Crude Oil Price Skyrockets to New High!

[lper100km]

From the Globe and Mail Business Section March 2nd., 2012, Eric Reguly

This is a remarkably concise and sanguine commentary on the failure of oil prices to decline in the face of recessionary trends.

Evidently, the producers are having difficulty coping with even the reduced supply demands. Peak oil is mentioned as though every one knows about it (and without the word ‘theory’ being appended).

http://tinyurl.com/83v9xsj

[pstarr]

From the article;

If you want a recipe for falling global oil prices, you would think this would do the trick.

The 17-country euro zone, which includes three Group of Seven countries, is back in recession. The shale deposits in the United States are gushing oil. Libyan supplies are coming back with a vengeance. Iran has not been bombed and, if the blathering Beltway pundits are right, will not be bombed before the U.S. election. The Strait of Hormuz is wide open. The latest generation of cars makes the fuel economy of your dad’s old banger look like the Exxon Valdez’s. European austerity-related taxes on gasoline and diesel are pushing down demand.

Why, then, are oil prices so high, to the point they threaten the tentative economic recoveries in debt-bombed Europe and elsewhere?

The author covers his bases, hems and haws some, equivocates a bit, but finally shows us his money shot. And it is not pretty. Looks and smells just like peak.

[SeaGypsy]

As I have noted in other threads, this stealth entry of peak oil into MSM language and story context over just the last few weeks, is notable.

A cursory google shows over 1.5 million peak oil related updates in the last month, with such as:

http://www.onlineopinion.com.au/view.asp?article=13234

and current redactions from the likes of the pathetic Citigroup published in the WSJ couple of weeks back just look stupid:

http://blogs.wsj.com/source/2012/02/17/ ... l-is-dead/

[Repent]

I didn't like either of those links. In particular the first one that claims peak oil has made in into the MSM 'from the extremist conspiracy fringes of society'.

What is extreme about the simple idea that oil fields deplete over time? Why would someone be on the fringe of society for understanding that oil wells, individually or in aggregate have maximum production rates? Where is there a 'conspiracy' of the likes of 'UFO tinfoil hat coverup involved'?

It fact this isn't news at all, this site was lauched at the beginning of 2004 and 8 years later the mainstream media hasn't fully 'gotten it'? This is both sad and tragic.

[Cog]

I didn't like either of those links. In particular the first one that claims peak oil has made in into the MSM 'from the extremist conspiracy fringes of society'.

What is extreme about the simple idea that oil fields deplete over time? Why would someone be on the fringe of society for understanding that oil wells, individually or in aggregate have maximum production rates? Where is there a 'conspiracy' of the likes of 'UFO tinfoil hat coverup involved'?

It fact this isn't news at all, this site was lauched at the beginning of 2004 and 8 years later the mainstream media hasn't fully 'gotten it'? This is both sad and tragic.

To truly understand peak oil you have to do the research on it as most of us have done. We understand the difference between shale oil and oil shale. But you will not see the cornies or the MSM make that distinction. For the cornies its a matter of dishonesty. With the MSM its a matter of intellectual laziness.

For the political class, peak oil means an end to growth. That is anathema to getting re-elected. So you will find few polticians that will talk about it even if they understand the implications.

Peak oiler's will always be a fringe element since we aren't telling people what they truly want to hear.

[dolanbaker]

http://www.bloomberg.com/news/2012-02-2 ... ys-1-.html

Excluding Iran from the global oil market would increase the shortfall between worldwide supply and demand sixfold, based on February production and consumption estimates, the U.S. Energy Department said.

Global fuel use averaged 3 million barrels a day more than output when Iran is excluded from the calculations and 500,000 more when Iran is included, the department’s Energy Information Administration said in a report yesterday.

We're using it up quicker than we're getting it out of the ground!

[SeaGypsy]

The ABC news in Australia has incorporated peak oil and Brent/ WTI/ Tapis spread into their nightly finance news broadcasts. Without any mention of tinfoil or aliens or extremism. This has just happened in the last few weeks. I think it has now gotten to the point where so many indicators are now in place, denial looks like the fringe to any sensible person who has done a few hours research.

