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post #1 of 15 (permalink) Old 08-15-2008, 03:21 PM Thread Starter
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01WC-Oil experts

In here lol saw this on another board and laughed at some of the responses and everyone screaming this man is brilliant...much like they were all clammoring that it was going to be $200 a barrel if not $300 by next year!

Oil going down to $65 a barrel.
http://articles.moneycentral.msn.co...rel.aspx?page=1



If you're frustrated over the high cost of gasoline at the pump, don't trade in your Hummer for a Vespa just yet: A leading energy analyst is telling clients these days to prepare for crude oil to retreat back below $65 per barrel over the next three years.

How could it happen? He says conservation, new drilling, efficient new vehicles, alternative energy sources, a rising dollar and a global recession will combine to blast prices back to the Stone Age -- or at least to last year's levels.

"The match has struck, the fuse has been lit, and four or five years from now OPEC producers are going to be drinking their own oil and choking on it," says Tony Kolton, the founder and president of Logical Information Machines, a provider of research to most of the world's major energy-trading companies for two decades.

Plenty of smart analysts disagree with this point of view, figuring that emerging-market demand will pump up fossil-fuel prices and that Americans will blithely forget all about conservation if gasoline prices trend lower. But since Kolton's view is deeply out of consensus and at least minimally plausible, it does deserve our attention.

Speculators unmasked
Kolton, a specialist in the history, composition and psychology of the energy market, believes that speculators were without question behind the run-up of prices to $147 per barrel in July and that government threats to expose and punish their behavior spooked them out of their positions in a hurry.

He says his data on open interest of noncommercial positions in crude trading, as well as conversations with professional traders at big oil companies, clearly show that speculators, and not rising demand from Asia, pushed the market to extremes.

In contrast to people who say the oil market is too big to be pushed around by hedge funds, Kolton counters that in fact it is much smaller than the bond, currency or equity markets. The oil market "can be easily manipulated," he says.

The reason for the misconception is that while the market is large in dollar terms, most of the oil companies' hedging positions are pointed the same direction and set for months at a time. So marginal new positions that point the opposite way can have an outsize impact, much like a 5-foot rudder can change the direction of a 500-foot ship.

"I would ask all the fundamental guys why oil was $147 a month ago and $114 today," Kolton says. "Their opinion that crude moves purely on real demand is BS. When the fast money comes out, there's a giant sucking sound."

The swift exit of the fast-money crowd has pushed oil back down to its March level, around $110. Kolton's research on seasonality and demand suggests oil prices will rebound back to the $125 area and then resume their crash. The $100 level will be hard to crack, but he expects energy bears to prevail over bulls within six months and launch crude on a journey below $65.

"You had a perfect storm of pre-Olympics demand in China, a plunging dollar, speculation, cold weather and fear of supply disruptions in Nigeria and Iran pushing it up, and now they've all swung around on a dime," Kolton says, observing that recession and conservation are gutting demand, Iran is at the negotiating table, the dollar is soaring against the euro in reaction to the worsening European economy, and the summer has proved milder than normal, sapping the use of air conditioning nationwide.

"People who don't trade the futures markets don't realize that this is typical for commodities, which always trade on emotion. Look at silver in the late 1970s, which went from $4 to $50 and back to $4 in two years," Kolton says.

Diminished demand
What about all that talk of how supply is running out? Well, it's funny: The spike to $147 seems to have really got people thinking about scarcity, and they've started making plans that could be very long-lasting.

It's sort of like the day a person realizes it's time to stop smoking -- a light-bulb moment of alertness to a long-simmering crisis. Oil bears now think the $147 level was a slap in the face that made major corporate users consider changing their behavior in persistent and fundamental ways.

Auto companies became focused on creating smaller hybrid cars; individuals are discovering the joys of public transportation, car pools and bicycles; churches are lecturing on the need to turn out the lights in vacant rooms; and presidential candidates are debating the merits of inflating tires. And perhaps most importantly, going green appears to have emerged from fad to lifestyle as the cool dads now drive Mini Coopers instead of gas-guzzling Suburbans to their kids' soccer practices.

Big private-equity and venture-capital funds, and industrial titans such as General Electric (GE, news, msgs), are throwing billions of dollars into creating better batteries, advanced materials and vehicles that run on plug-in electric power and plentiful U.S. natural gas. Meanwhile, oil giants from Brazil to Beijing are exploring for new oil and finding it offshore a lot more easily than expected, with payoffs to come a lot sooner than most skeptics now believe possible.

