Oil Bulls...

[laurence]

So a while back we talked about the huge runup on oil prices, and most oil speculators here said they were sitting pat on their holdings.

http://www.msnbc.msn.com/id/12400801/

Did everyone manage to sell before the bottom fell out? Oh, I understand that this is still a high price by historical standards, but aren't we about 35% off the high? Still hanging tough, already sold, buying more? My only investments in oil are through my S&P Index ( yay for Chevron, Exxon, etc.), so I missed out on the halcion days.

 

[Brat]

I have Fid CN which has a significant natural resource component.

At the least hint of instability in the Gulf oil prices with jump. I don't buy on increasing prices, I wouldn't sell on the slide either. Would I buy if oil company stocks dipped (yields, PEs were attractive)? Maybe.

 

[brewer12345]

Hmmm, you seen any cornucopean source of new oil and gas? Any new domestic refineries been built in your state? Demand for oil and gas suddenly went down 25%?

This is a temporary blip in a longterm uptrend that is firmly rooted in the basic economics of ever-increasing demand and continually increasing costs of getting stuff out of the ground. Simple as taht.

 

[laurence]

But it could be a two to four year blip! I mean, if you are buying oil for a 20 year time horizon, I hear you....

 

[brewer12345]

Maybe. After all, the market can stay irrational for a long time, and long term economic forces can be ignored for a surprisingly long time (USD levitating, for example), but eventually it outs. Gotta be patient.

 

[haha]

I think of speculating on oil as futures trading. I don't do futures trading, unless the future looks a lot clearer than it does to me. I agree completely with Brewer- sometime, probably not far off it will dawn on people that the party is over, the sun is coming up, and we gotta get down to work. At that time I want to own real stuff, especially crude oil and natural gas or the firms and assets needed to extract, process and transport these things.

I don't own anything held at a loss, though in some holdings I have given ground from the high water mark. I believe that this is an area where interest and time and diligence tend to pay off. I managed to make money on O&G investments during the 80s. Of course the old saying applied- hard to get hurt falling out of a basement window.

I have bought and sold some issues. At these levels if we are looking at a hard recession, oil and most related equities may give ground. NG is more weather dependent. But the time to be a seller was $27 ago rather than now, in my opinion.

Anyway, don't worry, if you have well chosen oil investments they will work out, in spite of what has been said on this board by a number of pundits over the years.

And some day, they are going to make me bloody effing rich.

Ha

 

[Moemg]

I've had Vanguard Energy fund for years . It usually a winner so why sell .

 

[Cut-Throat]

http://early-retirement.org/forums/index.php?topic=8970.0

I imagine that my Index funds invest in some oil, but I try not to look. If you want to take the above thread as a prediction, it's fine by me.

If I were to make another prediction, it would be to buy oil now that the cash is leaving. I won't of course because I know that I am an investing idiot and will stick with my index funds and go fishing. 8)

Cut-Throat - doing nothing as usual.

 

[Empty Pockets]

Commodity "investing" scares the bejiggers out of me. I tried it once, got out alive and swore off of it for good. I'll put things on auto pilot and go fishing with Cut-throat instead.

 

[justin]

Laurence,

I was about to post a new thread on this exact same topic a few hours ago!

I was wondering what all the oil bulls are making of the current oil market. Still long term buy?

I'm a "DCA into my index funds and get on with life" person, so the price of oil doesn't change how I invest. I think my index funds are around 10% energy sector though.

 

[laurence]

I'm like Justin - just better looking - on this one. HaHa brings up a good point, and I think it's Brewer's too. Investing in a real business that brings oil to the energy hungry masses is obviously less risky than buying dotcom.com stock of a company with no product or revenues!

 

[maddythebeagle]

Oil prices dont concern me since I have been holding for some time on my energy stocks...I would love for it to go down more so I can buy more....that begs the other question, what happend to the gold bugs

 

[MasterBlaster]

Hmmm, you seen any cornucopean source of new oil and gas? Any new domestic refineries been built in your state?

Well they seem to be converting the midwest into a bio-diesel and ethanol cornucopea. From what I understand they are building production facilities there like there is no tommorrow.

So just maybe well trade the prospect for some renewable energy for higher corn prices.

It's not guns versus butter, It's cheap food versus cheap fuel.

 

[haha]

....that begs the other question, what happend to gold bugs

I'm still here

Though as a gold-bug I am a piker. I have 6x my gold investment- at current value- invested in oil securities, so oil and gas are way more important to me than gold.

