Is Oil in a Trading Range?

Saturday, October 10, 2009

This is today`s word on the trading desks. Traders think oil futures are forming a short term trading range.

"Crude-oil markets still seem to be trapped within a trading range, as market anticipation about OPEC cuts -- both current and pending-- is keeping something of a floor below prices, while the upside is capped by lingering concerns over the macro situation" Edward Meir, an analyst at MF Global

“Oil traders are likely to wait for non-farm payroll data release tomorrow as a leading indicator of underlying oil demand” said Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd. in London

“The market is stuck in a sideways range as the impact of the OPEC production cuts conflicts with high stock levels and weak demand” said Christopher Bellew, senior broker with Bache Commodities Ltd. in London

Crude oil has been trading at about 40 a barrel in the past three days. Short term technical indicators keep indicating lower prices.

Oil Traders is a website for NYMEX Crude Oil Futures traders and Oil ETF`s traders around the world.

OPEC may Cut Further on March 15

OPEC may cut its production further at the next meeting being held on March 15.

Former OPEC President Chakib Khelil said that if present output cuts don’t result in higher oil prices OPEC must cut production again.

The OPEC countries need crude oil prices above 70 a barrel to invest and develop new oilfields, Khelil said today.

Trading Maxim

This is one of the best quotes I have ever read about trading:

"There is no such thing as being right or beating the market. If you make money, is because you understood the same thing the market did. If you lose money, it is simply because you got it wrong. There is no other way of looking at it"

I think this is an useful piece for every trader out there.

Is OPEC cutting Production?

OPEC production averaged 28565 mln barrels/day in January, down 3.5% from December (Bloomberg News).

“Compliance by OPEC is better than in the past” said Sinte Diek, an analyst at HSH Nordbank in Hamburg, Germany. Current oil prices “are really disturbing the budget deficits,” of many OPEC member countries.

Crude oil was gaining 2%, to 40.87 a barrel in after-hours NYMEX Futures Trading. Oil is down 9.1% year to date and down 55% from last year.

Speculators Increased Their Long Positions

Hedge-fund managers and other large speculators increased their net-long position in NYMEX OIL futures last week, according to U.S. Commodity Futures Trading Commission.

Speculative long positions outnumbered short positions by 51,652 contracts on the NYMEX, the Commitments of Traders report showed. Net-long positions rose by 5518 contracts, or 12%, from last week.

Today all risky assets are being sold again, and within this context we may hit new lows on the NYMEX Oil Futures in the next few days.

Martin King thinks Bottom is In

The “stability for now, upside later” argument for crude oil prices appears to be holding true for now. Oil prices have done little to set any directional bias so far in 2009. But one thing FirstEnergy Capital analyst Martin King says he is sure of that his call for the bottom in oil prices around mid-December remains correct.

Is this as good of a call as Art Hogan`s Dow Bottom?

Martin King`s Bio
Vice President, Institutional Research, First Energy Capital
Mr. King has a Bachelor's and Master's Degrees in Economics from the University of Calgary. His work experience includes a role as Economist at the Bank of Canada in Ottawa from 1990 to 1993; Economist with the National Energy Board in Calgary from 1993 to 1997; and for more than 10 years has been at FirstEnergy Capital Corp. in Calgary, where in his present role, he is responsible for the analysis, modeling and price forecasts of the crude oil and natural gas markets.

Is Oil Oversold?

In this charts (Oil, Natural Gas and Gold), the green zone represents prices between 2 standard deviations above and below the 50 day moving average. When prices approach or move above or below the trading range are considered overbought or oversold:

Font: Bespoke Investment Group

Oil and Natural Gas are almost in the Oversold area while Gold is approaching Overbought.

"There has been some big divergence between commodity prices in recent weeks. As shown, oil and natural gas remain at or near oversold levels, while metals and some agriculture commodities are closer to overbought levels.

Natural gas is the most oversold commodity by far, and it has been trickling lower along the bottom of its trading range for months now. Odds are that it will at least make a move to the top of its downtrend channel sometime soon. Oil has been trying to break out of its downtrend recently, as it made a "higher low" on its most recent downturn." in B.I.G.

United States Oil Fund: Contango Effects Explained

I found this very useful text about the United Staes Oil Fund (USO) and the full implications that a contango market has on its performance. THe original tesxt can be found in Seeking Alpha, and I posted only the most interesting parts:

"The US Oil Fund holds long positions in West Texas Intermediate crude oil futures contracts, and rolls these contracts forward each month. Like most futures traders, USO buys futures with leverage, putting up a small portion of the money to buy the contracts. The rest of the money is invested in Treasuries, which generates interest income for the fund.

Three factors play a role in determining the performance of USO:

1) changes in the spot price of crude oil
2) interest income on un-invested cash
3) the roll yield.

The first two factors are easily understood, but the third factor, 'roll yield' should be examined further in order to determine the extent, if any, to which traders of USO will be surprised by its performance in relation to spot crude oil.

First, some background: Oil futures are available for each month of the year, so you can buy a futures contract right now which gives you the right to buy oil in February 2009, March 2009, April 2009, and so on.

Currently, the price of oil in February 2009 is less than the price of oil in April 2009, a condition that is referred to as 'contango'. Most commodity funds, including the US Oil Fund buy what is called the 'near month' contract and, because they do not want to take physical delivery of the commodity, they sell the current month's contract before it expires and buy into next month's contract. This process is called 'rolling forward', and it can result in the ETF paying up if the forward month contract is higher than the current month (contango), or cashing out if the opposition condition exists (backwardation).