All of this is coming at a time when a credit drought has seriously impaired economic growth and blunted employment levels in developed nations in Europe and the Americas, and threatens to spread to Australia and much of Asia. When people are commuting and consuming less, and when companies are making less, they collectively use less energy. The U.S. Energy Information Administration reported Tuesday that oil demand during the first half of 2008 fell by an average 800,000 barrels per day compared with the same period a year ago -- the biggest volume decline in 26 years.

Bad news and other views
Of course, we should probably be careful about what we wish for. While stock prices have risen smartly as energy prices have cracked in the past month, stocks are likely to fall steeply along with oil prices if a global recession is the major driver behind demand destruction. Just in case you're wondering, Kolton's historical and economic research and his gut instincts as a veteran trader lead him to think that the Dow Jones Industrial Average ($INDU) will sink to the 9,500 level next year -- retracing the 2003-07 bull market -- before the bear has had its fill.

Opposing point of view? Yeah, I've got that. David Anderson, an energy portfolio manager at Palo Alto Investors, who has been my go-to guy for years on the subject, thinks the idea of crude oil falling below $65 per barrel is ludicrous. And, frankly, he says he doesn't even care when it comes to his energy-industry positions.

We never base our view on energy-industry stocks on the direction of oil prices," he says. "We are buying growth companies in a growth industry and always have at least a five-year horizon. The fundamentals of the business -- increasing demand and decreasing supply over the long term -- favor higher stock values over time."

Anderson says energy bears are just not facing reality. He points to U.S. Department of Energy research that forecasts global growth in demand rising to at least 110 million barrels of oil per day in a decade from the current level of 85 million. "To get to that level while supply from the best and biggest fields in the Middle East, North Sea and Gulf of Mexico is shrinking will be very tough," he says. "Oil prices are going up to ration supply, short of a total global economic meltdown."

If you want to invest along with Anderson instead of Kolton, here are the large and medium-sized companies he likes best on the recent pullback, with expectations that they will roar back starting in September: Petrohawk Energy (HK, news, msgs), Plains Exploration & Production (PXP, news, msgs), Chesapeake Energy (CHK, news, msgs), Apache (APA, news, msgs), Southwestern Energy (SWN, news, msgs), EOG Resources (EOG, news, msgs) and Range Resources (RRC, news, msgs).

Anderson is always good with the small caps, and among his favorites now are Canadian Superior Energy (SNG, news, msgs), Arena Resources (ARD, news, msgs) and Gastar Exploration (GST, news, msgs).

With any luck, Kolton and Anderson can both be right. These energy companies were going to be very profitable with $75 crude oil a year ago, so they must be minting money now. Short of an expectation for the lights to go out worldwide over the next year, consider buying at these levels, while the pessimism lasts.

Fine print
To learn more about Logical Information Machines, click here. To see a commercial Web site that leverages the LIM data, go here. To learn more about Palo Alto Investors, click here. To see Energy Information Administration forecasts, click here.

At the time of publication, Jon Markman did not own or control shares of any company mentioned in this column.


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post #2 of 15 (permalink) Old 08-15-2008, 03:23 PM
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when you copy a link from another message board, right click, click properties, and copy the link from there. the board shortens the link...you'll notice the "..." in the middle of the link, which is why the link doesn't work.
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post #3 of 15 (permalink) Old 08-15-2008, 03:41 PM
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Originally Posted by STANGGT40
when you copy a link from another message board, right click, click properties, and copy the link from there. the board shortens the link...you'll notice the "..." in the middle of the link, which is why the link doesn't work.
LMAO!

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post #4 of 15 (permalink) Old 08-15-2008, 03:42 PM Thread Starter
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Originally Posted by STANGGT40
when you copy a link from another message board, right click, click properties, and copy the link from there. the board shortens the link...you'll notice the "..." in the middle of the link, which is why the link doesn't work.
I copied the entire post...but just read the damn article the link is to it!
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post #5 of 15 (permalink) Old 08-15-2008, 03:43 PM
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I copied the entire post...but just read the damn article the link is to it!

i'm not just sayin, i'm just sayin, you know what i'm sayin'?
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post #6 of 15 (permalink) Old 08-15-2008, 03:44 PM
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Not shocked...

This is why I said drilling in ANWR or offshore is not the crux of the answer. Make all the theatrics you want about Pelosi turning off the microphones, the reason behind the price of oil is speculation, not supply. Easily fixed if you penalize futures investors who do not take some % of delivery. No delivery= market manipulation just like Enron.

