Crude Oil Price Skyrockets to New High!

[OilFinder2]

Here's the Comex futures for CL:
http://www.cmegroup.com/trading/energy/ ... crude.html
^
Notice that futures prices for 2014-early 2016 are priced $1-$2 *lower* than the price of the current contract. If traders were anticipating increasing shortages then, the price of those future contracts would be higher than the current price, not lower.

[OilFinder2]

Oil futures for delivery in March 2012 fell as nearer-term contracts rallied, a sign that participants are reducing bets on the steepness of a price increase in the next few years. The long-term contracts moved into a market structure known as backwardation.

ie there is not enough oil today, when we need it now. This price rise has nothing to do with speculation. It is all about PO.

You didn't read your own excerpt carefully enough. Read the part I've highlighted in red. If traders were anticipating increasing shortages of oil due to PO (or any other reason), they would not be "reducing bets on the steepness of a price increase in the next few years." Instead, they would be bidding up contracts for futures dates such as March 2012, not bidding them down.

[Outcast_Searcher]

Here's the Comex futures for CL:
http://www.cmegroup.com/trading/energy/ ... crude.html
^
Notice that futures prices for 2014-early 2016 are priced $1-$2 *lower* than the price of the current contract. If traders were anticipating increasing shortages then, the price of those future contracts would be higher than the current price, not lower.

Note that early 2014-2016 is 3+ to 5+ years from now. If the global economy is picking up now (seems a very mixed bag to me -- emerging markets strongly yes, Europe mixed and risky due to debt issues, USA mixed (unemployment and housing down, many other major indicators up)) -- that would seem to mean higher oil prices in the near term, which is what has been happening lately.

I don't know. I'm a fundamental investor, not a chart reader. Many pundits I see lately on CNBC keep seeing its move to backwardation is a STRONGLY bullish sign for crude, as it implies insufficient supply in the near term is expected.

Just using common sense, and forgetting the charts for the moment, if you think we are in a US and generally global economic recovery (as you seem to have been making a decent case for, against many adversaries on this site), wouldn't that fundamentally point toward higher crude oil prices in the next year or two?

Longer term, who can say?

1). Technology can change.
2).The global economy can change.
3). Maybe the first world can reduce their demand quicker than 3rd world demand can increase.
4). Maybe pigs will learn to fly.

(I believe number 3 as much as number 4, for the next decade or so).

You make a lot of sharp calls based on MSM economic statistics. Do you really want to make this call on a 2ish percent backwardation in 3 to 5(+) years? (Just curious).

[OilFinder2]

Many pundits I see lately on CNBC keep seeing its move to backwardation is a STRONGLY bullish sign for crude, as it implies insufficient supply in the near term is expected.

As you can see from the chart I posted on the previous page, yes, backwardation - when it first starts - can be a sign of shorter-term price increases, but then a correction later. And the backwardation can go on for a while before the correction arrives. Notice that, although it can be bullish, it does not necessarily indicate a sharp price spike - for instance in the backwardation from about 2000 to late 2001 the price looks like it rose from around $15 to around $30. You could translate that as either a large rise of about 50% or a more modest rise (by today's standards) of $15. You had a brief contango in late 2001 followed by another lengthy backwardation. Interestingly, the size of the spread of the peak of the backwardation in 2003 was larger than the one in 2007-08 but resulted in a much smaller price rise. Also, the resulting price correction (in 2006-07) took a while to occur after the backwardation went into contango. So I think the most you can say is, assuming the current backwardation lasts for more than a very short period, it means the price will rise short term and then correct itself, but it is impossible to say how long "short term" is, and what will be the size of the price increase and ensuing correction.

[Outcast_Searcher]

So I think the most you can say is, assuming the current backwardation lasts for more than a very short period, it means the price will rise short term and then correct itself, but it is impossible to say how long "short term" is, and what will be the size of the price increase and ensuing correction.

In that context, what you're saying makes a lot of sense to me, and I tend to agree with the overall thesis. I suspect there are just SO many variables that trying to predict what short term is or the magnitude of the increase and correction is just a fool's errand (as you implied) which is why I don't tend to focus on wiggles on charts, use stop losses, etc. -- dealing with all the false signals in any technically based trading system has LOTS of costs over time,

Thanks much for the detailed response!

[Daniel_Plainview]

Oil has now SURPASSED the $90/bbl barrier to 26-month high

Oil Rises to 26-Month High Above $90 on U.S. Supply Forecast
By Grant Smith - Dec 7, 2010 7:58 AM CT

Oil climbed above $90 a barrel to the highest price in two years before a report forecast to show that U.S. crude stockpiles fell for the first time in three weeks.

