Oil to $109, sell now. What do you think?

[smartinvestor30]

Some people on Fast Money (CNBC) are bullish on oil now. Are they crazy? What data could they be looking at that would send oil down?

[aiki14]

Some people on Fast Money (CNBC) are bullish on oil now. Are they crazy? What data could they be looking at that would send oil down?

I didn't see the show, but Bullish would mean they are thinking the price will go up. If they said the price would fall, I would be interested in hearing their logic as well. I am holding a lot of CVX at the moment and am bullish on them based on my belief oil is going up pretty much steadily through the $141/bbl that Goldman predicts, and then some.

[cramerica1972]

I didn't see the show, but Bullish would mean they are thinking the price will go up. If they said the price would fall, I would be interested in hearing their logic as well. I am holding a lot of CVX at the moment and am bullish on them based on my belief oil is going up pretty much steadily through the $141/bbl that Goldman predicts, and then some.
gs is bidding up the price to recoup the billions they lost in subprime loans.

[madcowdisease]

gs is bidding up the price to recoup the billions they lost in subprime loans.

I'm not sure the rationale is to recoup money. My theory posits that the number of avenues for easy money have dwindled and this is simply the next asset class bubble. First the tech bubble burst which spoiled that game, then the housing bubble popped and spoiled the fun, now Goldman et al are getting their filthy lucre in commodities by manipulating the commodity/futures markets.

Might as well ride the train with them. I just pity Joe Sixpack that does not actively manage his own money and is getting bent over by the avaricious traders on Wall St every time he goes to the grocery or fills up his gas tank.

[aiki14]

I'm not sure the rationale is to recoup money. My theory posits that the number of avenues for easy money have dwindled and this is simply the next asset class bubble. First the tech bubble burst which spoiled that game, then the housing bubble popped and spoiled the fun, now Goldman et al are getting their filthy lucre in commodities by manipulating the commodity/futures markets.

Might as well ride the train with them. I just pity Joe Sixpack that does not actively manage his own money and is getting bent over by the avaricious traders on Wall St every time he goes to the grocery or fills up his gas tank.

Ragging on GS for doing what they do is the same as complaining about a scorpion doing what it does. Just accept it for what it is and use the information for self enrichment.

[smartinvestor30]

I didn't see the show, but Bullish would mean they are thinking the price will go up. If they said the price would fall, I would be interested in hearing their logic as well. I am holding a lot of CVX at the moment and am bullish on them based on my belief oil is going up pretty much steadily through the $141/bbl that Goldman predicts, and then some.

oops typo I meant bearish, they're saying $109

[smartinvestor30]

I didn't see the show, but Bullish would mean they are thinking the price will go up. If they said the price would fall, I would be interested in hearing their logic as well. I am holding a lot of CVX at the moment and am bullish on them based on my belief oil is going up pretty much steadily through the $141/bbl that Goldman predicts, and then some.

Well I was looking at USO and it seemed like it was overbought. Can you take a look at it and tell me what you think? I was planning on buying it today with just a few grand. You're right about Goldman, thanks to them oil will close higher by the end of the year and also because of smaller investors like us.

[aiki14]

oops typo I meant bearish, they're saying $109

I would love to hear their reasoning, might be a good time for protective puts against my long positions. I don't want to sell, since I am still looking for another 10-20% upside, but I have a nice profit I'd like to lock in.

[cramerica1972]

Ragging on GS for doing what they do is the same as complaining about a scorpion doing what it does. Just accept it for what it is and use the information for self enrichment.but aik,if the SEC investigates and find that indeed the big banks are manipulating the price,what would happen to the price of oil?down to $70/barrel again?

[aiki14]

but aik,if the SEC investigates and find that indeed the big banks are manipulating the price,what would happen to the price of oil?down to $70/barrel again?

First, in the current environment (read Cheney administration) the SEC isn't doing anything, and second the big banks represent a pittance compared to the hedge funds and the sovereign wealth funds. Oil will never be $70 again, and I am very doubtful we'll see $100 again, as long as the producers continue to exert the influence they do currently.
Futures are over $120 going out 18 months, if the price tanks to $100 those speculators are gonna take a major hit (remember the big leverage in futures) and the powers that be will protect that price like it was their daughters cherry.
I wouldn't be looking for downside moves in crude, until some big changes occur that aren't even on the horizon yet.

[Survivor]

Ragging on GS for doing what they do is the same as complaining about a scorpion doing what it does. Just accept it for what it is and use the information for self enrichment.

Credit Susse,raises oil price forcast...Market Watch.

[madcowdisease]

First, in the current environment (read Cheney administration) the SEC isn't doing anything, and second the big banks represent a pittance compared to the hedge funds and the sovereign wealth funds. Oil will never be $70 again, and I am very doubtful we'll see $100 again, as long as the producers continue to exert the influence they do currently.
Futures are over $120 going out 18 months, if the price tanks to $100 those speculators are gonna take a major hit (remember the big leverage in futures) and the powers that be will protect that price like it was their daughters cherry.
I wouldn't be looking for downside moves in crude, until some big changes occur that aren't even on the horizon yet.

At this point it is pretty much common knowedge that the fundamentals do not support 130/bl oil. Sure, Boon Pickens, Ross Perot Jr., Goldman et al, and anyone else long crude futures is going to tell you otherwise because thus far just saying oil is going higher has proven to be a very lucrative self-fulfilling prophecy - think Goldman's report last week and Boone's words today each causing $2 jumps. Why the hell would they say anything else when each 5% move doubles their capital (e.g. leverage)?

Nothing has changed from when oil was 80/bl other than the US slipping in to recession and consuming less gasoline than it did the prior year. The US is still consuming 35% of the oil so yes, it does matter what happens here.

Reading your comment I can't help but recall the hubris of the housing bubble or even what I've read about the tech bubble (sorry wasn't actively trading then). This is simply another asset class bubble where the financial firms have realized they can essentially coin money just like tech in the late 90s and just like housing when interest rates were 1%. It will come to an end eventually.

I'm not willing to say when but I am confident that with PBR hitting a major oil find and alternatives like wind, nat gas, electric, and solar becoming increasingly more economical, relatively speaking, and bringing on economies of scale and lower costs we certainly will see oil sub-$100 in the future and perhaps even close to $70/bl someday.

