Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Why Crude Oil Prices Can't Collapse

Commodities / Crude Oil Nov 01, 2012 - 06:15 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDr. Kent Moors writes: The markets opened again yesterday after the tragic storm across the East Coast.

In a world ravaged by storms, geopolitical tensions, rising demand, supply concerns, and increasing costs, it's important to know what's really driving oil prices moving forward.


The most important thing you can know is that increased market volatility is not going away. The challenge, of course, is to harness these volatile forces in order to come out ahead in the future.

That's the subject today. First I need to set the picture of where we are today.

There has been persistent talk from the usual sources that the price of oil will collapse, along with a range of field support and midstream service providers.

There is just one problem with this argument.

It's just not going to happen.

Don't get me wrong. I am not suggesting that the accelerating volatility in oil prices will point only in one direction, or that the trajectory is straight up. This is not going to be the first half of 2008 revisited.

Rather, we will continue to experience intense movements over shorter intervals. This is what statisticians call kurtosis - greater amounts of volatility occurring in shorter cycles.

Despite the overall upward trend demanded by indicators, these more compact movements will occasionally go in either direction.

That means we can experience downward spikes restraining oil prices over shorter durations. Nonetheless, the overall medium-term dynamic continues to move up. This is producing what I call a "ratcheting" effect: The market prices will undergo downward pressures within a basic upward tendency.

So where are oil prices going?

I monitor nine factors to determine this. These factors run the gamut from effective in-place field reserves, industrial (not retail) demand, and pipeline/terminal volume usage, through the ratio of refinery inventory to purchasing trends, to geopolitical crises and bottlenecks.

Of the nine, six continue to show pronounced upward indicators.

So why are we not seeing a more pronounced move up in oil prices?

If you live on the East Coast, you may be able to guess...

Storms Affect the Short Term Oil Prices
The hurricane season is an external factor restraining prices. The more storms we have, the more often this factor is felt.

When a major storm is approaching, it is not only production and refining that is shut down. It is also storage facilities.

With no place to put additional volume (since the wholesale network is also affected) and no way to manage the transit of that volume, prices decline, because there is neither a need for additional supply nor a place to put it. This is a short-term impact. It's rebalanced once the danger is past. But it does explain the decline in prices as Hurricane Sandy approached.

We see the opposite with gasoline and diesel.

As the situation obliges refineries to shut down (a process already underway on the East Coast by Monday afternoon), cuts in supply will temporarily boost prices beyond the level where market factors would place them. That remains an issue until refineries are back on line and distribution returns to normal.

But the main reason prices are subdued has nothing to do with what nature throw at us. It doesn't even have anything directly to do with the underlying realities of the oil market itself.

What continues to depress the oil price are concerns about economic recoveries on both sides of the Atlantic. This translates into emotional over-reactions to headlines and knee-jerk pundit comments about everything from European credit concerns to the latest inventory figures are Cushing, Okla.

As my colleague Keith Fitz-Gerald puts it, markets are what they are. And that sometimes includes the race of lemmings to the cliff.

Investor exuberance lays hold one day; investor depression the next. Perceptions are now taking the place of reality.

How to Find Balance in Your Energy Portfolio
I have two observations to explain how investors can make money in the face of such perceptions.

First, the continuing argument that oil prices will slide is not only wrong, it is unsustainable.

Unless economic decline is the new permanent reality - and that is neither evident nor possible, even in the most pessimistic of assumptions - the emotional over-reaction will end.

Let's be clear once again that it is the perception not the reality that drives the doomsayers and short artists in such an environment. As the cycles reverse, prices recover quickly and then move forward. The "professional pessimists" are right only if the price is always declining.

And that simply is not taking place.

Take for example what we have seen recently. From the second week of May to the third week in June, the market experienced a 21% decline in oil prices (when, as I have mentioned several times before, the actual market fundamentals called for only a 9% correction).

Once the lemmings had dried off and the cries that the sky was falling subsided, the prices shot back up. One month later, NYMEX oil prices had recovered all of their losses. Brent in London was actually registering absolute gains.

But here is the important point. Most of the individual stocks in my Energy Inner Circle portfolio are ahead of where they were before the downward pressure hit. The key to gaming the volatility, especially during periods in which emotion is replacing reason, is balancing your portfolio to offset these moves.

Put simply, the energy sector has built in offsets.

When one segment (natural gas production, for example) is declining, another (utilities) is likely to be moving up as a result. Or, if crude oil prices are declining, refineries will pick up because of improved margins.

A balanced portfolio, therefore, allows an investor to both ride out volatility and increase returns.

[Editor's Note: For a closer look into how the oil market really works, click here. You'll learn why people calling for $40 oil are dangerously wrong.]

Second, we need to remember what sector is involved here.

This is not discretionary spending or luxury goods.

This is energy.

Nothing - no growth, economic development, or trade - can take place without the energy sector. While markets can ride a rollercoaster of sentiment on the volatility express, all aspects of these markets require energy regardless of where the curve happens to be.

As has always been the case, in every pricing cycle of the past decade, central essential goods always weather the storm (hurricane or otherwise). And energy is the most central of all.

Source :http://moneymorning.com/2012/11/01/why-oil-prices-cant-and-wont-collapse/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules