Crude is cheap at $113/barrel

Discussion in 'Trading' started by detective, Apr 15, 2008.

  1. People will be talking about how they wish crude was $113/barrel in a couple of years. This has been the most underpriced commodity in the world for past century. It is the most essential commodity for economic growth.

    The dollar has actually gained on the euro while crude has been going up the past few days so that is no longer a valid excuse. It was never a valid excuse but people use it anyway like crude shouldn't be up at these prices because it just seems expensive. Supply is flat despite the higher prices and demand is hardly flinching at these prices which tells me the only way to get demand destruction is through much higher prices. Since supply isn't gonna go up, there is almost nil spare capacity with most major fields in decline, the only way to reach equilibrium is through demand destruction. $150 crude is a chip shot from here with these fundamentals.
  2. Crude $200 in 09
  3. The dollar is a major factor in crude pricing, but does not necessarily move day to day with it. Its about expectations. Many are starting to see a bottom in the dollar.

    Obviously, supply and demand are major as well, but to ignore the dollar is just silly. Crude is priced in dollars, but is an international commodity, so obviously a weak dollar is going to have a big effect.

    Try overlaying long term charts of the dollar and crude. You will see a strong correlation.
  4. Many are seeing a dollar? All the more reason it will go down!
  5. bellman


    it's not even a cause and effect really. if the dollar falls and is worth less, it is going to cost more dollars to buy the same amount of oil. on the other hand, if the dollar falls enough, then that will soften demand, and that will drop the price of crude relative to other currencies.

    but detective, you sound as though you believe it's conspiracy that it requires more weaker dollars to buy the same amount of oil, and less stronger dollars. really kinda makes me regret that i'm bringing the thread back up to the top.
  6. The dollar actually gained a little last night and oil jumped from $111.50 to $113.50. Explain that move if it is directly tied to the dollar.
  7. No, I am saying that the main reason oil is going up is because of the supply demand fundamentals, not because of the weakening dollar. There is no conspiracy with the price. I don't believe the media 5 second sound bite that blames the weak dollar for higher crude oil prices. That's not the reason crude oil is at $113. The dollar is flat today against the euro and crude oil is up almost $2 today.

    What I'm saying is that people are trying to find excuses to say that oil is going up because of the weak dollar, because of speculators, anything but the long term fundamentals which are the real reason that we are at $113. Sure, the weak dollar may haved added about $10 to the price of crude in the past year, but the fundamentals have added the other $50 since early last year.
  8. Try reading my post again.

    a) Not day to day.

    B) a major factor, not THE only factor. Supply disruptions, global growth estimates, etc, all contribute.

    There isn't a macro economist on Earth that I know about that would deny a direct correlation between the $ and crude. Once again, A correlation, not THE ONLY correlation.

  9. Since April 2007, NYMEX Crude oil is up from $64 to $113+ for a gain of 77%.
    Since April 2007, Euro is up from 1.345 to 1.575 for a gain of 17%. The yen is up even less than the euro against the dollar, so the dollar index is actually down less than 17% year over year.

    And no, going long crude oil is not a leveraged bet on going short the dollar.

    So how can people continue to blame the weak dollar for a rise in crude oil prices? It is a supply demand story with the weak dollar adding a bit of alpha. Not a weak dollar story with the supply demand picture adding a bit of alpha.
  10. Its about ALL of the above. Supply and demand, with a fast growing global economy economy is obviously going to cause a rise in price, as is a drop in the dollar (so it takes more dollars to buy the same amount to even keep prices stable internationally), and yes, speculators. Hedge funds are massively long futures. The futures markets are only so big. This has a direct effect on price. Most analysts say there is a 20 to 30 dollar premium built into crude due to speculation. I believe this. There is no "shortage" of crude currently. Every country who wants some can get it. There is rationing in a few countries cause the countries' themselves are a mess (Iraq & Iran for example). The world economy is also slowing. IMF predicts only 3.7% now (anything below 3% is considered global recession). I am not predicting a collapse, just that there are many factors, and supply/demand is but one of them.
    #10     Apr 15, 2008