Futures rose as much as 1.5 percent to trade as high as $90.76 in New York. Inventories declined 1.5 million barrels, or 0.4 percent, in the seven days ended Dec. 3 from 359.7 million a week earlier, the Energy Department will report tomorrow, according to a Bloomberg survey. Oil’s 14-day relative strength index, a measure of how fast prices have risen or dropped in that period, was at 67.7, close to the 70 level traders typically see as a signal that prices may reverse.

“In the U.S. itself the excess in inventories has come off very, very quickly,” said Amrita Sen, an analyst at Barclays Plc in London. “Over the last five or six weeks, you’ve eroded about 40 million barrels of inventories. It’s tightening, and it should continue to erode as we progress into the new year.”

Crude for January delivery gained as much as $1.38 a barrel to the highest price since Oct. 8, 2008 in electronic trading on the New York Mercantile Exchange. It traded at $90.69 at 1:56 p.m. London time. Brent crude for January settlement advanced as much as $1.41, or 1.5 percent to $92.86 a barrel on the London- based ICE Futures Europe exchange.

Futures in New York recouped an earlier 0.7 percent decline as the Dollar Index, a measure of the currency against six major peers, slipped 0.3 percent. Oil climbed yesterday amid speculation that the U.S. may extend economic stimulus measures and on forecasts of cold weather for the U.S. and Europe. Crude gained 13 percent this year.

The Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

Longest Sequence

Gasoline supplies are expected to have risen 875,000 barrels, or 0.4 percent, from 210.2 million, Bloomberg’s survey showed. It would be the third weekly gain, the longest sequence of increases since August. Stockpiles of distillate fuel, a category that includes heating oil and diesel, probably decreased 550,000 barrels, or 0.3 percent, from 158.1 million.

“The expectations are that we’ll see some inventory drawdowns tomorrow,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. “A weaker dollar is helping support crude, though macro sentiment is mixed. The market is overbought, and any escalation in concern about risk could trigger profit-taking.”

The industry-funded American Petroleum Institute will release weekly supply and demand data later today. MasterCard Inc. will also publish its weekly SpendingPulse report with data on U.S. gasoline demand.

The Organization of Petroleum Exporting Countries, responsible for 40 percent of global oil supplies, will meet to review its production quota on Dec. 11 in Quito, Ecuador. The organization hasn’t changed its output target since 2008.

ZeroHedge and following comments:

Those who are about to spend another 20% of their paychecks to cover the cost of surging food and gas prices, salute the wealth effect. For everyone else, there is the discount window. WTI Crude has just passed $90.57 (and at last check was at the highest it has been since mid-2008). We hope Ben Bernanke has plans how to deal with oil passing $100 (to the upside) - at today's rate of dollar devaluation, that target should be taken out by the end of the month. And in addition to supermarkets, next up one can safely cross out all companies that use petroleum distillates in the COGS. In fact, everything that worked in the spring of 2008 as the bubble was on the verge of blowing up last time, should work all too well. And back then we didn't even have a daily POMO...

[dolanbaker]

Back down to $88 right now, it appears that the $90 "glass ceiling" is still intact! Brent crude still @ $91 though.

[Questionmark]

Regarding the backwardization, that only occurs when investors are expecting shortages and would rather buy nearer term contracts and store it themselves as opposed to buying a further out contract and taking delivery when they need it. When the price curve is contango the increased price for the longer term contracts is mainly to cover the storage costs that the seller takes on. It's not that buyers believe the price will go down, it's that there's no demand for further out contracts.

[sparky]

.
Keep in mind that the WTI price quote is a bit of a plaything for speculator
the real price of real oil is the OPEC basket price

http://www.opec.org/opec_web/en/data_graphs/40.htm

Societe Generale a big French bank has been issuing an orange alert at 90$ /Bl
that is the point when real damage is done to the economy
IE ...when demand destruction start to bite
IE.... when economic growth stall

The Oil in the U.S. is under taxed ,it nearly destroyed the car industry by masking market signal
the gasoline price is structured on the basis of an oil exporting country , as was the case in the past
now , it's important to give consumers a clear price message

[Daniel_Plainview]

Back down to $88 right now, it appears that the $90 "glass ceiling" is still intact! Brent crude still @ $91 though.

Iran sees $100 oil price ‘quite normal’, crisis ahead

Tehran Times
Dec 8, 2010

TEHRAN – Iran’s OPEC governor believes the supply of oil with at a price of $100 price is quite normal in short term, warning that the world would face a looming oil supply crisis because of production declines of up to 10% from producing fields.

“”The world faces great uncertainties in security of energy supply and that the price of crude is still undervalued and set to hit $100 in the short term,”" Mohammad-Ali Khatibi told the Mehr news agency.
“”The world is concerned about the security of energy supply due to the anticipation of a drop in global oil production and a drop in the supply from non-OPEC countries,”" he added.

