Oil Price: $100 Before $150 - But $200 Before $50

by: Cam Hui July 11, 2008 | about stocks: OIL / USO    
Cam Hui

Cam Hui

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Emerging market slowdown is commodity bearish
Some commodity prices are starting to show the strain and may be starting an intermediate term correction. Demand destruction is already being seen in oil and petroleum products.

Be prepared for volatility
Is it all over for the commodity bulls? I was asked that question recently and my answer was “expect $100 oil before $150 oil, but expect oil to hit $200 before $50.”

We remain in a hard asset cycle and the long-term fundamentals for commodity remain intact. However, investors need to be prepared for commodity corrections, which can be nasty and violent. The chart below shows the price action of the Continuous Commodity Index, which the old equal weighted CRB index before CRB went to a liquidity weighting. The index has moved up tremendously in the last few years and the bull trend can still remain intact should we see a 20% correction.

 

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This article has 36 comments:

  •  
    Jul 11 07:47 AM
    Well looks like you are short term wrong.....$150 (Next few days) before $100. $100? Probably never again-
    Reply | Link to Comment
  •  
    Jul 11 08:00 AM
    Oil traded at new all time high this morning-$145.98. If oil remains above $140 for the next week or two it will take off again.
    Demand destruction will not back out more than 1% of consumption here as oil demand continues robust around the world.
    You won't see $100 oil ever again.
    Reply | Link to Comment
  •  
    Jul 11 08:57 AM
    never again 100$ ? all the more reason to start getting serious about coal conversion to liquid fuels via 2-stage hydroliquefaction.
    > jack
    Reply | Link to Comment
  •  
    Jul 11 09:34 AM
    Better sell those lousy canroys, pronto!
    Reply | Link to Comment
  •  
    Jul 11 09:40 AM
    "You won't see $100 oil ever again."

    You've been manipulated and this kind of acceptance and hopelessness is exactly what our leaders want. Increase the margin requirements at NYMEX from 5% to 30% or more and you'll see oil back at $100 to $120 a barrel.
    Reply | Link to Comment
  •  
    Jul 11 09:51 AM
    Increasing margin requirements will not do squat to the price. All it will do is force the trading off shore. Unless, of course, you feel the Government has the answer by "regulating" the market.

    Let's see how well they handle the Fannie/Freddie mess over the weekend before we let Maxine Waters "socialize the gas industry".
    Reply | Link to Comment
  •  
    Jul 11 10:42 AM
    hey has anyone noticed the greenies are now starting to attack wind farms and solar farms? i can see the value (with inflation maybe not the price) of oil dropping 20 to 50 years out. that gives time for a money making innovation somewhere and some infrastructure work. what i mean is say an ounce of gold will purchase 25% more oil. i will not even try to guess values in dollars anymore. national banks, federal reserve great job with currency stability there. oh and finances, good work. if we made such choices i think we would be broke and in jail. maxine is an embarassment but so are the rest of them. i remember when jesse jackson was considered a stupid joke. now people listen to him. dad always said when citizens vote they get the leadership they deserve.
    Reply | Link to Comment
  •  
    Jul 11 10:54 AM
    My suspicion is that the "greenies" really want to obstruct the production of coal, nuclear, and petrol to force the economy back to the 18th. century. Movement of goods and people will be dependent on sail, horses and mules, foot, and, yes, a concession to the modern world: bicycles. For the record, I have composted household garbage for at least the last thirty years, rode a bicycle to and from work 3 to 5 days a week for the last 19 years of my work career. We also have a solar water heater in our home which is saving us $50.00 a month. But the greenies are part of the utopian movement which seeks to control all human activity in a totalitarian world.
    Reply | Link to Comment
  •  
    Jul 11 10:57 AM
    “expect $100 oil before $150 oil, but expect oil to hit $200 before $50.”