I trade these gold equities. I don't hold any bullion or gold bullion ETFs. One of my equities got taken over at its high water mark by an all stock deal, but I continued to hold the acquirer. I am way ahead on the investment, but down from the takeover price.

I have large gains in 2 other equities, though one is down 20% from its high. I have a couple of small positions that have just entered the incubator.

Back in 2002 I invested in big producers, not wanting to miss out on gold's likely revaluation as a commodity. Later I sold these and invested in companies with apparently good drilling results on large greenfield properties, hoping for eventual takeouts.

Presently Newmont is getting very cheap. This is a class operation, and if it continues down I will buy some.

Do you do gold as well as energy?

Ha

 

[haha]

Well they seem to be converting the midwest into a bio-diesel and ethanol cornucopea. From what I understand they are building production facilities there like there is no tommorrow.

So just maybe well trade the prospect for some renewable energy for higher corn prices.

It's not guns versus butter, It's cheap food versus cheap fuel.

More likely expensive food, without a lot of effect on the price of fuel.

Ha

 

[Gone4Good]

Heh, heh, heh, heh!

 

[lswswein]

This is an interesting story on Oil and the commodities asset class.
http://www.economist.com/finance/displaystory.cfm?story_id=8523694

It is possible that falling commodity prices are signalling a rough patch ahead for the world economy. Perhaps they are catching up with the mood in the bond markets, where the inverted yield curve (in which short rates are higher than long rates) has, many believe, for months been pointing to a slowdown...................

But the gloom thesis is not really borne out by recent economic data, which have shown, for example, strong American employment gains and buoyant German manufacturing.
............
It seems more likely that commodity prices are being driven down by two other factors. The first is supply, as higher prices have steadily led to increased production. Dresdner Kleinwort, a German bank, reckons that 2007 could be the first year in the current “super-cycle” in which the supply problems in a range of metals will start to subside.
............
The second force is the flow of investment. It is surely no coincidence that the two commodities to suffer most in the recent sell-off are oil, the most-traded commodity, and copper, where speculative excess seemed greatest.

The enthusiasm for commodities in recent years has been part of a general move into “alternative assets”, a term that covers everything apart from shares, bonds and cash. The idea was to find assets that were uncorrelated with traditional holdings, a move that should improve the risk-reward trade-off of portfolios.
.......
Oil is the biggest single component in most commodity indices. Citigroup estimates that, from 2003 onwards, financial flows had pushed up the price of oil by some $35 per barrel.

Such was the scale of investment flows that the structure of the commodity markets changed. Traditionally, futures prices were lower than spot, or current, prices; a state known as “backwardation”. This allowed investors to buy the future and wait for its price to rise to the spot level. This gain, known as the “roll yield”, was an important part of commodity returns.
................
But financial speculation forced the futures price of some commodities well above the spot level, an unusual phenomenon known as “contango”. This meant investors in futures were losing money; in other words, the roll yield was negative. So whereas The Economist's commodities index rose 28% in 2006, the Goldman Sachs Total Return Index (which incorporates both oil and the roll return) fell 15%.


The $35 number sounds high and more data sources would be good, but I guess this is one theory on Oil and commodity asset class. Remind me in year or so to run all the numbers on Commodities as a diversifier and then maybe add more to PCRIX - hopefully the hot money would have left the field.

-h

 

[justin]

That $35 per barrel premium due to financial inflows of cash into oil is believable when oil was at $70+/bbl (not too long ago!). It's hard to imagine $35/bbl premium at a spot price of ~$50/bbl.

 

[Empty Pockets]

I live smack in the middle of the ethanol industry, I can see the smoke from the largest plant in the midwest from my office. Plants are popping up like crazy all around and everyone is investing in them.

They scare me as an investor. I saw a lot of people lose a lot of money when they invested in Minnesota Corn Processors. Archer Daniels Midland bought them for a song when they came on hard times.

I live in farm country so I'm all for any industry that uses their product and supports commodity prices. The trouble I see is that it will not decrease anyone's fuel cost. The ethanol industry is controlled by Archer Daniels Midland and they aren't going to sell ethanol for any less than the market price for petroleum. I predict that a lot of these smaller plants will not survive due to increased corn prices and lower ethanol prices, and Archer Daniels Midland will pick them up for a song and then they'll really control the market.

I wouldn't worry too much about a corn shortage. The American Farmer is more than willing to produce all the corn they can, and if prices get too high the gov't farm program will gear towards more corn production and the demand will be met. There are also some more efficient crops to produce ethanol such as switch grass, sugar cane....