To investigate the issue, I read through the 'risk factors' section of the USO prospectus. The following is relevant:

In the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts, a situation described as ‘‘contango’’ in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. As a result, the total return of the Benchmark Oil Futures Contract would tend to track lower. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of USOF’s NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling oil prices, this could have a significant negative impact on USOF’s NAV and total return.

In essence, the USO prospectus is warning traders that USO may experience a negative 'roll yield' that may cause the NAV of USO to deviate significantly from the spot price of crude. Is there historical precedence for USO deviating from spot oil by a material amount? As it turns out, the answer is 'yes.'

During the past two years, including 2006, these markets have experienced contango. This has impacted the total return on an investment in USOF units during the past year, relative to a hypothetical direct investment in crude oil. For example an investment made in USOF units on April 10 and held to December 31, 2006 decreased, based upon the changes in the closing market prices for USOF units on those days, by 23.03%, while the spot price of crude oil for immediate delivery during the same period decreased 11.18%.

The conclusion, at this stage of analysis, is that USO is not a direct play on the spot price of crude oil - it is, instead, a play on the spot price, forward prices, and the relationship between spot and forward (the slop of the futures curve).

For a trader who is long USO, my instinct is that maintenance or aggravation of the contango in crude oil will cause impairment of the value of USO in relation to spot crude - whereas, any mitigation of the contango situation (including a shift to a flatter curve or backwardation) will enhance the performance of USO.

I plan to study this issue more extensively. But, in the mean time, I will not consider USO to be a good proxy for the spot price of crude oil - and I will be particularly leery of participating in USO for anything other than a short-term trade." in Seeking Alpha

When trading oil ETF`s, or crude oil futures on NYMEX you have to not look for low comissions to trade but also to add the implications that a contango or a backwardation market might have on your trading results.

Contango Narrows. Now What?

Inventories Out Today

The Energy Department report later today will probably show that crude oil inventories rose for a 16th time in 18 weeks, increasing 2.8 million barrels in the week ended January 23.

Contango Narrows

The price of oil for delivery next December is 29% higher than for the february month, narrowing from 35% on January 16. The contango in the oil market is narrowing and Jonathan Kornafel, a director for Asia at options trader Hudson Capital Energy in Singapore said “The tightening of the contango over the past week is the sign of the beginning of a bottoming in the market. That whole phase of floating storage and selling the contango has run its course.”

Shell Sells Stores Crude

The trading arm of Royal Dutch Shell has sold its first two cargoes of North Sea crude oil from floating storage, unwinding a trade that has involved up to 80 million barrels over the last two months.

In a move that is likely to be followed by other traders, Shell sold two cargoes each of 600,000 barrels of Forties FOT-E crude to oil trader Vitol on Monday and Tuesday in ship-to-ship transfers, the company said in a statement.

The cargoes were sold from a supertanker at Scapa Flow in Scotland's Orkney Islands and booked for transshipment between Feb. 6-14 and Feb. 14-16.

Shell was taking advantage of a sharp narrowing of the discount for prices for prompt crude below forward oil futures, called a contango, that has dominated the oil market since the middle of last year.

If other traders follow Shell`s move, and much of the oil enters on the market it could have a dramatic impact on prices:

"If the oil comes out of storage into a market that is seeing relatively weak oil demand and limited interest from refiners, it will pressure the prompt oil market, squeeze the spread between nearby and forward barrels and will help the contango widen again" a trader told Reuters

Gulf Oil CEO Bearish on Oil Prices

GULF OIL CEO VIDEO INTERVIEW

GULF OIL CEO Quotes,

"We will see much lower prices in oil"

"Oil nations will sell more on oil decline not less"

"25 dollar a barrel oil is in the cards"

When trading oil, always look to trade in the cheapest way possible. If you trade oil ETF`s like USO, DBO, OIL or DXO or if you trade NYMEX Oil Futures be aware of high comissions. High comissions completely destroy your winning capabilities as a trader.

Obama Plan for Oil Independence

US president, Barack Obama, has announced the first steps of a plan to make the USA energy independent. The plan includes the use of green energy and stricter fuel-efficiency targets for vehicles to reduce dependence on foreign oil.

The energy plan includes a 35 mile per gallon fleet-average fuel economy mandate which must be met by all manufacturers by 2020, with new tighter standards introduced from 2011.

“We must ensure that the fuel-efficient cars of tomorrow are built right here in the United States of America,” President Obama said. “Our goal is not to further burden an already struggling industry. It is to help America’s auto makers prepare for the future.”

A key part of the plan is the effective reversal of Bush administration policy which had previously rejected applications by California, and other states, to set and regulate tougher tailpipe emissions and efficiency targets independent of US national standards.

Now, President Obama has directed regulators to “move swiftly” on an application by California, and 13 other US states, for tougher environmental standards for vehicles sold in those states. For automakers, who had challenged the California standards and lobbied successfully against them with the previous Bush administration, the only option now is to re-tool for the production of vehicles that meet the higher standards; higher than the national standards.

It is expected that the US Transportation Department will draft interim nationwide regulations that will require car manufacturers to raise fuel-efficiency standards of the vehicles they produce to comply with a 2007 law that the Bush administration chose not to enact. These regulations are expected to now come into force and impact upon vehicles sold in 2011.

