Oil's Ups and Downs

D

davidrousseau

Since I work for a large Oil company, it's really easy to watch the Oil market at work. It appears to me that the news cycle like you see on Bloomberg is totally rigged, and you can almost trade the opposite of what the news says. It's a gamble, but when I see the prices dip on "warm weather expectations" I buy USO or OIL then wait for a snowstorm or Nigerian attack, than I sell into the strength.

I've done that every week for the last two months except last week. I'm still long after the latest OPEC meeting thinking Oil might bump 65, but it may return to 60, where I repeat the process again based on news and gut feel. It's been pretty easy to score, except for the day Oil went down two dollars and took out my stops.

I may take a small bath but I'm holding now because I think all the holiday traffic will draw down supplies. The pro's say heating oil drives the price, but I think that's so we'll believe the weather news. I really think it's all those cars on the road, and it seems like it's bumper to bumper everywhere at the moment.
 
It's the Russians that are rigging the price and not the Arabs.

Russia's present support of Iran by supplying them with nuclear technology is meant to destabilize the mid east so they can profit from the rise in oil not to mention make money off the sales of the technology.

Russia is a bigger threat now to world stablity then they were during the cold war.


John
 
That's what I love about Oil.. it usually reverts to Politics, which is cool because that's life. I didn't say the Arabs rig the price, but I'm not sure it's Russia either, but they are definitely involved. One of the great mysteries to me is who actually has the most sway in moving the price. I would have guessed Saudi Arabia but they don't produce that much more than Russia. I'm not sure the Middle East needs too much help in getting "de-stabilized." It's natural state seems to be instability, unless the US really thinks it can reverse thousands of years of thinking and create a democracy through "shock and awe" LOL

The sad fact for the US is that it consumes vastly more oil than it produces, with the slack being taken up by countries that hate us, but love money. And that situation just gets worse. It's the love of money that makes the price hard to predict, since not all Oil prodicing countries are on the same page. The poor ones want the price high, but at the same time, if they cut production, they get less money in the short term.

Also, since Oil is mostly sold in US Dollars, attempts to open up Oil markets denominated in Euros will affect price, but I have'nt figured out how or when. Long term, it seems like the trend will be back up to 70 with any supply disruptions putting us back at 80.

A little turmoil in oil producing regions is worth 5 bucks/barrel, and alot is anybody's guess. Last nights news spoke of a Naval blockade in conjunction with military action in Sudan, which didn't get much play today, but the Shell incident in Nigeria did, but stuff like that happens every day in Nigeria and most other countries where precious natural resources are sold at the expense of the poor people. BTW.. Blood Diamond was a great movie.

So.. sory for the long post, but it seems like downside to this trade is 58-60/barrel, and upside if I stick it out is another 10, 20, 30, and possibly 40 dollars. Risk / Reward looks good. Short term, a drawdown of inventories and cold weather over the next few days or weeks would be a perfect storm for my investments, not to mention lots of holiday traffic. I'm convinced the US is one big manipulator via the Saudi's, and the conspiracy theory in me sez the GOP wanted to keep Oil low to ensure the Dow hit 12,000 and keeps "hitting record highs, a point at a time, and getting the Saudis to keep production high helps this happen. I'm also told, but can't prove, that the US stopped topping off the Strategic Petro Reserves to bolster the supply. Ya gotta do something to bring Oil down 20 percent. Just be glad it's on sale !

BTW.. anybody notice the rip Berkshire Hathaway's been on ? Class B shares Up 125 points today ? I've been holding since July and added 10 more shares yesterday. It looks a bit freaky... whoner what someone knows ?
 
Oil costs about $10 dollars a barrel to produce. Give me another product that sells for 7 or 8 times its finished cost.

If anyone thinks that oil is priced on supply, demand and cost of production then they are wrong. The price is based on pure manipliation.

It is no coincedence that oil went from the teens to the present price as the Russia mafia matured into the controlling force in Russia.

John
 
Where do you get the cost of production numbers at 10 dollars ? Do they include the cost of exploration ? I would agree that someone is making a ton though. On the point of the Russion Mafia manipulating the price, I'd like to hear more about why they might be inclined to drop Oil by 20-25 percent, and what would make them decide it should be 100 ?

I'm just trying to make the parts fit together. Supply and demand appear to be ways to explain manipulation that occurs and it looks like Bloomberg pulls out 3x5 cards for a list of reasons why the price went up or down. Since I have some cash invested in the commodity, if either the supply tightening, or demand increasing has nothing to do with anything, what factors do you look at ?

For what it's worth, I've talked about oil prices with the people that run my company's operation in Nigeria as well as Khazakstan and they didn't mention the Russian Mafia, but I'm not sure they would have. What they did say is that there are hundreds of professional traders at this company trying to forecast oil prices, and they are wrong more than right, so it does lend some credibility to a totally manipulated market, which I never doubted.

I will say, that the person who got our Khasakstan operation off the ground (he left the company for a job at Lukoil) was Russian, and very well connected. I know he had ties to the Russian government, but that's as much as I know.

Now, to just figure out what their likely moves are in any given timeframe.
 
USO 59.5 +/ - 1.5 area seems taking her to 71 + / - 2
SLV and GLD ---> all north
I guess Commdities MKT will North this next 2 months
 
I guess we'll see what the Russian Mafia has to say about that. They are a huge producer, seems like a better price would suit them, but with the US Dollar in the toilet, 60 bucks probably seems more like 70. Supply and demand might not control the price, but they influence it. All the numbers are BS IMHO, so I trade on what seems to make sense to me. The breakout of the OIH seems a bit overdone to me, but I guess it's because they had to run up all the stocks (including energy) for bonus time and so all the 401K's looked good before the elections.
 
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