Friday, April 9, 2010

What the...?

Any rational person watching the markets and the data has got to be scratching their heads.... its a "WTF" moment if ever there was one.

Gold, Silver & Platinum are back to "End of the World" prices... Oil is knocking on that door... consumers continue to shed debt and refuse new credit... a number of countries could easily default on their debts... and stocks are partying like its 1999 at a time when bonds are "Sh*ting the Bed" (technical Wall Street speak for dying). Go f#@*&ing figure!

The battle between deflation and the central banks is on, and it certainly looks like the central banks won round 1. Still, its a long, long fight.


The world Oil market does not seem to care about the U.S. any more. Clearly, the U.S. is no longer the marginal consumer - and that means we no longer set the price of crude in the market place. As I pointed out in my recent post, at today's price the U.S. "Oil only" trade deficit is about $302 Billion at today's price. This is one reason why I am NOT that bullish on Oil, not that we couldn't see surges in price, but a sustained price of $160 per barrel would DOUBLE the U.S. Oil only trade deficit to over $600 Billion... and that just ain't gonna happen (barring some geopolitical event, that is) at a time when the Fed is quitting its MBS purchase program, and the balance of the stimulus programs have run their course. All those houses that were bought because of the $8000 credit? They came out of next year's purchase. Same with cash for clunkers. Those air pockets have yet to be hit.

I don't think Oil sustains triple digit yearly averages until imports have declined quite a bit from here.


On a completely silly note....

Why is it that lover's betray each other other the way they do in the media? If some famous media starlet threw me a bone and later the entire media circus showed up at my farm... She could count on me to do 3 gentlemanly things: Deny, deny, deny.

WTF is up with these people? Do they have a shred of loyalty? Have they no decency? Anybody that would throw their lover under the proverbial bus is a POS.

Sometimes I despair for my fellow (wo)man.


bureaucrat said...

Oil is in another speculative bubble .. again .. has nothing to do with supply and demand .. again ... we are swimming in energy ..

From Myra Saefong ...

"TOKYO (MarketWatch) -- The price of crude-oil futures has jumped more than 70% in the past year and that's left quite a few traders scratching their heads.

After all, at more than 356 million barrels, U.S. commercial crude-oil inventories are "above the upper limit of the average range for this time of year," according to a report from the Energy Department.

Oil prices may not have enough fuel to reach $90 a barrel, given ample stock levels and tepid demand. Prices are correcting lower after surging to 18-month highs this week on hopes of economic recovery, and analysts warn of a potential price bubble.
In fact, "petroleum stocks of crude oil, gasoline, jet fuel and distillates are all above the high end of the normal range," said James Williams, an energy economist at WTRG Economics.

"U.S. crude-oil stocks have risen for 11 consecutive weeks," and the Organization of the Petroleum Exporting Countries has "plenty of spare production capacity," he said.

Yet prices for crude oil are trading near $86 per barrel on the New York Mercantile Exchange, up from around $49 a year ago -- and over 20% higher than the nearly $70 price at which they traded just six months ago.

U.S. crude supplies haven't climbed above 355 million barrels since June of last year, and at the time, crude prices stood at $72, according to Justin McNichols, a managing director at Osborne Partners Capital Management in San Francisco.

"The price of oil seems to reflect an optimism in economic growth by traders that is not shared by Main Street or evident in the statistics," Williams said.

'The price of oil seems to reflect an optimism in economic growth by traders that is not shared by Main Street or evident in the statistics.' James Williams, WTRG Economics

Tom Kloza, chief oil analyst at the Oil Price Information Service (OPIS), said most of the gains in 2010 have been "thanks to financial money managers embracing crude oil as an asset class and embracing the notion of [West Texas Intermediate crude] or Brent as a proxy for global economic growth."

"The fundamentals are less compelling," he said.

So "oil's recent jump above the $80 level is predicated more on a general belief in the overall global economic rebound than it is directly related to any supply/demand issues," said Neal Ryan, a managing partner at Ryan Oil & Gas Partners LLC.

**** Oil is gonna collapse again!!

Anonymous said...

Bonds are S#!^^!*& the bed. They had nowhere else to go no that the Fed is no longer depressing both ends of the yield curve. The Federal Gov'ts demand for cash is insatiable and corporate issues are up. Up is the only way for interest rates to go. People will keep pumping money into equities in on the expectation of future interest rate hikes.

