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Why Oil Has Dropped, and Where It's Going

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August 11, 2008 – Comments (65) | RELATED TICKERS: HP , PCU , SU

The mainstream media, and even most non mainstream places, are completely clueless as to the cause of the drop in oil and other commodities.  I began to realize what was going on late last week.

It's the olympics.

Now you must be thinking, what drugs has The Demon taken, and where can I get some, to think that the olympics by themselves have caused oil to go down.

Well now folks, I can assure you other than some Robert Mondavi (RIP) Pinot Noir, I'm as sober as a librarian.

Here's the why's and hows of the situation:

China is the most air-polluted country on the planet.  This is what happens when a country goes through rapid industrialization with zero environmental restrictions.  (Remember, this is a country with no eminent domain - they've literally taken and plowed under entire cities for infrastructure projects.  As inhumane as that may sound, it has led to a far greater efficiency in ramping up industrialization).  With the olympics rolling around, China started to pull out all the stops to try to improve their air quality.  Entire factories and energy plants shut down.  Cars driving only on odd or even days based on license plates.  What is not known, however, is the overall demand destruction, and how much of the China machine has been shut down.

I am theorizing that it is almost all of it.  "China's crude imports unexpectedly fell 7 percent in July to a seven-month low in the steepest monthly drop since January 2005, as refiners balked at soaring crude costs amid lagging domestic fuel prices."

""I think that sentiment is changing on China -- that it (demand) might not grow at the same rate that it has in the past couple of years -- and the figures from this morning attest to that," said Lehman Brothers oil analyst James Crandell."

Right data, wrong conclusion.

Crude prices were basically even in June and July.  Don't believe me?  See the numbers for yourself: http://tonto.eia.doe.gov/dnav/pet/hist/rwtcd.htm

The right conclusion is the China industrial machine slowed down for July.  It is likely also shut off right now during the games, and I would not be surprised to see crude imports flat or even a bit lower for august than july (and prices for august will be definitely lower).  The estimate was that China, for 2008, is building 100 miles of road per day in the country; my guess is the total for this week and next week will be zero miles.

If anyone is in China or knows someone there and can give a "boots on the ground" view, it would go a long way to confirming or refuting my assertation.

But if my assertations are correct, here is what will happen:

Every bottom caller in financials and dollar based stocks is going to look like an idiot (if they already don't).

Oil will continue to fall, ending lower at the end of this week than it was at the beginning.  Next week (8-18 to 8-22), oil may still be falling overall, but by the end of the week, China will be starting to roll in it's oil orders again to flip the industrialization switch to the "on" position.  By 8-22 you will see oil rising, and by the last week of august you will definitely see an upswing in oil prices.

Inflation fears will be talked about, McCain will be blabbering is head off about off-shore drilling which won't do anything but make the US more dependent on oil, Obama will maintain his energy plans, certain bloggers will talk about how both are complete idiots and how they wish Ron Paul were a viable presidential candidate, airlines will go down while oil and energy stocks (including solar) will continue on their ascent.  Oh yes and Paulson will continue to talk about the "strong dollar" as it continues it's slide inot the abyss.

And oh, I've only been talking about oil, but the China forced-slowdown has hit all commodities hard.  Watch for all base metals especially to end this week lower, and start rising by the end of next week.  Now is a good time to look into a position of a stock like PCU, AUY, BHP, RIO, and on the energy side I still like SU (a buy below 45 if it gets there), HP, HLX, and RIG, and now also might be the time to go in on a royalty trust like PWE.

By the end of August you will see talks of the dollar's strength fading, more recession/fear talks, we won't have capitulation yet, I expect that around October which is the month that the bad stock days really happen.  Until we get a 10% down day where the trading curbs kick in, we still have not seen real capitulation.

 Semi off-topic for this subject, I really enjoy reading Mish's blog, I know a lot of you guys out there follow him.  I love how he breaks down companies and industries, however his tired arguments about deflation don't pass the smell test, at least for those of us that understand the difference between the FIRE, Government, and Real economies.  He asserted that there will easily be 2T in losses in 2 years and the Fed and US Gov't can't print that much in 2 years.  I beg to differ, in 7 months this year we've already gone to 768B of new money out of thin air which would, annualized, be far over 2T in losses.   (Ag bill = 300B, Bailout bill = 300B, and that's a minimum that allows the treasury to print more bail out FNM/FRE, and stimulus = 168B, for a grand total of 768B).  That's almost 800B out of thin air people, and that's inflationary, annualized 1.3T a year.  How does 30% inflation a year strike you? And this sort of relates to the topic at hand, because Mish is now pounding the table talking about how right he was, because we now have "deflation" in oil and gas prices.  This hubris will be short-lived as oil and energy continues to be come more expensive as money becomes more diluted and worthless.

So, in conclusion, China has shut down temporarily for the olympics which has created a large decrease in global oil and commodity demand.  As they ramp up operations near the end to after the olympics, that demand will come back as oil marches it's way to 200/bbl by 2010.

65 Comments – Post Your Own

#1) On August 11, 2008 at 6:15 PM, kdakota630 (29.45) wrote:

I think you make excellent points, DemonDoug, and predict that you'll likely be proven right on your China theory.

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#2) On August 11, 2008 at 6:28 PM, LordZ wrote:

So Demon it would seem that companies like BHP, PBR, FCX, SU, would make excellent buys as there prices fall.

What about SQM ???????????????????????

I sold off my JPM position today took the profit...

 

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#3) On August 11, 2008 at 6:29 PM, devoish (98.71) wrote:

I don't quite get it. Beijing is supposed to be less than 2% of China's GDP. I heard that on CNBC so you decide if its correct. Closin Beijing will only make a small dent in consumption, and I cannot see why they would close the rest of the country to clean up Beijing. It is kind of like shutting down NY city and Atlanta to clean up Los Angeles.

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#4) On August 11, 2008 at 6:41 PM, nuf2bdangrus (< 20) wrote:

DD...I think your horizon is pretty much spot on.  That said, here's more to the deflation siade (and I am increasing my gold positions so I'm hedging this).  The Fed can create money, and almost a trillion so far has been created.  But remember, it is banks that create money (credit) out of think air, and that creates consumption.  The Fed cannot outcreate what the banks are no longer supplying.  Pumping $ into banks does nothing, because the banks repair their balance sheets.  I work for a biggie, and it looks like we are going to just about eliminate the consumer lending program, and the only loans we do are FNMA and FRE.  That's a liking sudking the blood out of a patient.  Mr market is not yet considering the effect of lack of credit on the economy, as Americans become more frugal and repair their balance sheets.  I wish for inflation, because I trust gold, but so far, no deal  So I am legging very cautiously ino the energy sector.  Falling oil is short term bullish, but long term bearish.  Means slowing economy.  What will all those long only stock jockeys do when the market finally capitulates?

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#5) On August 11, 2008 at 6:53 PM, TheGarcipian (60.44) wrote:

Demon,
I hope you're right (and I think you are) because I've still got my oil and copper positions, and they've lost a ton of money over the last 3-4 weeks. Still, I have concerns like those mentioned by devoish above. We'll have to wait and see. Three weeks and counting...
--Gar

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#6) On August 11, 2008 at 6:59 PM, SemperGumby77 (56.62) wrote:

You make some good points here, Doug, and I think there's certainly some credence to be lent to it, but the trick is in figuring out how much.

Certainly, there's some of this that you can attribute to "demand destruction", but the sheer speed and magnitude of the losses in oil right now point to a more obvious culprit - speculation.