But, in the meantime I'm riding this gravy train on the way up and tightening my stops the more unjustifiably high we go.

[elchinito]

Hello,

This news is released just now (May 20):

OPEC's Sec Gen Badri: OPEC worried because high prices not related to supply and demand; OPEC does not need to hold an extraordinary meeting; Declining USD and financial speculation are responsible for current oil prices - Oil could keep rising if non-market factors such as the USD fall continue pressuring prices.
- Crude inventories are "very high" and there is a lot of oil on the market.
- OPEC will act when market fundamentals show a need to do so.

So, in another word, when Ben starts to increase interest rate oil will go down?

[aiki14]

At this point it is pretty much common knowedge that the fundamentals do not support 130/bl oil. Sure, Boon Pickens, Ross Perot Jr., Goldman et al, and anyone else long crude futures is going to tell you otherwise because thus far just saying oil is going higher has proven to be a very lucrative self-fulfilling prophecy - think Goldman's report last week and Boone's words today each causing $2 jumps. Why the hell would they say anything else when each 5% move doubles their capital (e.g. leverage)?

Nothing has changed from when oil was 80/bl other than the US slipping in to recession and consuming less gasoline than it did the prior year. The US is still consuming 35% of the oil so yes, it does matter what happens here.

Reading your comment I can't help but recall the hubris of the housing bubble or even what I've read about the tech bubble (sorry wasn't actively trading then). This is simply another asset class bubble where the financial firms have realized they can essentially coin money just like tech in the late 90s and just like housing when interest rates were 1%. It will come to an end eventually.

I'm not willing to say when but I am confident that with PBR hitting a major oil find and alternatives like wind, nat gas, electric, and solar becoming increasingly more economical, relatively speaking, and bringing on economies of scale and lower costs we certainly will see oil sub-$100 in the future and perhaps even close to $70/bl someday.

But, in the meantime I'm riding this gravy train on the way up and tightening my stops the more unjustifiably high we go.

I agree with your first paragraph, but would probably disagree as to what percentage of the $130/bbl is represented by fundamentals.

You say nothing has happened since the oil was $80/bbl but I disagree, one thing is the US demand has indeed been reduced slightly, but along with an actual demand far outpacing that, the perceived demand out of China, India and the third world has risen dramatically. Since we are dealing with futures contracts that is a big mover. Note that these countries are experiencing a huge boon right now and the governments there have the resources to heavily subsidize the cost of energy, which means that even as the price of crude rises, the end consumer does not see any increase in his costs and therefore demand continues to rise in the face of increasing price. So while we here in the developed world complain about $4 gas, the car buyers in China are lining up for miles to get their new cars.

Then there is the difference between a tech or housing bubble, and a bubble (assuming there is one) in a physical commodity. The dynamics of these asset types are very different.
The speculative price could be removed from the oil price and the producers could manipulate the supply to prop the price up. That is not possible in the examples you cite.
The housing bubble was very good to me, I should be so lucky to get the same results out of the oil "bubble".

Someday the alternatives to oil may rise to meet the demand, but not any time soon, and that leaves a lot of time for oil to be played. Dec 2016 WTI Crude futures are at $138, thats a long way out, and no month forward til then is below $125, which means we'd need a 20% drop to get to $100, and I think it very unlikely the powers that be will let that happen.

[madcowdisease]

I agree with your first paragraph, but would probably disagree as to what percentage of the $130/bbl is represented by fundamentals.

You say nothing has happened since the oil was $80/bbl but I disagree, one thing is the US demand has indeed been reduced slightly, but along with an actual demand far outpacing that, the perceived demand out of China, India and the third world has risen dramatically. Since we are dealing with futures contracts that is a big mover. Note that these countries are experiencing a huge boon right now and the governments there have the resources to heavily subsidize the cost of energy, which means that even as the price of crude rises, the end consumer does not see any increase in his costs and therefore demand continues to rise in the face of increasing price. So while we here in the developed world complain about $4 gas, the car buyers in China are lining up for miles to get their new cars.

Then there is the difference between a tech or housing bubble, and a bubble (assuming there is one) in a physical commodity. The dynamics of these asset types are very different.
The speculative price could be removed from the oil price and the producers could manipulate the supply to prop the price up. That is not possible in the examples you cite.
The housing bubble was very good to me, I should be so lucky to get the same results out of the oil "bubble".

Someday the alternatives to oil may rise to meet the demand, but not any time soon, and that leaves a lot of time for oil to be played. Dec 2016 WTI Crude futures are at $138, thats a long way out, and no month forward til then is below $125, which means we'd need a 20% drop to get to $100, and I think it very unlikely the powers that be will let that happen.

Aiki, we've had exchanges offline and from those dialogues you know I regard you as a very intelligent man and hold your opinions and perceptions in high esteem. However, we will have to agree to disagree with respect to oil futures.

I'm not debating the occurences you put forth for supposition. But I do argue their magnitude. Oil was $58/bl last February. 15 months later it is predicted to triple in price and crest $150/bl and we're 20 bucks away. Subsidies or not the growth in demand from developing countries does not justify a 3 fold increase in the commodity. Demand hasn't grown that much. I'll even give you that perhaps the supply/demand relationship is not linear, perhaps even parabolic. But even you state that the demand out of China and similar emerging economies is "perceived". This is the "fluff", "hot air", and speculation we all talk about on these boards.

My point is that the rise in oil prices is not a product of actual supply and demand of the commodity but rather the supply of money and the demand of traders seeking a vehicle or method to achieve meteoric returns on their capital. The futures markets are fundamentally flawed in their construction. When $5K controls $100K in crude and therefore a 5% move in crude doubles your underlying capital it is no wonder we're seeing commodity trading desks pop up all over the place. Everyone wants a piece of the pie. It has more to do with money chasing the returns and the structure of futures than the supply or demand of crude. There is also a large element of sensationalism. All the bulls feed off of every headline or article no matter how esoteric it may be as a justification for a higher price for their contracts.

You're a smart guy. How do you think requiring a 50% deposit on futures would affect these markets (assuming it was globally)? Would we see crude, nat gas, copper, wheat, etc cut in half? I believe so.