[pstarr]

I didn't like either of those links. In particular the first one that claims peak oil has made in into the MSM 'from the extremist conspiracy fringes of society'.

What is extreme about the simple idea that oil fields deplete over time? Why would someone be on the fringe of society for understanding that oil wells, individually or in aggregate have maximum production rates? Where is there a 'conspiracy' of the likes of 'UFO tinfoil hat coverup involved'?

It fact this isn't news at all, this site was lauched at the beginning of 2004 and 8 years later the mainstream media hasn't fully 'gotten it'? This is both sad and tragic.

To truly understand peak oil you have to do the research on it as most of us have done. We understand the difference between shale oil and oil shale. But you will not see the cornies or the MSM make that distinction. For the cornies its a matter of dishonesty. With the MSM its a matter of intellectual laziness.

For the political class, peak oil means an end to growth. That is anathema to getting re-elected. So you will find few polticians that will talk about it even if they understand the implications.

Peak oiler's will always be a fringe element since we aren't telling people what they truly want to hear.

ahem to that. It's not just the political class--MSM is beholden to advertisers, in particular car companies and the FIRE group (Finance, Insurance and Real Estate). None want to admit that good debt depends on forever growth

[pstarr]

The ABC news in Australia has incorporated peak oil and Brent/ WTI/ Tapis spread into their nightly finance news broadcasts. Without any mention of tinfoil or aliens or extremism. This has just happened in the last few weeks. I think it has now gotten to the point where so many indicators are now in place, denial looks like the fringe to any sensible person who has done a few hours research.

interesting. (didn't mean to upstage you) do you have references? regarding peak oil/brent/tapis spread?

[SeaGypsy]

http://www.abc.net.au/pm/content/2012/s3417345.htm

An example. The ABC has been talking about peak oil for a long time, but building the language into the mainframe of what is causal in the economy seems to be what has changed more recently.

Then we have Alan Kohler, who seems to know a fair bit about oil, the ABC's head of Business Analysis; taking a cornucopian view based mostly on the USA's shale development. The last line in this article is a dead givaway.

http://www.businessspectator.com.au/bs. ... nt&src=rss

[pstarr]

both articles depend on the shale phenomena to offer hope; one for a bright shiny oil future (the later) and the other kind of a nice decline--no mention of population dieoff/zombies. Problem with shale; it declines precipitously and wells need to be drilled and re-drilled at a fantastic rate. It's a scam and bubble.

[SeaGypsy]

It's clearly at the stage of transition from denial to bargaining.

[Daniel_Plainview]

One of the most comprehensive reports of this year predicts record-breaking oil prices, including the spectre of $200 oil.

Erste Group Research: "Nothing to spare" - Oil Outlook 2012

We see the risks for the oil price heavily skewed to the upside. At the moment, the market is well supplied, but the smouldering crisis in the Persian Gulf could easily push oil prices to new all-time-highs should it escalate. We believe that new all-time-highs can be reached in H1, at which point we could see demand destruction setting in. We forecast an average oil price(Brent) of USD 123 per barrel between now and March 2013.

The latently smouldering Iran crisis seems to be close to escalation. The most recent manoeuvres, ostentatious threats, sanctions, embargoe sand the shadow war currently ongoing, have heated up the situation further.It seems we may soon see the last straw that breaks the camels back. Even though Iran could probably only maintain a blockade of the Straits of Hormuz only for a very limited period of time, the consequences would still be dramatic. The oil price would definitely set new all-time-highs and could reach levels of up to USD 200.

The still low reserve capacity makes the oil price vulnerable to geopolitical tensions. With the exception of Saudi Arabia, no country holds any significant reserve capacities. But since Saudi Arabia has never exceeded the barrier of 10 mbd on a sustainable basis, we harbor doubts as to whether the country can actually produce 12.5 mbd. Risks are that it will take a supply side crunch to find out whether the alleged reserve capacity actually exists to the extent proclaimed. At any rate, the decision of IEA to tap the strategic reserves during the Libya crisis is a clear indicator of the strained supply situation.