Later, new national standards will be drafted which will set an even higher bar on emissions and efficiency for manufacturers to hurdle. With development funds for new models and technologies in short supply, it will not be easy. You can expect to hear of many more model cancellations from the US giants and other manufacturers there.

The plan also includes steps to increase energy efficiency in government buildings, a doubling of the USA’s current green-energy production and the installation of over 4800 kilometers of transmission lines to carry the new energy. The initiative is also hoped to employ 460,000 Americans.

President Obama warned that there was no “quick fix” for reducing his country’s dependence on foreign oil. The government has instigated these measures to control the situation while creating employment in the hopes of strengthening the crumbling US economy.

This is Obama`s view on Oil.

Oil Fund Manager sees 60 Dollar Oil in 2010, 70 in 2011

In this week`s Cover, Barron's highlights several oil giants worth thinking about including XOM, TOT, BP and PBR:

1) ExxonMobil (XOM) is the priciest of this list but, cash-rich, is also the most likely to raise its dividend. It has low reserve-replacement costs and a sharp, conservative management team. Its shares have been the most stable of the big energy firms, losing just 6% over the past 12 months. Speculation has been growing as to whether Exxon will make an acquisition, possibly for BG Group (BRGYY.PK) or for all or part of Royal Dutch Shell (RDS.A).

2) Total's (TOT) outlook has improved thanks to the appeal of liquefied natural gas, especially outside the U.S. The company's nat-gas reserves are expected to be bolstered significantly by a recent agreement with Russia's Gazprom. 2008 production was hurt by unexpected shutdowns in Africa and the North Sea. However, European margins were up 88% in Q3, and with low-cost African production and rapid Middle East expansion, Total should do well if oil holds steady or rises. S&P has a 12-month target price of $92 vs. Friday's $47.42

3) BP (BP) earnings will likely take a short-run hit from low crude prices from in Russia, where a joint venture contributes around 25% of production. In the meantime, BP has been working on expanding its nat-gas operations. CFO Byron Grote says BP's $3.36-a-year dividend isn't at risk if oil stays in the 40s or higher.

4) Petrobras (PBR) is a smaller player and a more speculative buy than the other firms on this list. It has made some interesting energy discoveries, but not all can be exploited profitably at current petroleum prices. The Brazilian government, which owns around a third of Petrobras, has encouraged the company to return more profits as dividends, so its 3.7% yield could rise slightly this year. Deutsche Bank cut its target to $35 last month, but that's still a gain from Friday's $24.58.

The story is less positive for other big players, including Royal Dutch Shell, ConocoPhillips (COP) and Chevron (CVX). So while long-term industry prospects are positive, investors will have to be picky to find the winning companies.

Tim Guinness, of the Guinness Atkinson Global Energy Fund, calls all the integrated oil stocks a 'screaming buy' with over 50% upside. He assumes petroleum prices will average $60 in 2010 and $70 in 2011.

Eni CEO talks about the Oil Market

Eni SpA CEO said Sunday that the turbulence in oil prices is unprecedented and is "extremely bad news" for the industry.

Paolo Scaroni spoke at the Global Competitiveness Forum, "Our sector is no stranger to cycles", "But the turbulence we are currently experiencing — with oil doubling in the nine months to July 2008 and then losing two-thirds of its value in the following six months — is unprecedented."

"It is also extremely bad news for an industry like ours, where a five-year view counts as short term" he added.

He told The Associated Press after the conference that some complex projects in very deep waters and in difficult areas of the world "might be jeopardized at this level of oil price."

Scaroni said, however, that Eni and other companies are forecasting a long-term price of around 50, a level that he said is "certainly viable for conventional oil projects."

Will these low prices affect oil supply long term, and send prices way higher when demand recovers? I think so.

How are Oil ETF`s Performing

How are Oil ETF`s performing year to date? The performance is actually quite different, with the leveraged DXO performing better than its peers. DBO is up 1.75% for the year, while OIL ETF is down 7.7%. The most traded oil ETF, the USO tracking ETF is down 2.3% for the year. The difference is probably on how they have managed this supercontango in the crude oil futures.

USO ETF: -2.3%

United States Oil Fund, LP (USOF) is a domestic exchange traded security designed to track the movements of light, sweet crude oil (West Texas Intermediate). USO issues units that may be purchased and sold on the New York Stock Exchange (NYSE) Arca. The Company invests in futures contracts for light, sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (NYMEX), International Currency Exchange (ICE) Futures or other United States and foreign exchanges (collectively, Oil Futures Contracts). It holds interests in other oil-related investments such as cash-settled options on Oil Futures Contracts, forward oil contracts, and oil-based over-the-counter transactions. The Company is managed and controlled by its general partner, United States Commodity Funds LLC.

DBO ETF: +1.75%

PowerShares DB Oil Fund (the Fund) is based on the Deutsche Bank Liquid Commodity Index - Optimum Yield Oil Excess Return (the Index) and is managed by DB Commodity Services LLC (the Managing Owner). The Index is a rules-based index consisting of futures contracts on light sweet crude oil and is intended to reflect the performance of crude oil. The Fund is a separate series of PowerShares DB Multi-Sector Commodity Trust. The Fund’s investment advisor is Invesco PowerShares Capital Management LLC.

OIL ETF: -7.7%

iPath S&P GSCI Crude Oil Total Return Index ETN is a sub-index of the S&P GSCI Commodity Index. The S&P GSCI Crude Oil Total Return Index reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts. The S&P GSCI is an index on a production-weighted basket of futures contracts on physical commodities traded on trading facilities in major industrialized countries. The S&P GSCI is designed to be a measure of the performance over time of the markets for these commodities.

DXO ETF: +9%

The investment seeks to track the price and yield performance, before fees and expenses, 200% of the daily return of the Deutsche Bank Liquid Commodity index - Optimum Yield Oil Excess Return. The fund allows investors to take a leveraged view on the performance of crude oil. The index is a rules-based index composed of futures contracts on light sweet crude oil (WTI) and is intended to reflect the performance of crude oil.

DBO seems to be managing this extreme contango better than its peers. The leveraged DXO is also performing very well.

Schlumberger CEO Talks About Oil

Schlumberger CEO commented about the weakening state of the global oil and natural gas industry, reporting a lower fourth-quarter profit, additional layoffs and a glum forecast for the rest of 2009.

“The biggest difference I see from both the mid-'80s as well as ’97, ’98, is the speed with which everybody is reacting,” Schlumberger CEO commented during a conference call.

“These cycles are getting much sharper in their amplitude and shorter in their duration, but of course that depends on the general economy.”

Oil has rebounded late Friday and the most recent price action suggest that a bottom in oil prices might be formed. When trading oil futures, oil stocks or ETF`s like USO, DBO, DXO or OIL look for the lowest comissions. Low round trip comissions are key to profitable trading.

Upward Pressure on Oil Prices

"Oil prices settled higher Friday as a late session rally, sparked by rebounding equities, capped a volatile trading day. Oil ended the session up 2.80 to settle at $46.47 a barrel. Earlier in the session crude had traded as low as 41.40 a barrel."
in CNN Money

All commodities traded higher today, despite the dollar strength. Th line of least resistance (as Jesse Livermore used to say) in the oil futures markets is changing from downward to upward pressure on prices. If the dollar weakens we can rebound sharply, otherwise will be choppy. The latter is the most probable outcome.

I wonder how many trillions of dollars would Jesse Livermore do in these markets...

Trading oil futures is a very risky business. Be sure to risk only capital you can afford to lose. And off course, look for the lowest comissions.

US Fuel Comsuption Down 4.7% YoY

U.S. fuel consumption during the four weeks ended Jan. 16 averaged 19.4 million barrels a day, down 4.7 percent from a year earlier, the Energy Department report showed.

Actually this is not a huge drop. As I said in the last few days I think a new uptrend in oil is in place and Russian stocks which are down sharply in the last few months will greatly benefit if oil keeps rising. Might be a very good way to play the rise in oil, besides being LONG OIL, off course.

When trading oil futures or ETF`s like USO look for the lowest comissions. Low round trip comissions are key to profitable trading.

Inventories Out Today

Oil futures were declining early Thursday, ahead of the inventories, weighed down by expectations of a build in crude supplies and gloomy economic data from China and the United States.

Crude oil for March delivery dropped $1.70, or 3.8%, to $41.88 a barrel in electronic trading on Globex. "On the demand side, the markets received more evidence of the extent of the global economic weakness," said Nimit Khamar, an analyst at Sucden Financial Research.

Our opinion is that oil has reversed trend and is a BUY at these levels. Every important oil news and analysis is available here on the most comprehensive oil dedicated site. Follow crude oil futures live prices on this website.

Oil Reverses Trend

Crude oil prices recovered Tuesday, after falling to their lowest level in more than a month, amid volatility on the last day of trading for the current active contract.

U.S. crude for February delivery ended the day in the black, rising $2.23, or 6.1%, to $38.74 a barrel in New York.

Prices recovered after plummeting by as much as 10% to $32.70 earlier, the lowest level for crude since Dec. 19, as the dollar soared against the pound and euro on continued European economic turbulence.

Tuesday is the final day of trading for the February contract. Oil for March delivery, which begins its front-month run Wednesday, settled down $1.73, or 4.1%, to $40.84 a barrel. The price of the February contract rose as the difference between the two contracts equalized.

Contango has diminished violently and the rise in oil prices has began. I bet on a long term trend change here.

When trading oil futures or ETF`s like USO look for the lowest comissions. Low round trip comissions are key to profitable trading.

Oil: Where to?

What`s moving Oil today?

* Oil down around 1 percent in thin trading on U.S. holiday
* Falling oil demand increasingly expected
* Gaza ceasefire and end of Russian gas row add to downside

I am expecting as huge rebound in the next few weeks, probably starting tomorrow. Improving equity markets, ultra low interest rates and 5 year lows on the commodity added to the Obama effect should move risky assets up, including OIL.

When trading oil futures or ETF`s like USO, OIl or DXO look for the lowest comissions. Low round trip comissions are key to profitable trading. That is one of the secrets of sucessful online trading.

Oil Keeps Falling, Retesting the Lows

Crude traded little changed, set for the biggest weekly decline in a month, after the International Energy Agency said demand will fall for a second year, the first back-to-back contraction since 1983.

The adviser to 28 nations cut its 2009 forecast by 1 million barrels a day on expectations the International Monetary Fund will lower its economic growth outlook. The IEA estimates global consumption will shrink 0.6 percent to 85.3 million barrels a day.

“Global oil demand is still reducing at an alarming rate,” said Rob Laughlin, senior broker at MF Global Ltd. in London. “This latest report from the IEA is another warning shot across the bows of OPEC that supply is still outpacing demand and the situation is getting worse.”