Simply put, buyers buy a bullish chart and sell in droves when that chart turns bearish. This leads to wildly high values at the top end and capitulation lows at the bottom.

My guess is that its likely that you'll see $75 oil by early 2009 or sooner, before it turns around and climbs to a more natural level closer to where it is now.

Keep in mind that there's alot of money (hedge funds, pension funds, commodities trades, etc) that are falling over themselves to get to the exit right now, and who knows what kind of shenanigans going on behind the scenes to prop up the economy into the election.

All of it makes for a hard market to play right now as the gov't creates artificial demand for shares of companies and sectors that, in a natural capitalist economy, wouldn't be solvent and/or ownable.

What's worse is that this all occurs at the expense of good fundamental stocks, which are seeing sector rotations that are crippling their values.

I'm seeing alot of smart people losing money (and CAPS score) lately as a result of this obvious manipulation.

Its enough to make me want to take my money out of the stock market altogether, and I know that there are others like me who feel the same way.

There's a part of me that wonders whether this may eventually be one of the unconsidered ramifications of the plan that helicopter Ben has set in motion.

For who really wants to play a game in which the rules are crooked?

 

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#7) On August 11, 2008 at 9:46 PM, dexion10 (27.53) wrote:

Demon Doug... My man... I think you just nailed it on the commodities and China.

I just posted on this topic earlier today.  I want to get my blog on the most recommended of the day so please see it here

Anyway I think we'll see a measurable rebound in all things commodity before the olympics end... most things shipped to china need to be put on a boat weeks ahead of their due dates...

I think we could see a rally in commodities and that is a trade I've been a bit early on in my personal trading but I've made it.

I've also more recently doubled up on my commercial REIT and Financials shorts... 

The charts suggest now is a good time to take a stab at energy long and financial shorts.  Did you notice that the SKF and SRS both hit mid-term support levels today at the same time the S&P hit resistance... 

 

Further I don't believe a bottom is in this market because markets can't rally in a meaningful way without all sectors participating - and we don't have that now. 

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#8) On August 12, 2008 at 2:18 AM, wrote:

Demon-

This is a brilliant theory.  I hope your right for my sake.  It definetly makes more sense than conspiracy theories, the sudden strong dollar, and definetly makes sense for the financial rebound that has taken place.

 

I can understand how maybe every market is where it is besides the sudden rise in the commercial lending and bank stocks.  No one can really be stupid enough for this to be a financial bottom can they??

On my trip at the grocery store today, 2 out of 3 people that paid for their groceries ahead of me paid for them by credit card (not debit card) rathat than cash.

Disposable income is at a 5 year low at least.  We aren't feeling very good about our faith in the US government or economy right now.

 

andrew

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#9) On August 12, 2008 at 2:44 AM, AnomaLee (28.52) wrote:

"I don't quite get it. Beijing is supposed to be less than 2% of China's GDP. I heard that on CNBC so you decide if its correct. Closin Beijing will only make a small dent in consumption, and I cannot see why they would close the rest of the country to clean up Beijing. It is kind of like shutting down NY city and Atlanta to clean up Los Angeles."
---------------

I agree with devoish to an extent. I think you're overstating the importance of the Olympics. However, I do agree with you that the Beijing Olympics has lessened China's economic growth rather than spurred its development. I think your timeframe may just be sheer coincidence.

One thing you're neglecting is the ongoing slowdown in the rest of the emerging world. If you combine the Eurozone, the United States, and Japan then half of the global economy is in recession. The slowdown in India (the world's second fastest growing economy) is real. I'm also weary of political changes around the world -- especially in Pakistan(because of India), India, and the fact that Russia is growing more protectionist.

I do believe the commodity run is far from over. Most of my recent picks which are deep in red are with a long term perspective. I believe the recent turbulence in South Africa and Argentina economies can really disrupt commodity supply. Imagining the amount of material and energy needed to improve global infrastructure in the future andthe amount of "liquidity" that has been pumped into the global financial system I'm sure today's prices are nearing a baseline.

But, global growth is not a given...

"What about SQM ???????????????????????"

- My personal opinion is strongly bullish. If you believe the agrilcultural boom is real and/or future demand for lithium-ion batteries because of more computers and/or hybrid vehicles then you should develop a position in the stock.

Currently, I have no position...

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#10) On August 12, 2008 at 4:18 AM, jester112358 (28.69) wrote:

Demon, I think you're spot on with your analysis.  The Chinese industrial machine is on a vacation-and the main stream analysts just don't get it.  Anyone who has visited China knows first hand that they are on a building infrastructure expansion unlike any seen since the start of the industrial revolution.  And it will not stop for political reasons:  they need to keep the masses nearly fully employed.
To further butress this fact, the Baltic dry index shipping started dropping precipitously just about a month before the start of the Olympics as coal, steel and other commodity shipments just weren't necessary with the factories shut down.  If this hypothesis is right, the baltic dry index (and shippers too) should pick up dramatically in Sept and Oct. and commodities like copper, aluminum, steel and coal will continue to be in short supply because of this insatiable demand by the world's factory.

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#11) On August 12, 2008 at 4:31 AM, StockSpreadsheet (71.77) wrote:

devoish,

You are not thinking big enough.  Polution from Midwest coal-fired power plants causes acid rain in Quebec and smog in New York.  Polution can travel a long ways, topography willing, due to prevailing winds.  Los Angeles is as smoggy as it is because the prevailing winds push the smog onshore, where it runs up against the mountains surrounding L.A. can can't easily make it over them, so it is concentrated in the L.A. Basin.  The prevailing winds tend to blow west-to-east, (at least in the U.S.), so polution from Midwest power plants gets blown over Quebec and New York.  New York isn't as smoggy as L.A., dispite having a population density probably at least 10 times greater than L.A., due to the prevailing winds pushing the local polution out over the Atlantic Ocean, (plus the heavier rainfall will help precipitate out a lot of the heavier smog-producing particles.  During Santa Ana conditions, the air quality in L.A. improves dramatically due to the polution now being pushed out over the Pacific Ocean due to the change in the wind patterns.

What all this means for the Olympics is that China didn't just shut down plants within a mile or two of the Olympic arenas.  They probably shut down plants up to 500 miles away or more to try to get the smog down.  (And from what I saw on the news a week or so ago, the air quality in Peking at that time was still something like 5 times what would be considered unhealthful in the U.S..)  Therefore, you could have 2,000 square miles of factories and power plants and automobiles shut down or on limited production/usage just to reduce the smog and improve the air quality.  This would be like shutting down most of the Northeast U.S. or all of Southern California.  That is a lot of demand destruction. 

Therefore, I think there is a lot of merit to what DemonDoug said.  I think the Olympics and China's demand destruction due to the games is a big part of the drop in the price of commodities.  I also think that speculators, (hedge funds, etc.), unwinding a lot of their positions they took to hedge against a falling dollar is also pushing down the price of commodities. 

