Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Pretium - Canadian Golden Elephant - 31st Oct 14
What USA Today Got Wrong About the Stock Market Fear Gauge - 31st Oct 14
Election Result - Labour Wins South Yorkshire Police and Crime Commissioner - 31st Oct 14
Gold Price Falls, Stocks Record Highs as Japan Goes ‘Weimar’ - 31st Oct 14
EUR/USD - Double Bottom Or New Lows? - 31st Oct 14
More Downside Ahead for Gold and Silver - 31st Oct 14
QE Is Dead, Now You Tell Me What You Know - 31st Oct 14
Welcome to the World of Volatility - 31st Oct 14
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Crude Oil Price Drop Offers Investors a Discount Opportunity

Commodities / Crude Oil Nov 12, 2012 - 07:27 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDr. Kent Moors writes: Markets declined significantly in the wake of last Tuesday's Presidential election. In the two days that followed the S&P shed almost 3.6%.

But now the energy sector in general - and oil in particular - is poised for a major move up.


As I am writing this, six of the nine elements I regularly monitor to determine oil prices are pointing north.

The relationship between refinery margins (the difference between what it costs to produce oil products and the price that can be charged at the wholesale level - where the refiners make their profit) and inventory in gasoline are also indicating an oversold market, even without factoring in the East Coast double whammy of Hurricane Sandy and a Nor'easter.

The underlying dynamics, therefore, haven't changed. If left to its own devices, oil prices should be moving up (and our profits right along with it).

So why the dip?

Where Oil Prices Go From Here
The first issue is short-term.

The aftermath of an election usually produces a downward pressure, regardless of who wins. The market bought into the election moving up smartly. It came out of the election moving in the other direction.

Nothing unusual there. The markets opened Wednesday morning with the election as history. That always occasions misgivings about what is coming next.

Yet cross currents over demand projections will be giving way to a more robust energy sector. This is not going to be a straight upward movement in prices. But those levels are currently depressed because of outside questions about overall economic prospects.

The oil market itself (and the energy sector as a whole will move essentially in the direction that its dominant component moves) has underlying dynamics that would dictate a crude price higher by about 15% at current levels.

But the outside "distractions" need to be weeded out first. Especially this time around.

There are two major elements preventing the energy sector from moving up.

I discussed both of these with my Energy Advantage and Energy Inner Circle subscribers yesterday, along with the way in which we have positioned both portfolios to profit from the current situation.

Here is the summary of what I told them. Two matters remain foremost in the mix, assuring that the next two months will be marked by considerable gyrations.

First, the clock is ticking in Washington on the "Fiscal Cliff." Second, Mario Draghi, the head of the European Central Bank (ECB), has prompted new concerns over the Eurozone.

Editor's Note: To find out what stocks Kent is recommending right now click here

The massive spending cuts and tax hikes obliged by the "fiscal cliff" would certainly push the U.S. economy over the brink into a deep and prolonged recession. However, despite the low regard given to politicians in Washington, there are already indications they will reach an agreement before the end of this year.

This will not be an ultimate solution. Yes, Congress and the White House will compromise to kick the can down the street one more time. But that will be sufficient for our purposes. Expect a rally in energy when the central powers begin to telegraph the compromise.

The second problem - Europe - was actually the major reason why the markets tanked on Wednesday. Draghi said publically what a number of folks had been saying privately. European economies are slowing, with that slowing now beginning to hit the continental engine - Germany.

Draghi subsequently made additional comments on Thursday that tempered the impact somewhat. Yet, new riots in the streets of Athens following the controversial passage by parliament of an austerity package have once again put a visual on the situation. A truly incredible admission by the Greek government of an almost 25% official unemployment rate simply intensified the concern.

Well, here is what will happen with the ECB. The mechanisms are in place allowing the central bank to buy distressed paper, although there are still some domestic decisions that have to be made by EU governments. It also remains unclear when Spain will formally request a bailout.

These details will finalize.

The European capitals have no other option, despite the political unpleasantness of the requirements. Even then, the most important decision (setting up the structure to buy cross-border commercial bank paper) has already been made.

Europe will not regain its financial footing without a lender of last resort. The ECB has now assumed that position. Despite the disagreements resulting, the path is laid out to ease the situation.

Once again, as with the financial cliff in the states, we will experience a stop-gap measure, not an ultimate solution.

The market has been trading on emotional reading of headlines for some time. We have undergone two downward slides in oil prices that went well beyond anything the actual market justified, followed by recoveries just as quickly.

All in the last few months.

This will remain a volatile situation in both directions. The objective in developing and balancing an energy investment portfolio in such an environment is two-fold.

First, the stock selections need to reflect the tradeoffs in the sector itself. That is, not all reactions to market activity will move in the same direction. Second, there are ways to establish ceilings and floors on risk short of simply using puts and calls.

As we move through the current cycle of market instability, I'll be providing some general suggestions in Oil & Energy Investoron how to design such a portfolio.

Source :http://moneymorning.com/2012/11/12/oil-prices-have-dipped-just-dont-expect-these-discounts-to-last/

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

© 2005-2014 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

Free Report - Financial Markets 2014