Even with the climb in rates we've seen so far, no one thinks it's close to over. I sure don't, unless the Fed speeds up the printing presses again, buying longer term securities. In any case, this isn't a normal market that is trading expected returns of equities against bonds. It is a speculative bubble blown by investors who are scared to death. They just don't think that present long term rates have factored in their expectation of future inflation yet.

On a different subject...
If the price of oil keeps rising, at some point in the not too distant future it will pay to turn off your oil furnace and buy cheap electric space heaters. Here are some break even points at different costs per kWh, assuming your furnace is 83% efficient.

$0.16/kWh $5.41/gal
$0.14/kWh $4.73/gal
$0.12/kWh $4.06/gal
$0.10/kWh $3.38/gal
$0.08/kWh $2.71/gal
$0.06/kWh $2.03/gal


Coal Guy

Greg T. Jeffers said...


Please, please, please... make some sense. Oil has increased 20% per year for nearly a decade. The fact that U.S. demand sucks and inventories are plentiful does not mean anything.

The market is always right... and right now the market says that the U.S. is no longer the marginal consumer and price setter.

The data from the ROW s so spotty that it is impossible to tell WTF is going on. If you figure it out... let me know.

Greg T. Jeffers said...

Coal Guy:

The Mad Scientist has been pounding the table that at some point conversion from Oil heat to NG is going to be a no brainer in the market place... or NG prices move up first to dampen that, or Oil moves down or NG moves up to BTU parity.

I like NG here. Everybody hates it, the media says we have an infinite supply and the rig count is heading back to oblivion... This is what bottom's look like.

Stephen B. said...

Bur, if you could prove to me that the rest of world's oil inventory is also "above the limit of the average range" then I'd be impressed. But as Greg says, who the f' knows, really?

bureaucrat said...

Since we are always talking about oil being "fungible," or a barrel of oil in Alaska is the same as a barrel in Thailand, we can only assume that if the largest user of oil in the world (the U.S.) has oil levels "way above" the five-year range of oil in storage, and oil can be moved whereever it is needed and generates the best price, that the world also must also have lots of oil in storage. Otherwise, it would move to whereever it would sell. It's impossible to say for certain, but seeing as the EIA is all we got, I'm confident that we have oil available, short term, where we need it.

Long term, Jeffers is probably right. We got a problem.

Greg T. Jeffers said...


The very definition of the fallacy of misplaced concreteness.

westexas said...
This comment has been removed by the author.
westexas said...

Some perspective on US crude oil inventories, on a Days of Supply basis:

Recent five year numbers just reflect minor variations in a thin margin of supply in excess of Minimum Operating Level.

Anonymous said...


I like NG too. As it replaces oil, it will catch up in price. Give it 3-4 years.


Coal Guy

bureaucrat said...

Wtexas, your graph shows increasing days of supply for the last few years. This is a good thing, no?

westexas said...

In early April, 2008, the US had 3.2 Days of crude oil supply in excess of MOL.

In early April, 2010, the US had 5.9 Days of crude oil supply in excess of MOL.

So, have about 65 hours of additional usable supply in April, 2010 versus April, 2008.

Anonymous said...

Every commodity seems to be right on the edge of a shortage. There are no significant stockpiles. Some of that is due to inventory taxes, some is just good inventory management. When it involves food and fuel, we are looking at disasters waiting to happen.


Coal Guy

bureaucrat said...

I'm sorry to disagree with you, Carbon. We are awash in everything ... oil, gasoline, diesel, natural gas, food, empty storefronts, houses, vacant apartments, cars, you name it. It's what happens with an asset bubble .. lots of stuff is manufactured/harvested/extracted because someone thought they were gonna get rich with the higher prices before the bubble bursts.

The Great Depression had millions of new farmers growing wheat beforehand cause of higher wheat prices, and wrecking the land in the process. When the depression took hold, prices collapsed and they were killing the animals and dumping the milk cause they had so much and couldn't sell it. It happens this way every time. An asset bubble fueled by cheap credit and "irrational exuberance." :)

Anonymous said...

5 days' supply beyond MOL is not a stockpile. It is insanity. Any major incident will cause retail shortages within days. It is reckless.


Coal Guy

bureaucrat said...

In my short life :) I've found that when you make policy based on some one-in-a-million chance that something really bad could happen, you are typically on the losing side. Just an observation. :) At least peak oil has a TWO-in-a-million chance of happening. Haha!