Once the games are over, China will ramp up a lot of their production again, and I think that will put upward pressure on commodities and oil.  The big questions are (1) will the demand destruction in the U.S. due to our recession be large enough to offset China's increased demand and (2) will the hedge funds move back into their commodity plays to again hedge against a falling dollar?  If the rising demand from China and the hedge funds can overwhelm the demand destruction due to the U.S. recession, then commodities and oil will start going back up.  Otherwise, they will continue to fall back to more historic levels.  Also, the demand destruction in the U.S. will also lead to some demand destruction in China, since China is buying a lot of commodities and oil to power manufacturing plants to make stuff to ship to the U.S..  (Look at our trade deficit with China.)  If there is no market in the U.S. for the goods due to our credit crisis and recession, and Europe and Japan also slow, (as they have been doing lately), then the demand for Chinese goods will fall, which would then reduce China's need for a lot of the imported commodities, which could create demand destruction on the Chinese side of the equation.  (Remember, China is mainly an export economy with a small local market, so if the overseas markets for their goods decrease, there isn't a big local market to take up the slack.)

That's my opinion.  What is yours?

Craig 

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#12) On August 12, 2008 at 5:53 AM, DemonDoug (79.27) wrote:

I'm going to do my best to respond to all posters and comments.  Some things have already been answered (thank you mr. stockspreadsheet).  But here goes.

Kdakota: thanks for the support.  I know you've been hammered in your CAPS score, I expect by the end of this month your score will be turning around.

LordZ: I agree with what you said, me being a miser value investor, I want those companies as cheap as possible with the largest margin of safety as possible.  As far as SQM, they had the biggest runup of all the metal/commodity plays, and expect further correction, I also think all the ag potash/nitrate companies did get caught up in hyperspeculation.  As a company, I think they will be fine, I want a p/e at least below 20 if not less, which means I want SQM at below 20/share.  I'm bullish in general on Chile which is also bullish for SQM, Chile along with Brazil appears to have their macro economy in relative order.

Devo: "Beijing is supposed to be less than 2% of China's GDP."  There are two factors at play with the olympics.  First, is how much has china shut down to try to clean up air quality?  They have definitely shut down coal power plants.  Refineries as I noted imported 7%... 7%! less oil in july v. june.  This is why I asked for a boots on the ground report if anyone knows, are the factories still running full bore in the provinces of western china, northern china, etc.  I don't know, you don't know, but I suspect that a lot of them have shut down for air quality.  The other factor is that it may be considered "patriotic duty" for all Chinese citizens to watch and follow the olympics.  Imagine a whole country going on a more-or-less forced 2 week vacation.  Only one country in the world can pull it off, and that's China, and my suspicion is that the demand slowdown is far greater than anything anyone is reporting.  Have you heard ANYWHERE else about the decrease in oil imports?  It's barely even out there at all - as far as I can tell I'm the first analyst (amateur or pro) to connect these dots, and with China not being a place where info gets out, it could be a much bigger slowdown than even I am imagining.

Nuf: Also try to remember that inflation in the US and China go hand-in-hand.  China prints yuan to buy US treasuries to inflate the value of the US dollar while devaluing the remnimbi, this keeps their currency down and exports high, and then they own more US gov't debt; China is the USA's #2 creditor at this point in time, and is closing fast on Japan to become the #1 creditor.

SemperGumby77:  "My guess is that its likely that you'll see $75 oil by early 2009 or sooner, before it turns around and climbs to a more natural level closer to where it is now."  My friend, I have one question for you: what are you smoking and where can I get some.  Oil's price is determined by demand and the supply of dollars.  Simply put oil demand is not going to go down (it has temporarily with a huge demand destruction for the olympics), and the mandate for the Fed is to inflate. 

Its enough to make me want to take my money out of the stock market altogether, and I know that there are others like me who feel the same way.

"For who really wants to play a game in which the rules are crooked?"

 

Again, what are you smoking my friend.  If you haven't figured out by now that markets are inherently unfair and unbalanced, you haven't learned anything.  There is a phrase I heard once: "Life isn't fair - and good for you, use it!"  The point being the bankers in control are going to inflate currencies to the damnation of everyone else on the planet; so all you, as the individual investor has to do, is figure out what an ever-expanding money supply means.  In the modern economies, it means a bubble economy cycle.  It means understanding the difference between the FIRE and the production/consumption economies.  It means understanding how currencies become devalued, and understanding history.  Do a wiki search on hyperinflation for a quick history lesson.

The point is you can and should be able to make money in any market.  If I am right, this is a great buying opportunity, although what I'm sort of asserting is that the time to go long on energy and commodities is late this week/early next week.

Dex: 100% agreement my man.  I rec'd your blog.

Drekr13: "No one can really be stupid enough for this to be a financial bottom can they??"  --- Maybe you have the same dealer as SemperGumby.  Either that or you haven't been reading financial news for very long.  The financial press is littered with cheerleaders reporting on analysts who upgrade crap stocks.  If you don't know already, you would be absolutely astounded at how many so called "analysts" gave outperform ratings on homebuilders in the late summer and fall of 2007.  There are generally two types of analysts: Those that are liars, and those that are incompetent, and sometimes they are both.  For every Meredith Whitney or Ivy Zelman or floridabuilder, there are hundreds of Stephen Kims and Lawrence Yuns that are basically paid shills who have the title of "analyst" or "economist" to give them credibility.  This is why blogs are so important, it's those of us out here that cut through the cheerleader BS to hopefully shine some light on the market, and also to develop a track record of prognostication.  That's what CAPS is here for, and that's what others like Mish and itulip and calculated risk are out there doing.

Anomalee: The problem with claiming "slowdown" in the rest of the world is that we're now all hooked on oil.  Also, a bet on the price of oil going down is a bet on stability in the middle east.  That is a bet that has never paid off, not for the thousands of years that humans have been living there.

Jester: I didn't mention the baltic dry index, but I definitely believe it is no mere coincidence.  I'm not big on shippers, but that could be another way to play this temporary demand downturn.  The baltic dry index price going down would also be a strong sign that China shut down or significantly slowed down production in july and august for the olympics.

Stockspreadsheet:  I don't think demand destruction in the US will make up for renewed demand from China.  I'm not big on decoupling, but the numbers coming from china are absolutely astounding.  China is building 100 miles of road per day on average this year.  100 miles per day!  This is not expected to slow down, but I bet it has during the olympics.  BTW, what is road made out of? Asphalt.  Where does asphalt come from?  Oh, you guessed it - it's a byproduct of oil when you refine it.

And with calls for US infrastructure needing to be rebuilt, costing 2T over 5 years, you bet your booty that oil is not going down, not now or any time soon.

I think that China will be going through a period of correction, wage arbitrage, etc, and I think that China's demand growth will slow.  Here is a 28 year history of US oil imports:

http://tonto.eia.doe.gov/dnav/pet/hist/mttimus1A.htm

Even in really bad times, oil import demand hasn't dropped all that much.  It will be interesting to see how 08 shakes out as the monthly charts show a fairly significant decline.

My opinion?  If the US evens out or even cuts consumption of oil by 10% over the next 5 years, global demand will more than take up that slack.  This is why the assertion remains, oil is a great investment for the next 5-10 years.

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#13) On August 12, 2008 at 9:00 AM, LordZ wrote:

Demon your pretty good at analyzing and putting your ideas into words, I also have come to the same theories and just as soon as the olympics end, we should see business pick up and intensify.

Right now Europe looks weak perhaps even more so than the US.

Inflation is looking to break out. Oil is just taking a 2 week vacation to watch the olympics.

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#14) On August 12, 2008 at 9:03 AM, dexion10 (27.53) wrote:

EVERYONE -
 

I could use your help  - could you and other recommend my blog on Jim Cramer getting people killed in natural gas stocks.

I'd like this blog to make most recommended of the day. I think this is one of my best fundamental blogs yet. 