The belief in a quick substitution of fossil energy carriers by alternative forms of energy seems illusory and naïve, given the current investment volumes and lip service. But we still believe that much like Julian Simon forecasted high oil prices cause shifts in efficiency and technology. Or as Mark Twain said, "The reports of my death are greatly exaggerated"
.
Further topics:

- High liquidity, low interest rates, and QE should create a positive environment for oil
- Does the skyscraper index signal a weaker oil price?
- Excursus: Oil price development from the perspective of the Austrian School of Economics
- Petrodollar exiting through the back door?
- Break-even oil price (BEOP) suggests rising floor
- Sharply rising oil consumption in the exporting countries could trigger shortages in the long run
- US natural gas has a attractive risk/reward profile
- "Clean fracking" will make shale gas production more efficient,cleaner and cheaper

[pstarr]

Erste Group Bank AG is one of the largest financial services providers in Central and Eastern Europe and focuses on retail and SME banking. More than 50,000 employees are serving clients in over 3,000 branches in 8 countries (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia, Serbia, and Ukraine).[1]

What do you expect from the Socialists? They are jealous of our can-do approach to energy production. Our roustabouts Git 'Er DONE!

[Pops]

A couple more sorta-MSM articles:
On Forbes blog they talk about the Total exploration chief saying peak is nigh - while at the CERA festivities in Houston :^D

Forbes from yesterday, We’re all entirely out of $80 oil... but high prices are... a good thing... yeah, that's it!


Neither are 'head for the bunker Madge!' but neither are they 'Poo-Poo PO' which I also think is becoming more common, even here in the US. Kind of hard to ignore it really.

[pstarr]

A couple more sorta-MSM articles:
On Forbes blog they talk about the Total exploration chief saying peak is nigh - while at the CERA festivities in Houston :^D

Forbes from yesterday, We’re all entirely out of $80 oil... but high prices are... a good thing... yeah, that's it!


Neither are 'head for the bunker Madge!' but neither are they 'Poo-Poo PO' which I also think is becoming more common, even here in the US. Kind of hard to ignore it really.

Yeah. it's practically happening overnight. Jeez. I just noticed. You arrived here at PO.com a day before my birthday

[Pops]

I know!
For a long time I kept wondering why people weren't starting to pay attention to this stuff when it seemed like such a big deal to me.
They'll still be ignoring it in 100 years, commuting on Shanks Mare. lol

[pstarr]

Haven't you noticed a "nicer" me? It took me that long to get through the denial/bargaining/anger/where-ever-I-currently-am? stages. It took me eight years Hope we have that much time for everyone else to get on board.

[misterno]

Brent Oil hits $126 a new record in the last 4-5 years.

http://online.wsj.com/article/SB1000142 ... liveupdate

[Anvil]

Crude Oil Stocks Room to Run
Commodities / Oil Companies
Mar 09, 2012 - 01:07 PM
By: Zeal_LLC


With Iran waxing belligerent again, oil has been making headlines lately. Stock speculators and investors are anxiously watching its price, gaming how oil stocks are likely to react to various oil-price scenarios. And since the oil complex has already enjoyed a strong upleg, plenty of topping fears exist. But the technicals of oil and the leading oil-stock index, as well as their ratio, show lots of room to run higher yet.




Like everything else, oil and oil stocks were hit hard during the sharp stock-market correction last August and September. Between its late-April high and early-October low, the flagship S&P 500 stock index (SPX) fell 19.4%. Over this same span, oil plunged 32.4% while the benchmark XOI oil-stock index lost 29.1%. Both this commodity and the companies producing it leveraged the SPX losses, which is typical.

Straddling those early-October lows when traders had irrationally convinced themselves that the sky was falling, I was very bullish on oil stocks. With oil falling under $77 and the XOI to 995 on the day the SPX bottomed, the bargains in oil stocks were amazing. I wrote essays in late September and mid-October detailing the fantastic contrarian buying opportunities in the wildly-oversold and unloved oil stocks.

And indeed they soon started rallying. Between our two newsletters, we had deployed 10 oil-stock trades before and during the recent correction’s extreme weakness. At the XOI’s latest interim high on March 1st, their average unrealized gain was nearing 32%. Our eleventh trade was bought out in October at a 44% realized gain. With all these profitable oil-stock trades still on our books, should we be realizing gains?