    Wow. I can't believe you're going to say something like that given where oil is trading right now. You're going to be proven quickly wrong; I hope you realize. It will take only 1 or 2 more geopolitical 'events' to push through $150.
    Reply | Link to Comment
  •  
    Jul 11 12:34 PM
    a little while ago it topped $147. it could do it at anytime. it may not take anything. JOHN S GORDON do you know anything about rtk? also apparently china is moving a lot of funding to the production of dimethyl ether from coal. have you got a line on any of those companies? as much as i despise communism when they say we are going to make it work the people had better comply or get out of the way. ANYONE do you know anything about the prospects for gbrc. seems we have plenty of plastic trash and old tires. if they can make it work for oil shale it would surely explode upward. i own a little of it but am having a hard time getting more info. i definitely want to increase what i have if they are progressing.
    Reply | Link to Comment
  •  
    Jul 11 01:51 PM
    My oh my. I did not know there were so many gas bags out there. Sounds like Sunday morning. Fact is the Greenies are as uneucated as you can get. Very unscientific is my kindest shot at them. A disgrace to the traditions of american science. Aerosols flying around up there in the high sky have a much greater impact on temperature way down here than anything oil and gas ever put out, from cars, generators, cows, us. Too many of "us" is of much greater concern than co2 which, after all, makes the grass, and trees and onions, grow faster.
    Reply | Link to Comment
  •  
    Jul 11 04:29 PM
    You were wrong. We are at 147 today and 150 on monday. Go back to school!
    Reply | Link to Comment
  •  
    Jul 11 04:56 PM
    fireball - i've had rentech on my radar screen for sometime now. problem with FT is it's 1920's technology and very nonselective, i.e. you get all kinds of long chain molecules in addition to the ones you want. sasol made it an economic success within their tight little domain because their coal feedstocks are the cheapest in the world and pretty close to limitless in extent. we have better (more selective) processes today and also juicier feedstocks in illinois/west kentucky. go to wilsonville in google & read up on what we were doing in 1981-85 before we were shut down by ronald reagan. there is a treasure trove of coal liquefaction literature available in the archives @ NETL/Pittsburgh.
    > jack
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  •  
    Jul 11 05:07 PM
    JOHN many thanx. i will check it out.
    Reply | Link to Comment
  •  
    Jul 11 05:14 PM
    wilsonville alabama that is. a good general reference was published in 1987 in europe by graham & trotman, publishers; authors are Romey, Paul and Imarisio, ISBN 1-85333-103-1 titled "synthetic fuels from coal: status of the technology". have your librarian hunt for a copy.
    > jack
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  •  
    Jul 11 05:17 PM
    There are those who believe high oil prices are the result of market forces--limited supply meets endless demand, which makes barrels of crude more expensive. In an October 2004 National Review article, “The Oil Bubble: Set to Burst?” it was argued that oil prices, at that time $62 a barrel, would soon collapse. In ten months, oil was $73 a barrel.1 All through oil’s five-year price surge, rising to $105 per barrel as of March 2008, there have been many voices asserting that the precipitous rise is all the result of speculation--unsupport... by the rudiments of supply and demand.2 Speculation will have an effect on oil prices if it leads to hoarding or an increase in private inventories of crude. Some espouse that inventories have remained at “normal” levels, which implies that the rise in oil prices is not the result of runaway speculation, but the consequence of decreasing supply and the rapid growth of developing economies like China and India.3 We would like to point out that the notion of high futures prices reducing physical supplies through “hoarding” has nothing to do with a “normal” level of inventories, but whether there exists a positive relationship between futures prices and oil stocks/inventories. For specifications including longer-term contracts that are inherently more speculative, the real price of oil appears to be determined predominantly by the futures price. Moreover, there is empirical evidence of hoarding in the crude oil market: both oil stocks/inventories and futures prices are found to be positively cointegrated/correlate... with each other.
    Reply | Link to Comment
  •  
    Jul 11 05:20 PM
    lets increase the interest rate to 17% as Reagan did
    and the US will be a decent place to visit again
    Reply | Link to Comment
  •  
    Jul 11 05:28 PM
    There are those who believe high oil prices are the result of market forces--limited supply meets endless demand, which makes barrels of crude more expensive. In an October 2004 National Review article, “The Oil Bubble: Set to Burst?” it was argued that oil prices, at that time $62 a barrel, would soon collapse. In ten months, oil was $73 a barrel.1 All through oil’s five-year price surge, rising to $105 per barrel as of March 2008, there have been many voices asserting that the precipitous rise is all the result of speculation--unsupport... by the rudiments of supply and demand. Speculation will have an effect on oil prices if it leads to hoarding or an increase in private inventories of crude. Some espouse that inventories have remained at “normal” levels, which implies that the rise in oil prices is not the result of runaway speculation, but the consequence of decreasing supply and the rapid growth of developing economies like China and India.3 We would like to point out that the notion of high futures prices reducing physical supplies through “hoarding” has nothing to do with a “normal” level of inventories, but whether there exists a positive relationship between futures prices and oil stocks/inventories. For specifications including longer-term contracts that are inherently more speculative, the real price of oil appears to be determined predominantly by the futures price. Moreover, there is empirical evidence of hoarding in the crude oil market: both oil stocks/inventories and futures prices are found to be positively cointegrated/correlate... with each other.
    Reply | Link to Comment
  •  
    Jul 11 06:34 PM
    "$100? Probably never again-"

