Oil traders think it will go well under $50

The Nov NYMEX Crude Oil futures contract rose to $71.85 at the close on Friday after $69.85 the day before, but events are racing ahead. OPEC will hold its meeting early on Oct 24 and announce a cut of 1-2 million barrels per day, according to OPEC Pres Khelil. This sounds like disarray. Fear of production cuts took the oil price up substantially to $74 overnight and $73.86 at 11:10 am GMT.

ING says that if oil goes to $50 next year, the GDP of the Gulf Cooperation Council (including Saudi Arabia, United Arab Emirates, Kuwait, Oman, Qatar and Bahrain) would contract 25%. Bloomberg reports that put options on Dec NYMEX futures at $50 “soared 28- fold in the past two weeks,” meaning “Contracts that allow holders to sell 1,000 barrels of oil for $50 each by December closed at $280 on the Nymex on Oct. 17, up from $10 on Oct. 3.” This means some Oil traders think it will go well under $50. Deutsche Bank has a 2009 forecast of $60 on the possibility of a major world recession.

We may think that cheaper oil is a nice antidote to recessionary forces, but it’s also a disincentive to exploration and investment, not to mention investment in alternative energy.

Buy for Now

Barbara Rockefeller
Forex Trading Reports

Buying Euros? Buy Euros get the best exchange rates from IMS Foreign Exchange

Foreign Exchange types selling US dollars fell because oil went up

The Oct NYMEX crude oil futures contract opened higher at $92.81 and closed near the high at $97.16. Currency Analysts are back to naming that old saw, “oil rose because the US dollar fell” (and Foreign Exchange types selling US dollars fell because oil went up). This circular stuff is maddening and destructive. We had hoped it was broken by deleveraging, causing the exodus of some players and increased carefulness by others under the watchful eye of Congress, if not the CFTC.

But alas, no.

Overnight, Nymex Crude oil Futures rose to $98.57 at the high and Oil Trading at $98.16 at 11:00 am GMT.

Bye for Now

Barbara Rockefeller

chartists say the back was broken on the oil price rally

The Oct NYMEX crude oil contract closed at $109.71 after hitting a low of $105.46, down over $13 from the high at $118.60. Wow, that’s an abnormally wide high-low range. Stocks rose and other commodities, including steel, copper and grains, fell. See the gold chart - it closed at $805.00 from the high at $840.70, another very wide range. We know a drop in demand is partly behind the drop in oil and commodities, but the price declines are excessive relative to the drop in demand. This gives us the familiar analytical problem of pondering whether a bursting bubble is quantitatively or qualitatively different from a normal cyclical reversal. They always overshoot, too.

We remain dependent on the weather for the oil price forecast. Now that Gustav has weakened,
watchers are turning to Hannah and Josephine forming in the ocean. While chartists say the back was broken on the oil price rally by the drop under the 200-day moving average and the May spike low, a “target” of $100 (or $80) is still just an idea without any real basis.

Bye For Now

Barbara Rockefeller

Not even war between Russia and Georgia - Stopped the Decline in Oil Prices

The Sept NYMEX crude oil contract hit a low of $112.72 and settled at $114.45, nearing the 200-day moving average at $111.78 and not all that far from the previous low $110.30 from May 1.

Not even war between Russia and Georgia, now halted but still on the map yesterday, stopped the decline.

Today the IEA said high prices are starting to affect demand and thus we have a “potential easing in fundamentals for the second half of 2008 and into 2009, before a renewed tightening thereafter.” Demand is now seen at 790,000 barrels a day, down from July’s estimate of 890,000 b/d, according to the FT. Demand decline is spotty—high in the US and Italy and Spain—but still rising in emerging markets like China.

The story fails to mention that these emerging market governments subsidize oil, and demand would fall equally hard if consumers had to pay the market price.

Emerging market demand is no different from mature economy demand—demand is demand.

Gold closed down at $821.50 (Aug contract). It is nearing critical levels that, if broken, foretell a bigger rout. Reuters reports that spot gold fell to an 8-month low of $801.90 from $819.25/820.85 late in New York on Monday. It is down over 20% from the record high of $1,030.80 on March 17.

Bye For Now

Rockefeller Treasury Services

NYMEX crude oil contract settled at $125.10

The Sept NYMEX crude oil contract settled at $125.10, more than $1 over the close the day before, having made a higher high ($128.60) but not a lower low. This is a stall or pause rather than a reversal but everyone is watching the bar components like a hawk.

Oil rose to $126.35 in Asia overnight but the price is $125.11 at 11:18 am in London, according to Bloomberg, which doesn’t reflect the possibility of Tropical Storm Edouard turning into a hurricane, which it’s likely to do. This is a splendid instance of normally price-negative news being brushed off in a downtrend. But Galveston is battening down the hatches for landfall tomorrow.

And there’s another one forming in the Caribbean.