Contango is still sky high making the holders of Oil ETF`S like USO, DBO, DXO or OIL pay an extraordinary carry charge. When will this contango diminish and how is the million dollar question. Will prices along the curve move closer to the spot price or will the spot price go higher to meet ahead of the curve prices? I am not sure, but I think spot prices will move higher.

When trading oil futures or ETF`s like USO look for the lowest comissions. Low round trip comissions are key to profitable trading.

EIA Lowers Oil Demand Projections

The EIA lowered today its 2009 world oil demand forecast due to the global economic weakness, but predicted a slight recovery in consumption for 2010.

World oil demand will drop by 810000 barrels per day in 2009 compared with last year, down 200,000 barrels per day from its estimate last month.

"World oil consumption continues to be revised downward in response to the global economic downturn," the EIA said in its monthly short-term energy outlook.

The short term outlook for oil prices is bearish. A retest of the lows is imminent. But when will this contango be sorted out? Its impossible to buy and hold oil like this, but its a shorting paradise for the bears that get paid even if oil doesn`t drop in price. Quite amazing, not?

Trading oil futures is a very risky business. Be sure to risk only capital you can afford to lose. And off course, look for the lowest comissions.

Pickens Predicts 140 Dollar Oil when Global Economy Recovers

Billionaire oil tycoon Boone Pickens, chairman of BP Capital, predicts oil will reach $75 a barrel within a year and go back up to $140 a barrel when the global economy turns around.

Pickens told CNBC importing 70 percent of our oil poses a significant threat to the U.S. economy, and he expects energy independence has a better chance under the Obama administration.

Pickens is taking his renewable energy plan—the "Pickens Plan"—back to Capitol Hill today. He forecasts his plan will create 138,000 jobs within a year and 5 million jobs within 10 years.

Trading oil futures is a very risky business. Be sure to risk only capital you can afford to lose. And off course, look for the lowest comissions.

Saudis May cut Production Below OPEC Target

Top exporter Saudi Arabia plans to cut oil output by up to 300,000 barrels per day below its agreed OPEC target – a pro-active step to prop up a collapsing market, industry sources said on Sunday.

OPEC's most influential member has lowered supply this month to 8 million bpd, meeting its target under OPEC's pact to reduce overall production by a record amount from Jan. 1.

But strict Saudi discipline has failed to boost oil prices – which at close to $40 are far from the $75 a barrel named by Saudi King Abdullah as a fair price. So Riyadh is prepared, from February, to go beyond what is required by OPEC, the sources said.

“We've been told Saudi Arabia will cut to about 7.7 million in February,” said a senior oil executive. “They want to prevent a huge stock build up and a further decline in the oil price.”
The kingdom had increased production unilaterally to about 9.7 million bpd in August last year to calm an oil market that had shot to a record of nearly $150 in July.

But by February, it will have reduced its supply to world markets by a fifth as recession steadily erodes demand for fuel. Refiners in Asia were expecting to receive the lowest Saudi crude shipments in five years and buyers in Europe and the United States also were set for substantial cuts.

Is this news bullish for oil? I don`t think so. Sentiment is so bad, present demand is so weak that prices may drift lower to a selling climax. Then we will have an Oil Bottom.

Pickens sees 100 Dollar Oil in 2010

T. Boone Pickens said this week that oil prices will rise above 100 a barrel by the end of 2010 as the global economy recovers.

"Oil prices in the 40 a barrel range are not going to be around much longer,” Pickens told a gathering at the James A. Baker III Institute for Public Policy at Rice University in Houston.

By late 2010, Pickens sees a rebound in oil demand sparked by a global recovery, pushing prices higher. If the U.S. continues to rely on imported oil for 70 percent or more of its supply, prices could reach $200-$300 per barrel in another decade, Pickens said.

As an investor, Pickens said he remains “on the sidelines,” with just 10 percent of his BP Capital hedge fund invested in energy. The fund lost $2 billion last year before shifting to cash as energy prices and stocks declined.

Can Boone get his "touch" back this year?

Oil Below 40

Crude oil fell below 40 a barrel in New York after a report showing that the U.S. unemployment rate surged to 7.2% in December raising concerns about oil demand going forward.

Oil dropped as much as 5% after the government said the country lost 2.589 million jobs last year, the most since 1945.

Besides that, U.S. oil supplies have climbed in 13 of the past 15 weeks as the economy slowed, according to the Energy Department. Prices in New York touched 32.40 in December, the low of this downturn.

“We are going to test the December lows because the numbers we see are horrible,” said Kyle Cooper, an analyst at IAF Advisors, an energy-consultant in Houston.

It seems more and more probable that we are going to retest the lows on Oil.

Bull and Bear Markets in Oil


Graph with the duration of all bull and bear markets in the crude oil futures since 2000. Great material from Bespoke. And with this fall in prices seen in the last few days we are just short of entering a new bear market.

This is investment at the velocity of light. What took 3 months to develop, now happens in 3 days. Pretty amazing.

The line of least resistance for oil is now down again.

Bearish Crude Report sends Oil Down

Oil slid more than 9% today after a US government report showed inventories of crude rose more than expected. Crude oil stocks rose by 6.7 million barrels, more than the 900000 barrel increase analysts were expecting. Gasoline and distillate stocks also rose.

"This is a very bearish report. Crude stocks are up due to higher imports," said Tom Knight, a trader at Truman Arnold in Texas. "The build in products is also bearish."