You mentioned housing and tech being different from what we're witnessing in crude. What drove those markets was inflows of cash - cheap cash at that. When Greenspan slashed interest rates to 1% following 9/11 people realized cash was next to free and began taking out loans for speculation and buying real estate. Eventually it snowballed to the point where to stretch the dollar that much further they began to loosen lending standards but the crux of the issue was too much money chasing returns and when their wasn't another sucker to flip the house to the bubble popped. Tech is no different. Wall St was buying garbage stocks with little to no earnings on margin. Everyone was leveraged out the wazoo. When everyone had their fill and there was no one else to flip the stock to the bubble collapsed.

I see the same thing in the futures markets - massive leverage, hubris, and sensationalism - no one thought it could end back then and no one can imagine it now. I don't know how high oil will go but eventually there won't be a sucker to buy the next contract and we'll see it all come crashing down the same way these two very recent asset class bubbles tumbled. So for the powers that be, I don't think Goldman et al was happy about the Tech Bubble burst nor the housing bubble popping. They won't be when crude comes down simply because they'll have to find another easy way to make money and I'm sure they will. However, Goldman being Goldman they will probably be short commodity related stocks by that point and will come out big. And I don't see producers limiting production to prop up price. They will likely find the intersection of the supply curve and the demand curve and keep production at that optimal level of output.

[Supreona]

Oil will hit $145+ per barrel. Regardless of who's doing what, doesn't matter. Sure there are other alternatives, but theres always been other alternatives. It'll be decades, if not a century before oil is replaced. I don't see my friends lining up to purchase hybrid vehicles or hear them saying "man that ethanol is crazy high" nobody will be pulling up to the ethanol station any time soon, and I don't think the wall street guys are gonna wanna put vegetable oil in their Ferrari's. Oil is a different beast...this isn't your latest tech stock friends.

[Supreona]

You've even got gas stations ordering the number 5 signs from the sign companies, theres no end in sight and I doubt any of us have the expertise or the billions in the bank to make the call. Just ride the wave.

[aiki14]

Aiki, we've had exchanges offline and from those dialogues you know I regard you as a very intelligent man and hold your opinions and perceptions in high esteem. However, we will have to agree to disagree with respect to oil futures.

I'm not debating the occurences you put forth for supposition. But I do argue their magnitude. Oil was $58/bl last February. 15 months later it is predicted to triple in price and crest $150/bl and we're 20 bucks away. Subsidies or not the growth in demand from developing countries does not justify a 3 fold increase in the commodity. Demand hasn't grown that much. I'll even give you that perhaps the supply/demand relationship is not linear, perhaps even parabolic. But even you state that the demand out of China and similar emerging economies is "perceived". This is the "fluff", "hot air", and speculation we all talk about on these boards.

My point is that the rise in oil prices is not a product of actual supply and demand of the commodity but rather the supply of money and the demand of traders seeking a vehicle or method to achieve meteoric returns on their capital. The futures markets are fundamentally flawed in their construction. When $5K controls $100K in crude and therefore a 5% move in crude doubles your underlying capital it is no wonder we're seeing commodity trading desks pop up all over the place. Everyone wants a piece of the pie. It has more to do with money chasing the returns and the structure of futures than the supply or demand of crude. There is also a large element of sensationalism. All the bulls feed off of every headline or article no matter how esoteric it may be as a justification for a higher price for their contracts.

You're a smart guy. How do you think requiring a 50% deposit on futures would affect these markets (assuming it was globally)? Would we see crude, nat gas, copper, wheat, etc cut in half? I believe so.

You mentioned housing and tech being different from what we're witnessing in crude. What drove those markets was inflows of cash - cheap cash at that. When Greenspan slashed interest rates to 1% following 9/11 people realized cash was next to free and began taking out loans for speculation and buying real estate. Eventually it snowballed to the point where to stretch the dollar that much further they began to loosen lending standards but the crux of the issue was too much money chasing returns and when their wasn't another sucker to flip the house to the bubble popped. Tech is no different. Wall St was buying garbage stocks with little to no earnings on margin. Everyone was leveraged out the wazoo. When everyone had their fill and there was no one else to flip the stock to the bubble collapsed.

I see the same thing in the futures markets - massive leverage, hubris, and sensationalism - no one thought it could end back then and no one can imagine it now. I don't know how high oil will go but eventually there won't be a sucker to buy the next contract and we'll see it all come crashing down the same way these two very recent asset class bubbles tumbled. So for the powers that be, I don't think Goldman et al was happy about the Tech Bubble burst nor the housing bubble popping. They won't be when crude comes down simply because they'll have to find another easy way to make money and I'm sure they will. However, Goldman being Goldman they will probably be short commodity related stocks by that point and will come out big. And I don't see producers limiting production to prop up price. They will likely find the intersection of the supply curve and the demand curve and keep production at that optimal level of output.

I am not so sure we are holding radically different views here, as we've said it's the magnitude of the effect not it's existence we differ on. I can't justify a 3 fold increase in crude price over the last 18 months, but I can see causes and effects that go beyond the Goldmans et al. There are exogenous influences in the production, and all phases of bringing the product to a very dynamic market that may represent a larger portion of the end price than you allow, and of course may alternately represent a smaller portion than I am allowing.
The question appears to be how to accurately quantify the effects of speculation versus the fundamentals, and the legitimate speculation versus the intentional manipulation you suggest.

I think increasing the domestic margin requirement would reduce the volatility but I don't know that it would result in a drastic reduction in price on the world market, especially with the Dubai exchange coming on line next week. And I don't know that we have any way of enforcing a requirement on the world markets that have the opposite interest. If you are correct about the inflow of cash being the driver, then how can we effect that inflow with the sovereign wealth funds of the producer nations capable of bringing cash into the stream far in excess of anything Goldman can?

Interesting stuff to think about.

[EightCounts]

Well congress just passed a bill to sue opec. White house warns of vetoing it.

http://www.reuters.com/article/topNews/idUSWAT00953020080520?feedType=RSS&feedName=topNews&rpc=22&sp=true

[aiki14]

Well congress just passed a bill to sue opec. White house warns of vetoing it.

http://www.reuters.com/article/topNews/idUSWAT00953020080520?feedType=RSS&feedName=topNews&rpc=22&sp=true

The whole thing sounds pathetic. And Bush sue Opec? His daughters call the Saudi prince, Uncle something.

