Thursday, July 9, 2009

Where's the bottom in oil?

$20 oil? Who said that on CNBC?

As I see it, the numbers bandied about around $45-50 look like a fantasy target. And even $55.

Look for $57ish as a good entry point.

The breakdown of ICE indicates that the speculators were just muscling oil up. In fact, Goldman Sachs, who touted $85 oil at year-end, downgraded ICE today, (after it has already fallen 35 points) just because of that reason:

July 9 (Reuters) - Goldman Sachs downgraded Intercontinental Exchange to "neutral," saying the recent move by various governments to clamp down on excessive speculation in energy and commodity trading by reviewing position limits may impact trading volumes of exchange operators.

"Until further clarity emerges on the outcome of the global energy trading review, we believe the stock will remain relatively range-bound," analyst Daniel Harris said in a note to clients.

Now we know Goldman pimped oil at $70, and it had a last gasp rally to $73 on the backs of a trader that tried to rig the price.

Now "do as I say, not as I do" Goldman is turning cautious on ICE.

So don't now do, what Goldman says!

Even when Goldman attempts to be subtle. After all, if you check the uses for oil in the barrel above, you'll see that just the smallest fraction of oil is used for lubrication.

Goldman, however, seems to use all of it on its customers!


Anonymous said...

Palmoni, how did you come with the 57'ish figure? Oil is crashing at a rate of over 1$ a day, and is showing no signs of slowing down..(Are you looking at charts technically or.. ?)

the S&P previously held at 880 on numerous occasions, now its struggling to stay there.. some are saying it could very easily fall to 850, and stay there for a while before coming back up..

Falling Oil and Rising Dollar are signs of a shrinking risk appetite. 2nd Q earnings are yet to be announced, and usually with uncertainty and doubt,(and the media's help), markets tend to fall..

If you have time, would love to hear from you.

Love your blog, keep up the good work. Its become a favourite of mine.


Palmoni said...


I see what you are saying-risk appetite is shrinking, but it is amplified by the unwinding by those stuck in bad trades. Wall Street is still different than corporate America, but don't think that companies won't hedge oil now that it has come down a bit, after the recent ramp.

Remember that Southwest is supposedly one of the savviest hedgers on oil. What are their recent hedges at? $77 and $71.

Back a few years ago LUV had hedged oil at $51 almost thru 09, and at one time they were up over 2 billion on the hedge before oil puked.

I know some very large companies that NEVER hedged oil before, who are now looking to do it.

And at these prices, it makes economic sense, and I think sense overrides speculation.

Anecdotally, I know a British chap that does one of the best work on oil that you have ever seen, but he's such a bizarre and eccentric character, that he could never work in a corporate environment, (much less Wall Street--and at 4:01 he starts pounding the pints) and if I would just look at the increasing number of corporations that are buying his work, it means that companies are either looking for ways to cut fuel costs/speculate and that they don't seem to trust the advice that they are getting on Wall Street.

In fact, I just took dowen some oil at $59-It may not see $57.

Anonymous said...

Oil couldnt break 59 today, well done. And thanks for explaining your play, much appreciated. sam