Bernard L. Madoff

Got Oil

54 posts in this topic

Geopolitical Scenario 3: Unrest spreads to Saudi Arabia and threatens Saudi crude exports and any remaining spare capacity. Brent price range of $150-200/bbl.

In this most extreme, worst-case scenario for the oil markets, serious unrest spreads to Saudi Arabia. In this case, it does not really matter if Libya or any other producers are shut down or not.

Saudi Arabia is OPEC's biggest producer and the world's biggest current holder of spare capacity. If production and exports are affected, or even perceived to be seriously threatened, the impact on the oil markets would be dramatic, to say the least.

http://www.zerohedge.com/article/socgens-three-scenarios-oil-see-crude-price-between-110-and-200

Embedded SocGen report in link

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This article predates the GFC.

Why I love it. They explain nearly every major collapse in GDP growth the USA (and other places) has been preceeded with a high oil price. It goes on to explain that this time the collapse has not happened and the price has been high for some years, of course they did not know a GFC was around the corner.

So in the end it wasn't different at all. The time to a correction was just offset by stupidly low interest rates and other factors.

Will it be different this time?

Although there is wide agreement that high oil prices have negative effects on U.S. macroeconomic variables, the magnitude and duration of the effects are uncertain. For example, most of the major economic downturns in the United States, Europe, and the Asia Pacific region since the 1970s have been preceded by sudden increases in crude oil prices. Although other factors were important, high oil prices played a critical role in substantially reducing economic growth in most of these cases. Recent history, however, tells a somewhat different story. Average world crude oil prices have increased by more than $30 per barrel since the end of 2001, yet U.S. economic activity has remained robust, growing by approximately 2.8 percent per year from 2001 through 2004.

http://www.eia.doe.gov/oiaf/aeo/otheranalysis/aeo_2006analysispapers/efhop.html

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An even older article (2000) by the IMF but presumably the theory is still sound.

http://www.imf.org/external/pubs/ft/oil/2000/index.htm

Reading this was a lol moment:

Key factors that will influence the supply-demand situation over the next six to nine months include the severity of the winter, the pace of global economic activity, and whether any oil production increases will be sustained. An important consideration is the fact that nearly all OPEC countries, with the exception of Saudi Arabia, are close to or producing at full capacity which may make it difficult to agree to production increases which will lower oil prices and hence revenues for most OPEC members. (There is also very little spare capacity in non-OPEC countries). As noted above, oil prices have fallen back significantly in December; however, uncertainty regarding future prices remains high and it is not difficult to envisage situations which could lead to prices at least $5 higher, or $5 lower.

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Pre GFC Oil had an INVERSE relationship with equity markets. Look at the relationship charts I've cobbled together.

Say Crude rises to $150. All Ords to 5500? AUD to 1.20?

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wow.

Just sold my BPT just in case he is right.

That is my only share so now my exposure is 98% bank deposits in AUD and 2% in gold.

The portfolio of a bear who has faith in the government guarantee.

I am thinking looking at that on the page I should probably buy a little more gold and maybe some silver even while the AUD is high.

Edit: sh*t I always forget the time difference over here. My order will sit on comsec till the morning it seems. Knowing my luck tonight will be the night...

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AEP diverts his attention away from the totally f*cked EU and UK to the subject de jour.

Great article.

Those exhorting OPEC to boost output should be careful what they wish for. The cartel card can be played once only, and it risks exposing the fragility of the global energy system if the Gulf powers are seen struggling to deliver.

Oil markets brace for Saudi 'rage' as global spare capacity wears thin

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Chris Skrebowski, editor of Petroleum Review, said the long-denied oil crunch is starting to bite. "We cling to the comfort blanket that spare capacity exists, but it is mostly fictional, or inoperable. If you take 2m bpd off the figure, the whole dynamic of global oil supply changes," he said.

From your artcle.

Contrived markets are the worst markets. Having the price manipulated only means when it breaks out it will break out big time.

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here is a good link with description of history of oil prices.

About the Ambrose Evans-Pritchard article about oil I think it is full of the usual crap, probably I just live on a different planet and find what he write useless. For example, reading his crap seems he think he is the one (one of the first?) that see the danger of oil prices and trouble of middle east. But it has been weeks that oil prices brake up and trader are paying premium prices on oil, are they doing it for fun and not because they can see troubles and a profit? I think are by far less the traders that thinks oil market and prices will revert soon to business as usual

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here is a good link with description of history of oil prices.

