Thursday, June 26, 2008

Can a Near Term Top in Oil Be Far Away?

One thing we always like to look for are something that signals at least a medium term top in a sector - i.e. when everyone has thrown in the towel and is bullish, we look for a reversal. I wrote about this in April when potash spiked to $1000 on spot market and Intrepid Potash (IPI) IPO'd - immediately (within days) the fertilizers flat lined for a good 6 weeks. [Apr 23: Potash Hits $1000 on Spot Market] Some other fun ones I highlighted in the blog with some quite good timing

Sometimes, in retrospect, we can look back at a moment in time that seems either outrageous or telling, and see a warning signal is flashing in the middle of a mania. I have pointed this out in previous entries ranging from

  1. The Macau gambling stocks (Steve Wynn cashout), on the heels of private equity 'cash out' via Blackstone IPO (BX), on the heels of Sam Zell cashing out at the top in commercial real estate during the private equity feeding frenzy [A Top in Casino Names?]
  2. The Chinese small cap bubble frenzy earlier in October [This Day in Bubbles Series]
  3. The dry bulk shipping frenzy [A Chorus for Dry Bulk Shippers - Enough Already?] and [A Near Term Drop in Dry Bulk Shippers?]
  4. And our most recent frenzy, that of the solar companies [Closing LDK Solar on the Mania that is Solar] and [Suntech Power Up 8%.... on a Downgrade]
So that is 5 for 5. This would be the greatest call of all, no? 6 for 6? Shall I say the near term top is in for oil when OPEC calls for $150-$170 crude? I'm already on record saying food will replace energy as the inflation of choice in second half.... let's see if I can extend this winning streak - we'll revisit on Labor Day.
  • Crude oil prices could rise to as high as $170 per barrel in the coming months but are unlikely to hit $200 and should ease towards the end of the year, OPEC President Chakib Khelil said in an interview on Thursday.
  • "I forecast prices probably between $150-170 during this summer. That will perhaps ease towards the end of the year," he told France 24 television, according to a text of the interview released by the station
  • The comments came as crude prices neared $135 per barrel, after rising about 40 percent this year.
  • Khelil said he doubted prices would climb as high as $200.
  • "I think that the devaluation of the dollar against the euro, if everything goes as I think it will, will be of the order of perhaps 1-2 percent and this will probably generate an $8 rise in the price of oil," he said.
  • The head of the Organization of the Petroleum Exporting Countries, said it had been clearly established that speculation was affecting markets. "It's not a question, but a certainty. The problem is the extent of that speculation on the market," he said, adding that the effect of the subprime crisis in the United States had affected oil markets.
I am so sick of hearing that last point - someone not named Mark the blogger needs to call out Uncle Ben on the floor. Since the first Fed panic in mid August 2007 (cuts) oil has been straight up. It is not coincidence - it is the flooding of the world market with US pesos. Pictures don't lie - people do.

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