Now the question is: are we going to retest the lows on the oil futures? Maybe. And if we do I am going to buy big. Oil will be much higher 6 or 12 months from now.

Veteran Oil Trader Says BUY

Declines like these are opportunities to add to oil positions, says Eric Bolling, a former NYMEX commodity trader and host on Fox Business News.

While oil's midsummer rally overshot reality, its subsequent decline was similarly overdone, says the veteran oil trader Bolling, who believes oil should be in the 70 to 85 range.

The veteran trader and television commentator is currently long oil via the United States Oil ETF, which he says is the best ETF at handling the "roll" (contango) that occurs when crude futures contracts expire each month.

Bolling said he will add to the USO position if and when spot crude falls below 45 per barrel - which it approached earlier today - and is a long-term bull on the commodity because of geopolitical risks and the U.S. government's efforts to "reflate" the economy.

In the Oil Traders Blog you can find the best analysis and market commentary from the best oil traders in the world. Where is oil going to end 2009? Vote in the Retail Investor Poll.

Crude Inventories Out Later Today

Crude oil is falling for a second day before a report forecast to show that crude inventories probably increased in the U.S. as its economy contracted.

U.S. crude oil stockpiles probably rose for a second week in the week ended January 2, according to a Bloomberg News survey before an Energy Department report today.

Oil is falling after a decent rally in the last few sessions.

China Might Add to the Strategic Oil Reserve

In a rare public statement last week from China's top energy official, Zhang Guobao, head of the National Energy Administration, in the People's Daily newspaper that China should take advantage of the falling global energy demand to increase the strategic oil reserve.

This news have been circulating for a while now and might be a major bullish factor going forward. Because of the Middle East chaos and the OPEC's plan to cut production, international oil prices have been rising lately. On Jan. 2, oil closed up 3.9% to $46.34 a barrel on the New York Mercantile Exchange. An energy expert has suggested that at this price China should speed up its oil reserves, said xinhuanet.com today.

Guan Qingyou, an energy expert from Tsinghua University in Beijing, said that $46 is a relatively low price and offers a good opportunity to accelerate filling up China's oil reserves. He explained that the global economy will not warm up soon and the global oil, whose demand is decided by the world economy, will not see its prices rise up in the short term.

Forward Curve Showing Higher Prices?

"The steepest plunge in crude prices on record may be setting up oil investors for a rally this year, if history is any guide. The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 28 percent to $60.10 a barrel by December. The curve looks almost the same as 10 years ago, after Russia’s default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand. Crude prices fell 25 percent in the final quarter of 1998, the steepest drop in seven years. Bets on a recovery paid off then as the Organization of Petroleum Exporting Countries cut production 6.9 percent, causing prices to more than double in 1999." in Bloomberg

The problem with this step forward curve in crude oil futures prices is that you have to pay contango to hold your speculative oil position. Crude for February delivery traded at 46.89 a barrel compared with 60.10 for the December 2009 contract. A similar thing occurred at the end of December 1998, oil for February 1999 was at 12.05 (that was a bargain!), compared with 13.78 for December of that year, a difference of 14 percent.

The magic thing about contango is that if you are bearish on oil prices you can short oil and get paid big time even if crude oil doesn`t not drop in price.

Biggest Weekly Gain Since 1986

Crude oil futures rose the most since 1986 this week, as the conflict in Gaza increased concern that Middle East supplies would be cut and Russia curbed natural- gas shipments to Ukraine.

Retail Investor Oil Consensus

Retail investors Consensus Oil Price for 2009 is 60 to 70 dollars a barrel and 57% of retail investors predict oil to end 2009 between 50 and 80 dollars a barrel.

In the more extreme scenarios, 13% predict oil to end 09 between 10 and 20 dollars a barrel and 16% predict that oil will end 2009 above 90 dollars a barrel.

Adding all up, retail investors are just slightly more bullish than institutional investors but the difference is very small.

The poll includes a sample of 350 individuals.

What is the Consensus for 2009?

The consensus oil price for the end of 2009 are the following:

Indeed, much of Wall Street expects oil prices to average about $50 a barrel in 2009. Some of the firms and their specific forecasts include:

Deutsche Bank predicts an average price of 47.50 for all of 2009; The chief energy economist of Deutsche Bank, Adam Sieminski, said recently that the demand for oil in 2009 will drop more than any other time in the last quarter of a century, due to the weak economy. Sieminski forecasts oil traded in New York falling as low as $30 and averaging $47.50 for the whole year.

Merrill Lynch has a very similar prediction, saying that prices will average 50 dollars; (if they could predict anything they would of remained independent...)

Moody’s Investors Service also says crude will average 50 a barrel in 2009

Goldman Sachs is predicting that prices will average $45 for all of next year – but predicta a drop to 30 dolars a barrel in the first quarter; (but Goldman just five months ago predicted oil prices would hit $200 a barrel in 2009).

Marc Faber doesn`t make any specific price prediction, but is buying oil at these prices;

Jim Rogers says that oil will reach 200 dollars a barrel maybe in 2013;

The Energy Information Administration projects crude oil will trade at an average of $51 a barrel in 2009

Barclays Capital has given its forecast of 76 a barrel for average U.S. crude in 2009, saying improving demand and a supply slide will combine to lift oil prices.

The forecast, at more than $17 above a consensus $58.48 in the most recent Reuters poll, was among the highest in the survey of 30 analysts.

Morgan Stanley predicts 82 for 2009. Morgan Stanley is the most bullish investment house on the street.