[chinaman711]

OPEC should sue congress, were the ones driving up oil with a weak dollar and no energy play. Its going to get worse as china and india are booming. China is adding 1,000 cars a day, wait a year and see what happens. India is really picking up too, might be time to start looking at those stocks. Its 6 pm and oil is still running now up 5.11 sweet.

[kingfisher]

Chinaman

I agree 100% with your post. We think the price of gas in the U.S. is high now? Just wait, in ten years 3.79 will seem like a Dollar Store sale price!

India and China will drive the price of Oil through the roof as they demand their fair share of what is left? Some do not to consider: their is only a finite amount of Oil in the ground! On a personal level, I think man has used more than half of that amount already.

[Supreona]

And to think...Oil heading to $109??...That was a hideous call. Record Highs, and a diminishing inventory, why do you think bush is suing...$132 is low, its going higher.

[netwrangler]

And I agree with both the Cman and Kingfisher;

Back in 1973/4 - the first oil crunch - The Oil & Gas Journal had a cover showing a smiling Arab in a burnoose holding out his hand.
The text on the cover said, "You got yourself a partner!"
OPEC had just been formed.

That was almost 35 years ago. Since then, we have done precious little to deal with OPEC.
To say we are slow learners is to vastly understate the problem.

And the real problem is that we need to have an energy policy that does not require us to be dependent on mid-east oil. During the 35-years since then, the need for secure supplies for energy has become more insistent.

Unfortunately, the steps required to achieve this energy goal are politically unpopular.

We have to produce oil in places [like the California Coast and ANWAR] where, if we all had a choice, we would never choose to do so.
We have to alter life-styles [SUVs, long commutes, driving vacations] that we feel should be personal choices.
We are supposed to believe that these energy needs are real, and not just the result of 'evil manipulators'.


During the first crunch, the 'evil manipulators' scenarios included claims that:
tankers carrying crude oil were waiting, just beyond the horizon, holding crude oil from the supply

and that


truck and trailer drivers were dumping their product in the desert (we're talking SoCal rumors here) to keep up the high price of gasoline.
Well, no one ever found those ships or those truck drivers. But the diversion seems to have prevented us from addressing the problem

Effective energy policy is pretty simple, actually:

Develop secure energy sources
Conserve energy policy whenever possible
Transition to alternative energy options as those technologies become viable.

These are the same three bullets that applied in in '70s.
Maybe we can make it happen this time.

[chinaman711]

Very nicely said Net, you and i remember those long gas lines in the 70's in california and our leaders were saying the world would run out of oil in 50 years. If they really thought that then why didn't they do something in the 70s, 80's or 90's. There is lots of oil all over the world and lots of nat gas. Just no energy plan all these years and now congress is blaming the ceo's of the big oil companys. Maybe we need the ceo's running congress : )

[cramerica1972]

Very nicely said Net, you and i remember those long gas lines in the 70's in california and our leaders were saying the world would run out of oil in 50 years. If they really thought that then why didn't they do something in the 70s, 80's or 90's. There is lots of oil all over the world and lots of nat gas. Just no energy plan all these years and now congress is blaming the ceo's of the big oil companys. Maybe we need the ceo's running congress : )we already have 1 incompetent CEO in washington,by the name of G.W bush.........what is exactly is brent crude oil?

[netwrangler]

we already have 1 incompetent CEO in washington,by the name of G.W bush.........what is exactly is brent crude oil?
Yeah, well, I guess just being a CEO isn't all that it takes to get the job done.

Your question about Brent crude is a good one. I'll bet a lot of folks don't know but are afraid to ask.

The crude oil price that cnbc is always talking about is for WTI crude - that's West Texas Intermediate. The price for WTI specifies a certain quality of crude [intermediate quality, as measured by sulphur content and viscosity] delivered to a specific location - Oklahoma.

Not all crude oil is the same quality. Crudes of different quality and for delivery to a different locations are often priced as an off-set to WTI 'benchmark'.

Brent crude is another 'benchmark' crude, but one based on crude from fields in the North Sea off Great Britain. It makes sense for European crude traders to use a local benchmark [and local offsets] rather than basing the price of European crude on Texas prices.

Hope that helps.

[madcowdisease]

delivered to a specific location - Oklahoma.



Cushing OK, specifically. This is something I was going to mention during our dialogue on CL over this past weekend. If you recall it was pondered how the SEC might 'control' the stateside exchanges. However, I was wondering since WTI is a domestic derivative would the SEC be able to requie a larger deposit on this particular contract? My 7 book says nothing about it explicitly other than the acts of '34 giving them power to regulate exchanges etc so I'm left wondering.

[chinaman711]

In a poll just out americans blame congress for high gas prices. You think they care, why not ask them. But you will have to wait as they are on their 10 day m. d. holiday. Got to love those guys and gals, couldn't even get the farm bill right lol

[netwrangler]

Cushing OK, specifically. This is something I was going to mention during our dialogue on CL over this past weekend. If you
recall it was pondered how the SEC might 'control' the stateside exchanges. However, I was wondering since WTI is a domestic derivative would the SEC be able to requie a larger deposit on this particular contract? My 7 book says nothing about it explicitly other than the acts of '34 giving them power to regulate exchanges etc so I'm left wondering.
As I understand it, the US Government [I believe through the SEC under existing law] can control the margin requirements for commodities traded on US-based exchanges. The question is whether this adjustment provides 'adequate' control of the 'market'.
I caught part of a discussion on CNBC about changing the margin requirements from 20% to 40%. The argument 'for' was that increased margins would discourage speculation. The argument 'against' was that increased margins would discourage all trading, and hurt the folks who needed to hedge in the market in the first place.


Another proposal discussed was 'cracking down' on total position limits. I didn't get all the nuance here, but it appears traders can get around total position limits by trading on multiple exchanges. There was also a question of setting up multiple trading entities controlled by the same party.