I don’t think so. The biggest driver of oil and oil stocks by far is the fortunes of the general stock markets. The SPX’s overpowering sentiment bleeds into everything else, thus rising stock markets make traders optimistic about the global economy so they bid up oil and the oil stocks. And as I detailed in an essay on the SPX a month ago, today’s stock-market upleg still has plenty of room to run higher yet.

Provocatively the technicals in oil itself as well as the XOI oil-stock index look very similar to the SPX’s own. The current uplegs in both the commodity and its producers’ stocks remain immature with lots of headroom left. So as these charts show, there is no reason to fear a correction in either oil or the XOI yet. And oil stocks’ greatest gains usually accrue quickly in an upleg’s final couple months, when greed flares brightly.

This first chart looks at crude oil superimposed over a technical indicator called Relative Crude Oil. This rOil construct is based on my super-profitable Relativity trading system. It looks at prices as multiples of their own baseline 200-day moving averages. Over time they form horizontal trading ranges that reveal in real-time whether a price is too overbought (the time to sell high) or too oversold (the time to buy low).



First of all, oil’s mighty cyclical bull since its brutal secondary stock-panic lows in early 2009 has mirrored the general stock markets’ cyclical bull. Like the SPX, oil has seen two major uplegs and two major corrections before today’s in-progress third major upleg. Oil has generally marched higher within a well-defined bull uptrend rendered above. There is zero doubt that oil remains in a strong bull market.

Sometimes oil launches above or slumps below this uptrend, but only for a matter of months at most. Late in uplegs when euphoria reigns it can launch above resistance for a spell, and late in corrections excessive fear can temporarily break it below support. But for the most part, this uptrend has held solid. And with oil again above resistance today, some traders are understandably getting nervous.

But there’s no need to be, as this upleg isn’t mature yet. Last spring as oil’s second major upleg approached its climax, ballooning greed drove a major surge well above oil’s uptrend resistance. This upside breakout actually persisted for the better part of several months. Today’s young breakout in oil’s third upleg hasn’t even lasted a single month, this upleg hasn’t had time to climax yet.

As oil’s second upleg was peaking last April, this commodity became very overbought. The rOil metric climbed as high as 1.318x, meaning oil was stretched nearly 32% above its 200dma. The best we’ve seen recently is merely half of those topping levels, late February’s 1.161x. With oil not overbought, there isn’t yet enough greed and euphoria to suck in all near-term buyers and trigger a major topping.

We compute these Relativity trading ranges with the latest 5 calendar years of data. And rOil’s trading range based on this is now 0.90x on the low side (oversold) to 1.30x on the high side (overbought). With rOil only about halfway up into this range near its recent highs, it is nowhere near upleg-ending extremes yet. When rOil eventually challenges 1.30x in the coming months, which is likely, that is when to worry.

Also consider the progress in today’s third major upleg compared to how oil performed in this bull’s first two. At its latest interim high a couple weeks ago, oil had rallied 42.8% over 4.7 months. This is well below upleg two’s +63.9% over a much-longer 11.1-month timeframe. And this bull’s first upleg, though excessively large emerging out of the stock panic, ran 151.7% higher over 13.7 months.

The 42.8% we’ve seen so far is too little for a major cyclical-bull upleg, and oil has merely been rallying for well less than half the time of a typical upleg so far. The run we’ve seen until now is simply too minor to be classified as major! In addition, this upleg hasn’t pushed oil to any new cyclical-bull highs yet. Major uplegs in ongoing bull markets almost always carry their price well into new-high territory before failing.

And there’s no reason not to expect today’s oil upleg to be large. Why? Last autumn’s second correction of this bull leading into the current upleg saw oil fall to crazy-oversold levels. As you can see above, in rOil terms this commodity had not been anywhere close to as oversold since just after emerging out of the brutal secondary stock-panic lows in spring 2009! In general the more oversold a price is at an upleg’s birth, the higher and longer that upleg ultimately runs to catapult sentiment to the opposite extreme.

So with oil not yet overbought, not yet running high enough, and not yet rallying long enough by bull-to-date major-upleg standards, there is no reason to fear today’s upleg is rolling over. We need to see it extend for at least a couple more months, hitting major new cyclical-bull highs and pushing oil near 1.30x-its-200dma overbought territory, before it is time to start realizing profits and prepare for its third correction.

Not surprisingly since the price of oil ultimately drives their profits, oil stocks have exhibited a similar cyclical-bull pattern to oil. As measured by the benchmark XOI index (large-cap oil stocks), this sector has also seen two major uplegs and two major corrections. And the third major upleg underway today is in a similar state as oil’s, still much too immature to start worrying about an imminent topping in oil stocks.



The same young-upleg arguments for oil apply to the XOI as well. Its Relativity trading range is 0.85x to 1.20x its 200dma. And the best we saw at its recent interim high in early March was just 1.102x, roughly only halfway to overbought territory so far. Before the XOI’s second major upleg peaked last April, this metric had stretched as high as 1.237x! There is certainly no greed or euphoria evident in oil stocks today.

The current third upleg of the oil stocks’ cyclical bull has merely run 35.2% higher at best over 4.9 months. Once again this is too little on both counts for a major upleg. The XOI’s second major upleg peaked at a 59.5% gain after 9.9 months, and its first saw +48.4% after 13.7 months. So like oil, the oil stocks’ current upleg has lots of room to run yet before its performance achieves major-upleg status.

Also like oil, this third XOI upleg hasn’t yet come anywhere close to driving this flagship index to new cyclical-bull highs. Again this is something that virtually all major uplegs in ongoing bull markets accomplish. Technically there is nothing on this chart that looks anything remotely like a major topping yet. The oil stocks haven’t run high enough or long enough to generate the necessary upleg-killing euphoria.

With both oil and oil stocks having plenty of room to run yet technically, there is no need to start realizing profits. Remember the greatest gains in commodities stocks tend to accrue rapidly in uplegs’ final couple months, when greed and euphoria ignite big speculative inflows. The best odds for successfully maximizing your realized gains in an upleg are found in sitting tight until overboughtness metrics are reached.

These oil and XOI technicals are reason enough to be bullish on oil stocks today, but this third chart is the icing on the cake. Since oil ultimately drives oil stocks’ profits, and profits ultimately drive stock prices, oil is the long-term fundamental driver of oil-stock price levels. And the ratio of the XOI oil-stock index to the oil price reveals how this dominant fundamental relationship is trending. Today this XOR shows oil stocks remain radically undervalued compared to prevailing oil price levels.



Remember that late 2008’s brutal once-in-a-century stock panic was the biggest discontinuity in the markets we will see in our lifetimes. That fear superstorm so radically altered the psychological landscape that strong reverberations are still being felt to this day. So many investors and speculators were scared out of stocks entirely that it takes some years after such an epic event for the markets to return to normalcy.

The last normal years for defining the XOI/Oil Ratio were 2006 and 2007, before the panic, which also happened to be late in the previous cyclical stock bull much like where we are today in our current one. Over that span, the XOR averaged 17.9x. In other words, the XOI oil-stock index tended to close at just under 18x the price of crude oil on an ongoing basis. There is no reason not to expect this pre-panic average to eventually be regained.

Incredibly, this week the XOR was merely trading at 12.3x! Relative to the commodity that drives all their long-term fundamentals, oil stocks were only trading at about 2/3rds of their pre-panic levels! This is mind-boggling, all the apparent oil-stock strength in recent months was merely an illusion. As the XOR’s downtrend shows, oil stocks have been losing ground to oil on balance ever since the stock panic.

But this downtrend is certainly not set in stone. When investors and speculators start getting enthusiastic about this somewhat-forgotten sector, they can quickly bid up oil stocks to reflect fundamental realities. This happened early last year as oil stocks’ second major upleg of this post-panic cyclical bull started approaching its climax. By February 2011, the XOR shot as high as 15.8x before it collapsed again!

To merely regain that 15.8x seen near the end of the last major oil-stock upleg, the large-cap oil stocks of the XOI would have to soar 28% from here. To hit the 17.9x pre-panic average, the XOI would need to rocket another 45% higher. And these numbers assume oil stays flat, if it rallies they grow. Relative to oil, the XOI is nearly as undervalued now as it has been at worst throughout this entire post-panic period. Sooner or later a massive catch-up rally is inevitable.