Bloomberg Consensus: Oil futures may rebound from their worst year to average $60 a barrel next year. The forecast, the median of 33 analysts compiled by Bloomberg, represents a 54 percent gain from today’s $39.03 price.

But please note that they were all wrong in the past. The Oil Traders Blog price for the end of 2009 is 60 dollars a barrel. Most of the move will be a direct consequence of the money printing scheme the FED put on and the dollar fall. Demand will remain weak, which can depress prices in Q1 and Q2.

Oil Loses 4 Years of Gains in 5 Months

Oil prices have fallen 70% since hitting a record 147.27 a barrel in July, which means in just five months, crude has given up all the price gains it made in the past four years.

That is a true roller coaster ride.

China: Is Adding to the Strategic Oil Reserve

China plans to use the fall in global energy demand to boost its fledgling oil reserves against future supply shocks, as it speeds up development of nuclear and wind power and cuts reliance on coal, a top energy official said.

China was the trigger of the last commodity rally and might very well ignite a decent upsurge on this news. Don`t forget that China will be the world`s biggest economy in 15 or 20 years.

Zhang Guobao, head of the National Energy Administration, said:

The severity of the economic downturn has brought a marked decline in demand for oil and unprecedented pressure on prices. The amount of crude oil on the international market still far exceeds global demand.

China will push ahead with building the second phase of its strategic oil reserves, having largely completed the first, Zhang said.

That could increase import demand and help global crude oil prices to get into forward gear, having been stuck in reverse since hitting a record high in July.

Oil Rebounds 6.7%

Crude-oil futures rose Friday for the first time in four days as traders bought the contracts on the heels of their 9.3% slump in the previous session.

Crude for February delivery ended up more than two dollars or 6.7%, at $37.71 a barrel on the NYMEx. Even though oil ended the week down 11%.

Futures are down more than 60% so far this year, poised for their worst year on record since crude started futures trading on the New York Mercantile Exchange in 1983.

This was the performance of several financial assets last week:

Oil At a 4 Year Low

Today Oil is rebounding from extreme oversold levels Wednesday the crazy ride continued to test new extremes on a shortened trading day as the price fell more than 9% to 35.35 a barrel. This was the its lowest close in more than 4 years. So far, the price of oil has plunged nearly 76% after reaching a record high of just over 147 in July. That`s quite a drop, for a 5 month period, isn`t it?

What might the catalyst be for a turnaround? A weak dollar and some improvement on the economic front. Our survey for the price of oil in the end of 2009 is under way and pointing to 60 to 70 dollars a barrel.

Oil has lost 33% so far in December, poised for its worst month on record since crude started futures trading on the New York Mercantile Exchange.

Word on The Trading Desks

“The United Arab Emirates’ cut is the reason we’re strong this morning,” Rob Laughlin, senior broker at MF Global Ltd

“Saudi Arabia and the U.A.E. seem to be fully compliant” Oliver Jakob, managing director of Petromatrix GmbH in Zug, Switzerland

Jim Rogers on Oil: It will Comeback

Jim Rogers, the famous Indiana Jones investor said today that Oil Reserves are dropping 7% a year. These drop in reserves will cause serious supply problems in the near future. Jim Rogers concludes "Oil will make a big comeback".

Today Oil Futures are down again in the pre-open session. We are in a true selling climax. Will this be a once in a liftime buying opportunity?

Inventories Released Tomorrow

Inventories probably rose 900,000 barrels last week, according to the median of analyst responses in a Bloomberg News survey. The department is scheduled to release its next report at 10:35 a.m. tomorrow in Washington.

Word on the Trading Desks

``The drop in consumer spending is not just being felt in the U.S., it's being felt everywhere. And that's a big part of why crude oil is trading at $40.''

``The problems that Toyota is having underlines the problems we're seeing in the world today,'' said Jonathan Kornafel, director for Asia at Hudson Capital Energy in Singapore

"The bears appear to be in control, aided by weak equity markets as the global economic slump offers a depressive ring to the festive period," said Rob Laughlin, senior oil analyst at MF Global in London

Japanese Oil Imports are Down

Japanese crude oil imports fell 17% to 3.71 million barrels a day last monthand South Korea's oil demand dropped 12% in November from a year earlier, Korea National Oil Corp. said.

Japan is the world's third biggest oil importer according to the U.S. Energy Department. South Korea is the fifth-biggest importer.

Oil Falls Again: Are We Bottoming?

Oil prices fell again today as investors continued last week's practice. Crude oil futures fell 2.45 to settle at $39.91 a barrel.

Word on the Pits:

"This is a market that still needs to see proof of demand," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

"Given crude oil's weakness since OPEC's announcement, it is safe to assume the market is a bit skeptical regarding the group's ability to comply," Schork wrote in his daily publication, The Schork Report

"Large stockpiles of crude throughout the (Organization for Economic Cooperation and Development), falling demand in China and negative refining margins make it difficult to see how such supply-driven initiatives can have a near-term positive effect on crude prices," said Addison Armstrong, director of market research at Tradition Energy.

All the "professionals" are bearish on Oil. Its time to buy. At the very least it will rebound because is very, very, very Oversold.

Contango Scares USO and DBO Investors

Contango is the deepening discount of near month oil futures contracts against later months. This little monster is scaring investors off simple passive funds such as USO, DBO and OIL that helped drive the big oil rally in the last 6 years.