More recently, I have been hearing more about the index fund money injecting a perennially 'long' bias into market. In this Pogo-like ['we have met the enemy, and they are us'] scenario the investment that I have in GSC makes me one of the 'evil manipulators'.

This scenario includes the most discouraging view of all this:

The commodities markets are designed to facilitate hedging and not to control the massive influx of cash we are seeing today;
We do not have the tools to control the current situation;
Nothing short of rebuilding the market from the ground up will work.



I'm not much for doomsday scenarios. On the other hand, I don't see an easy way out. As the title of another thread on the OTF says, "Soon there will be pain."

[smartinvestor30]

Chinaman

I agree 100% with your post. We think the price of gas in the U.S. is high now? Just wait, in ten years 3.79 will seem like a Dollar Store sale price!

India and China will drive the price of Oil through the roof as they demand their fair share of what is left? Some do not to consider: their is only a finite amount of Oil in the ground! On a personal level, I think man has used more than half of that amount already.

I think you guys really need to look at it over the long term. Sure prices can soar in the short term due to natural disaster, terrorism, and panic. But think of the solutions that are coming out.

When Obama is president he will not give money to the oil companies like Bush. Instead he will give hand outs to AG. Is that better than giving out to oil? I'm not sure because either way big companies will profit, but in the case of AG handouts some new companies will emerge and that gives lots of investing opportunities so who cares. Plus more of that money will stay in the US and perhaps trigger investment from other countries into the US rather than us giving out money to the middle east.

Electric plug in cars will really change things. At that point it's up to each household to find a way to pay for that energy that comes out of the wall. I don't think we will have a big oil problem 5 years out. Plug in cars will save us and if we can have the Chinese buy more of them rather than gas cars it could save the energy crisis that is supposedly going to hit us. One more little thing I saw on Fast Money that I wanted to point out. Dilan Ratigan asked:

"What is causing the price of oil to soar?"
A: demand
B: Speculation

And one guys said, "the correct answer is who cares, buy USO" :laugh:

[netwrangler]

I think you guys really need to look at it over the long term. Sure prices can soar in the short term due to natural disaster, terrorism, and panic. But think of the solutions that are coming out.

When Obama is president he will not give money to the oil companies like Bush. Instead he will give hand outs to AG. Is that better than giving out to oil? I'm not sure because either way big companies will profit, but in the case of AG handouts some new companies will emerge and that gives lots of investing opportunities so who cares. Plus more of that money will stay in the US and perhaps trigger investment from other countries into the US rather than us giving out money to the middle east.

Electric plug in cars will really change things. At that point it's up to each household to find a way to pay for that energy that comes out of the wall. I don't think we will have a big oil problem 5 years out. Plug in cars will save us and if we can have the Chinese buy more of them rather than gas cars it could save the energy crisis that is supposedly going to hit us. One more little thing I saw on Fast Money that I wanted to point out. Dilan Ratigan asked:

"What is causing the price of oil to soar?"
A: demand
B: Speculation

And one guys said, "the correct answer is who cares, buy USO" :laugh:
Well, I'm heavily into energy stocks, so I guess I'm following Dylan's advice.

Serious question:
What, exactly, are these tax breaks and give-aways that are supposedly going to Big Oil? I hear politicians saying they would stop the give-away.

NOTE: I'm not talking about no-bid contracts to Haliburton. And I certainly see the Bush-administration policies biased toward more exploration and production, vis-a-vis conservation or alternative energies. But I can't seem to find the tax give-aways that folks want to eliminate.

=====
On another point, I agree with you that folks aren't looking long term on energy issues. But 5-years out isn't long term. Electric cars will help to the extent that this shifts mobile energy needs to stationary sources. But don't look for meaningful results in 5-years. Nothing happens on a commercial scale in energy much before 10-years.

Well, one possible exception: Indonesia is cutting their gasoline subsidy - the subsidy that keeps pump prices down for Indonesians. If China, India, and others follow along [and there are some large economic pressures for them to do so] the world demand picture could change dramatically, and reasonably quickly.

That's something to watch.

[smartinvestor30]

Well, I'm heavily into energy stocks, so I guess I'm following Dylan's advice.

Serious question:
What, exactly, are these tax breaks and give-aways that are supposedly going to Big Oil? I hear politicians saying they would stop the give-away.

NOTE: I'm not talking about no-bid contracts to Haliburton. And I certainly see the Bush-administration policies biased toward more exploration and production, vis-a-vis conservation or alternative energies. But I can't seem to find the tax give-aways that folks want to eliminate.

=====
On another point, I agree with you that folks aren't looking long term on energy issues. But 5-years out isn't long term. Electric cars will help to the extent that this shifts mobile energy needs to stationary sources. But don't look for meaningful results in 5-years. Nothing happens on a commercial scale in energy much before 10-years.

Well, one possible exception: Indonesia is cutting their gasoline subsidy - the subsidy that keeps pump prices down for Indonesians. If China, India, and others follow along [and there are some large economic pressures for them to do so] the world demand picture could change dramatically, and reasonably quickly.

That's something to watch.

The Bush tax cuts help out big business (oil companies) do they not? Also a lot of money goes to OPEC countries from the oil we import. By not changing out source of energy we are practically giving our money away to fuel growth in other nations, not just with oil, but think about all the outsourcing that companies do to India or China. If those jobs stayed in the US those people would pay taxes to our government, instead they are making their country rich. I consider importing oil as a hand out to the Saudi's (aka Bush's friends/lovers).

The way I see it is this: The same people being in office for so many years (Bush's, Clinton's) caused nothing to change. In their defense however, gas was very cheap and there was no need to switch to another source plus it just wouldn't make business sense because for something to be a viable alternative it has to be cheaper or simply much much better. Yes Obama is going to hurt the stock market there is no doubt in my mind about that. He plans to tax the best and the brightest people more money who already pay the bulk of the taxes in the USA. But the new alternative energy handouts (now that it makes business sense) are going to let new companies emerge which will bring new investment opportunities. In other words use Windfall taxes on Oil then use that money to give out to farmers and other alternative energy uses.

Also why doesn't OPEC just increase production? They are used to fixing prices just right so that gas is cheap enough so nothing can replace it but expensive enough that they make big money. Why aren't they helping now, what if we don't need their oil and if other countries follow suit by adopting different vehicles or use solar/wind.

