Media created myth of demand destruction.

[scriabinop23]

From last EIA report:

http://www.eia.doe.gov/pub/oil_gas/..._petroleum_status_report/current/txt/wpsr.txt

Total products supplied over the last four-week period has averaged 19.1 million
barrels per day, down by 6.6 percent compared to the similar period last year.
Over the last four weeks, motor gasoline demand has averaged nearly 9.1 million
barrels per day, down by 1.9 percent from the same period last year. Distillate


Total motor gasoline inventories increased by 2.0 million
barrels last week, and are near the lower boundary of the average range.

...


I sniff opportunity. Despite what the press says.... Habits are relatively unchanged and supply is falling at a rate faster than demand. I wouldn't read too heavily into jet fuel demand falling, since prices on airline tickets are stickier to fall. They eventually will, and jet fuel demand will pick up. I would bet demand is being rebuilt at these lower price levels, despite macro global economic slowdown.

 

[Cutten]

It's quite possible, yes. Just as oil had $30+ of speculative premium at the top, now it probably has a $20ish fear discount on the way down. $55 oil is cheap long-term, and puts many marginal producers into selling below the cost of production. Whilst commodities can stay below production costs for quite a while, it is one little thing against a major continuation of the bear move.

Also, $50 was a key level, the start of the rally back in early 07, and the price at which the US SPR bought oil back then. It would not surprise me to see a quick test down to the $45-50 range, followed by a major bounce back to $70-80. At $50, out-the-money calls could be a very interesting limited risk play on a bounce back. As with all contra-trend positions, they are rather dangerous so I wouldn't bet the farm on it.

 

[scriabinop23]

Quote from Cutten:

It's quite possible, yes. Just as oil had $30+ of speculative premium at the top, now it probably has a $20ish fear discount on the way down. $55 oil is cheap long-term, and puts many marginal producers into selling below the cost of production. Whilst commodities can stay below production costs for quite a while, it is one little thing against a major continuation of the bear move.

Also, $50 was a key level, the start of the rally back in early 07, and the price at which the US SPR bought oil back then. It would not surprise me to see a quick test down to the $45-50 range, followed by a major bounce back to $70-80. At $50, out-the-money calls could be a very interesting limited risk play on a bounce back. As with all contra-trend positions, they are rather dangerous so I wouldn't bet the farm on it.

And even better than speculating on oil price may be some oil producer stocks long term here... (or any country ETF to benefit from expensive oil)

 

[achilles28]

Quote from Cutten:



Also, $50 was a key level, the start of the rally back in early 07, and the price at which the US SPR bought oil back then. It would not surprise me to see a quick test down to the $45-50 range, followed by a major bounce back to $70-80. At $50, out-the-money calls could be a very interesting limited risk play on a bounce back. As with all contra-trend positions, they are rather dangerous so I wouldn't bet the farm on it.

Agree 100%.

The great blowout won't happen until after 2012.

The US will recover in the interim with cheap money (like it always does), which will drive oil spec upwards of 200 to 250 a barrel.

Thats guaranteed and really a once-in-a-lifetime opportunity.

 

[achilles28]

Quote from scriabinop23:

From last EIA report:

http://www.eia.doe.gov/pub/oil_gas/..._petroleum_status_report/current/txt/wpsr.txt



I sniff opportunity. Despite what the press says.... Habits are relatively unchanged and supply is falling at a rate faster than demand. I wouldn't read too heavily into jet fuel demand falling, since prices on airline tickets are stickier to fall. They eventually will, and jet fuel demand will pick up. I would bet demand is being rebuilt at these lower price levels, despite macro global economic slowdown.

Thats a good site for energy stats.

If you look at pre-2000 energy tables (consumption, versus YOY growth versus price), fair value oil is somewhere around 35 to 45 a barrel.

YOY demand growth during the runup was only 3-5%, while prices underwent 30-70% increases! Pure speculation fueled by cheap money.

It will happen again, for sure.

 

[scriabinop23]

Quote from achilles28:

Thats a good site for energy stats.

If you look at pre-2000 energy tables (consumption, versus YOY growth versus price), fair value oil is somewhere around 35 to 45 a barrel.

YOY demand growth during the runup was only 3-5%, while prices underwent 30-70% increases! Pure speculation fueled by cheap money.

It will happen again, for sure.

I think there is something fundamental about the price movements in oil we've seen driven by low elasticity of demand. Tiny changes in supply with a low elasticity of demand can result in what seem crazy speculator driven price movements. You can blame money supply, etc. but it really has more to do with habits not wanting to change.

Speculators only have the power to come in and do this to price on such a large market when elasticity of demand is so low. (for an extreme example, tell me, what is natural gas worth per MMCF if we ran out mid-winter? Whatever the market will bear... $100/MMCF? Maybe more right? It certainly isn't some chart dictated 'fair value' of $6.)

 

[AMT4SWA]

Quote from Cutten:

It's quite possible, yes. Just as oil had $30+ of speculative premium at the top, now it probably has a $20ish fear discount on the way down. $55 oil is cheap long-term, and puts many marginal producers into selling below the cost of production. Whilst commodities can stay below production costs for quite a while, it is one little thing against a major continuation of the bear move.

Also, $50 was a key level, the start of the rally back in early 07, and the price at which the US SPR bought oil back then. It would not surprise me to see a quick test down to the $45-50 range, followed by a major bounce back to $70-80. At $50, out-the-money calls could be a very interesting limited risk play on a bounce back. As with all contra-trend positions, they are rather dangerous so I wouldn't bet the farm on it.

I also now want to see the $47's tested (Feb 07 launching point for our run to $146's on the front month). If the equities market finally blows out the current lows and gives us a new leg down we should see oil make a $50 bust.....that will get me ready looking for longer term oil buys.

 

[rothschild]

FAO (food and agriculture organisation) made a report, that slow growth would push planting down, so food prices would likely hit an other crisis during the summer of 2009.