    LOL. You've been brainwashed.
    Reply | Link to Comment
  •  
    Jul 11 11:07 PM
    Jimbo,

    With you 100%! I've got a younger sister and bro-in-law...both "uber greenies" and vegans (and they've brainwashed their kids, too). They're always ranting about the "evil big corps", and how they're destroying the world with pesticides, pollution-spewing vehicles/power plants, etc. More than once, I've let them rant on quietly...and when they pause to take a breath, I say "You're absolutely right.... now, which half of the global population should be "eliminated"... so that we can go back to "organic" farmimg, etc....?". That always shuts 'em right up, *G*.

    Jan
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  •  
    Jul 11 11:08 PM
    Meant to say I listen quietly, while they rant not so "quietly", LOL.
    Reply | Link to Comment
  •  
    Jul 12 10:29 AM
    Increasing NYMEX margins work both ways, shorts will also have to increase their margin, and since longs are deep into the money, the ones that will have a cash shortage if margins are increased are the shorts, which in turn mean shorts will have to cover as margins get increased, while longs position get strengthened by holding a bigger portion of their longs in cash vs margin.

    Having said the above, speculators are responsible for noise in the oil markets, the real trend is driven by oil supply peaking, and as long as demand outstrip supply prices will keep moving higher, so far global demand keep growing (check the IEA July 10th report), this means we need much higher prices for demand to truly stall and reverse.

    The easy demand destruction has already taken place, such as cuts on discretionary driving, and cut in airlines excess capacity, however the next wave of demand destruction will hit the their real CORE users of petrol, and this also require much higher prices then current prices.

    Regards,
    Nawar
    Reply | Link to Comment
  •  
    Jul 12 01:20 PM
    "Oil Price: $100 Before $150 - But $200 Before $50" ! What a joke! How about Mexico, the third largest importer of oil to the US. (1.2mbd)Their production is declining rapidly and will probably stop exporting to the US in 3-5 years. Many other countries are in the same boat. The remaining oil that these countries have is being pumped out as fast as possible using pressure injection extraction techniques. (The Saudies are using this to increase output!)The US is in big trouble. Oil is its lifeline. New technologies (liquid coal, and gassification) are at least 10 years away from commercial production. There is no money in the US budget for mass transit or tax credits for fuel efficiency since the war has emptied its coffers. The US citizen has two choices. Suffer and put up with the consequences of increasing prices (shortages are right around the corner) or leave the country! I left in 2001 and have no plans on returning. I live in Europe. Europe can get along with less oil and higher prices, (accessable mass transit, centralized cities). We don't need cars to have a good life and prosper! The US is in for a big shock. The US will be a very different place at the end of the next decade, or sooner!
    Reply | Link to Comment
  •  
    Jul 12 02:05 PM
    OIL MAN i have been considering some locations in south america for the last year or so. my girlfriend is venezualan and would like to go as long as we stay away from chavez and his ilk. her family has endured a lot and is spread around the globe now. her father was a very successful businessman who made his fortune from the sweat of his brow. most of his assets have already been siezed by the tyrant. the rest are tied up in red tape and are being taken a little at a time. lately i keep hearing the words of jfk and wondering what small ways i might help my country. if all of the productive and successful leave......? i do not know. my self interests say go but my altruistic love of country says you cannot leave right now. i know that it will take a miracle to turn the tide but like many americans that came before i am to stupid to know i am beaten or to stubborn to admit it so i may be on the winning side anyway. it has happened plenty in our history. i certainly do not blame you for going. it is the smarter choice. in a year or five i will probably be asking myself just what were you thinking? i do enjoy your posts and the ideas of an intelligent man. maybe i will come to my senses or get disgusted enough to leave sooner or later but for now i am staying.
    Reply | Link to Comment
  •  
    Jul 12 03:01 PM
    FIREBALL. I came to live in Portugal for romantic reasons but I am staying for economic reasons. America is declining rapidly. "The bigger they are the harder they fall". The minimum wage here is only 350 euros a month! This was a shock to me as well as the average wages for most proffessions, but we don't have the expenses and excesses of the US. Mass transit: no need to own a car, and if you do own centralized cities short distances, less gas consumption, temperate climate: no need for central heat or air. Nationalized medicine: no need for medical insurance (I recently had a hernia operation and it cost 20 euros!) Cheap power from hydro electric and alt. energy.

