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Deckard

Oil Declines Below $60 For First Time Since May As Fuel Inventories Climb

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http://www.bloomberg.com/apps/news?pid=206...id=a.ya9lc6_gPk

July 9 (Bloomberg) -- Crude oil fell below $60 a barrel for the first time since May 26 after reports showed that U.S. fuel inventories increased as the recession curbed consumption.

Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, rose last week, an Energy Department report showed yesterday. Total daily fuel demand in the past four weeks dropped 5.9 percent from a year earlier to average 18.4 million barrels, the Energy Department said.

“The momentum is clearly in favor of the bears,†said John Kilduff, senior vice president of energy at MF Global in New York. “This is a reality check for all of those who ignored the fundamentals of the market. Prices are clearly headed lower from here.â€

Crude oil for August delivery fell 25 cents, or 0.4 percent, to $59.89 a barrel at 10:33 a.m. on the New York Mercantile Exchange. Prices have declined 16 percent over the past seven days, the longest stretch since September 2006.

Brent crude for August settlement rose 11 cents to $60.54 a barrel on London’s ICE Futures Europe exchange. Yesterday, the contract declined $2.80, or 4.4 percent, to $60.43, the lowest settlement since May 25.

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Not good news for Russia and other oil exporting nations.

Yep, the recent rally was overdone.

Deflation fears are coming back with a vengeance, and oil price is getting hit as a consequence.

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I made a ton of money on the move from the mid-30's to 60, where I got out(went a lot in dxo the doublelong etf too). I was impressed it went all the way over 70.

I believe it will now coast down to 35-45$ and stay there for a long time. Although I don't have enough confidence to actually short from here.

I also believe we've seen the oil companies stocks will gradually trend down til they are worth maybe 1/2 what they are now.

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I made a ton of money on the move from the mid-30's to 60, where I got out(went a lot in dxo the doublelong etf too). I was impressed it went all the way over 70.

I believe it will now coast down to 35-45$ and stay there for a long time. Although I don't have enough confidence to actually short from here.

I also believe we've seen the oil companies stocks will gradually trend down til they are worth maybe 1/2 what they are now.

Good call. I'm pi**ed I missed that one. I might go quite long on it. As a retirement hedge

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Guest BoomBoomCrash

Jeez, there are some really dumb people on this forum. Oil is going to the moon in the mid to long term. Everyone is so obsessed with demand destruction that they have lost sight of supply destruction. The credit crunch and the resultant collapse of oil prices has meant that millions of barrels of daily capacity that were expected to be online in the next few years are not going to happen. We are sleepwalking towards a catastrophic supply crunch, and the results won't be pretty.

http://www.telegraph.co.uk/finance/newsbys...h-dries-up.html

But hey, let's keep pretending that oil at $30 a barrel is feasible given marginal production costs of non OPEC nations.

Edited by BoomBoomCrash

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Jeez, there are some really dumb people on this forum. Oil is going to the moon in the mid to long term. Everyone is so obsessed with demand destruction that they have lost sight of supply destruction. The credit crunch and the resultant collapse of oil prices has meant that millions of barrels of daily capacity that were expected to be online in the next few years are not going to happen. We are sleepwalking towards a catastrophic supply crunch, and the results won't be pretty.

http://www.telegraph.co.uk/finance/newsbys...h-dries-up.html

But hey, let's keep pretending that oil at $30 a barrel is feasible given marginal production costs of non OPEC nations.

You are so quick to call others dumb that you become yourself guilty of producing an oversimplistic analysis.

I think few here are rejecting the concept and proximity of peak oil, although there is much uncertainty as to its timing and the sequence of events that will follow.

What you are missing whilst rushing to pass judgment on others, is that it took a price of $90 oil to cause a collapse in consumption last year (that didn't stop the market from rising further to $147 though). This year, in a post credit bubble world, the level seems to be $70.

It looks like the level of affordability of oil is falling and I think that's quite interesting. If anything, the inflationary pressures expected to result from peak oil should be pushed by a few more years.

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I made a ton of money on the move from the mid-30's to 60, where I got out(went a lot in dxo the doublelong etf too). I was impressed it went all the way over 70.

I believe it will now coast down to 35-45$ and stay there for a long time. Although I don't have enough confidence to actually short from here.

I also believe we've seen the oil companies stocks will gradually trend down til they are worth maybe 1/2 what they are now.

