Best of the Week
Most Popular
1.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
2.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
3.Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - Nadeem_Walayat
4.Scotland Independence Result NO Win 55% to Yes on 45% - Nadeem_Walayat
5.US Dollar Forecast to Go Much Higher - David_Petch
6.Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - Raul_I_Meijer
7.The Emergence of the US Petro-Dollar - Gary_Dorsch
8.Don't Miss This Gold Buying Opportunity - Brien Lundinr
9.Silver Price: A Collapse and a Rally - DeviantInvesto
10.Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14 - GoldCore
Last 5 days
Tesco Super Market Giant Fast Disappearing Down a Financial Black Hole - 22nd Sept 14
Where China and Japan Are Investing Billions - 22nd Sept 14
Scotland YES 71% - Global Youth Intifada Moves On - 22nd Sept 14
U.S. Dollar: The Last Hurrah? - 22nd Sept 14
China Moves To Dominate Gold Market With Physical Exchange - 22nd Sept 14
One Giant Cluster Ponzi - 22nd Sept 14
The Millenial Cult Of Global Warming - 22nd Sept 14
Dubai Residential is NOT a Property Bubble But the Party’s Over - 22nd Sept 14
Stock Market Topping Process Update - 22nd Sept 14
Indian Stock Market BSE SENSEX The Encore Rally - 21st Sept 14
ISIS Fear-Mongering Ahead of Another US False Flag? - 21st Sept 14
Ecology Politics And Haeckel's Tree Of Meaning - 21st Sept 14
ASX200 Stock Market Index Set For New Highs - 21st Sept 14
Scottish Referendum Not Avoiding The Future - 21st Sept 14
Five Lessons Learned from the Scottish Referendum - 21st Sept 14
The Problem With UKIP And Other I I P's - 21st Sept 14
Stocks Bull Market Resumes - 20th Sept 14
Gold And Silver - Current Price Is The Story - 20th Sept 14
Can the U.S. Economy Withstand Another Housing Market Breakdown? - 20th Sept 14
Nervous Investors Will Hate the Money You Make With This Strategy - 20th Sept 14
Cheap Gold Stocks Upleg Intact - 20th Sept 14
Monetary Policy Killing The System - 20th Sept 14
Scotland and the Spirit of Our Time - 20th Sept 14
Bitcoin Price Charts In-Depth Analysis - 19th Sept 14
Alibaba is Focused, Will Use Money in Emerging Areas - 19th Sept 14
Bird's Eye View of the Gold Stocks - 19th Sept 14
Scotland Independence Result NO Win 55% to Yes on 45% - 18th Sept 14
Silver Price: A Collapse and a Rally - 18th Sept 14
Here's Why Trendlines are Your New Trading Best Friend - 18th Sept 14
Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14
The "Hidden" Billions in the Alibaba IPO - 18th Sept 14
Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - 18th Sept 14
Monetary Policy Weighs on Gold and Silver - 18th Sept 14
Global Currencies Analysis...The World According to Chartology - 18th Sept 14
Gold Price Hammered by Strong U.S. Dollar - 18th Sept 14
Is Citigroup the Dumbest Bank Ever? - 18th Sept 14
Scotland Must Vote Yes! For All Of Us - 18th Sept 14
Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - 18th Sept 14
A Public Bank Option for and Independent Scotland - 17th Sept 14
The Charade of Independence for Scotland and UKIP - 17th Sept 14
Gold Report - U.S. National Debt Surges $1 Trillion In Just 12 Months - 17th Sept 14
How to Find Trading Opportunities in ANY Market Using Fibonacci Analysis - 17th Sept 14
Why Money Is Worse Than Debt - 17th Sept 14
Can Gold Price Finally Recover? - 17th Sept 14
Scotland Independence - Europe Holds Its Breath - 17th Sept 14
The Energy Prices at Risk with Scottish Independence - 17th Sept 14
Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency - 17th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

You've never seen this before and may never again

Crude Oil Price BUBBLEOMIX Forecast 2013

Commodities / Crude Oil Feb 18, 2013 - 05:11 PM GMT

By: Andrew_Butter

Commodities

When the Penny Drops that U.S.A. will be Energy Independent by 2030…

There is an excellent presentation by BP’s Chief Economist which you can find on their website http://www.bp.com...

He hits all the right nails bang on the head; (1) over the past decade 50% of America’s trade deficit was the cost of buying energy abroad, mainly oil; (2) the amount of GDP you can get from burning one barrel of oil is going up, (3) within ten-years and perhaps sooner, U.S.A. will become energy independent for the first time in fifty years (5) Peak Oil isn’t even worth talking about (6) the reason U.S.A. got into shale-gas and then tight-oil before everyone else is that in spite of all the hand-wringing and leaving aside George-W as an isolated exception-to-the-rule, economically it is still the most free place with the lowest level of government-sponsored stupidity and/or cronyism, in the world; apart from isolated pockets such as Hong-Kong, Singapore and Dubai. Well he didn’t actually say that, but in so many words, and (7) implicitly, one of these days that technology is going to be exported.


OK, don’t mind the accent; I suspect he is Swiss-French but brought-up in a Swiss-German area, you got to watch out for those-guys, they are precise as the Germans but as slippery as the French!!

