Hey sir, a good written article you found there! I have to laugh,
because in paragraph 2, it says the pundits have finally concluded that
$147 oil was caused by speculators!
I repeatedly was saying the same
back in early summer last year before oil even reached the $147
mark….I got quite a few arguments from some traders then about being
Well, I guess the last laugh was on me! Hey, none of
us is ever right all the time, but it is fun to go back and find the
old posts that hit the bulls-eye! Especially when most people were
betting the other way! ACE
Here’s one such blog I put up back on June 22, 2008:
Jun 22 2008 2:40PM
Title: OIL BUBBLE–When will it pop?
Yes, sir–great find! Pam Martens, the author, deserves the credit for
exposing Phibro, Citi and its many clandestine subsidiaries–and yes,
one can see the damage wrought on our financial system the cost of
everyday staples such as food and energy since the repeal of the
Glass-Steagall Act of the 1930s.
This is an all-around great
written piece, and it supports my view that the oil market is being
manipulated big-time by oil speculators.
ALSO, did anyone happen to notice the cover story on this week’s Barron’s? “OIL BUBBLE–When will it pop and why?”
crux of the well-researched opinion piece is that at $130+, the price
of oil is creating demand destruction around the world and they
forecast that oil will fall back to $100/bbl by the end of this year (I
have predicted as low as $75-$80, altough I have said previously that
would be the hard bounce final capitulation price–then oil would find
a trading channel somewhere between $95 and $110–so Barron’s generally
sees it the way I do.)
The article also observes that many big
pension plans have piled into oil, which prior to indexing products
(USO being among them), was a small, thinly traded commodity market.
The amount of money invested in oil is about 20x greater than what it
was only a few scant years ago.
In the Barron’s piece, they show
a chart comparing the 8 year runup in oil to the 8-year run up in the
Nasdaq of the 1990s–the comparison is quite similar–actually, oil’s
recent peak price is higher than that of the Naz at its peak in early
2000!!! We all know that the Naz lost about 70% of its value from its
peak in March 2000–the chart seems to imply that we could see oil fall
as much? That would be astounding and probably not likely given the
demand/supply situation…but down to $75 to $100 seems plausible to me.
other interesting observation is that some of the E&P companies
such as XTO, DVN and CHK may have induced the price of oil to spike
recently to its lofty levels because of short-covering by these firms.
NFX recently revealed that it had to cover its shorts heavily because
it had had been hedging oil and gas at much lower prices on the
assumption that oil and gas would sell off–it is speculated that XTO,
DVN and CHK have been doing the same and we shall find out soon when
they report–but anyway, the upward thrust of oil and gas forced these
E&P companies to buy in at the spot price to cover these hedges and
thus forced oil and gas up ever higher. In effect, oil and gas have
risen on the effects of a powerful short squeeze caused by the
I remarked to a friiend on a financial website that I was avoiding gas stocks this
summer because they ALWAYS sell off in the summer months–and this friend knows
I like to play the gas stocks…but I have been proven wrong this
summer, as gas stocks have defied past actions…now, when I read about
the heavy short squeeze by the likes of XTO and CHK, I begin to
understand the reason behind the change this year.
believes we will eventually see $200 oil (I have said the same), but
now is not yet the time–first, there must be digestion of the huge
runup that has occurred–before there can be support for a higher climb
The article closes by stating it is impossible to know
when the bubble will burst (just as Ace has said–my call was based on
valuations, not on timing–which my foes clearly do not
comprehend the difference)–but the elements are in place for a strong
reversal…the question is when.
Anyway, I highly recommend
everyone pick up Barron’s and read this for themselves, if they still
believe that oil is going to $200 without barely a blink.