Long Oil

Discussion in 'Energy Futures' started by power_uptick, Sep 12, 2005.

  1. I have been long oil for the past 18 months. Although I am sitting on a large
    profit, I can not get myself to sell it during this recent selloff. So I will post my argument for why I think it will continue
    to go up. I realize I might just be "talking
    my position" here. Although I think I
    am looking at the situation "objectively,"
    it is possible that my position is clouding
    my outlook. So I welcome any WELL REASONED arguments for why oil should continue to decline in price.
    As for why I'm bullish, here it is:

    Although the oil market is far from transparent, many analysts agree that
    every oil producing country is pumping at
    capacity to take advantage of high oil prices. Right now the market is basically balanced, with supply and
    demand both equal to about 84 million
    barrels.
    Oil demand in the fourth quarter is expected to surge to 86 million barrels.
    When this happens, inventories around
    the world will start to get drawn down.
    The price of oil will then increase until
    the balance between supply and demand is restored.

    Here is what Matthew Simmons, the oil industry investment banker had to say regarding the fourth quarter:

    Problems ahead
    Simmons predicted we would encounter problems with oil supplies this year, nearly a month before Hurricane Katrina struck the Gulf Coast.

    He said we must operate the nation’s refineries at 100 percent, or we have major product shocks, and we have to import oil at a rate of 10 million to 11 million bpd, or we lose crude oil stocks. We have to basically create almost 3 million bpd of finished product imports and we have to run the system 24/7, all summer long, and we still liquidate stocks, he said.

    “So we have actually now created a pending domestic embargo, and we’re going to be lucky to get through the summer without some periodic shortages,” he told Financial Sense Newshour the week of Aug. 6. “We probably will, but the odds are probably as high we will have some shortages, and then if we get through the summer we have a fabulous respite from Labor Day to Thanksgiving, until we hunker to try to figure out how the world gets through the Winter of 2005 and 2006 because oil demand globally could easily go to 86-88 million bpd during the winter, and that could easily exceed supply by 2 million to 5 million bpd.”

    In a worst case scenario, Simmons said oil prices could easily soar past $100 a barrel without slowing down.