This blog is similar to your blog about Goldcorps gross margins - you'll see that nat gas stocks have a similar problem with gross margins. 


You can visit my blog here

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#15) On August 12, 2008 at 9:20 AM, givmeabreak (28.93) wrote:

demon, nice subtle insertion of your political beliefs. It is intellectually dishonest for you to not rip both candidates equally.

I agree McCain and drilling won't solve long-term problems, but how is Obama's plan any better? You fail to mention how rediculous it is for him to suggest the windfall tax/rebate pander pla or that we can be oil independent in 10yrs.

Do you not understand how far off we are from any other option? We have to have hydrocarbons in the meantime (15-20 YEARS).

Will drilling replace all foreign oil? No. But, why not get everything we can in the meantime. Our system is built this way now. We have to use what we have for now.

Anwar already has the infrast. in place to start now. Oil would flow in less than 3yrs.

California has capped wells offshore, ready to drill now.

So, we should start where the infrast. is in place, and proceed from there, all the while pushing alternatives.

The market would react overnight if we had an all out commitment to find and get all our hydrocarbon reserves. That is the benefit from new domestic production. Oil prices are nothing but a mind-set.

I still can't understand what people think life runs on. Oil! It is in everything we use. Think of all the plastic, chemicals, fuels, production systems.

So no drilling here, but keep on importing all that oil? That's not gonna stop for a long time. Why not reduce that %, and get short-term relief. Your whole blog points to the demand issues from one country alone. That is gonna grow more over the long-term.

We can't just decide one day to stop looking for oil and think tech is gonna replace that in less than 10yrs (obama). Or that world stability is gonna hold for a decade or more, so that we can rely on foreign oil long-term. That is so intellectually dishonest to say we can just disregard oil for now and in 10 yrs alternatives will just replcae oil. And let's not even go there on the windfall/tax rebate pander plan.

So how is his plan any better? Again, McCain's is not revolutionary, but to exclude Obama from your rip is unfair.

 

 

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#16) On August 12, 2008 at 10:05 AM, AnomaLee (28.52) wrote:

I remain long-term bullish on oil, but I think you're greatly downplaying the severity of this global recession. A global recession can be defined as less than ~2% economic growth.

We will see that figure over a given 12-month period. Less industrial output(less energy use), means lower employment, which means less driving to work(less oil) and less discretionary spending and consumption(less oil) which further fuels a downward spiral.

We're not there yet... Remember that between 16-18% of China's economy is derived from exports. That will experience a slowdown. Real domestic growth for China needs to exceed 5% annually to not feel like a domestic recession.

We're not there yet...  it's expected that there will be the largest 'surplus' of oil production vs demand in several years. This should occur over the next 12 months. I think it will take another 3-4 years before the worst effects of peak oil occur, but monetization will keep prices from dropping substantially from here.

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#17) On August 12, 2008 at 11:08 AM, SemperGumby77 (56.62) wrote:

Demon,

Side bet, then? I'll bet you what I'm smoking that we see $75 oil before we see $200 ;)

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#18) On August 12, 2008 at 11:37 AM, SemperGumby77 (56.62) wrote:

Demon,

Side bet, then? I'll bet you what I'm smoking that we see $75 oil before we see $200 ;)

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#19) On August 12, 2008 at 12:13 PM, dwot (51.50) wrote:

Looking at SemperGumby's comment there makes me wonder if we ever made a bet on this... 

If you inbox me I will send you something, debwot at gmail.com.

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#20) On August 12, 2008 at 2:02 PM, SemperGumby77 (56.62) wrote:

I simply feel that demand justified the price rise to $100, but that speculation drove prices through the roof.

Consider the fact that pension fund investments in the commodities asset class peaked at approx. $300 billion at the end of June, which drove up prices.

Those same funds have since liquidated about $30 billion of that and as a result, we've had huge correction in oil prices. Coincidence? I think not. 

I'm not saying that Doug is wrong in his assertion above, I'm merely suggesting that the price of oil is and has been more affected by speculation than actual demand.

Thus, it wouldn't surprise me to see a moderate oversold bounce here, followed by additional downside to more reasonable levels.

I don't disagree that (long term) oil will rise. But (as I've said before), expecting $200 or $300 oil in the next couple of years (as I've seen suggested) is unrealistic. Especially in the midst of an economic slowdown.

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#21) On August 12, 2008 at 2:39 PM, GNUBEE (25.77) wrote:

I seem to agree with devoish

BBC story says Beijing and five provinces around it were to cut production two months before olympics. http://news.bbc.co.uk/go/pr/fr/-/2/hi/asia-pacific/7264957.stm 

So why did it take two months for this "demand drop" to become apparent? And if so their "orders" for new materials would already be in place. How long does it take to ship goods from Australia (coal/steel) to China? Couple of Days? If so the first shipments should leave ports just prior to the end of the Olympics. If we can see those ships leaving from Australia I think that would be a real good indicator of "flipping the switch" back on.

Also, domestic coal was a big contributor of Beijing pollution, so if the demand was reduced, it would not have a direct effect on international supplies/shipping.

Beijing's other major problem is particulates, which come from several sources. One is construction: Beijing is still rushing to complete non-Olympic buildings before the big day. Another is coal-fired power plants and factory boilers. China's largest coal-mining province, Shanxi, is directly up wind of Beijing. Shanxi ships much coal to other provinces, but it also has mine-mouth power plants and coking plants that contribute to regional pollution. huffingtonpost.com/deborah-seligsohn

Here's a Map of China's pollution. (I assume red= bad, green = good?) http://air.ipe.org.cn/en/qyInfoEn.do I don't know prevailing winds and such, but I don't see a real correlation. From what I know Southern and coastal China is where the industry is (please correct me because again I am not certain)

In short I agree with devoish because I can't see Beijing (northeast China) industry/autos having that much impact. But we should have several reliable indicators real soon....

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#22) On August 12, 2008 at 2:44 PM, GNUBEE (25.77) wrote:

Whoa, there it is... http://air.ipe.org.cn/en/wrydt.jsp?ssqybh=0

Got that by clicking on "pollution source map" tab

this map says winds travel east northeast. http://maps.howstuffworks.com/world-prevailing-winds-map.htm

So Devoish, I am more certain I agree with you.

 

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#23) On August 12, 2008 at 2:47 PM, givmeabreak (28.93) wrote:

How about the price of oil fell because the dollar has risen and the Euro has fallen as the primary, followed by a temporary demand decrease globally? Oil is priced in dollars

The charts between the dollar and oil would probably line-up.

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#24) On August 12, 2008 at 2:53 PM, GNUBEE (25.77) wrote:

givmeabreak I'll see your Nell Carter and raise you a Rog and a Re-run.

I agree with you 100%, I think those are the two main contributory factors right there. With the nice cherry on top of funds nivestors pulling out profits.

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#25) On August 12, 2008 at 3:39 PM, DemonDoug (79.27) wrote:

How about the price of oil fell because the dollar has risen and the Euro has fallen as the primary, followed by a temporary demand decrease globally? Oil is priced in dollars

Right data, wrong cause and effect.  The price of the dollar has risen because oil has dropped.  Dollars are priced in oil.  (Understand?)

givmeabreak: I try to keep politics out of it, but the fact is oil, the economy, and whatnot are tied into government.  Yes, I hate McCain, and I think republicans are bascially fascist heartless warmongering dictators.  But I'm also no big fan of democrats.  So basically I just stayed neutral in the post on the demos.  As far as your points about drilling, I don't want drilling off of my state.  I'm not sure what will happen with domestic oil production, but I do know that I don't want any oil rigs anywhere near my beaches here in CA.  I do think that our entire grid could be powered by wind and solar btw.  Anyway when McCain talks, all I can hear is "Waaa I deserve it, I'm going to cater and pander to all the people to get what i want waaaaaaaaaa."  