Could these low post-panic XOR levels be the new norm? Sure, anything is possible. But I really doubt it for several reasons. So deeply scarred by the stock panic, retail investors have largely been absent in the past several years. Fund managers often lament this fact on CNBC. But eventually, all those ostrich investors cowering in cash on the sidelines are going to get tired of inflation eroding away their capital after zero yields. They’ll be back, and will want to own oil stocks again.

And even if they foolishly hide in cash forever, new investors are being minted every day. As younger people enter the stage of their lives where they can consume less than they earn, many will invest the surplus. And given oil’s incredibly-bullish global fundamentals (major new supplies are harder and harder to find despite relentlessly-growing world demand), I suspect oil stocks will be high on investors’ lists.

Finally consider silver. Before the stock panic it had a certain relationship with gold, its primary driver. Afterwards, this metric was way too low. So I started arguing in early 2009 that a massive mean reversion was inevitable, silver would have to soar. I kept advancing this argument, taking flak each time. But indeed in early 2011, investors finally did return to silver in a massive way. They not only drove silver’s ratio with gold back up to its pre-panic average, but well above it! Fundamental mean reversions are inevitable.

And perhaps the most exciting part of all is we don’t have to buy the gigantic XOI oil companies. As of the end of last month, the XOI’s 13 component stocks had average market capitalizations of $124b. This is enormous! Much like oil supertankers, giant companies have tremendous price inertia. The bigger a company gets, the more buying it takes to move its price higher. Giant stocks are slow to rally.

Thanks to technologies now being perfected including horizontal drilling, hydraulic fracturing, enhanced oil recovery, and rising oil-sands efficiencies, there are a growing number of fantastic oil companies that are far smaller in market-cap terms than the majors. While $1b of buying will barely budge a $400b monolith like XOM, it can catapult a $10b company way higher. These emerging oil plays have incredible potential to soar.

Last summer as oil was correcting, we undertook a 3-month deep-research project looking into the mid-cap oil stocks trading in the US and Canada. They had market caps ranging from $2b to $10b, a highly-leveraged sweet spot. After spending hundreds of hours narrowing down the entire population to our dozen favorites, we profiled each in depth in a fascinating 36-page fundamental report. It is from these elites we drew our oil-stock trades during last year’s correction, and their already-nice unrealized gains ought to only accelerate from here.

Today this report is available for only $45, an incredible bargain for such world-class research. While the gains buying now in the middle of an upleg won’t be as large as from buying early like we and our subscribers did, there is still plenty of upside left in oil stocks. Since most of this sector’s gains in an upleg tend to accrue rapidly in its final months, there is a good chance that less than half of the total gains have been won so far.

At Zeal we are hardcore contrarians, we buy low when others are afraid (like last autumn) and then later sell high when others are brave (likely later this spring). While not easy psychologically to fight the crowd, the results are well worth the challenge. Since 2001, all 598 stock trades recommended in our subscription newsletters have averaged stellar annualized realized gains of +48%! You too can share in the very-profitable fruits of our labors.

We publish acclaimed weekly and monthly subscription newsletters loved by speculators and investors all over the world. In them I draw on our vast experience, knowledge, wisdom, and ongoing research to explain what the markets are doing, why, where they are likely heading, and how to trade them with specific stock trades as opportunities arise. Subscribe today and start thriving!

The bottom line is neither oil nor the oil stocks look anywhere close to being overbought yet. Their uplegs remain too small and too young to be topping, with new bull-market highs still yet to be seen. By their own bull-to-date standards, both oil and oil stocks still have lots of room technically to run higher yet. So it is certainly way too early to be looking for a major topping, or prematurely realizing oil-stock profits.

Oil stocks’ best gains tend to accrue rapidly in the final months of major uplegs. And their third major upleg of this cyclical bull is likely nearing that glorious terminal phase. While the major oil stocks should see nice gains, the best of the smaller ones are likely to soar. Growing enthusiasm will entice in capital, accelerating the stock-price rally that will eventually ignite euphoria. That will be the time to sell high.

Adam Hamilton, CPA

http://www.marketoracle.co.uk/Article33532.html