The part about $500 dollar in 50 years is incredibly suspicious to me. First, assume that in 50 years, this $500 per barrel isn't just because of inflation, but more like $500 in today's terms. Next, assume that given how quickly the world moves, 50 years of progress going forward will be more like the past 200 years. Based on this, I don't think anyone can really say where oil will be. But if I had to guess, I would guess it can only go down. The amount of new technology and renewable energy out there is simply mind boggling. It won't be too long until we can not only store electricity cheaply, but also turn it into liquid energy that can be used in the same way that oil is now. Imagine huge solar plants in the desert soaking up the sun and churning out liquid fuel. Biochemistry will replace all the other uses we have for oil in terms of its chemical properties. We are already synthesizing many polymers that aren't oil based. So many plastics are biodegradable and hence made from sources other than oil. Saying that oil will go to $500 in 50 years because all the easy to get to oil will be gone is like Kodak suggesting they should buy up all the available silver because they will need it for photography. Good idea at the time, but a new technology totally stole their thunder. The digital photography era completely changed the direction for Kodak. Oil isn't so special in my opinion, and really not all that competitive for energy storage and distribution. If it should ever reach $100 in the very near future, you can bet that the electric car industry will grow even faster because people will have even more incentive to switch. I know that the airline industry is a big user of oil, as is shipping, but like I say, given a 50 year time line, I have no doubt that liquid fuel from renewable resources will be made all over the world. Look at making bitcoins. Takes lots of electricity, and produces lots of heat as waste, so the economics of mining bitcoins relies on cheap electricity and cooling.. so Iceland I believe has the upper hand in this. Likewise, take areas with huge potential for renewable energy, and they can set up factories to produce renewable fuel. Even if you don't believe any of this, suggesting that $500 oil will happen in 50 years would mean that the earth is suffering from a lack of cheap energy infrastructure, and I just don't believe this will happen.
Interesting debate. Can either one of you recommend a good book for someone that doesn't understand these things? I don't remember learning anything about yield curves from econ way back in the day. Thanks.
I'm done with this thread. ZZZ1 is a fraud and there is no use debating him. I can give you some good books depending on what specifically you want to learn more. This book is considered the bible for oil. Very dense and very technical. A simpler but still good comprehensive book on all things energy including renewables is this one: This one is good for natural gas: I've read them all as well as 100 others but these are a good start.
The interesting thing is the assumption that if you have insider knowledge you can use that to profit. But as shown in the insider trading trial of the guys who ran the galleon group, they often lost money despite them knowing info which should have made them money. It's just that the market went the wrong way to what they had expected.
It's not insider knowledge. These guys make markets in physical supplies. In some cases, they own all aspects of the value chain meaning they own refiners, cargo ships, barrels, pipelines, etc. Because they are integrated, they can optimize their supply chain. It's not a question of "predicting" anything. Let me offer an outstanding book on the history of the oil business. Marc is famous for being the largest tax cheat in US history and was controversially pardoned by Bill Clinton at the end of his administration. But this book is an outstanding read on just how these trading houses makes their money. Hint.....they are not predicting anything. Marc was one of the founding members of Glencore which was formerly known as Marc Rich and Co. He led a fascinating life albeit highly controversial. But he built the oil markets. If you want to truly understand the economics of oil, I can't recommend this book enough.
This has precisely been the claim you made, glad you finally see your fallacy. Before you deny you ever claimed forward curves have predictive value and introduced the whole topic on prediction based on curves, insider knowledge, ownership of "value chain" and "supply chain" (which is actually incorrect for trading houses, they do not own the supply chain, but let's ignore that for a moment). Here are some of your claims: * " The market fundamentals are expressed in the curve and yes, they offer predictive value..." * "I talk about spreads non-stop on the ACD thread. And yes, they are important for a short term speculative trader." That before you made some 500+ USD per barrel oil prediction, lol. Then you claimed trading houses and oil conglomerates have such superior knowledge that they are "cleaning up". The stock prices of ALL of those that are publicly traded show the exact opposite, that they have no superior knowledge whatsoever and that their stock price performance was highly positively correlated with oil and commodity prices. You can make as many claims as you like about privately held trading houses, unless you can substantiate them it just remains a claim. You have so far not offered a glimpse at your professional trading and market experience which might add more weight to your "claims". Enough said. I also rest my case, let's agree to disagree here.
Forward curves do you have predictive value. All the above statements I made are correct. Read this carefully. They are NOT a prediction. But they "offer" predictive value. There is a difference.
Total and utter crap, they do NOT have predictive value nor predictive power. You apparently have zero knowledge of basic derivatives markets and derivatives pricing. What a joke. People, please check some basic intro into forward pricing yourself and do not believe the crap an at-home wannabe is dishing up here. My sole reason why I am still wasting (em, investing) time is to present a imho more honest reflection of market principles than this clown. Any basic derivatives text book will clearly show you that most every forward curve is very efficiently priced in order avoid arbitrage. @Maverick74 is basically invalidating the no-arbitrage requirement for correct forward pricing. Must be a new financial theory, lol.
What are you talking about? What you are asking makes not the slightest sense. Seriously, are you even working in this field? Listen, I am tired of your constant change of topic. Believe whatever you want. To newbies, I strongly recommend all of you to pick up a basic textbook on derivatives pricing. For the pricing of curves and deriving forward rates any asset class is fine, no need at this stage to concern oneself with forward curves in commodity space (one can easily add in the additional components such as storage and financing). Hull or for that matter any basic textbook suffices to get way beyond in knowledge than this clown.