• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 8 minutes The Inconvenient Truth Of Electric Cars
  • 12 minutes The Plastics Problem
  • 23 mins SHALE MAGIC: Let the oil flow: US to lead oil output growth through 2030: ConocoPhillips chief economist
  • 30 mins To be(lieve) or Not To be(lieve): U.S. Treasury Secretary Says U.S.-China Trade Deal Is 90% Done
  • 4 hours Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 3 hours Philadelphia Energy Solutions seeks to permanently shut oil refinery - sources
  • 3 hours IMO 2020
  • 14 hours Here we go folks, the wish of so many: Pres. Trump threatens to lessen US security role in Strait of Hormuz, unveils sanctions
  • 5 hours EIA reports 12 mm bbls Inventory draw . . . . NO BIG DEAL . . . because U.S. EXPORTED RECORD 12 MILLION BARRELS DAY OF CRUDE + PETROLEUM PRODUCTS ! ! ! THAT'S HUGE !
  • 4 hours Its called reality: Economic, policy challenges to make Asia's energy transition painfully slow
  • 3 hours Ireland To Ban New Petrol And Diesel Vehicles From 2030
  • 19 mins On the hobby side of things
  • 14 hours Looks like Trump is putting together a "Real" Coalition to protect Persian shipping lanes. Makes perfect sense. NO Fake "Coalition's of the Willing" UPDATE REUTERS Pompeo "Sentinel Program"
  • 16 hours Cap and trade: What could Oregon’s carbon policy cost you?
Alt Text

Have Canadian Oil Prices Hit The Sweet Spot?

Canadian oil prices have recovered…

Alt Text

Oil Prices Jump On Hopes Of End To U.S.-China Trade War

Oil prices erased earlier losses…

Alt Text

Oil Spikes On Soaring U.S., Iran Tensions

Oil prices spiked on Thursday…

Al Fin

Al Fin

Al Fin runs a number of very successful blogs that cover, energy, technology, news and politics.

More Info

Premium Content

Oil Prices Riding the Wave of Investor Uncertainty

“Very little of the recent price rise has really been down to the improving supply-demand balance,” said Matt Parry, senior oil consultant at KBC Process Technology Ltd. Instead, most of the recent rise is due “to a combination of the anticipated renewal in quantitative easing and the general increase in investor appetite for risk.”

In fact, investors could discover that they’ve bitten off more than they can chew when it comes to increasing their risk.

“Any market that shows a strong divergence from its fundamentals … is vulnerable to a sharp sell-off,” said Darin Newsom, senior analyst at Telvent DTN. _Marketwatch

Gold and Oil Insurance
Puts: Oil vs Gold

T. Boone Pickens is predicting $95 a barrel oil prices in one year. Other investors and investment houses are predicting that oil will shoot well above $100 a barrel in 2011, perhaps much higher. Given the turbulence in commodity pricing, predicting prices a year in advance is not much easier than predictions for 10 or 20 years in advance. But present circumstances can give us a few ideas what to expect.

Uncertainty is rampant in modern markets. The world's reserve currency is being treated like toilet paper by its own government and central bank. The Eurozone is being shaken to its foundations by demographic change and debt. The ability of China and India to pull the world out of its economic doldrums without help from North America or Europe is being belatedly recognised as having been overstated.

What I am saying is that large investors are hard put to find a safe haven. Just as in late 2007 and early 2008, these investors are running to commodities for a false sense of security. Gold has a fairly good record historically as a storage of value of last resort, but oil is something of a johnny-come-lately in that regard. Investors were killed in 2008, and they will be killed again, betting on oil.
“Commodities seem to spend more time moving with little regard to underlying fundamentals,” said Newsom. “Money flows from market to market, often driven by action in the dollar.”

Weakness in the dollar against its foreign currency rivals, money flow in financial markets, and worries over further quantitative easing have all been strong influences in gold’s climb to record levels, but they’ve been key factors for oil as well...

...“The extreme liquidity in financial markets recently has caused some commodities (like gold and oil) to inflate far more than fundamentals would support,” said Michael Lynch, president of Strategic Energy & Economic Research.

“Expectations of the [second round of quantitative easing] and then the reality were the major factor behind oil’s rise since September, with secondary support from slight strength in fundamentals,” he said.

...“It is clear that the dollar is being deflated by the Federal Reserve printing more money,” said Perry Management’s Perry. So “currency is being invested more in commodities, such as gold and oil.”

Crude oil has had a strong negative correlation with the U.S. dollar index, Newsom points out, and at times, “acts as an investment hedge against inflation.”

That sounds very similar to gold, though oil has “not completely supplanted gold as a safe-haven market yet,” he said.

...Whatever the case, oil trading similar to a currency is worth watching, as the global currency wars “look to be a key issue moving forward, and the cash-rich economies (such as China) need somewhere to put their faith, and likely commodities (particularly gold, but also oil), seem like sensible options,” said KBC’s Parry. _Marketwatch

It is easier to find new oil than it is to find new gold. Recent oil price increases are helping to spur large new oil finds on the North American mainland. And although the ill conceived Obama moratorium continues to stymie new oil development in the Gulf of Mexico, massive new oil deposits are waiting to be found there -- and become ever more affordable as the price of oil tends to rise.

New oil supplies tend to help hold oil prices down -- as does demand destruction caused by higher oil prices. Demand destruction can be due to depressed economic activity, or due to energy consumers finding substitute sources of energy and practising energy conservation. The underestimation of potential demand destruction by energy forecasters is one of the more ludicrous aspects of the current investment atmosphere.

Here at Al Fin, we are less concerned about short-term fluctuations in price than we are concerned with current US government policies of energy starvation, which create political peak oil conditions -- with accompanying higher energy costs, depressed markets, and demand destruction. Such concerns are also rising to the top of the list of concerns of the American voter.

By. Al Fin




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News