[cramerica1972]

The Bush tax cuts help out big business (oil companies) do they not? Also a lot of money goes to OPEC countries from the oil we import. By not changing out source of energy we are practically giving our money away to fuel growth in other nations, not just with oil, but think about all the outsourcing that companies do to India or China. If those jobs stayed in the US those people would pay taxes to our government, instead they are making their country rich. I consider importing oil as a hand out to the Saudi's (aka Bush's friends/lovers).

The way I see it is this: The same people being in office for so many years (Bush's, Clinton's) caused nothing to change. In their defense however, gas was very cheap and there was no need to switch to another source plus it just wouldn't make business sense because for something to be a viable alternative it has to be cheaper or simply much much better. Yes Obama is going to hurt the stock market there is no doubt in my mind about that. He plans to tax the best and the brightest people more money who already pay the bulk of the taxes in the USA. But the new alternative energy handouts (now that it makes business sense) are going to let new companies emerge which will bring new investment opportunities. In other words use Windfall taxes on Oil then use that money to give out to farmers and other alternative energy uses.

Also why doesn't OPEC just increase production? They are used to fixing prices just right so that gas is cheap enough so nothing can replace it but expensive enough that they make big money. Why aren't they helping now, what if we don't need their oil and if other countries follow suit by adopting different vehicles or use solar/wind.warren buffet pays less percentage wise in taxes than his secretary,so what the big deal?

[netwrangler]

The Bush tax cuts help out big business (oil companies) do they not? Also a lot of money goes to OPEC countries from the oil we import. By not changing out source of energy we are practically giving our money away to fuel growth in other nations, not just with oil, but think about all the outsourcing that companies do to India or China. If those jobs stayed in the US those people would pay taxes to our government, instead they are making their country rich. I consider importing oil as a hand out to the Saudi's (aka Bush's friends/lovers).

In your writing you raise a number of interesting issues per paragraph.
Let me start by addressing just the first paragraph of your post:

The Bush tax cuts, as I understand them, provided a temporary change [expiring in 2010] that lowers the long term capital gains tax rate to 15% and sets a similar tax rate for income from 'qualified dividends'. These cuts allowed my wife and me to sell the house we bought when we were first married, invest the after-tax proceeds, and combine that income with Social Security to provide with us with a reasonable retirement life. I have trouble viewing these tax cuts as give-aways to Big Oil.


I agree that "By not changing out source of energy we are practically giving our money away to fuel growth in other nations...." The problem, however, is at least 35-years old. I can testify to that because I saw it start 35 years ago when OPEC was formed and the first gas crunch hit. Sure Bush is to blame, but so is every other president, Democratic and Republican, going back to Nixon. As an oil company ROI analyst in the '70s, it was obvious to me then (as it is now) that we [the USA] needed to reduce our dependence on mid-east oil. In the '70s, we lacked the intellectual honesty and the political will to make that happen. Perhaps this latest price spike will dredge up some of that honesty and will we need. [I'm such an optimist. :D ]


Issues of outsourcing and free trade are core to our economy and well being. There are valid arguments on both sides of the issue. We need to deal with these issues.
But I submit that these issues are not the 'tax breaks and give-aways to Big Oil' the politicians proclaim they will eliminate.

Here's how I see it:

Specific tax breaks and give-aways to Big Oil are hard to find. I'm not saying they don't exist - it's hard to prove a negative. I am saying that the politicians who say they will eliminate these 'breaks' don't have anything specific in mind.


Advocating that Big Oil should not receive the same 'tax breaks' as the rest of business devolves into punitive taxes for Big Oil. Punitive taxes on Big Oil reduces their incentive to invest in new projects. We need to think long and hard about whether that is a result we want.


We need to start thinking about Big Oil, not as part of the problem, but as part of the solution. Big Oil is making all this money. How can we encourage them to use that money in a way that will increase the energy security of the USA?

Think out of the barrel.

[smartinvestor30]

In your writing you raise a number of interesting issues per paragraph.
Let me start by addressing just the first paragraph of your post:

The Bush tax cuts, as I understand them, provided a temporary change [expiring in 2010] that lowers the long term capital gains tax rate to 15% and sets a similar tax rate for income from 'qualified dividends'. These cuts allowed my wife and me to sell the house we bought when we were first married, invest the after-tax proceeds, and combine that income with Social Security to provide with us with a reasonable retirement life. I have trouble viewing these tax cuts as give-aways to Big Oil.


I agree that "By not changing out source of energy we are practically giving our money away to fuel growth in other nations...." The problem, however, is at least 35-years old. I can testify to that because I saw it start 35 years ago when OPEC was formed and the first gas crunch hit. Sure Bush is to blame, but so is every other president, Democratic and Republican, going back to Nixon. As an oil company ROI analyst in the '70s, it was obvious to me then (as it is now) that we [the USA] needed to reduce our dependence on mid-east oil. In the '70s, we lacked the intellectual honesty and the political will to make that happen. Perhaps this latest price spike will dredge up some of that honesty and will we need. [I'm such an optimist. :D ]


Issues of outsourcing and free trade are core to our economy and well being. There are valid arguments on both sides of the issue. We need to deal with these issues.
But I submit that these issues are not the 'tax breaks and give-aways to Big Oil' the politicians proclaim they will eliminate.

Here's how I see it:

Specific tax breaks and give-aways to Big Oil are hard to find. I'm not saying they don't exist - it's hard to prove a negative. I am saying that the politicians who say they will eliminate these 'breaks' don't have anything specific in mind.


Advocating that Big Oil should not receive the same 'tax breaks' as the rest of business devolves into punitive taxes for Big Oil. Punitive taxes on Big Oil reduces their incentive to invest in new projects. We need to think long and hard about whether that is a result we want.


We need to start thinking about Big Oil, not as part of the problem, but as part of the solution. Big Oil is making all this money. How can we encourage them to use that money in a way that will increase the energy security of the USA?

Think out of the barrel.

I want to put something into perspective for you about how much growth potential other emerging countries have:

In china they are opening up new McDonald's restaurants. When the chinese drivers come to McDonald's to go through the drive-through they aren't sure what to do. Some approach the window from the passengers side only to find another car coming the right way at them. They even have people standing out at the street to direct them in the right way.