BTW no matter who becomes prez, we'll still need oil in 10 years.  However, I firmly believe that with a huge push into alternatives, oil will actually fall in demand in 10 years, whereas drilling will cause us to use more oil, setting us back further.  And go ahead and drill in ANWR.  I'll buy the royalty trust on it. :)

Anomalee, 16,000 new cars on the road every day in china.  I'm not sure what the number is in india.  Also, the US and china are printing more dollars and yuan than are being destroyed by debt defaults.  Remember, dollars are priced in oil.  And while the Chinese save and what not, with all these new cars being bought it's not like there is no domestic growth there.

SG: Gentlemen's bet, you are on.  The loser has to post a blog about how awesome the other caps player is.

But (as I've said before), expecting $200 or $300 oil in the next couple of years (as I've seen suggested) is unrealistic. Especially in the midst of an economic slowdown.

You got it backwards buddy.  The markets have not capitulated on the dollar bubble.  The Fed is doing everything it can to ensure an orderly unwind of the dollar, to prevent it from absolutely crashing.  Economic recession means that as more dollars are printed, the less are needed, uh oh, everything goes up, the viscious cycle continues.  Not saying US dollar is going to be like zimbabwe, but it could easily lose 50% of it's value over the next 3 years.  And if we get a capitulation?  The way the dollar capitulates is by a rise in oil and PM's.

Dwot: We never made a bet.  I think somewhere in there I just said in response to you we get to 120 before 80.  The only reward I need is a rise in the share price of my oil stocks, which is what I got, and this correction is going to give me another chance to try to find a short-term bottom to go long on them.

Gnubee: thanks for the article link.  Especially since it is evidence that supports my presence. 

Remember everyone, oil is not priced in dollars - it's dollars that are priced in barrels of oil.

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#26) On August 12, 2008 at 4:11 PM, givmeabreak (28.93) wrote:

How about the price of oil fell because the dollar has risen and the Euro has fallen as the primary, followed by a temporary demand decrease globally? Oil is priced in dollars

The charts between the dollar and oil would probably line-up.

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#27) On August 12, 2008 at 4:24 PM, givmeabreak (28.93) wrote:

Demon, i disagree. If the dollar strengthens, then it buys more oil (which is like lowering the price). If it weakens, it takes more dollars to buy a barrel.

And I appreciate you being open with how you really feel politically. I am polar to your positions, but I respect your openess to how you stand.

So, how is Obama not pandering too? You make it seem like McCain is the only one doing that. The $1,000 tax rebate is pandering epitomized.

And on wind, what percent of the current demand would need to be perpetually backed up by hydrocarbon generation (like the 80% in germany)?

 

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#28) On August 12, 2008 at 4:32 PM, TMFDeej (99.43) wrote:

Holy recs and comments, Doug.  Great post.  I hope that you're right about oil turning around next week. I strongly believe that it will eventually head higher, probably much higher, but that we may head lower for longer than you are currently estimating.

Markets can remain irrational for longer than expected, especially when the "hot" money is shorting the heck out of a particular sector.

I think that everything that can be said on this subject has already been said, so I'll just rec your post and move on to a different subject.

In case you missed it, I mentioned you in my VE post the other day.  Your love of it is one of the reasons why I looked into it more deeply.  I am finally free to say that I am a proud new shareholder.

Deej

Long VE

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#29) On August 12, 2008 at 4:55 PM, GNUBEE (25.77) wrote:

Demon,

Not necessarily. The first article says the production cuts began in June. If total Chinese output dropped/demand in June, then your theory works. If not, then it should be something else.

Lets not forget China lowered the gasoline subsidy too...

What no one can quantify is the percentage of factory shut down and auto rationing. I don't think that the areas shut down were very effectual. So my links showing pollution in the southeast, and the winds bringing it to the southwest would indicate most chinese pollution is moving in exactly the opposite direction. (based on pollution directly being equated with production)

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#30) On August 13, 2008 at 12:41 PM, Option1307 (29.67) wrote:

Nice work Demon, way to connect the dots once again...As an investor new to the game its nice to see someone share their thoughts via pitches/blogs. Keep em rolling.

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#31) On August 13, 2008 at 2:27 PM, DemonDoug (79.27) wrote:

What no one can quantify is the percentage of factory shut down and auto rationing.

This is the one big thing that I wish there was more transparency.  Part of this blog was asking the CAPS community if anyone is either in China or knows someone in China to give a "boots-on-the-ground" report - how much of China's industrial machine has actually been turned off.  I'm looking at press releases, I'm looking at the Olympics and the PR blitz the Chinese government has put out in terms of their efforts to reduce the smog, and I'm looking at oil import data as well as the baltic dry index, and to me adds up to a huge industrial slowdown for the olympics that is likely temporary in nature.   

 I don't think that the areas shut down were very effectual. So my links showing pollution in the southeast, and the winds bringing it to the southwest would indicate most chinese pollution is moving in exactly the opposite direction. (based on pollution directly being equated with production)

Fortunately as investors, whether the shutdown was effective or not is irrelevant.  It might not have helped one bit, but the decrease in demand is the fundamental basis for the current downswing in oil and commodities.  One thing I've really come to realize is that macroeconomic factors and government policies are absolutely huge in both the short, medium, and long-term in terms of investing.  The one thing I dislike about a lot of investment advice, at least for the long term investor, is they say "don't try to time the market."  I say BS on that - if you can spot relatively obvious macroeconomic trends, then buying and selling based on fundamentals of future expected growth can be obvious.  I've been bullish on oil for 2 years; earlier in the year I kept waiting and wanting a pullback, and never got it, so instead I invested money in VE (::highfives Deej::) and MMM, as I see these as recession-proof with good prospects for growth even in the recession, whereas the huge runup in oil and energy companies had basically scared me off.  I love solar, but not at a p/e of 100+.  I still don't think oil is going to drop enough to make me scrounge the money I need to get a value play, but if there is a time to buy, it will probably come in the next 5 trading days (if it hasn't passed already).

givemeabreak: All politicians pander.  I don't want to turn this into a political discussion any more than it has to be; however, I can give you what the right investments will be depending on who wins the presidency.  I'll write a blog on that when the time comes.  As far as the wind farms, I'm not sure exactly what you mean.  Wind generates over 6% of germany's power, but the intermittent nature of wind means that it can never be 100% powering the grid (and probably never more than 20%, if that's what you are meaning).  If you are talking about servicing the wind turbines, I would have to disagree with that, all evidence points that maintenance of the actual turbines is very cheap as there isn't much servicing needed once they are built.  Wiki also claims EROEI for wind turbines at an average of 18 (which is very, very, very good), with a range of 5-35.  The energy used for construction is produced by the wind turbine within a few months of operation.

(source for all wind related materials http://en.wikipedia.org/wiki/Wind_power )

 

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#32) On August 13, 2008 at 3:05 PM, GNUBEE (25.77) wrote:

Demon,

I was trying to say that the areas shut down for the olympics would not be key production areas. I agree with you in that the five region "blue skies" shut down would decrease demand for oil. My argument is that is due to the lower industrial density of areas shut down, the impact of idling the factories was minimized. Yes a shut down lessened demand, but not to the extent that the oil prices retreated. I am waiting for a report "in counrty" to help give me an idea how to capitalize too. So we are all looking to either validate your argument, or find the real cause of oil price drops.