Passive index plays like USO and OIL found big profits during much of oil's rally to over 147 a barrel in July by selling front month futures contracts and buying cheaper ahead the curve contracts, something possible only in a market structure called backwardation.

Oil prices have collapsed to 35 dollars a barrel pushing front month futures contracts into a discount to later months. This is a market showing contango, which forces investors to pay out rather than profit when shifting cash from one month to the next. Now its extremely expensive to buy and hold oil. The rollovers will just kill you. The only explanation I have for this deep discount in fron month is the Government selling oil to stimulate the economy. But that would be too much, wouldn`t it?

Oil is Cheap vs. Gold

Nice article about Oil being cheap when compared to Gold.

20 year chart of gold to oil ratio:


"The lower and upper horizontal bands in the chart above show an oz of gold has exchanged between 22 and 10 barrels of oil since 1989. The ratio dipped to as low as 7 and right now it trades at 20. One shouldn't buck against the trend and I expect the ratio to exceed 20 to reach perhaps 30 or more.

You can play with two of the three variables (oil, gold, and ratio) and come up with the third. For example, at ratio of 30 and oil price of $50/barrel, the formula produces a gold price of $1,500/oz. I honestly have no idea what future lies, except

- Oil is oversold and cheap
- Gold is not expensive by historic means
- The gold-to-oil ratio will keep rising until it comes down.
- Fundamentally gold is attractive as investment of last resort. It's no good to leave money at the banks earning zero interest, or buy real estate that is faltering, or invest in equity market during recession.

While gold's blow-off phase is yet to come, I like to offer a word of caution. Given how quickly things can change, it might soon be a good idea to hedge gold positions by going long oil." in Seeking Alpha

Oil Crash Graph


This is the most impressive downtrend I have ever seen. Oil is being decimated every week. Can Oil keep imploding? I doubt it. There will be a major upswing in the near term. Look for 50 dollar oil in a few weeks.

I have seen some scary projections, some predicting a 10 dollar oil. That is a complete nonsense. They sound like those calls to 300 dollar oil in the summer. Its the same thing on the opposite side. Its time to BUY OIL.

As JIm Rogers says Buy Panic and Sell Hysteria. This is clearly a panic mode crude oil market. It always pays to go against panic.

Is the Government Trading Oil?

January contract keeps falling but the oil is up longer the curve. I read something really interesting today about the Government selling front month crude oil and buying down the curve for late 2009 delivery.

Arguably the Government is trying to stimulate the economy trying to drive down oil prices. With the Quantitative Easing policies still fresh in my mind anything is possible these days. One of these days the Fed ranks first as the trader in the bond, stocks, forex and oil pits. Maybe they should of bought Lehman Brothers just to clear their trades and do their back-office.

We are living in crazy times and I really believe in this intervencionism theory in Oil. The Contango is huge. The February is trading 8 dollars higher then front month. That`s over 20%. I have never seen such a mismatch. Is Paulson selling Oil?

Oil Crashes

Who could imagine just a few months ago that oil futures could trade at 36 dollars a barrel? Pretty amazing. In the financial markets the old and bold traders tell you all the time to expect the inexpectable. Planning for extreme scenarios is absolutely necessary for survival in the markets these days.

We are witnessing an OIL CRASH.

As Jim Rogers says "Buy Panic and Sell Hysteria". Its probably a good time to add a few barrels to your portfolio and forget about them. You will surely be in the money for the long run. For the short term traders, the bear side is still the right way to play this market but be careful because a huge reversal might be just around the corner.

Futures show Contango

A market condition called contango, in which oil futures contracts going forward are higher than ones for the immediate future, has traders scrambling for crude storage as they attempt to lock in future profits.

Phil Flynn, vice president at Chicago-based trading firm Alaron, said the oil contango has created a frenzy for storage space.

“You pay as much as $2 a barrel to store it but you can lock in the profit instantly today and make out like a bandit,” he said.

The scramble for oil storage, combined with reduced demand in the recession, has lifted U.S. inventory numbers to 321 million stockpiled barrels, an 8 percent increase over this time last year, according to the latest report from the Energy Information Administration.

Oil ETF like USO, OIL and DBO are much more expensive to carry with the oil market showing this kind of Contango.

Oil Falls Below 40

Crude Oil Futures dipped below 40 dollars a barrel for the first time in more than four years. Today the API said supplies climbed for the 11th time in 12 weeks.

OPEC Cut, But Oil Falls

“They are facing the distinct possibility of oil falling to 30 dollars a barrel and even lower,” said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut.

“The OPEC announcement looks big on first glance but really isn’t. They are playing with smoke and mirrors.” Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc.

UBS Expects 70 dollars a barrel by the end of 2009

In a research note entitled "Ten Surprises for 2009" UBS analysts say they expected a combination of supply discipline from oil cartel the OPEC and the beginning of a moderate global economic recovery in the second half of 2009 to stabilize oil prices near current levels and then lift them toward US$70 by year's end.

OPEC makes Bigger than Expected Cut

OPEC agreed to cut oil output by 4.2 million barrels a day from September production levels, Secretary-General Abdalla El-Badri said. The Organization of Petroleum Exporting Countries will cut output from a daily level of 29.045 million barrels three months ago, indicating a new quota target of 24.845 barrels a day. The reduction will take place from the start of next year.

Even with this bigger than expected cut, crude oil futures are trading down 4.2%. Sentiment is still very dark in the oil market and demand is falling rapidly.

Oil goes down on good news. Look for lower prices.