    America is in big trouble, at least for the middle and lower classes. Many poeple in the US are going to have very difficult times ahead. Things that were once taken for granted will become difficult (buying a home, driving to work, cheap fast food, etc.)

    I still vote though and hope that some day the intelligent and resourcefull Americans will find changes and solutions for the problems. The current adm. certainly is not either of these. All info is available on these subjects with just a few clicks on google. Americans have to stop searching porno and celeb. sites and get informed. Stop watching the national news and slanted cable news. Make desicions about their future based on conclusions from the facts and not what there neighbors, friends or politicians think. We must tell our politians what is needed, not them telling us! Don't follow the heard. Be a bull and lead. That is what made America strong. Creativity, thinking outside the box, hard work and going against the norms made America a great country, not acting like a bunch of sheep, and just doing what everyone else does.
    Reply | Link to Comment
  •  
    Jul 12 04:22 PM
    OIL MAN you are correct. i think i am middle class. after many years of hard work and frugality and adhering to my fathers advice, i am a debt free homeowner living beside a lake in an ideal location for privacy. dad was always saying son do not borrow money. interest is what keeps the poor poor and the rich richer. he would not buy things for my brothers and i except for our first bycicles. he laughed a little when we left the hardware store with that shiny new bike and said take care of it that is the only transportation you will be given. true to his word i bought my next bycicle. he encouraged us to save and work so when i bought my first car i almost payed cash. i did need to borrow a little from the bank which he happily signed for. he could have easily bought things for us but he knew what was best in the long run. we were well provided for in necessities but we had to gain the wants of young men on our own. i was blessed with wonderful parents. in my work i often came into contact with the apparently wealthy. they would tease me about my old trusty pickup. i would laugh with them and say i am richer than you. what, but i have a new bmw and a home in this nice section of town. i would reply how much do you owe? then i would follow with i owe no one. my home is payed for my car is payed for. i have a large bank account and investments. then i would tease back and say i am rich and you are poor. now i am able to work part time for my pleasure and enjoy this beautiful well preserved woman and my home. i have had some very good luck too. when i was a very young fellow my dad advised me to buy certain stocks. all of his advice payed off very well. about 12 years ago i read a book named the richest man in babylon. it was loaded with great financial advice. when i finished it i realized that my father had already given me those simple wisdoms. not long before he passed he said son i am worried about you and your brothers. you never had the opportunities that i had. the generation that follows will have less. i reassured him that we would be fine, that he and mom had taught us very well to stand on our own two feet. anyway oil man i was looking at south and central america for the very reasons you stated. i have not ruled it out. the one thing i did against dads advice was buy large amounts of silver and gold back when gold was 270 to 300 an ounce. he was not against me buying some but he felt that i was overloading on it. before he passed he said he was glad i did not listen on that one. i have been in europe a few times. it is beautiful and a whole different pace. i love that people come out for an evening constitution instead of plopping down in front of a tv. my thrifty nature tells me i will probably get more bang for my buck by looking at our southern neighbors. i am glad you still vote. i have no illusions about the us press or our politicians. i really base what little hopes i have on the ingenouity of the private sector. i know it is wishful thinking but for now it is all i have. this new home is one of the few that have actually gained value recently because of location and the seller was very motivated. i got a great deal. anyway oil man in a year or three i may be much further south when i am typing. for now against my own better judgement i am staying.
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  •  
    Jul 13 08:46 AM
    Dear Cam Hui:

    I suppose folk write for SA because it helps publicize their website or has some other benefit. But I often wonder if the aggravation is wrote the benefits. Certainly I have no intention of ever doing so and then putting up with abuse from folk spouting rude gibberish.