It's funny, but also scary; they could increase so much demand. There have to be solutions or everyone will be in trouble.

If it were up to me I would extend the Bush tax cuts, I also vote Obama the most likely to be assassinated since Kennedy. Too many rich people have too much at stake, too many corporations have too much at stake; this could lead to some horrifying events (even hillary foreshadowed these events).

The only solution to this is to increase the supply of oil. Also it's important to note that although the demand in the US might wean off due to high prices the global demand is still increasing which will in essence cancel out the US demand drop off and then some.

It's not just the administrations fault for letting this go on for so long, yes it's good political speak to blame bush for everything when you're a democrat. Environmentalists have kept new refineries from being built. Pretty soon they will come to the realization that you can't drive trees to work or the local supermarket and that the trees need CO2 to survive.

I agree, think outside the barrel. I didn't realize you had been around that long, it's nice to have more life expieriences to draw from, in 1987 I was turning 4 :) Even at a young age I have a great interest in financial markets and I can only imagine what I can achieve 20-30yrs down the line.

[smartinvestor30]

warren buffet pays less percentage wise in taxes than his secretary,so what the big deal?

Which is why I loved Ron Paul's "Fair Tax" or was that Mitt Romeny or was it Huckabee? I'm voting for obama and am ready to close all my positions before his inauguration :top: For the long term he will be great for the country, if Ron Paul had a chance I would have voted for him.

[aiki14]

Here's Alan Abelsons take, from Barrons today:

Crude Villains?
By ALAN ABELSON

IF STUPIDITY GOT US INTO THIS MESS, THEN WHY CAN'T it get us out?"

That ingenuous but intriguing query was posed by the stand-up cowboy humorist Will Rogers, whose aw-shucks persona masked a devastatingly sardonic wit.

In his inimitable fashion, Will was addressing one of the numerous messes that our beloved nation found itself enmeshed in at one time or another during the first three decades of the late and not particularly lamented 20th century. He was, befitting his well-worn Stetson and faithful lariat, incredibly quick on the draw with a sly barb for government, Congress, the president and politicians.

It was he, you may recall, who remarked that Alexander Hamilton started the U.S. Treasury with nothing, "and that was the closest the country ever came to breaking even." And who reckoned that "an economist's guess is liable to be as good as anybody else's." And who defined diplomacy as "the art of saying 'nice doggie' until you can find a rock." And who confessed, "I am not a member of any organized political party; I am a Democrat." And who insisted, "I don't know jokes; I just watch the government and report the facts."

Will, lest you get the wrong impression from this random sampling, was by no means all acid and vinegar. He had a soft spot for young people anxious about making the right choice of a profession, as evidenced by this thoughtful piece of advice: "Make crime pay. Become a lawyer."

Of course, Will Rogers lived in a simpler age, when the problems were far less complex than those we face today. Still, Homo sapiens hasn't changed all that much, nor, we're afraid, has the quality of our leaders. And any public-spirited person searching for an exit strategy from the mess we're now in may well be tempted, as Will suggests, to give stupidity a chance.

The trouble is, though, that most of those responsible for our present straits have other, apparently more pressing priorities. The president has his hands full, poor chap, straightening out the rest of the world, even though the rest of the world doesn't seem to have the faintest desire to be straightened out. In any case, as you can well imagine, that Sisyphean task leaves him with scant time to bother much with incipient recession, the remorseless slump in housing, killer fuel and food prices and similar minor distractions at home.

Congress, for its part, is fixated on staging the latest Capitol Hill extravaganza: the march of the petro perps (the top brass of the oil goliaths) up Capitol Hill for their daily public spanking by the solons and then their being sent home to repent of their sins. To which, once home, they respond, as would anybody with a sore butt, by promptly raising prices at the pump.

Ah well, rather than brooding over the failings of our commander-in-chief and chosen representatives, let us look on the bright side, as Will urged us to do by pointing out how lucky we are that "we don't get all the government we pay for."

WASHINGTON FIDDLED WHILE WALL STREET burned. That'd make a snappy headline for these scribblings, but we must admit that it wouldn't be entirely accurate on either score. Which is cause for both regret and relief.

Relief, in that even though a funny thing happened to the stock market last week -- it took a quick U-turn from rally to retreat -- the damage has been painful but nowhere near catastrophic. (Not yet, anyway, but it's early days.)

Regret, because if the powers-that-be in D.C. were only fiddling, they couldn't be dreaming up schemes that seem designed to make a bad situation worse. And that's one thing even critics like ourselves have to concede Washington is really good at.

What made the stock market metamorphose from spirited advance into straggly decline was that the euphoria induced by the conviction that the worst of the credit crunch was over and the menace of recession was receding ran smack up against reality and, as in any collision between evanescent vapor and gritty substance, it's no contest which gets creamed.

It wasn't anything fancy that cooled things off just as investor sentiment started to work up a head of steam, and it comes in three simple letters: O-I-L. Crude continued on its tear, scaling one new peak after another, reaching $135 a barrel before pausing for breath. And it was oil, as well, that stirred Congress from its customary slumbers.

Besides such old favorites as a windfall-profits tax on oil and gas producers and repealing tax breaks they now enjoy, our louche lawmakers would ban price gouging, subject OPEC to the slings and arrows of attorneys pursuing antitrust actions and dampen speculation in the futures markets by mandating higher margins and stiffening the rules on index funds that dabble in oil and assorted other commodities. (We're indebted to ISI Group's excellent policy report for the latest info on what our congressfolk are busily brewing.)

That last item -- the rising ardor in Washington to do something to shackle the big, bad speculators in commodities and especially oil and gas -- drew some fuel from both interested and disinterested parties. Good old OPEC, in the person of its secretary-general, Abdalla Salem El-Badri, denied that it had the slightest thing to do with soaring crude prices. Gosh, who could ever harbor such an unkind thought? The blame, El-Badri emphasized, should be laid squarely at the door of those market-kiting speculators.