Good work though, you are on pace to have the most rec'd (I think this is the most commented already) blog searchable on CAPS! Closing in on Florida's 49 Rec'r

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#33) On August 13, 2008 at 10:41 PM, nuf2bdangrus (< 20) wrote:

OK all..how about this:

 

Looks like you could get a TAN at 20-22 bucks.  A FAN is 25 right now, and I think that's a good price.  OIH on a dip to 165 is a steal. How about a lump of KOL ijn your stocking, dropped to 40, I have  a limit to buy at 37.50  SJT pays a nice divvy...I had a limit at36, and lowered and missed it.  And of course, get some calls on USO if an when it hits 90-100, back up the truck.

 Excellent conversation all.

 

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#34) On August 14, 2008 at 6:24 PM, awallejr (85.43) wrote:

Irony is people were saying commodities were rising because China was preparing for the Olympics.  Now when things have corrected, the argument is commodities will rise once the Olympics is over?

 

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#35) On August 14, 2008 at 10:07 PM, dexion10 (27.53) wrote:

Demon nice post ! I agree china will turn the industrialization swich on... even if it they grow more slowly than they were growing before  it'll be  a big difference vs. July.

However keep in mind that China was probably hording commodities ahead of the olympics so I'd suspect that commodity markets won't get as artificially tight as they where ahead of the olympics.... at first nobody will know that so speculators will bid up commodity stocks and the early part of the commodity rally will be intense I think.

RE: your oil service stocks:  I had some comments

HP - good co, I don't know their biz very well but it's on my short list of things to do.

RIG - its good but not as good as DO...RIG inherited a lot of jack up rigs from Global Sante Fe and that market is getting saturated... so RIG is not as good as DO - because DO has the highest concentration of Deep Water rigs of any oil services co. 

HLX - This thing is a turd.w.. I used to be a fan of this company but as I do more research I see a bear case - HLX should be sold on rallies... they have too much shallow water exposure and THEY PAID WAY TOO MUCH  for the gas fields they bought... to the point that they may not be economical at $8 nat gas - or not very profitable. And the icing on the cake is that HLX levered up to buy the Remington gas fields soooooo what happens when they have to refinance this debt... it's a turd.

I wouldn't sell HLX at $29 but I'd short it at $36 

 

Lastly I have a new post up on ho

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#36) On August 15, 2008 at 10:30 AM, DeerHunter73 (73.03) wrote:

I agree with alot of whats being said yes. I do feel oil will continue its downturn. People cant afford to pay there mortgage muchless buy gas. With all the above in mind i dont know that oil would goto 75.00 but i feel 90.00 to 100.00 with up an down days will be the avg. Somthing has to give here and it wont be the banks. Next thing would be oil. Dont matter whos elected to office , for the next 4 years were screwed.

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#37) On August 15, 2008 at 4:04 PM, skypicks (63.38) wrote:

Very interesting conversation. One thing I would like to point out is that the price of oil near 150 is basically another short term bubble caused by the usual suspects - hedge funds, speculators, etc. Not a popular opinion - I realize that. There are many fundamental factors that cause the price of oil to go up.

However, consider this point. Before this run up the price of gas was considered inelastic in terms of demand. Meaning that americans would pay any price before they cut back their driving and gave up their SUVs. That held true until gas prices crossed the $4 dollar level. At this level the demand in the US began to drop (or not rise as fast). The point is that a level where demand starts to become elastic has been found. It's not in the interest of the OPEC to keep prices that high. They want to charge the maximum they can as long as demand is not affected.

I actually do agree that the drop in oil prices will end with the olympics, but for other reasons. Oil prices will stabilize at over 100 and SLOWLY rise over the next year, but a market high of 150 is in place at least for a year or two.

On the subject of offshore drilling, Alaska, and canadian sand for that matter. These are short term solutions that will only delay the investment necessary to solve the long term problem of using oil. We must develop alternative sources of energy. This has to be a priority for the next president and it will require money, lots of money. Obama at least realizes that much. High gas prices are the wake up call that this country needs. The longer this alarm rings - the better!

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#38) On August 15, 2008 at 4:20 PM, DemonDoug (79.27) wrote:

Update:  I read an article that stated that China will be keeping it's auto and industrial production down through the duration of the Paralympics, which run through 9/20/08.  So the oil bear might have a few more weeks to go well into September.  I just wanted to let everyone know that.  I'm going to revise my buy signal to the middle of September - near the end of the 3rd week of september to be precise.  This means that oil could definitely get into the 90s easily and might get into the 80s.  I am confident that 75 is still not going to be possible however.

awall: pretty ironic isn't it?  but isn't that the nature of booms and busts?  My theory is that this is a mini-bust going on right now.

Deer: You are looking at this too US-centrically.  USA uses something like 25% of the world's oil, with like 3% of it's population.  As other countries increase their industrialization in a move to a developed country, what is going to happen with oil demand there?

Sky, with the drilling, as an investor I don't care if it solves the problem.  All I look for is a company that is increasing production and hopefully increasing provable reserves.  Find that in an atmosphere of rising oil demand and falling supplies, and you have a big winner.  That's why I love SU - increasing production for the next 5 years at least.

 

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#39) On August 17, 2008 at 6:57 PM, wrote:

 Demon Doug wrote --- "Maybe you have the same dealer as SemperGumby.  Either that or you haven't been reading financial news for very long.  The financial press is littered with cheerleaders reporting on analysts who upgrade crap stocks."

Drew--Thank you sir.  Yes, you are very correct; I am very, very new to this entire game and haven't been reading financial news consistentily for very long.  I am trying to learn, and that's why I am starting to post or blog.  I want to learn.  I really appreciate your feedback and the other veterans feedback on Caps.  Thanks for taking the time to reply to a newbie that is trying to learn and think for himself 1st, then ask questions 2nd when things don't seem to add up to common sense or fundamental economics.

 

thanks again,

andrew

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#40) On August 18, 2008 at 7:44 PM, DemonDoug (79.27) wrote:

drew, you have to read critically any financial news or advice.  you have to see what the reporter/blogger's biases are, who he/she works for, are there any conflicts, etc.  There is a LOT of stock manipulation that takes place hand-in-hand with press releases and reports.  Read anything from the National Association of Realtors if you want to see complete bias and spin 100% of the time.  I open discussion and critique on my blogs too because I'm not perfect and I'm always trying to learn too.

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#41) On August 19, 2008 at 7:30 PM, DeerHunter73 (73.03) wrote:

One more thing ive noticed to. oil reserves conveniently dropped and production dropped when people started using less. How ironic that it happen AFTER gas prices started to go down. They dont want to stock pile the oil and gas so they can say we dont have enough . That in turn alone would casue it to go up. Hasnt worked for 3 weeks now . there going to have to try another scam to get those billions in profit again....

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#42) On August 20, 2008 at 9:59 AM, dexion10 (27.53) wrote:

DEMON DOUG... are you loving this rally for energy stocks and commodities are what

If you are invested like I am you just made some SERIOUS real money!!!

I knew this commodity trade would work when I heard CNBC say that this was the "nail in the coffin" of commodities and Cramer started talking about the next leg down in nat gas.

