Why everyone is trying to find a top in crude

D

detective

People are consumers, they don't like higher prices on goods unless they are buying something like Gucci or Rolex. So when crude oil is raging higher, it is natural for people to root against the market and hope that it goes down. Unlike stocks, where the majority of participants are rooting for the market to go up.

That is why crude oil is still such a great long because there are so many skeptics, a wall of worry about buying into a bubble so to speak. These are the best markets to go long, strong uptrends in the face of lots of skepticism about the uptrend. Until we convert the skeptics into believing that this move in crude oil is real demand, the market will continue to trend higher.

This bias for a desire for lower crude oil prices shows up in people's predictions of the future, and as a result, their trading actions. Right now, the talking fish are raging on about crude oil being a bubble, that its unsustainable, that its speculation, the weak dollar, anything but real demand. Look around. The internet is loaded with information sources. Some are totally objective and some are very biased. But the objective data has shown that oil supply has plateaued as demand has been rising over the past few years. That is your answer for why crude oil prices have been going up. Sure, a small factor is due to the dollar weakening, but it is a small factor. The major reason is that supply is tight and worldwide demand is still strong at these prices. Its that simple. Until either supply increases significantly or demand decreases significantly, oil will remain high.
 
I doubt it has anything to do with people "wanting" the price to go down.

They're "top picking" because of the profit potential for catching it right in an overextended market.... dangerous, of course, when one's play is early.
 
Every car commercial you see is talking about gas, the price at the pump yada yada yada. Discussions of gas prices have become so common among, well, the commoners that it seems logical that we find an intermediate top soon. Once something becomes so mainstream that everyone notices, its time to get off. Now long term is a different story but I would suspect we'll see oil settle down and come in from here. If it doesnt, then I will be surprised. Wouldn't be the first time.
 
Quote from gnome:

I doubt it has anything to do with people "wanting" the price to go down.

They're "top picking" because of the profit potential for catching it right in an overextended market.... dangerous, of course, when one's play is early.
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Look at the AAPL or RIMM chart, those are overextended, how about the charts of POT and MA? Those are extremely overextended and I don't see too many top pickers shorting those names. But a lot of speculators are trying to pick this top in crude, which is baffling considering how strong the fundamentals are.
 
There is plenty of oil around, and no reason for it to be trading 138 dollars...yet. Someday we may actually have supply shortfalls, but right now we have excess production capacity and growing stocks of oil globally. You do your homework--this is a bubble and will likely play out the same as all of the rest. Remember the real estate bubble and the saying that "they aren't making any more land" ???

My contention is that there is plenty of oil left, it will just be harder to get at. Saying oil production has peaked when we haven't tapped the Arctic, the US coastline, or the ocean is a weak argument in my opinion. This is speculation, pure and simple, and all of those who argue "it's different this time" sound foolish to me.
 
Quote from detective:

Look at the AAPL or RIMM chart, those are overextended, how about the charts of POT and MA? Those are extremely overextended and I don't see too many top pickers shorting those names. But a lot of speculators are trying to pick this top in crude, which is baffling considering how strong the fundamentals are.
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I believe the shorts are mistakenly playing oil to be "like other commodities".

With most other commodities, the supply can be increased to bring down price or substituted for to bring down demand... or perhaps I should say "the supply WILL be increased or substituted". Or, supply pressures will ease.. like in grain weather markets. So commodity players KNOW there WILL be a change in supply/demand which WILL BREAK THE PRICE. So, they try to pick the top because the profits are big and fast once the price breaks.

Oil is different. It's not only heavily woven into the fabric of society and economy, (1) there is virtually nothing which can be substituted.. at least not quickly, (2) demand is not only almost inelastic, demand growth is accelerating... unintended consequences of "outsourcing" jobs from the West, and (3) supply cannot be increased enough to drive prices down.
 
Quote from Gyrene Dertra:

There is plenty of oil around, and no reason for it to be trading 138 dollars...yet.

My contention is that there is plenty of oil left, it will just be harder to get at. Saying oil production has peaked when we haven't tapped the Arctic, the US coastline, or the ocean is a weak argument in my opinion. This is speculation, pure and simple, and all of those who argue "it's different this time" sound foolish to me.
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So... it's your contention that the speculators are just foolishly playing a giant game of "chicken" with the fundamentals of the oil market?
 
Right now, the talking fish are raging on about crude oil being a bubble, that its unsustainable, that its speculation, the weak dollar, anything but real demand.
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This is nothing new, find me one parabolic market that doesn't have its share of top pickers.

Some will blow out (witness Friday), some will trade for a few bucks, and the deepest pockets will catch the move when we crash back down through here from wherever it tops out.

Don't kid yourself, there are also plenty of levered "trend riders" in here now - while this sounds sexier than "bottom picker" you're in an equally precarious spot. What's your stop if you're hypothetically long $135 looking for $150?
 
Quote from gnome:

I believe the shorts are mistakenly playing oil to be "like other commodities".

With most other commodities, the supply can be increased to bring down price or substituted for to bring down demand... or perhaps I should say "the supply WILL be increased or substituted". Or, supply pressures will ease.. like in grain weather markets. So commodity players KNOW there WILL be a change in supply/demand which WILL BREAK THE PRICE. So, they try to pick the top because the profits are big and fast once the price breaks.

Oil is different. It's not only heavily woven into the fabric of society and economy, (1) there is virtually nothing which can be substituted.. at least not quickly, (2) demand is not only almost inelastic, demand growth is accelerating... unintended consequences of "outsourcing" jobs from the West, and (3) supply cannot be increased enough to drive prices down.
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Exactly. That's why I call oil the king of commodities. It is a nonrenewable resource which is the basic building block of economic growth. Gold and other precious metals are non renewable but not necessary for economic growth or prosperity. Industrial metal supplies are shrinking but still plentiful enough to meet demand. Oil supply will shrink the fastest of the nonrenewable commodities because of the nature of oil production. It's supply cannot be increased like corn by planting more.

P.S. There hasn't been a super giant oil field find in over 30 years. The world has been explored, the easy oil has been extracted, the hard stuff is going to be smaller fields deeper in the ocean or heavy sour oil worth less than the light sweet traded on NYMEX.
 
Quote from erlewine:

This is nothing new, find me one parabolic market that doesn't have its share of top pickers.

Some will blow out (witness Friday), some will trade for a few bucks, and the deepest pockets will catch the move when we crash back down through here from wherever it tops out.

Don't kid yourself, there are also plenty of levered "trend riders" in here now - while this sounds sexier than "bottom picker" you're in an equally precarious spot. What's your stop if you're hypothetically long $135 looking for $150?
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Stop would be $129, target of $146, risk reward ratio of 2 to 1. Odds of it hitting $146 before $129 are higher than 50% IMO.
 
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