Oily Readings: $200/barrel, It’s a bubble, Shorts squeezed
An analyst at Goldman Sachs, Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now.
. . . oil analysts like Mr. Murti have suddenly taken on the aura that enveloped technology analysts in the 1990s.
Mr. Murti’s forecasts now feed into many of Goldman’s economic and corporate forecasts, affecting research of companies like Ford and Procter & Gamble. His research is distributed widely among investors.
15 minutes of fame?
- Times Online: They’re wrong about oil, by George
The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s, technology stocks in the 1990s and, most recently, housing and mortgages in the US.
China’s “insatiable” demand growth has decelerated. In 2004 it was consuming an extra 0.9 million barrels a day; in 2007 it was consuming just an extra 0.3 mbd. In the same period global demand growth has slowed from 3.6 mbd to 0.7 mbd. As a result, the increase in global demand growth is now well below last year’s increase of 0.8 mbd in non-Opec production.
. . . there are few buyers for physical oil cargoes at today’s prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for “financial derivatives” that allowed investors to bet on the future value of these bonds.
Oil’s rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline.
The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.
The rush to buy back contracts may be linked to the record number of short positions that had been built up in recent weeks by small-sized speculators, which the CFTC refers to as “non- reportable” traders because their holdings are small.
No correction in oil prices until the shorts give up.
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May 23rd, 2008 at 4:21 pm
Oil will reach $200 for one and only one reason - OPEC.
May 23rd, 2008 at 9:55 pm
I think the secular bull market in commodities has many years to run.Commodity prices have been depressed for close to 20 years and started moving up only in 2003.I think it is too early for a commodity bull market to end which usually runs for 10-15 years.It is only 2008 now so while there might be short term corrections the long term trend is up.Global oil production whether it is in the north sea or mexico or the middle east is coming down.China and India will slow sure but are there more cars on the roads than ever before.Dont we live a more energy intensive lifestyle now?I think we do and since Asian governments will “protect” the consumer with subsidies there will be no major move towards energy conservation.Hybrid cars in India-I dont see any incentive from the government.The middle east is using a lot of oil because they are being subsidized,commodity rich coutries in south america like brazil,chile,russia,african countries like botswana,south africa will get richer going forward.So while us and eu energy consumption will go down going forward there are multiple areas where new consumers are being added at a time when supply is being depleated.The petrobras deposits in brazil are very expensive to get to and oil sand extraction requires a lot of natural gas -my point is peak oil is here.Yes people have been crying wolf for sometime but it has finally arrived.How long before this is universally recognized-years.When that happens cnbc tv 18 will have mitali waxing eloquent about gold or oil etc.Then we know it is time to buy stocks.Disclosure-I am long gold.