WHAT GOT ME REALLY EXCITED WAS:

The fact that there were still some trendlines intact for both the USO and GLD... the fast lines broke but there were two mid / long term lines  are still intact and best of all they were

~110 on oil and ~800 on GLD 

 The lower trendline for oil is around $90 I think hard to tell because I was looking at the USO Chart

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#43) On August 21, 2008 at 1:51 PM, DemonDoug (79.27) wrote:

Hmmm... oil going up in the mid-week time period near the end of the olympics.  Who would have thought that?

Oil will continue to fall, ending lower at the end of this week than it was at the beginning.  Next week (8-18 to 8-22), oil may still be falling overall, but by the end of the week, China will be starting to roll in it's oil orders again to flip the industrialization switch to the "on" position.  By 8-22 you will see oil rising, and by the last week of august you will definitely see an upswing in oil prices.

Gee, who was the really smart guy who said that?  What a really prescient guy, someone give that man a gold star, that is one really, really intuitive guy that really knows how to connect the dots.

:D

p.s. If oil gets to 90, I'm going to move 90-95% of all my cash into my favorite oil companies.  We can only hope... Report this comment
#44) On August 21, 2008 at 1:55 PM, DemonDoug (79.27) wrote:

Hmmm... oil going up in the mid-week time period near the end of the olympics.  Who would have thought that?

Oil will continue to fall, ending lower at the end of this week than it was at the beginning.  Next week (8-18 to 8-22), oil may still be falling overall, but by the end of the week, China will be starting to roll in it's oil orders again to flip the industrialization switch to the "on" position.  By 8-22 you will see oil rising, and by the last week of august you will definitely see an upswing in oil prices.

Gee, who was the really smart guy who said that?  What a really prescient guy, someone give that man a gold star, that is one really, really intuitive guy that really knows how to connect the dots.

:D

p.s. If oil gets to 90, I'm going to move 90-95% of all my cash into my favorite oil companies.  We can only hope... Report this comment
#45) On August 21, 2008 at 3:16 PM, TDRH (99.66) wrote:

Interesting read, seems to be from a valid source.  The reduction you talk about, along with some US declines are having an impact, but the percentages outlined in this article are pretty interesting.http://www.washingtonpost.com/wp-dyn/content/article/2008/08/20/AR2008082003898_pf.html

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#46) On August 21, 2008 at 3:17 PM, TDRH (99.66) wrote:

Interesting read, seems to be from a valid source.  The reduction you talk about, along with some US declines are having an impact, but the percentages outlined in this article are pretty interesting.http://www.washingtonpost.com/wp-dyn/content/article/2008/08/20/AR2008082003898_pf.html

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#47) On August 21, 2008 at 5:57 PM, DeerHunter73 (73.03) wrote:

Oil is up this week due to money being takin from financials and put in oil. Once the nerves calm about fre and fnm along with usa and russia oil will cont dropping as dollar rises again. remember the old saying " ALMIGHTY DOLLAR" wil always prevail.

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#48) On August 21, 2008 at 5:59 PM, DeerHunter73 (73.03) wrote:

Oil is up this week due to money being takin from financials and put in oil. Once the nerves calm about fre and fnm along with usa and russia oil will cont dropping as dollar rises again. remember the old saying " ALMIGHTY DOLLAR" wil always prevail.

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#49) On August 21, 2008 at 6:06 PM, DeerHunter73 (73.03) wrote:

Oil is up this week due to money being takin from financials and put in oil. Once the nerves calm about fre and fnm along with usa and russia oil will cont dropping as dollar rises again. remember the old saying " ALMIGHTY DOLLAR" it will always prevail.

Seams like a replay week of mid july when no olympics were in the oil picture and it was all about the financials going up oil going down now finalcials are in trouble once again there down oil is up. NOT hard to guess its a sea saw game here. I personally have not an never will invest in oil. Have personally converted 3 out of my 4 vehicles to water no need for gas. Even converted my generator to it as well. Financials "long term" of course will pay more then oil ever will.

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#50) On August 21, 2008 at 6:16 PM, DeerHunter73 (73.03) wrote:

Oil is up this week due to money being takin from financials and put in oil. Once the nerves calm about fre and fnm along with usa and russia oil will cont dropping as dollar rises again. remember the old saying " ALMIGHTY DOLLAR" it will always prevail.

Seams like a replay week of mid july when no olympics were in the oil picture and it was all about the financials going up oil going down now finalcials are in trouble once again there down oil is up. NOT hard to guess its a sea saw game here. I personally have not an never will invest in oil. Have personally converted 3 out of my 4 vehicles to water no need for gas. Even converted my generator to it as well. Financials "long term" of course will pay more then oil ever will.

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#51) On August 21, 2008 at 6:17 PM, DeerHunter73 (73.03) wrote:

good lord i only submitted this once not 3 times

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#52) On August 26, 2008 at 9:46 PM, MalcoweeDaddy (72.25) wrote:

Thanks for taking the time to write this most interesting article

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#53) On August 27, 2008 at 9:51 PM, DeerHunter73 (73.03) wrote:

Well oil didnt spike as predicted by some from the Olympics. However it will goto roughly 125.00 on HURRICANE gustav. Once that storm passes it will come crashing down again. Oil is done in the 140 to 150 range. Only reason supplies are down now is THEY CUT PRODUCTION, TO MAKE MORE MONEY. That scam is going to backfire. Depending on the damange from the hurricane oil may stay in the 120 range for a week or two, if the damage isnt to severe oil will be back to 112 to 115 in a couple days and by the end of the season oil will be around 100 MAYBE less..

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#54) On August 27, 2008 at 9:54 PM, DeerHunter73 (73.03) wrote:

Well oil didnt spike as predicted by some from the Olympics. However it will goto roughly 125.00 on HURRICANE gustav. Once that storm passes it will come crashing down again. Oil is done in the 140 to 150 range. Only reason supplies are down now is THEY CUT PRODUCTION, TO MAKE MORE MONEY. That scam is going to backfire. Depending on the damange from the hurricane oil may stay in the 120 range for a week or two, if the damage isnt to severe oil will be back to 112 to 115 in a couple days and by the end of the season oil will be around 100 MAYBE less..

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#55) On August 28, 2008 at 12:08 PM, DemonDoug (79.27) wrote:

Hey deer hunter, did ya miss my post #38?  Unlike certain right-winged fascist set-in-stone stubborn idiotic presidents, I am allowed the flexibility to change my mind and adapt to situations as they evolve.

Update:  I read an article that stated that China will be keeping it's auto and industrial production down through the duration of the Paralympics, which run through 9/20/08.  So the oil bear might have a few more weeks to go well into September.  I just wanted to let everyone know that.  I'm going to revise my buy signal to the middle of September - near the end of the 3rd week of september to be precise.

Should I make those letters in bright pink neon on a black background to make sure you'll read them this time?  Or maybe interlace a nudie photo like in Fight Club?  Talk to me at the end of september and then you can call my prediction wrong.  We are still on track for 200/bbl oil by 2010 easy.

