m22au's journal

[ralph00]

Peak oil theory running out of gas ...

http://www.realclearmarkets.com/articles/2009/10/09/peak_oil_a_theory_running_out_of_gas__97447.html

These guys make a common mistake. Yes, there is still plenty of oil on the planet. To me, peak oil refers more to the fact that there are no more major easy-to-drill oil fields left. All of these major oil finds the authors talk about will be very expensive to extract the oil from.

 

[m22au]

Ralph,

I'm a bit confused. On one hand, you provided a link to an article that is written by an author who does not believe in peak oil.

On the other, your sentences "peak oil refers more to the fact that there are no more major easy-to-drill oil fields left. All of these major oil finds the authors talk about will be very expensive to extract the oil from." suggest that you understand the dynamics of peak oil, such as EROEI.

So out of interest, where do you stand on peak oil?

Quote from ralph00:

Peak oil theory running out of gas ...

http://www.realclearmarkets.com/articles/2009/10/09/peak_oil_a_theory_running_out_of_gas__97447.html

These guys make a common mistake. Yes, there is still plenty of oil on the planet. To me, peak oil refers more to the fact that there are no more major easy-to-drill oil fields left. All of these major oil finds the authors talk about will be very expensive to extract the oil from.

 

[Daal]

I don't know if there is imminent peak oil. Its too tough to understand this business, I tried reading the Oil Drum blog for quite a while and I still cant have a high confidence that stuff is about to happen. Some of then thought the peak was 2005, then 2008 brought a new high in supply, according to some there was no chance it would happen.

I simply know that there is a chance that the peak oilers are right and buying OTM calls in oil ala nassim taleb is a good bet. If thats wrong I lose a bit, if right you can make 20x or more. Maybe the commodities boom by itself will bring high oil prices even with no peak, you just never know

 

[m22au]

I understand your point. However I think it's important to note that the July 2008 production figure was only slightly higher than the 2005 figure, which suggests that 2004 to 2008 could be the 'bumpy plateau' which occurs at the peak, before the 2% to 3% annual decline sets in.

http://www.theoildrum.com/node/5521#more

http://europe.theoildrum.com/node/5787#more

Quote from Daal:

I don't know if there is imminent peak oil. Its too tough to understand this business, I tried reading the Oil Drum blog for quite a while and I still cant have a high confidence that stuff is about to happen. Some of then thought the peak was 2005, then 2008 brought a new high in supply, according to some there was no chance it would happen.

OTM calls sound like a good idea, however keep in mind that the higher oil prices in the first 7 months of 2008 could be a cause of the current recession (and lower oil prices). An alternative strategy could be to sell OTM puts (or put spreads) on oil.

Quote from Daal:
I simply know that there is a chance that the peak oilers are right and buying OTM calls in oil ala nassim taleb is a good bet. If thats wrong I lose a bit, if right you can make 20x or more. Maybe the commodities boom by itself will bring high oil prices even with no peak, you just never know [/B]

 

[Daal]

Quote from m22au:


An alternative strategy could be to sell OTM puts (or put spreads) on oil.

I avoid shorting options most of the time. If I do I'm probably long another one at the same time. Actually I dont think I ever shorted an option in my whole life. The way I see it shorting an option is a huge bet, I really need to be confident to be risking a huge loss and if I'm that confident I might as well go along the inverse option and get to make more

There is guy on the book Inside the House of Money, who says never short gamma. I agree, its not that it cant be profitable, it can like an insurance kind of business but the risks are so great that you probably could make more by focusing on other methods

 

[ralph00]

Quote from m22au:

Ralph,

I'm a bit confused. On one hand, you provided a link to an article that is written by an author who does not believe in peak oil.

On the other, your sentences "peak oil refers more to the fact that there are no more major easy-to-drill oil fields left. All of these major oil finds the authors talk about will be very expensive to extract the oil from." suggest that you understand the dynamics of peak oil, such as EROEI.

So out of interest, where do you stand on peak oil?

I just posted the article as an example of folks who are taking the other side of the trade. I'm firmly in the camp that believes that the production of "easy" or "cheap" oil has peaked. I don't consider this a theory like global warming - it is a fact. Its difficult to accept for free market types (myself included) who believe that high prices bring forth higher supply, thus lowering prices. This just isn't the case w/oli. All of the large new finds left on the planet will be very expensive to bring to market.

 

[m22au]

Thanks for your thoughts Ralph.

And for all who missed it (amid the fanfare of the equity market rally), Nymex Crude broke resistance at 75 USD yesterday.

Quote from ralph00:

I just posted the article as an example of folks who are taking the other side of the trade. I'm firmly in the camp that believes that the production of "easy" or "cheap" oil has peaked. I don't consider this a theory like global warming - it is a fact. Its difficult to accept for free market types (myself included) who believe that high prices bring forth higher supply, thus lowering prices. This just isn't the case w/oli. All of the large new finds left on the planet will be very expensive to bring to market.

 

[m22au]

Interesting to see 10 year yield up to 3.42% (from low 3.10s on jobs number Friday 2 October).

GBP still not making new 2009 calendar year highs against USD, while the EUR, AUD, CHF, JPY, CAD continue to party at or near 2009 calendar year highs.

Oil back above 75 USD. Although a lot of commentators have written about the strong inverse correlation between equities and $DXY, (and strong positive correlation between equities and gold) few have also made the seemingly obvious point about oil and its positive correlation with equities.

I am still long gold short equities.

Gold Dec 2009 futures / ES Dec 2009 futures now at about 0.98. I am targetting at least 2.00 in the years to come.

Even if the equity market orgy continues, at some point higher oil prices will start to negatively impact GDP / corporate profits. Where is that point? Who knows. Maybe $100?

The breakout above $75 and strong positive correlation with equities means that it's unlikely that both oil and equities can continue to go up in tandem for more than another .... 33% maybe?

 

[m22au]

Excellent article from Nic Lenoir Of ICAP on Zero Hedge:

http://www.zerohedge.com/article/it-takes-two-tango-almost-everybody-likes-dancing

His rationale for the long gold / short copper trade is similar to the rationale for my long gold / short equities trade.

That is, liquidity could continue to pump copper (equities) higher in the coming weeks and months, but ultimately the global economy is still recovering from the excesses of the past 25 years, and that it's highly likely that gold will outperform copper (equities) regardless of market direction.

 

[m22au]

CL Nov 2009 back above 80 USD, without much fanfare. Everyone too busy celebrating Dow 10,000 or S&P 500 near 1,100.

As the world found out in mid-2008, both oil and equities can't continue to go up forever. The only question is when one (or both) go down. Will it happen at $80 oil? Probably not. $90 oil? Maybe. $100? even more likely.