Thursday, May 5, 2011

Oil, Silver, Markets in General

The bloom is off the rose in commodities for a while... Oil might be the only commodity to hold up reasonably well, and then again it might not. I am not long Oil yet, but I do like buying the drillers and Oil services when they are getting beaten up. While AVERAGE Oil prices may have ceiling to them, I think that the ceiling is MUCH, MUCH higher in the budgets of the producers for spending on production and exploration... at least that has been the case for the past 5 years where the Oil service industry revenue has DOUBLED but the equites have not budged.

In short, for investors (as opposed to traders) I think energy equities will outperform Oil for a while.  And one day, Nat Gas will outperform them all - and I am working on which day.

The easy money in shorting silver has been made... I still think it is going down, but there can be painful rallies if you are caught short. Best to short rallies and miss opportunities, me thinks. On Gold - I have no opinion.

Remember, there is a big difference between the short and long term. I made that critical mistake and missed one of the biggest rallies ever in the equity markets. There is also a big difference between a "trader" and an "investor". Traders buy "green" and sell "red"; investors buy "low" and sell "high" - there are several world's of difference between the 2.

5 comments:

westexas said...

Here is a chart of annual US spot crude oil prices:

http://www.eia.doe.gov/dnav/pet/hist_chart/RWTCa.jpg

And here are the annual spot crude oil prices and year over year exponential rates of change:

1998: $14 (-41%/year)
1999: $19 (+31%/year)
2000: $30 (+46%/year)
2001: $26 (-14%/year)
2002: $26 (0)
2003: $31 (+18%/year)
2004: $42 (+30%/year)
2005: $57 (+31%/year)
2006: $66 (+15%/year)
2007: $72 (+9%/year)
2008: $100 (+33%/year)
2009: $62 (-49%/year)
2010: $79 (+24%/year)

We have nine years showing positive year over year rates of change, and the median is +24%/year, within a range from +9%/year to +46%/year. Assuming that 2011 does show a year over year increase over 2010, based on these numbers, we would expect to see an average annual price for 2011 between $86 and $125, with a median expectation of about $100, which is the approximate average to date for 2011.

The three declines are shown in bold. As I have previously noted, each successive year over year decline fell to a price level which was about twice the level reached during the previous year over year decline. If this pattern holds, the next year over year decline would bring us down to the $120 range (average annual).

russell1200 said...

The commodity markets are too small compared to both the actual market they represent, and the bond and equity markets. Thus they are too easy to game in the short term.

Greg T. Jeffers said...

Russel:

I will bet $$ to donuts that the commodity market's are not gamed...

Here's how it goes:

Future's contracts are trading vehicles, they are not investments. In any trading vehicle, direction (momentum) is a better indicator of the end of day's pricing than anything else. Hence, "buy green, sell red".

In the recent case of Silver... it looked like a massive short covering rally, they almost always show up as parabolic moves. And like Will E Coyote, at some point the market looks down and realizes it is standing on air and their are no shorts left to squeeze... SPLAT!!!

Anonymous said...

The precious metal to monitor is copper. Copper is a true leading indicator as it has many industrial uses, and it cannot be manipulated by speculators and ETFs the way gold and silver can. And copper did not participate in the recent gold/silver run. All of the central banks around the world in the BRIC countries, China, India and Brazil have been raising rates aggressively to rein in inflationary growth. Eventually it will work. The second half of 2011 will be very different from the first, particularly with the Fed removing the QE stimulus. how the markets will respond without QE is the big question.

Donal Lang said...

I've been searching for an economic analysis of the highest possible market prices for energy or oil. I can't find anything.

There's lots of 'opinion', but previous 'opinion' was that the US economy would collapse at $100+ a barrel and .....

Does anybody know of a mathematical economic analysis anywhere?