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post #7 of 15 (permalink) Old 08-15-2008, 03:53 PM
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Originally Posted by TheAsp!
This is why I said drilling in ANWR or offshore is not the crux of the answer. Make all the theatrics you want about Pelosi turning off the microphones, the reason behind the price of oil is speculation, not supply. Easily fixed if you penalize futures investors who do not take some % of delivery. No delivery= market manipulation just like Enron.
$65 a barrel is still too high, in my opinion. You have to drill, man. It still boils down to supply and demand. What about in 10 years? What about in 5 years? With all of the issues around the world that can affect oil prices and consumption, you have to be prepared. Drill here, drill now.

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post #8 of 15 (permalink) Old 08-15-2008, 04:12 PM
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Quote:
Originally Posted by TheAsp!
This is why I said drilling in ANWR or offshore is not the crux of the answer. Make all the theatrics you want about Pelosi turning off the microphones, the reason behind the price of oil is speculation, not supply. Easily fixed if you penalize futures investors who do not take some % of delivery. No delivery= market manipulation just like Enron.
The reason behind the price of Oil is the U.S. D-O-L-L-A-R.

The dollar's latest rally (along with its 11 consecutive days of uninterrupted gains which is a record back to 1972) brings it to a two year high against the Euro. Same reason other commodities have tanked (seen Gold lately?)

Speculators are in and out of the market too quickly. They don't give a shit if the market is going up or down they bet the market either way.

Track the dollar. I can look at what happened to the dollar on any given day and tell you if oil went up or down (and vice versa).

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post #9 of 15 (permalink) Old 08-15-2008, 04:35 PM
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Originally Posted by 01WhiteCobra
The reason behind the price of Oil is the U.S. D-O-L-L-A-R.

The dollar's latest rally (along with its 11 consecutive days of uninterrupted gains which is a record back to 1972) brings it to a two year high against the Euro. Same reason other commodities have tanked (seen Gold lately?)

Speculators are in and out of the market too quickly. They don't give a shit if the market is going up or down they bet the market either way.

Track the dollar. I can look at what happened to the dollar on any given day and tell you if oil went up or down (and vice versa).
So your basicly saying that the only reason oil goes down is because we can buy more oil with a dollar then yesterday? Not because the global cost of oil went down?

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post #10 of 15 (permalink) Old 08-15-2008, 05:09 PM
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So your basicly saying that the only reason oil goes down is because we can buy more oil with a dollar then yesterday? Not because the global cost of oil went down?
Everyone can. Oil, for the most part, is bought and sold via the US Dollar. The dollar is nothing more than a medium of exchange that has some intrinsic worth assigned to it. When people think the dollar is weak... it buys less in the global market. When people think it is strong it can buy more (they want to hold dollars).

It plays a huge factor in the price of a bbl... as we have seen in the past few weeks.

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post #11 of 15 (permalink) Old 08-15-2008, 06:23 PM
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I knew I picked a good time to buy my V10 Superduty. Got a sweet ass deal on a truck that booked at 14K with no mods. I got mine for 9K with about $6k worth of mods. Even at $110 per fill and filling once a week I dont feel too much pain? The damn thing will tow a house or all the cars I make money off of too.
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post #12 of 15 (permalink) Old 08-16-2008, 12:36 PM
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Originally Posted by 01WhiteCobra
Everyone can. Oil, for the most part, is bought and sold via the US Dollar. The dollar is nothing more than a medium of exchange that has some intrinsic worth assigned to it. When people think the dollar is weak... it buys less in the global market. When people think it is strong it can buy more (they want to hold dollars).

It plays a huge factor in the price of a bbl... as we have seen in the past few weeks.
OK thank you for clearing that up. Instead of me saying "we" it should be "everyone." So supply and demand, of oil, didn't play as big of a part as the dollar getting stronger.

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post #13 of 15 (permalink) Old 08-17-2008, 01:14 PM
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OK thank you for clearing that up. Instead of me saying "we" it should be "everyone." So supply and demand, of oil, didn't play as big of a part as the dollar getting stronger.
I really don't buy the supply and demand thing. Prices were rising as demand was shrinking and supply has been ample. Might have been tight supply but it was ample supply. Certainly the rise in 2008 had more to do with a dollar that literally fell off the cliff very fast.

Also, look at other commodities. All the commodities got killed at the same time the dollar was rising. Certainly it isn't just a coincidence that the dollar rallied and commodity prices fell.

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post #14 of 15 (permalink) Old 08-27-2008, 09:49 AM
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i hope that this new storm, "gustav" misses the gulf and oil falls on its face! it's so funny how the oil bulls just grasp to anything to drive oil up!
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post #15 of 15 (permalink) Old 08-27-2008, 09:51 AM
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i hope that this new storm, "gustav" misses the gulf and oil falls on its face! it's so funny how the oil bulls just grasp to anything to drive oil up!
You can only "cry wolf" so many times...

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