The era of cheap oil was over, he said, adding that current oil prices were unrealistic when compared with historic prices and a higher oil price was needed to guarantee investment in new capacity, “”which is one of the solutions for supply security.”"

Khatibi said the increase in the oil price still did not reflect the fall in value of the dollar over recent months. “”At the moment, global oil prices have not increased in a real way compared to previous years. They do not consider the drop of the dollar in the calculations.”" He made the remarks ahead of a meeting of OPEC oil ministers on December 11 in Ecuador. Several member states have said there is unlikely to be a change in production quotas at the meeting. “”In recent years some of non-OPEC countries have continuously oversupplied the market, but this will not be possible in the coming years because of a drop in production,”" Khatibi said.

Iran is OPEC’s second largest exporter after Saudi. According to the latest Platts survey of OPEC’s output for November, Iran is producing 3.69 million b/d of crude oil

PrisonPlanet

[Daniel_Plainview]

Back down to $88 right now, it appears that the $90 "glass ceiling" is still intact! Brent crude still @ $91 though.

Jeff Rubin is Predicting "Triple Digit Oil" Within 4 Months

JEFF RUBIN
What will 2011 bring? Triple-digit oil
Globe and Mail Update
Posted on Wednesday, December 8, 2010 6:01AM EST

The strongest manufacturing numbers coming out of the Chinese economy in a seven-month period, coupled with plunging oil inventories in the world’s largest energy consuming economy, have sent oil (CL-FT88.40-0.29-0.33%) prices to a 25-month high. With no let-up in China’s fuel demand, the world should be looking at triple-digit oil prices again within a quarter.

That may come as a shock to those who thought the bloated oil inventories that came in the wake of the last recession would provide a buffer against future oil price spikes. Suddenly, that buffer has literally gone up in smoke.

Refined oil stocks held by China’s two largest oil companies have fallen for eight consecutive months, while diesel stocks in the country fell 14 per cent in October. And the tightening oil market won’t just be felt in China. The 140 million gallons of international oil inventories sloshing around in floating storage on the high seas is also all but gone.

With oil prices within striking distance of triple-digit levels, don’t look for any price relief at the upcoming OPEC meeting in Ecuador. Venezuelan energy and oil minister Rafael Ramirez was recently quoted as saying that $100 (U.S.) per barrel was a fair price for both consumers and producers. (But not for cab drivers in Caracas, who will continue to be able to purchase their fuel at $20 per gallon, the equivalent of a little over $8 per barrel). Meanwhile, King Abdullah of Saudi Arabia has already served notice that, without triple-digit prices, there is little incentive for new oil exploration in his kingdom.

In other words, without the return of the kinds of oil prices that put the world economy into the deepest ever post-war recession, we shouldn’t expect major oil producing countries to find and develop new supply. Yet, according to the recently released World Energy Outlook from the International Energy Agency (IEA), world oil demand has never been more dependent on finding new supply.

How the goal posts have moved when it comes to oil prices and supply forecasts. Just as the IEA has finally recognized the reality of peak oil—at least insofar as affordable conventional oil is concerned—triple-digit oil prices have become the new normal in OPEC’s price expectations.

When both OPEC, an organization representing 40 per cent of world oil production, and the IEA, representing countries that consume roughly 50 per cent of the world’s oil, both now acknowledge the imminent return of triple-digit oil prices, perhaps it’s time our policy-makers should as well.

Our last encounter with those prices was brief but decisive. Oil demand collapsed, and, since oil powers our economy, so did GDP. What steps we have taken to ensure the same thing doesn’t happen again is far from clear.

Globe & Mail

[OilFinder2]

Iran has been clamoring for $100 oil since late in 2008.
LINK

As for Jeff Rubin, at one point he predicted an average price of $130 for 2009
LINK

Maybe I should replace the Schmuto Index with the Daniel_Plainview Index.

[pstarr]

Maybe I should replace the Schmuto Index with the Daniel_Plainview Index.

Maybe I should define everything you post the Schmucko Index?

[Daniel_Plainview]

Iran has been clamoring for $100 oil since late in 2008.
LINK

Well, the quote by Iran's Oil Minister (dated Aug. 31 2008) doesn't give us much info:

Iran's Oil Minister Gholamhossein Nozari said $100 a barrel is the ``minimum'' suitable level for crude, the Oil Ministry's official news agency Shana reported today. The Iranian official said he expected crude prices to rise because of the expected increase in demand for fuel oil during the Northern Hemisphere winter.

A "minimum" suitable level could refer to many things, such as the marginal cost of production and/or the cost of investments in new fields.