One-half is a hell-of-a-drop for an oilco. Is this a hunch, or have you got some data to support? I'm mildly bullish on BP etc. in the mid-term, and putting my money where my mouth is, on the basis that we're going to see more mini-rallies like the last one - enough to turn a profit or two before the real rally starts. What makes you think there isn't persistent support long before we get to, say, 230 on BP fr example ?

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...might be going down in the markets but it keeps going up at the pumps due to tax....is there not another 2p per litre due in September from Gordo the ramper.... <_<

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I made a ton of money on the move from the mid-30's to 60, where I got out(went a lot in dxo the doublelong etf too). I was impressed it went all the way over 70.

I believe it will now coast down to 35-45$ and stay there for a long time. Although I don't have enough confidence to actually short from here.

I also believe we've seen the oil companies stocks will gradually trend down til they are worth maybe 1/2 what they are now.

Hmm, I wonder what I did wrong.

I bought CRUD ETFs at the start of Feb this year (when NYMEX oil was at $41), and then sold at the end of last week (when it was about $65). Somehow, though, I didn't achieve much more than break even due to their sale price being much lower than the indicative net asset value.

I know the depreciation of the dollar lowered my profit somewhat, but what happened to the rest? :huh:

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Guest Steve Cook
Hmm, I wonder what I did wrong.

I bought CRUD ETFs at the start of Feb this year (when NYMEX oil was at $41), and then sold at the end of last week (when it was about $65). Somehow, though, I didn't achieve much more than break even due to their sale price being much lower than the indicative net asset value.

I know the depreciation of the dollar lowered my profit somewhat, but what happened to the rest? :huh:

contango

i think..... :blink:

As I understand it, ETFs are bought three months ahead (sometimes as little as 1 month), Every three (or one) month/s they are rolled over by selling one contract and buying the next. It is at this point of roll-over that you lose a lot of the profit because the new three month ahead price has already factored in the current rises and then some.

so, the only way to profit from long term rises is to buy far-out futures contracts. However, becasue there is much less certainty over the longer term, the margin tends to be much bigger on the price. Again, this will tend to kill a lot of the profit you might expect.

Edited by Steve Cook

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Guest Steve Cook

To explain contango let's pick USO (which is the highest volume Oil exchange traded fund). USO does not own any physical crude oil, it just buys futures contracts. USO uses those future contracts to hedge itself and, since positions have to be rolled forward regularly to prevent taking physical delivery, it is not easy to outperform the market prices. This is because with contango you have to pay a premium to move into the next monthly contract so a profit can only be realised if the positive price movements are greater than the losses generated by the rollover itself (i.e. the premium paid to remain in the position). So while, to many people, the low price of oil may look like a great buying opportunity, the current state of the market means, more than likely, they will generate a loss just because of the roll. The conclusion, is that USO is not a direct play on the spot price of crude oil, it is, instead, a play on the spot price, forward prices, and the relationship between spot and forward.

Thus, in Contango, it is probably better to buy shares of companies with oil 'in the ground' so they do not need to pay the high forward premiums (which tend to be connected to storage costs).

Edited by Steve Cook

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To explain contango let's pick USO (which is the highest volume Oil exchange traded fund). USO does not own any physical crude oil, it just buys futures contracts. USO uses those future contracts to hedge itself and, since positions have to be rolled forward regularly to prevent taking physical delivery, it is not easy to outperform the market prices. This is because with contango you have to pay a premium to move into the next monthly contract so a profit can only be realised if the positive price movements are greater than the losses generated by the rollover itself (i.e. the premium paid to remain in the position). So while, to many people, the low price of oil may look like a great buying opportunity, the current state of the market means, more than likely, they will generate a loss just because of the roll. The conclusion, is that USO is not a direct play on the spot price of crude oil, it is, instead, a play on the spot price, forward prices, and the relationship between spot and forward.

Thus, in Contango, it is probably better to buy shares of companies with oil 'in the ground' so they do not need to pay the high forward premiums (which tend to be connected to storage costs).

Thanks for that, Steve. I'm still not too sure I follow, but I guess you're saying that the ETF trading prices represent not only the current oil price but also market expectations of future prices. And so I didn't make anything because, although the price went up, everyone else was expecting it to do so, not just me!

I suppose I'd be better off investing in companies that stand to gain from oil price increases (i.e. do some research!) rather than trying to take the easy option without properly understanding it. No free lunches.

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