He is not, in case you wondered, the disinterested party mentioned above. That designation, by his own vouching, belongs to a fellow named Michael Masters, proprietor of a hedge fund unsurprisingly called Masters Capital Management, who testified last week before a Senate subcommittee. The burden of his presentation was that such deep-pocket investors as corporate and government pension funds, sovereign wealth funds, university endowments and kindred institutions are in no small measure responsible for the spectacular run-ups in commodities, particularly food and, of course, oil.

He dubs this motley group "index speculators," and he feels quite strongly that Congress should act pronto to curb their pernicious practices. He offers a kind of tutorial on commodities speculation, replete with graphs and charts and other quasi-scholarly trappings.

Mr. Masters seems well versed in the fine points of commodities trading, and he's passionate in his belief that the major stimulus for the fiery gains in oil and food are those big-bucks players. His testimony created a bit of a buzz in the Street, and it's certainly worth a read. That speculators -- especially in the past five or six months, when their normal haunts, the equity markets, were frequently in the dumps -- have been active in the futures arena is no secret. Ironically, we recall a similar plaint -- but in reverse -- made to us by a prominent Texas oil guy who beefed bitterly that speculators were behind the then sharply depressed price of oil.

We suspect that Mr. Masters gives rather short shrift to the impact of both exponential growth of demand not only from China but from India and other emerging countries on the price of oil, and reasonable and growing concern about prospective supply. For all his worthy effort, we found his case not entirely persuasive and, at best, as the old Scotch verdict has it, not proved.

This doesn't mean obviously that we think oil is a slam dunk to reach $200 a barrel. Nor, having just forked over $4.25 a gallon to keep our jalopy going, that it and its most prominent derivative are immune to the effects of spiking prices, especially in an economy as stressed as this one.

IN OUR BRIEF EXEGESIS OF WHY OIL has been acting as if some practical jokester gave it a hot foot that has sent it in panicky flight to the moon, we deliberately neglected to mention the dollar as a leading suspect. In the main, we suppose, because it's both so evident and widely recognized as a causal agent, but also because we've cited it long and often as the root of so many of our ills that it might seem just a tad repetitious, which it is.

Yet we can't resist taking still another swipe at the dark forces that have conspired to debase the ragged greenback and, in the process, contrived to make life miserable in so many ways for the denizens of this fair land. As Peter Schiff, who runs Euro Pacific Capital, tartly observes in his latest epistle, it's too bad that the Supreme Court, in ruling that U.S currency is unfair to the blind, failed to also declare it unfair to everyone who buys gasoline.

To Peter, the big move in crude and gasoline is symptomatic of the bill that has come due for years of reckless consumption and dollar devaluation that have priced us out of markets to which we once held "unchallenged title." Signs of America's falling standard of living are everywhere, he laments.

And he posits that the current round of belt-tightening is "simply the down payment on the government's massive bailout of Wall Street investment banks and mortgage lenders." And he morosely predicts, "As the Fed creates money to buy bad mortgages and other shaky securities held by banks and brokerage firms, the value of the savings and wages" of us poor slobs will continue to shrivel.

That means that the cost of a good many more of the things that we take for granted will shoot up. "Four dollar gasoline," he warns, "is just the beginning."

Even so, Happy Memorial Day!

[netwrangler]

Aiki, I read Abelson's column yesterday and thought it was appropriate to this thread.
Thank you for posting it.

IMO, Alan Abelson's column alone is reason enough to subscribe to Barron's.
When I call myself a 'Moderate', I think of him as my role model.

[cramerica1972]

Aiki, I read Abelson's column yesterday and thought it was appropriate to this thread.
Thank you for posting it.

IMO, Alan Abelson's column alone is reason enough to subscribe to Barron's.
When I call myself a 'Moderate', I think of him as my role model.congress didnt tell the investment banks to give loans to ppl who couldnt afford them.........................did they?:?

[aiki14]

congress didnt tell the investment banks to give loans to ppl who couldnt afford them.........................did they?:?

No they didn't. Of course Investment banks do not loan money, commercial banks and S&L's do. The investment banks bought mortgage backed paper, and the ratings agencies valued it, and they both got their hats handed to them.

[smartinvestor30]

congress didnt tell the investment banks to give loans to ppl who couldnt afford them.........................did they?:?

The investment banks like Lehman Bros, Goldman Sachs, UBS, etc etc don't do mortgage lending. Have you ever heard of someone with a 30yr ARM from Merrill Lynch?

[smartinvestor30]

No they didn't. Of course Investment banks do not loan money, commercial banks and S&L's do. The investment banks bought mortgage backed paper, and the ratings agencies valued it, and they both got their hats handed to them.

The only Triple A is the one that comes and changes your tire in the middle of the highway at night. :laugh:


I read that article you posted, 4/gallon is bad but could you speculate on how bad it will spiral down? How much inflation, % wise, do you predict? and of course base that on what has happened in similar situaitons in history.


Look forward to hear your comments.

On a side note:

I think it's important to note to people who are disgruntled about our current economic situation that we are very lucky. It could have been much worse right now. Imagine if there had been a run on the banks, where would we be right now? On this forum? Probably be planting corn in our back yards.

[cramerica1972]

The investment banks like Lehman Bros, Goldman Sachs, UBS, etc etc don't do mortgage lending. Have you ever heard of someone with a 30yr ARM from Merrill Lynch?dont the S&L's borrow from investment banks?

[netwrangler]

congress didnt tell the investment banks to give loans to ppl who couldnt afford them.........................did they?:?
They surely did not.
Neither did The Fed, nor Treasury, nor HUD.
Everyone just sorta stood there looking political and doing nothing.

But what the hey, there's plenty of blame for everyone in that debacle. :dong:

[netwrangler]

dont the S&L's borrow from investment banks?
Actually, the S&Ls, Regional Banks, and other mortgage originators sold their mortgages [packaged in the form of CDOs] to the Investment Banks — and to hedge funds, retirement funds, and municipalities, among others.

[netwrangler]

I think it's important to note to people who are disgruntled about our current economic situation that we are very lucky. It could have been much worse right now. Imagine if there had been a run on the banks, where would we be right now? On this forum? Probably be planting corn in our back yards.
We live in SoCal.
We grow chili peppers, tomatoes, and scallions in our back yard.
Life will go on as long as we have salsa. :wink: