Tuesday, August 7, 2007

Oil is dropping, just like I said it would

Oil prices continue downward path

The price of oil steadied but remained lower on Tuesday, amid ongoing worries about the strength of the US economy.

Posted by david20040_0 @ 06:33 PM (540 views)
Please complete the required fields.



26 thoughts on “Oil is dropping, just like I said it would

  • david20040_0 says:

    “”Some analysts predict a repeat of last year’s drop, when oil fell some $20 a barrel over two months from August.””

    If that happens there will be no more increases in interest rates at all.

    Reply
    Please complete the required fields.



  • unlike houses, we can’t make any more oil.

    Also, I think you’ll find that oil doesn’t really figure much in the inflation calculation during the summer months anyway.

    Reply
    Please complete the required fields.



  • Oh good we should see petrol prices come down soon then.. NOT.

    Reply
    Please complete the required fields.



  • Like the linkage to oil, unfortunately other commodities cause inflation too… Have a look at the price of lead over the last 12 months on the London Metal Exchange, I think you’ll note a 300% increase… Bought a car battery lately?

    Reply
    Please complete the required fields.



  • planning4acrash says:

    David, looking at the overall trend for the year, it is too early to call. This is well within the boundaries of the still current rally upwards (see link below). Prices may well dip a bit further, but the graph shows a clear trajectory and the longer term looks negative. The interesting moment will be the autumn to see whether predictions of demand outstripping supply occur. What we have now is market volatility, which isn’t really supportive of your positive view. Put it into context, the recent rally to $80/barrel had little or no tangible cause. No war, no build up of tension in the Gulf, no hurricane, just pure speculation that demand may outstip supply and some negative news about American inventories. It took Katrina to put it that high previously, we are truly in uncharted territory here. If a true supply side shock occurs with prices above £70 or even $65/barrel then we are into real rocky waters.

    http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/commodities/28696/twelve_month.stm

    Reply
    Please complete the required fields.



  • david20040_0 says:

    planning4acrash – “If a true supply side shock occurs with prices above £70 or even $65/barrel then we are into real rocky waters.”

    Eh, oil was $78 a barrel last week.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    David, not sure you are hearing properly. Last week there was nothing going on, just pure speculation. No hurricane, no war, nothing, even the Iraq war didn’t elevate prices this high. Combine last weeks crazy speculation with a truly scary event like another category 5 hurricane in the gulf of mexico or sparks flying in Iran and prices will go ballistic. $100/barrel would be highly likely in that scenario. Oil only needs to stay above $55 to $60 over the medium term in anycase to precipitate additional rate rises in the UK. The point is that, with an apetite for it by traders, the next big supply shock is highly likely to be multiplied by the types of jitters we’ve been seeing because traders seem to be signalling that they feel that the oil market is experiencing a structural shift in terms of supply and demand. This is why influential people are saying that we could see $100/barrel as early as this year. It may not happen this year, but my gosh it will in time if things carry on as they are going.

    Reply
    Please complete the required fields.



  • Bravo, @Planning4aCrash,

    Oil could be forced down by forced liquidations of positions by hedge funds to cover bad losses.

    They were long oil (i.e. they had bought lots of oil expecting its price to go up), but lost big on e.g. CDO bets and had to sell that oil (unwind a long position) in order to pay down the debt.

    This will drive down oil in a techncial as opposed to fundamental way.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    IMV, that’s an interesting point, I had assumed that traders were profit taking, but you could be right about unwinding of positions to cut losses.

    Reply
    Please complete the required fields.



  • Whiteknight says:

    position liquidation pure and simple.

    To meet redemptions aswell as cover losses.

    There is probably 2p in deferred tax from the April budget to go on petrol in October?

    Reply
    Please complete the required fields.



  • This is similar to when Amaranth got killed. Oil went down because they had to unwind humungus long positions to cover a natural gas bet.

    http://www.billcara.com/archives/2006/09/hammering_gold.html

    September 18, 2006
    Hammering gold was a gas, Mon., Sept. 18, 2006, 6:59 PM
    Did anybody see how when natural-gas futures got hammered recently, so too did gold? Can you say the words “margin call”?

    Today we are told that another of the world’s biggest hedge funds has crashed and burned. This time it’s Amaranth Advisors of Greenwich, Conn.

    When a hedge fund suddenly loses about $2.5 billion or close to 50 pct of the fund’s asset value, everybody panics. When you are trying to keep the ship afloat, everything goes overboard, including the gold.

    You’ve heard of the drowned man who was trying to swim carrying two gold bars? Enough said.

    Reply
    Please complete the required fields.



  • david20040_0 says:

    Oil will not go over $100 bar a war with Iran.

    The driving season in the US is nearly over and after that oil and gasoline prices always drop.

    I very very much doubt will will ever see oil under $55 again though.

    Oil has been above $60 for a while now so I doubt it will affect inflation very much.

    If oil drops below $60 it will reduce inflation.

    Reply
    Please complete the required fields.



  • david20040_0 says:

    Supply and demand with oil is a myth, there is plenty of oil just not enough refineries.

    The oil companies do not want to build any cos it will reduce their profits.

    Did anyone see how much ExxonMobil made?

    Reply
    Please complete the required fields.



  • planning4acrash says:

    David, the January inflation report expected oil to settle down to $40-50/barrel, the MPC are sitting on the fence wishing oil to go away, because it is a silent stalker that feeds through over the long term. For oil to stick above $60, the MPC must respond with higher interest rates in the medium to long term. Even if oil drops a bit in the short term, the high costs of the past half year are yet to feed through fully and will cause the MPC a massive headache as it wrestles on a kife edge about whether to swiftly break the 6% threshold and push beyond.

