first volley in the battle between prices and values.
Through the decades of the 80s and 90s, price trumped value. Developing futures markets were used to drive prices of commodities down on the theory that lower-priced commodities would make us all richer. To producers, the lower prices was a signal to produce less. Production of all commodities (per capita) declined through lack of investment. Reduced per capita availability of commodities translates into a poorer lifestyle (we became poorer--even though we had lots more dollars).
Bankers either didn't know or didn't care that for many commodities (especially metals, but also oil/nat gas) production could not be increased by turning a crank in a factory somewhere. Success at discovering oil, and the costs of expanding its production cannot be predicted. You could have all the money in the world and it would not guarantee success.
The only way forward is a revaluation of commodities with respect to fiat currency. But those who have most to lose by this revaluation are pulling out all the stops to prevent it.
Who pays the usury? Oil pays, since we all like to think we're not slaves. Try running a debt based fiat currency economy without cheap petroleum. There's a reason we didn't develop such economies until after 1850.
I keep saying, all the current ponzi schemes unravel becuase the cheap energy inputs for perpetual growth ( ponzi absolute requirement) are gone. Greece, now Chinese liquidity lockup... no more cheap oil.
Deflationary trends in asset prices will continue to be matched by inflationary trends in commodities. Condos and gov't bonds seem.. well, not so desireable when you can't buy food because there isn't any because there's no more oil to grow it.
"And don't spend your time lookin' around
For something you want that can't be found..."
at some point oilfeilds will be nationalized and reserved for milertay use
you can't run a modern killing machine on wind and solar
time for post-petroleum man...oil's going away fast at any price. If you have children under 10, they'll live in a totally different world than you have
If you have children under "80", they'll live in a totally different world than you have.
Fixed that for ya!
Well, boys and girls, it's really about time to throw the good old WTI index out of the window, 'cause it is TOTALLY IRELEVANT ! (Even for the US market, check your prices at the pump) Look at BRENT, MARS, TAPIS for your bearings and you get the real picture. Nouf said. Case closed...
it's articles like this one that give the UAW fits!! can you imagine making $85,000 a year to put windshield wipers on trucks???? what if those trucks don't sell?? ..... oh wait - 50 billion here, 50 billion there, the UA DUB is here to stay!!
...i can imagine it...I did it...installing windshield wipers.
except the "great" pay is to do it around 400-500 every day, with a ten minute break every two hours. It was killer on my back and $85,000 was not enough, so i got a better job.
I love reading opinions about the UAW from people who have no clue what assembly line life is like.
seems like assholes are long
hey , idiot, do you know that USA oil imports are 10 year low..
do you remember what oil was worth back in 2001 y?
do you know how much population increased since then?
oil must be around 30$ to jump start economy..
case is closed..
alx
1. Global Oil production is declining at least 4% a year and that trend will get worse in the future as new production is unable to offset declines. The cost for developing new production is $80 to $120 bbl because all of the easy\cheap oil has already been drilled.
2. What the US doesn't import and consume, someone else (Asia mostly) will. China is going so bold as to acquire US oil assets in Texas.
3. A major economic correct would send the price of oil lower. Its likely that the high oil prices coupled with the financial mess will cause a repeat of the 2008 meltdown. Over the long term the price of oil will on go higher as nations devalue their currencies to address debt issues, and as global oil depletion continues to remove supply off the market. Its likely that the economy will will whipsaw. causing energy prices to slowly rise and then suddenly fall back as the economy contracts. This will repeat many times, resulting in a declining global ecomony because of ever decreasing global oil supplies. We are at the end of economic growth.
"Global Oil production is declining at least 4% a year ..."
There is a very interesting article in TOD discussing the discrepancies between oil production data reported by various agencies used to measure/report global production. Your statement, 4% PER YEAR, needs a bit more clarification ...... ;)
http://www.theoildrum.com/node/8044
uggghh I only pressed the save button once!!
.
Well and correctly stated AGuy.
when it's gone, it's gone
i agree that the economy won't get moving until the price of oil comes down and i can assure you that we are pumping as fast as we can, but even with new production techniques the decline in production is faster than the experts predicted
LOLOLOL... the US economy is NEVER going to "get moving"... The banksters will continue to use what is left of the old economy, as a child's toy, until they break it! Fool!
worth noting what the very long term trend looks like.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s219715419]&disp=P
seems like slowly headed north.
Why does the USO decouple from the other indicies in Jan of 2009?