    Americans are brought up with the undying conviction that they were born knowing everything that it is possible to know.

    One result of this is that they never read books or do research, and they thus die in total ignorance of every subject.

    Another is that politicians can get away with saying, as McBush does, we can balance the fed budget by saving 30 billion a year in "earmarks" while simultaneously increasing war and military spending by 500 billion to 2 trillion a year. Duh.

    Another result is that they send these rude and hostile emails to the authors of essays on subjects they know nothing about.


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  •  
    Jul 13 11:25 AM
    JAN that seems an odd post 4 this article. i find most of the posters follow the rules of polite debate. unless disagreeing with the author is rude in your eyes. i find the open debate refreshing. i do agree with you that the american public at large is ignorant but that begins in their education. the pundits and politicians love to spout one liners over the air that sound good but usually that is all the substance there is if you examine what was said. if citizens do not communicate will silence help them become enlightened. the example often set on the airwaves is not very good. seems that i remember one of the clintons telling their younger followers to shout down the opposition if they did not like what was being said. EXAMPLE 1 their is a poster jjason who i am probably diametrically opposed to. yet i value his opinions. he has brought things to my attention that i was unaware of. EXAMPLE 2 their was an article on silver where the author gave slv as one of his recomendations. my reading has convinced me that silver is a great investment but slv is decieving the public about the discrepancy between the number of issued shares and their holdings. i also believe the comex is in a dangerous place with silver futures because of so few holding so many short contracts. another poster informed me that he felt i was right about slv but that i was wrong in my perception of the comex. i thanked him and went back to seeking information. unless it is rude to give your opinion based on the knowledge you have i beg to disagree. in the interest of balance i will point out. the war on iraq was declared under daddy bush. it continued for 8 years under the clinton administration. now it continues still. i find that these opponents are much like tv wrestling. they give a show for the audience but in the dressing room they are good old beer drinking buddies. i see this long stretch of u.s. destruction as the bush,clinton,bush era. the only difference i see is the lies they tell their constituants. i do like to read and research. if you are going to even stick a toe in this minefield of a market you had better. i went back and reread these posts i suggest you do the same. with respect.
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  •  
    Jul 14 05:43 PM
    You want to see PROOF that Oil pricing is a "SCAM".....

    Take a look at some of the futures prices of a barrel of oil.

    futures.tradingcharts....

    Do you see a pattern there?

    Look at the 2012 future prices for a barrel of oil...they are trading in the $70's

    2012 will be "election season"....

    Speculators don't want to touch buying it...if we were really living in a "tight" market....and $150/$200 a barrel is here to stay...That's the BEST deal OF THE CENTURY you could find, you could TRIPLE your investment in 4 short years...what other investment exists with that kind of "guarantee".... 300% return in 4 years....?!

    Why are people not buying up those futures contracts as fast as
    they can?

    Because the price is FALSELY inflated....and Oil Pricing is a SCAM manipulated on the ICE markets.

    Has EVERYONE completely forgotten (or IGNORED) history? We've seen this EXACT SAME THING when Enron was around.
    They were the Market makers and they manipulated the market to their whim......Anyone remember Dick Cheney saying "we can't pull anymore kilowatts", yet Enron was shutting down Power plants in California, to close grids and falsely increase demands on the rest of the grid...


    it is the EXACT same thing ICE is doing.

    Eliminate the Graham/Enron loophole, put more transparency on ICE Markets, and a price of a barrel falls in HALF, OVERNIGHT

    I'll bet EVERYTHING I OWN on it.
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  •  
    Jul 14 07:02 PM
    OIL MAN, "There is no money in the US budget for mass transit"

    What are you talking about? Mass transit is a municipal expense, not a federal one.

    Besides, $150 oil won't last unless the value of the dollar drops dramatically further. Oil will be under $100 before you know it. I don't believe in peak oil one bit. The world is still producing more and more oil day after day.

    One of the best investment quotes ever:
    "The investment desert is littered with the bones of those who invested in paradigm shifts"
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  •  
    Jul 15 02:20 PM
    User 224526, you gotta get a better data feed or learn how to read them at least. You're looking at the wrong data. Crude is not trading at $70 in 2012. The $70 figure is the last trade, which could have taken place 6-12 months ago. You need to look at the previous days settlement price which are all over $140 all the way out to 2015.

    www2.barchart.com/dfut...=
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