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#56) On August 28, 2008 at 3:02 PM, DeerHunter73 (73.03) wrote:

Oil will continue to fall, ending lower at the end of this week than it was at the beginning.  Next week (8-18 to 8-22), oil may still be falling overall, but by the end of the week, China will be starting to roll in it's oil orders again to flip the industrialization switch to the "on" position.  By 8-22 you will see oil rising, and by the last week of august you will definitely see an upswing in oil prices." WRONG"

By the end of August you will see talks of the dollar's strength fading,   " WRONG"

BASICALLY YOUR SAYING OIL WILL JUMP 100.00 A BARREL IN 16 MONTHS OR LESS? hmmmmmm After this storm passes with or without mass damage oil will go up 10.00 and drop again. Oil for the rest of this year will hoover between 100.00 and 115.00 . Which then say oil will have to move up avg of 90.00 in 12 months next year. While in a recession. Banks failing, Forclosures, dollar rising most in 8 years, list is endless. Not to mention sadly obama is going to be the next Pres due the the nation doesnt want 4 more years of Bush. Oil will be history with him in office for the 1st 12 months , as he would concentrate on the financials! Financials rise oil drops Look attoday oil selling off on Financials souring WITH THE CHANCE OF A CAT 5 HURRICANE HEADING FOR THE GULF! OIL STILL DROPPING! 

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#57) On August 28, 2008 at 3:02 PM, DeerHunter73 (73.03) wrote:

Oil will continue to fall, ending lower at the end of this week than it was at the beginning.  Next week (8-18 to 8-22), oil may still be falling overall, but by the end of the week, China will be starting to roll in it's oil orders again to flip the industrialization switch to the "on" position.  By 8-22 you will see oil rising, and by the last week of august you will definitely see an upswing in oil prices." WRONG"

By the end of August you will see talks of the dollar's strength fading,   " WRONG"

BASICALLY YOUR SAYING OIL WILL JUMP 100.00 A BARREL IN 16 MONTHS OR LESS? hmmmmmm After this storm passes with or without mass damage oil will go up 10.00 and drop again. Oil for the rest of this year will hoover between 100.00 and 115.00 . Which then say oil will have to move up avg of 90.00 in 12 months next year. While in a recession. Banks failing, Forclosures, dollar rising most in 8 years, list is endless. Not to mention sadly obama is going to be the next Pres due the the nation doesnt want 4 more years of Bush. Oil will be history with him in office for the 1st 12 months , as he would concentrate on the financials! Financials rise oil drops Look attoday oil selling off on Financials souring WITH THE CHANCE OF A CAT 5 HURRICANE HEADING FOR THE GULF! OIL STILL DROPPING! 

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#58) On August 30, 2008 at 12:38 PM, dexion10 (27.53) wrote:

demon doug are you doing fantasy football with motleyanimal.

 

I am in the league 

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#59) On September 01, 2008 at 11:01 AM, DeerHunter73 (73.03) wrote:

Wow who said depending on hurricane gustav oil would go up or down. Hmmmmm guess its down to below 111.00 a barrel on labor day.. So much for the spike after olympics...

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#60) On September 02, 2008 at 5:15 AM, DemonDoug (79.27) wrote:

deerhunter, you get a red F for comprehension.  Unlike neocon politicians, I can admit when my theory was wrong based on newer, better information.  9-17-08 is when the paralympics are over, expect the commodity bull to start charging after that.

BASICALLY YOUR SAYING OIL WILL JUMP 100.00 A BARREL IN 16 MONTHS OR LESS? 

You know, asking that in all CAPS doesn't make it any better of a question.  Again you get an F for comprehension.  My prediction is for 200/bbl by the end of 2010.  That would mean oil will go up 85/bbl in 28 months or less.  The only way this doesn't happen is if there is a major shift is US monetary policy.  If McCain wins, I can guarantee you there will be absolutely no change in policy.  Obama is a wild-card - would he force out Bernanke and install a more Volcker-like Fed Chairman?  If so, I would definitely have to revise my theory then.  But if Bernanke is still the Fed Chairman on 1-1-2011, then oil will have hit 200/bbl by then.

Hurricanes are red herrings that have virtually no long-term impact on the oil and gas market.  It's monetary policy that drives the cost of commodities.

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#61) On September 02, 2008 at 6:48 AM, DeerHunter73 (73.03) wrote:

Quote " that demand will come back as oil marches it's way to 200/bbl by 2010". No where in there does it say end of 2010 it says by 2010. Im not arguing with you im stating what you said would have happened by certain dates. I stated oil would drop down like a brick if gustav didnt do as much damage as was expected. The Gulf put out 25% of our daily oil. That in mind oil in premarket was down below 106.00 a barrel. with any luck the rest of the hurricane season which peaks from Aug 15th thru oct 15th wont cause that much damage in the gulf oil will be below 100. a barrel. By its current downfall oil is on track to go below 100 this week. MAY NOT CLOSE BELOW 100 BUT IT WILL HIT IT.  your orginal statement was basically oil would be on the rise by the end of august and continuing up from there . When in fact oil peaked in Aug at 121.00 and has dropped to a trade of 108.00 on 9/02/08. Financials are going to get back any losses they had friday on a NO NEWS DAY just due to oil crashing down. I dont care what your GRADE F thought is, fact is ive been right on what ive said about oil and financials since i started commenting on this blog. That in mind as any professor would say Great job A . Not to mention hurricane hanna is going to miss the gulf again keeping oil down. So inventories drop this week thats a givin seein is how they shut down production for nearly a week on gustav. Thats what reserves were for . now they have to fill the reserves back up. Which will show more on hand over the next couple weeks again makin oil drop. I have no doubt oil will stabilize around 100.00 but 150 and 200 avg day oil isnt gonna happen for many years. It will never happen as long as this country and 1/2 of the otherworld is in a recession.

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#62) On September 02, 2008 at 4:41 PM, DemonDoug (79.27) wrote:

 It will never happen as long as this country and 1/2 of the otherworld is in a recession.

Those who do not understand history are doomed to repeat it.  What if we have a 10% down day on the dow and trading curbs kick in?  And influx of dollars and another "emergency" rate cut? 
"Inflation is always and everywhere a monetary phenomenon"  This is the basis for my oil at 200 prediction.  That combined with Peak Cheap Oil and not enough alternatives coming online to replace it fast enough means that oil can hit 500 or even 1000/bbl.

Hurricanes and other such things are just noise that traders use to trade.  While the traders set the market, the supply off too many dollars chasing too few natural resources will continue for the forseeable future.  And let's wait until 9/18 and see what happens then before you plant a victory flag on my blog.

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#63) On September 02, 2008 at 7:36 PM, DeerHunter73 (73.03) wrote:

ok deal keep in mind theres 3 more storms out there that will make oil rise and fall drastically again. not a matter of a victory flag demon, its the WORLD in general is dropping in oil . Including asia prices today which isnt normal either over there... in all honesty i dont think we will see oil level out till mid Oct. then my guess is 90 to 100 range. Several analysts on bloomberg today are predicting 75 to 80 . only 1 said 85 to 100  and 1 said 100  were the bottoms. im still set on 90, all of those said by end of year. with you i agree 75 isnt happening. Anything below 85 would shock me in the least

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#64) On September 02, 2008 at 11:34 PM, DemonDoug (79.27) wrote:

Well we're not that far off on the current valuation.  I see oil as fairly valued at around 120/bbl.  I personally don't invest unless things are severely undervalued; if oil does indeed get below 80, you will see me write another blog about how I've bought an oil producing company, because hooooooo boy, oil at 75 means a lot of companies are going to fall, and that means actual, real, tangible value.

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#65) On September 03, 2008 at 6:24 AM, DeerHunter73 (73.03) wrote:

Oil falls to 75 i would take all my profits from Abk over the last 3 months and buy in as well. The big question then would be which do i buy?

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