[Daniel_Plainview]

As for Jeff Rubin, at one point he predicted an average price of $130 for 2009
LINK

Jeff Rubin: "With Europe in recession and Japan and the U.S. economy in borderline status, world growth outlook is the weakest in years," he said. However, "most" of the recent oil price drop will be reversed by early 2009, Rubin said.

Perhaps Jeff Rubin believed all of the US government's propaganda relating to employment and GDP growth. Admittedly, that would be a huge mistake.

[Daniel_Plainview]

Gasoline: $3 by Christmas and a 'Mini-Apocalypse' in Spring?

By CHARLES WALLACE Posted 6:30 AM 12/08/10 Energy, Economy

With crude oil prices at the highest level in more than two years, holiday shoppers face the agony of $3-a-gallon gas this holiday season -- and much higher prices likely by springtime. "It now look as if December 2010 is probably going to be the most expensive month for gasoline in the U.S. since September 2008," says Tom Kloza, chief oil analyst at Wall, N.J.-based Oil Price Information Service.

Crude oil hit $90 a barrel on Tuesday, its highest point since 2008, when prices were plunging from that summer's high of $145 a barrel in the worst energy crisis of the last decade. Gas topped out at $4.11 a gallon, prompting people to sell their SUVs, buy gold and worry about the future.

Gas prices nationally now average about $2.95 for a gallon of unleaded regular, but they're already at $3.22 in New York, $3.21 in California and $3.02 in Illinois. Philip Verlger, an oil analyst at the University of Calgary who publishes The Petroleum Economic Monthly, says the current price spike was initially caused by a problem at a refinery in Nova Scotia that hit the U.S. East Coast first. "Gasoline prices went way up, and that pulled crude up," Verleger says. "Add to that the fact that it got cold, when heating-oil and natural-gas prices tend to go up, and they went up a little. That added $10 to the price of crude."

Kloza believes gasoline prices will hover around $3 a gallon until Christmas, and then drop back until spring. But then he expects them to surge dramatically, perhaps as high as $3.50 a gallon. "That will be a mini-apocalypse for a lot of people," Kloza says, adding that while the price increase will be painful, he doesn't think it will be long-lasting.

(snip)

The U.S. has never had $3-a-gallon gas at Christmastime, reflecting the fact that gas prices typically get lower as the days grow shorter. Gas was at $3 for about six months in 2008 and for brief periods after hurricanes, but never in the winter months.

Verlger thinks [gas] prices may hit $3 later this year but then fall back a bit as demand for products such as gas and heating oil on the East Coast eases after Christmas. Says Verleger: "Products lead crude."

See full article from DailyFinance:

[OilFinder2]

Here's the Comex futures for CL:
http://www.cmegroup.com/trading/energy/ ... crude.html
^
Notice that futures prices for 2014-early 2016 are priced $1-$2 *lower* than the price of the current contract. If traders were anticipating increasing shortages then, the price of those future contracts would be higher than the current price, not lower.

The backwardation is completely gone. That didn't last. But the futures curve is still very flat.

[sparky]

.
The market is spooked , oil price could move both way
It's a finely balanced equation with growth , the U.S. dollar and depletion as main factor
the Iran situation should be for show but things have a way of going pear shape

[Daniel_Plainview]

NYMEX recently touched $90/bbl, and closed up 0.5 percent at $89.82 (January 2011 contract), representing a 14-month high:



Crude Closes at 14-Month High as Oil Prices Continue to Rise

Posted by Josh Garrett on December 21, 2010 at 4:52 pm

General optimism that economic recovery is underway in the US helped send crude to a 14-month-high closing price at the NYMEX on Tuesday. Trading at the NYMEX was light today as the Christmas and New Year’s holidays approached, but crude and heating oil prices continued to climb, and the price of crude oil closed at its highest level since October 2008. Prices received support from economic optimism in the US that raised hopes of growing demand for petroleum products in the near future. A modest increase in the S&P 500 index of US stocks helped support hopes of an economic recovery and lent support to oil prices. Anticipation of another round of bullish petroleum inventory data also helped lift oil prices, with the API report due out late Tuesday and the EIA report to be released Wednesday morning. Today’s moderate price increases will likely bring a three-cent increase in retail heating oil prices tomorrow.

[Xenophobe]

NYMEX recently touched $90/bbl, and closed up 0.5 percent at $89.82 (January 2011 contract), representing a 14-month high:

deleted Doesn't even touch the real price of crude during the bad old days of the 70's, or even 2008.

We need $250/bbl, and we need it NOW! I say we take up a letter writing campaign, try and convince our fearless leaders to let us have what we REALLY need....$250/bbl crude!

Its time to feel the burn baby....embrace the horror!