Cutten are you still holding your Enron shares? They were honest too. ;-) The dollar sucks. We know this. The Arabs are greedy bastards. We know this too. But that doesn't mean there isn't some kind of dislocation in the price. My gut tells me its a scam. I'm rarely wrong. The price is this high because we continue to accept it. GFY buttons need to be dropped by helicopter.
No, I went short Enron (and WCOM, both obvious frauds). I think there is some speculative premium in oil, maybe $10-20. However, that's only there because the fundamentals are so strong in favour of rising prices, so I would argue the premium is mostly justified. Similarly gold in 2003 had a speculative premium going into the Iraq war - short term gold declined 25% but long-term the speculative premium was rational, as gold moved much higher. Obviously the higher the price goes, the more the fundamentals get priced in. I think if oil *does* manage to reach 175+ then it will be overvalued and getting into bubble territory even with current fundamentals, so I'd then be looking to start selling and going short. What I disagree with is the notion that without speculation, oil would be at $80 or even $50, which I think that is an absurd exaggeration. If that were true, we'd see back months for 2009, 2010+ at a huge discount, massive inventories, oil stocks at outrageous P/Es and so on i.e. all the signs of a speculative dot.com-style bubble. IMO what we have now is just a typical bull market where prices *seem* too high (like stocks in 1996, 1997 seemed too high) but later on it will become the norm.
The spreads are meaningless. The crude market was in contango as it is now when it was selling off circa end of 2006. Contango is bearish. Natural gas in its bear glory days was in contango long forward in the calendar this past few years (and nothing has changed lately in that market as well). In fact, crude went into backforwardation in August of 07 and recently came out of it during the last 2 months (now in contango). Backforwardation is usuallly indicative of a supply shortage near term. Wheat's recent top was a perfect example (and it was actually bullish at the time) - a near term supply squeeze. Producers corrected the issue by overplanting wheat. You have a lot of smart posts Cutten, but your point here is as good as a coin toss: another useless indicator in markets that are perpetually distorted to the whims of the biggest holders. For every meaningful example you can come up with, I can come up with another contrary point. I'd not put much weight in this. (although I've been watching contango this past few months if you've noticed, and I think thats signalling a down move).
History tends to repeat itself. "Sept. 25 (Bloomberg) -- Mutual fund investors, captivated by oil's 88 percent appreciation in two years, increased their energy holdings in 2006 just in time to lose $4.5 billion. That's the damage U.S. oil and gas funds recorded as crude plunged 23 percent from a record in July, according to data compiled by Bloomberg. The Guinness Atkinson Global Energy Fund is down 14 percent, and Fidelity Investments' $2.7 billion Select Energy Portfolio has lost 12 percent. The U.S. Global Investors Inc. $1.3 billion Global Resources Fund slid 12 percent. ``The perception has been that the energy sector was a great performer, but in reality it peaked 13 months ago,'' said James Paulson, who oversees $174 billion as chief investment strategist of Minneapolis-based Wells Capital Management, an adviser to mutual funds, pensions and endowments. ``There's going to be nowhere to hide on the way down.'' A total of $23.5 billion poured into energy funds in the 12 months ended July 31, according to Financial Research Corp. in Boston. From 2003 to 2005, the funds had provided average annual returns of 33 percent, better than any other category. They now lag behind all except health-care and technology investments on speculation the U.S. economy, the world's largest, will slow following two years of Federal Reserve interest rate increases. Since oil's peak July 14, energy funds are down 8.2 percent, while the Standard & Poor's 500 Index has gained 6.4 percent. Bad Timing Declines in these mutual funds are approaching the $6 billion loss at Amaranth Advisors LLC, the Greenwich, Connecticut, hedge fund that bet wrong on natural gas, which has dropped 59 percent this year. Hedge funds are private pools of capital that can only accept money from individuals with more than $1 million because regulators figure they can take more risks than people in mutual funds. 3M Co.'s $9.2 billion retirement fund and the $7.2 billion San Diego County Employees Retirement Association lost money when Amaranth's returns plummeted. Crude oil has now given up all its gains for 2006. Investors in energy mutual funds who got in this year were too late, said Lou Holland, who oversees $2.4 billion at Holland Capital Management in Chicago. They risk losses similar to investors who chased technology stocks in 1999 and held on as the Nasdaq Composite Index lost more than three-quarters of its value in the next three years. About $67.4 billion is invested in 525 energy and commodity hedge funds, more than double the $30 billion at the start of the year, according to the Energy Hedge Fund Center, based in The Woodlands, Texas. There were 180 such funds in October 2004, when the center started compiling data." http://www.bloomberg.com/apps/news?pid=20601087&sid=aFx0wiU7XlDQ&refer=home
if it was speculators pushing oil up, the price would have crash. but every pullback breaks resistance on huge volume. this oil trend has been steadily rising from $30/barrel in 2001 to $135/barrel....it's been a long long steady climb and it broke out again from $70 barrel exactly as FED started to cut interest rates. from 4% to 2% or 50% drop in rates. clearly it's fundamentally driven if interest rates and inflation is a fundamental speculation is when there is no fundamental justification for increase in price.
Funny, I thought speculation was when you bought something because you thought it would increase in price down the line and you could sell for a profit. The commercial participants use the oil futures to hedge against future price fluctuations. See the difference?