    By the way, oil won’t stay below $100 just because you order it to do so. Confirmation that Saudi Arabia has peaked or a gap, even for a short time, between supply and demand will be enough, which is what, i think, traders are hedging their bets on.

    Reply
    Please complete the required fields.



  • david20040_0 says:

    The MPC are wrong, oil a $40-50 a barrel is a pipe drem.

    OPEC says that $55 – 60 for oil is a fair price, so they will get it hold at that.

    Oil will breach $100 one day, but when that day comes when adjusted for inflation it will still be short of $100 in today’s money.

    But if the MPC thinks oil will go down to $40 again they are sorely mistaken.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    In January, when prices were still towards the bottom of a downward trend from the summer high in the $70’s, the MPC expected that much of the fall in CPI was to be from fall fuel prices and that this would be sustained, so, you can draw a conclusion from that, that they, looking to the medium to long term, expected oil to be below and stay below $60/barrel, continuing a downward trajectory most likely to beneath $50. I’m not sure whether they provided specific predictions, but you can read between the lines. With oil above $70, we are in a similar position again to the one that brough CPI above 3.1% and this could feed into some serious inflation when heating becomes important. This could lead to a CPI peak again at February time with interest rates reluctantly following, particularly when combined with what’s happening to food prices this year. Natural gas prices may of course behave differently, which we are more dependent on for heating and electricity, but oil will feed through somehow or another.

    Reply
    Please complete the required fields.



  • david20040_0 says:

    I don’t think oil will drop to below $60 now IMHO.

    However I don’t think a doomsday $100 is also likely either.

    The CPI has been dropping for a while, I want it to increase, but High Street spending was down a lot so I kinda think that the CPI will drop further.

    I want rates to hit 6.25% but I don’t think the BOE will even go to 5.75%

    Reply
    Please complete the required fields.



  • planning4acrash says:

    Erm, Dave, rates have been 5.75 for quite some time now, I presume that you meant ‘will not even go above 5.75’ . Well, if that’s what you think, then your pretty much on your own. Most economists expect 6% by October.

    Reply
    Please complete the required fields.



  • david20040_0 says:

    Yeah sorry tired, I meant not higher than 6%.

    I want rates to go higher then my IceSave goes up 🙂 But I just can’t see them going any higher if High Street sales are down.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    I doesn’t matter if sales go down if prices keep going up. BOE may sit on the fence in the short term if that happens, but will have to react eventually.

    CPI should be beneath 2% by now but is at 2.4% ( http://www.bankofengland.co.uk/publications/inflationreport/mktcpimay07large.gif ) and is predicted to begin rising again in 2008. If inflation rises from a higher base than 2%, or starts rising before the BOE predictions then 6.25% IR’s will seem like childs play. What’s happened since then? Oil, food, most other measures on the up-side and even wages are starting a bit of a pick up, core inflation dangerously high and M3 money growth at stupid levels and look at how manufacturing continues to surprise. At the moment, the only think keeping a lid on inflation, in my mind, is the expensive pound, but that could unravel at any time if the traders start seeing that the MPC Doves are gaining headway. That’s what’s spooking Merv. The hawks are itching for higher rates and I reckon they’ll get their way, come what may. A neutral IR for today could be closer to 7%. I reckon they’ll let it slip and have to go much higher. Remember that most people thought 6% was out of the question at the beginning of the year. I expect more of the same in the coming year.

    Reply
    Please complete the required fields.



  • david20040_0 says:

    I agree that Sterling does seem to overvalued at the moment but I don’t think rates such as 7% are on the cards.

    Therefore I think a house price right now and for the year ahead is most unlikely.

    Personally I would love IR to hit 7% though.

    Reply
    Please complete the required fields.



  • planning4acrash says:

    Most people suggested that 6% would be enough to precipitate a crash last year. We have a whole 1% yet to feed through the system plus the ‘unforeseen’ credit crunch to play out, in a hawkish environment and the ground is already shaky. I think most people here don’t expect a crash until next year at the earliest, but do expect to see increasingly bearish signals this autumn.

    Reply
    Please complete the required fields.



  • Personally I’m expecting to start seeing things unravel sooner than next year.

    The outlook for sterling is not good. When currency traders start doubting the MPC’s commitment to their inflation target (which has already started), the current value of the GBP will slip away in no time. Crash Gordon has been kidding himself and the Mervyn King Of Wishful Thinking that the high value of GBP is due to how well our economy is doing, when its actually just based on massive debt.

    Trouble is, the US had the same idea about a year ago …

    Reply
    Please complete the required fields.



  • planning4acrash says:

    I think you are right Paul. By saying that I expect bearish signs this Autumn, I meant that unravelling ought to happen before next year, in agreement with you. A crash is a 10% fall in prices or more, in my books, so, I say unravelling beginning this autumn and no crash until next year at the earliest. I think it will take time, just like last time round. A £trillion plus house market takes a while to turn around, but turn around it will!

    Reply
    Please complete the required fields.



  • It’s just a breather. Nothing whatever to suggest a crumpling of prices. It’s the summer doldrums reflected against huge volatility.

    It may come down but there’s nothing concrete yet to bring it down.

    Just when it looks like it’s easing it’ll head back up. Anyway, it’s still mile above a level that wouldn’t hurt; even $10 below these levels is ‘very high’.

    Reply
    Please complete the required fields.



  • Anyone with any sense should price in $100/barrel. Do we really expect to pay £0.94 a litre for petrol much longer when people
    pay more for bottled water ?!!!!!

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>