About the Ambrose Evans-Pritchard article about oil I think it is full of the usual crap, probably I just live on a different planet and find what he write useless. For example, reading his crap seems he think he is the one (one of the first?) that see the danger of oil prices and trouble of middle east. But it has been weeks that oil prices brake up and trader are paying premium prices on oil, are they doing it for fun and not because they can see troubles and a profit? I think are by far less the traders that thinks oil market and prices will revert soon to business as usual

But there may be money to be made in the short term in oil. The issue is what this will do to demand generally?

It seems often a spike in the oil price happens just before a slump in world demand for everything.

The first article I posted pre GFC was saying this time is different turned out it wasn't. When it got to $150.00 a barrel the world went into a downward spiral?

I just wonder will it happen again or are the two simply coincidences rather than cause and effect, or more to the point is the oil price falling only an effect of slumping aggregate demand or is the oil price spiking the cause of a slump in aggregate demand?

I guess these are the key questions as to how much attention to pay to the oil price. The stock market certainly seems to take it going up pretty seriously?

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But there may be money to be made in the short term in oil. The issue is what this will do to demand generally?

It seems often a spike in the oil price happens just before a slump in world demand for everything.

The first article I posted pre GFC was saying this time is different turned out it wasn't. When it got to $150.00 a barrel the world went into a downward spiral?

I just wonder will it happen again or are the two simply coincidences rather than cause and effect, or more to the point is the oil price falling only an effect of slumping aggregate demand or is the oil price spiking the cause of a slump in aggregate demand?

I guess these are the key questions as to how much attention to pay to the oil price. The stock market certainly seems to take it going up pretty seriously?

For sure it will effect global demand, probably in a sort of parabolic way where demand of oil is not much elastic with somewhat lower oil prices (like under 100$ these days), then oil demand gets much more price dependent on high prices like today. you can see that also on sharemarket recently where prices followed oil in sync. till certain point but now we are at the point when oil is up sharemarket is down, I would then assume that we are at the point where demand is now elastic and global growth is effected by oil prices.

I don't see too much of long lasting effect as it is one of those chances the world can get rid a bit more of oil dependence and invest some money on alternatives. For example electric car demand is not going to go other then up and car maker are going to invest more money in electric car research which will bring better elecric car sooner (probably mainly with better batteries and better prices).

At the end of the day hitting peak oil sooner would mean getting an alternative sooner. Probably the upside of kicking the can of peak oil down the road is just going to be a bit cheaper to take the alternatives as technology will be more helpful.

In any case the numbers are not so bad as energy now is at historical high at around 8.5% of world gdp. I wouldn't assume huge costs in gdp to western economies if energy rise more to take in alternative sources then oil. Western ecoenomies are then the one would benefit most from new high skilled jobs and better trade balances.

I see much more danger to the world coming from credit/debt bubbles then from oil prices

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well, oil dropped something like 9% in 1 day to just under 100$! haven't seen anything like that for months...surprise the sharemarket in US was holding ok, same the AU$ that dropped only to just under 1.06

Silver and copper where the other 2 hammered down big time, copper to under 4$ and silver to under 35$.

Euro dropped mainly for ecb statements about delaying interest rate rises, but euro still surprisingly steady with gold despite the wild night

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Saw $1.50 a Litre petrol this weekend.

We only need a short lived AUD at 70 cents to scare the life out of the AUS SUV driver.

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Big oil has made nothing (directly) out of me this week. I’ve ridden to work every day and I can’t see tomorrow being any different. Only been run off the road once by some jerk in a truck but I’m sure I’ll get better at choosing my route as I go on. My aim is to get to my destination safely, have fun and get to my destination safely. Speed will never be a factor for me because I’ve always been a slow rider wheelchair.gif

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Big oil has made nothing (directly) out of me this week.

http://www.zerohedge...endence-big-lie

Partial list of products requiring petroleum for production:

Solvents Diesel fuel Motor Oil Bearing Grease Ink Floor Wax Ballpoint Pens Football Cleats Upholstery Sweaters Boats Insecticides Bicycle Tires Sports Car Bodies Nail Polish Fishing lures Dresses Tires Golf Bags Perfumes Cassettes Dishwasher parts Tool Boxes Shoe Polish Motorcycle Helmet Caulking Petroleum Jelly Transparent Tape CD Player Faucet Washers Antiseptics Clothesline Curtains Food Preservatives Basketballs Soap Vitamin Capsules Antihistamines Purses Shoes Dashboards Cortisone Deodorant Footballs Putty Dyes Panty Hose Refrigerant Percolators Life Jackets Rubbing Alcohol Linings Skis TV Cabinets Shag Rugs Electrician’s Tape Tool Racks Car Battery Cases Epoxy Paint Mops Slacks Insect Repellent Oil Filters Umbrellas Yarn Fertilizers Hair Coloring Roofing Toilet Seats Fishing Rods Lipstick Denture Adhesive Linoleum Ice Cube Trays Synthetic Rubber Speakers Plastic Wood Electric Blankets Glycerin Tennis Rackets Rubber Cement Fishing Boots Dice Nylon Rope Candles Trash Bags House Paint Water Pipes Hand Lotion Roller Skates Surf Boards Shampoo Wheels Paint Rollers Shower Curtains Guitar Strings Luggage Aspirin Safety Glasses Antifreeze Football Helmets Awnings Eyeglasses Clothes Toothbrushes Ice Chests Footballs Combs CD’s & DVD’s Paint Brushes Detergents Vaporizers Balloons Sun Glasses Tents Heart Valves Crayons Parachutes Telephones Enamel Pillows Dishes Cameras Anesthetics Artificial Turf Artificial limbs Bandages Dentures Model Cars Folding Doors Hair Curlers Cold cream Movie film Soft Contact lenses Drinking Cups Fan Belts Car Enamel Shaving Cream Ammonia Refrigerators Golf Balls Toothpaste Gasoline

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http://www.zerohedge...endence-big-lie

Partial list of products requiring petroleum for production:

Solvents Diesel fuel Motor Oil Bearing Grease Ink Floor Wax Ballpoint Pens Football Cleats Upholstery Sweaters Boats Insecticides Bicycle Tires Sports Car Bodies Nail Polish Fishing lures Dresses Tires Golf Bags Perfumes Cassettes Dishwasher parts Tool Boxes Shoe Polish Motorcycle Helmet Caulking Petroleum Jelly Transparent Tape CD Player Faucet Washers Antiseptics Clothesline Curtains Food Preservatives Basketballs Soap Vitamin Capsules Antihistamines Purses Shoes Dashboards Cortisone Deodorant Footballs Putty Dyes Panty Hose Refrigerant Percolators Life Jackets Rubbing Alcohol Linings Skis TV Cabinets Shag Rugs Electrician’s Tape Tool Racks Car Battery Cases Epoxy Paint Mops Slacks Insect Repellent Oil Filters Umbrellas Yarn Fertilizers Hair Coloring Roofing Toilet Seats Fishing Rods Lipstick Denture Adhesive Linoleum Ice Cube Trays Synthetic Rubber Speakers Plastic Wood Electric Blankets Glycerin Tennis Rackets Rubber Cement Fishing Boots Dice Nylon Rope Candles Trash Bags House Paint Water Pipes Hand Lotion Roller Skates Surf Boards Shampoo Wheels Paint Rollers Shower Curtains Guitar Strings Luggage Aspirin Safety Glasses Antifreeze Football Helmets Awnings Eyeglasses Clothes Toothbrushes Ice Chests Footballs Combs CD’s & DVD’s Paint Brushes Detergents Vaporizers Balloons Sun Glasses Tents Heart Valves Crayons Parachutes Telephones Enamel Pillows Dishes Cameras Anesthetics Artificial Turf Artificial limbs Bandages Dentures Model Cars Folding Doors Hair Curlers Cold cream Movie film Soft Contact lenses Drinking Cups Fan Belts Car Enamel Shaving Cream Ammonia Refrigerators Golf Balls Toothpaste Gasoline

Yeah, I didn’t use any of that

laugh.gif

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Next question: is the break real or a bull trap?

Looking very real ATM. The close relationship between oil and the AUDUSD now seems broken after being in sync over the last few years.

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