 

[MasterBlaster]

I wouldn't worry too much about a corn shortage. The American Farmer is more than willing to produce all the corn they can, and if prices get too high the gov't farm program will gear towards more corn production and the demand will be met. There are also some more efficient crops to produce ethanol such as switch grass, sugar cane....

Corn is already in short (somewhat) supply... And the people who are most affected are not who you would think. Evidently worldwide corn price increases are causing the price of (corn) tortillas in Mexico and elsewhere to go up. This is a basic foodstuff for the very poor and it causes issues with the very poor.

here are some related news articles:

http://www.amandafritz.com/node/418

http://venturebeat.com/2007/01/15/ethanol-use-causing-corn-shortages-spiking-price-price-of-tortillas/

As I said its not guns versus butter, it's cheap fuel versus cheap food.

 

[d]

in the U.S., ethonol has been more of a political than an economic issue. as a result, it would not be surprising to see negative economic consequences as this continues to develop.

 

[Empty Pockets]

The world food consumer has been getting fleeced for years. Corn has just reached $3 a bushell (56 lbs.) for the first time in many years. Corn was over $3 in the 1970's and 1980's when food was much cheaper.

I remember in 1980 corn was well over $3.00, wheat was over $5 and soybeans were over $11. Higher than today's prices. Milk prices were higher then than the farmer is getting today. It's all the places in between in the food chain that are blaming higher commodity prices for increased food prices. The consumer is getting fleeced.

A couple generations ago the consumer was much closer to the source where their food came from. Many grew up on a farm or had close relatives that farmed. That's not the case anymore.

 

[Leonidas]

Did everyone manage to sell before the bottom fell out? Oh, I understand that this is still a high price by historical standards, but aren't we about 35% off the high? Still hanging tough, already sold, buying more? My only investments in oil are through my S&P Index ( yay for Chevron, Exxon, etc.), so I missed out on the halcion days.

I remember the agonized postings of this past Summer. As the price of oil, and gasoline, has continued to drop even below my expectations I wondered if anybody was ever going to post about that.

I still own XOM and BP. Oil has been an overweight in my portfolio for a few years, and I have been planning to lighten up a just a little this month or next. I do want to secure some of my profits, but I'm not a market timer and all I'm trying to do is adjust some sector allocations that are out of whack. They've backed off recent highs but I'm not concerned because I'm definitely not a short term investor - I've owned both of these issues since I started investing in the early 80's.

The recent "oil crisis" didn't just happen. A lot of cash was chasing profits and some people saw/created some holes in the market regulatory oversight that provided them with the means to drive the prices up. Katrina, Rita, Iraq and Iran were all just handy excuses to push it ever higher. I guess some hogs are being slaughtered now. I've stayed away from even pretending to know what the future is going to bring for oil prices, but I did think that prices were going to come down although I have not a clue how far or for how long. How far and how quickly prices have unwound has surprised me a little and if I had to make a guess I think we'll reach some kind of equilibrium before long. And since the genie is out of the bottle on this game, the next time we're perceived to be in a tight spot on supply there will be a lot of people piling in trying to make a buck.

But from the standpoint of my investments in XOM and BP (and maybe adding another company or two in that mix as I lighten up on those two) it does not matter. They'll keep on pumping oil, making money and paying me dividends. And unless oil starts suddenly filling up depleted wells, I think price appreciation will continue to be in the cards for a long time to come.

As an aside, I do have to ask whatever happened to Bush and Cheney manipulating the markets just to win the election. That didn't work out too well for them, but we're now two months past the elections and the prices haven't gone back up and in fact continue to drop. Is the secret Oval Office oil price contol lever broken?

 

[CCdaCE]

Oil's "crashing" because most of the speculators have supposedly left. Or, so I heard on NPR. Didn't say where they went, where their money went, etc. The pundit didn't have trade volume or amounts of cap. being shuffled. So, the information was all speculative speculation? Too lazy to look for info. refuting or denying this.

As far as ethanol.... What about all the water it takes to convert corn to energy? What about all the petroleum-based fertilizers it takes to grow corn?

Is now the time to buy a crapload of futures - gas, corn, oil? No idea, but it'd be pretty diversifying.

-CC

 

[brewer12345]

Is now the time to buy a crapload of futures - gas, corn, oil? No idea, but it'd be pretty diversifying.

-CC

Beever Chees3, definatley Beever Chees3 futures. On margin.