Freddy Hutter http://seekingalpha.com... tells me that what happened to oil in 2008 and 2009 was not a bubble-and-bust. Apart from that he says he agrees with me which kind of weird’s me out coz that’s a big area of disagreement. For me that was about as perfect an example of one of those as you will ever find. Like those perfect waves surfers ramble on-and-on about when they get stoned; that you get once in a ten years where the wind has been blowing straight offshore for a week but two-hundred-miles away there was a big storm pushing up a swell the other way.

According the theory of BUBBLEOMIX you can figure out precisely where the mean-sea-level is when sitting on your surf board getting bumped by the locals, from just two pieces of data downloaded from your Go-Pro. All you need is the top of the wave and the bottom of the trough, multiply those two numbers together and then take the square-root and you have your answer. In that analogy the mean-sea-level is the “fundamental-price” or if you want to get technical, what International Valuation Standards calls the “other-than-market-value”.

What that says is the amount of money that was spent paying too much for oil during the bubble, which in 2008 was about $165 billion, is exactly equal to the amount of money that was not paid, i.e. “saved” by people who paid too little during the bust.

That’s called the theory of what comes around goes around. Or if you want to get technical, long-term, markets are always efficient, but then like the man said, they can stay inefficient for longer than you can stay sober…or something like that.

Put that another way, a bubble and a bust is zero-sum, it creates no net economic value, all that happened was that one set of people paid $165 billion too much to another set of people who got lucky, and then the tables got reversed, both times there were losers and winners. But the inescapable reality is that for economy’s to be sustainable, in every transaction, both sides need to be winners.

According to me, and as remarked earlier, I am a minority of about n=1, what determines the fundamental price of oil is the amount of money in the world available to pay for it, that’s demand measured in dollars, or gold-bars, doesn’t matter. That changes over time, as the amount of dollars you can make burning oil changes, but short-term it doesn’t change much, which means that the price of oil in current dollars, short-term, i.e. over five-to-ten years, should track GDP in current dollars.



If you buy that line then all you need to figure out the “fundamental” is one bubble and bust, that gives you point “A” on the chart. As a check the amount of money paid extra in “B” should pretty-much equal the amount not paid out in “C” (you need to multiply price by production to get that http://www.indexmundi.com/...).

That’s illustrated on the chart, the assumption is of course that supply of oil is not limited, in other words at all points on the curve the suppliers, in aggregate; could always pump more if they wanted to (as in if they could find a buyer at the price they like), whenever that changes, or there is a threat it might, then things change.

Which explains why every now AM’s pretty little butterfly flaps her wings and says she has a headache three-nights in a row, so (a) AM gets in a huff and start mouthing off about how Iran has the indelible right to manufacture weapon-grade plutonium…for peaceful purposes of course, so (b) the Israeli’s say they will bomb-bomb-bomb-bomb-bomb Iran back to the Stone-Ages if they keep up with that sort of attitude…to the beat of the Beach Boys song –can’t seem to get away from surfers… so (c) AM gives them the finger and says, “we got Sunburn Missiles and we can close down the Straits of Hormuz any-day we like…LOSER!!@%”, so (d) the herds of lonely-souls who are employed to hedge exposure of airlines and so on, just in case of Acts-of-lunacy, get spooked, so (e) they place their bets and the price goes up, so (f) the Iranians get a better deal during their periodic negotiations with Indian and Chinese refineries, and then (Gee-Wiz) then everyone lives happily ever-after until Pretty-Girl-Butterfly flaps her wings again, which proves beyond a shadow of a doubt that women are the source of all evil.

According to the chart, which incidentally hardly anyone agrees with, particularly Freddy, oil has been a bubble since December 6th 2010, and since then, “someone” or a collection of someone’s have paid out $283 billion more to buy oil than they ought to have if they had paid the right price. Of course, you can’t pay the “right” price until the darn sellers break ranks and/or the hyperventilating hedge-fund managers reach for their brown-paper-bags. The problem is the way it works you get fired if you don’t hedge against a spike but if there is a bust well the way the bonuses are worked out, that doesn’t matter so much.

Whenever that happens (not if), what will happen next, as night follows day, is the red-line.

The trigger for that might be when the penny finally drops that U.S.A. will become energy independent sooner than anyone thinks. When everyone finally get’s their head around the idea that the biggest buyer in the world might leave the market-place, the sellers might well break ranks…it’s happened before, like did everyone stop pumping when the price hit $35 in 2009?

When (not if) that happens, it’s likely that the spread between WTI and Brent will go up because oil companies in U.S.A. are not allowed to sell outside, which will mean America will have a massive competitive advantage over anyone who is at the mercy of the State-Oil-Companies that run oil outside of U.S.A.

By the way, just for the record, this is the THIRD time I’ve predicted $67, so if you are not a “fan” or a “follower, I’d like to say I can take rejection in my stride, I get a lot of that, I’m used to it. This was my view in March last year:



Oh well, looks like I got timing right but not the number, not the first time that happened!!

 Funny that, it’s hard to get them both-right at the same time and calling a pop is the hardest thing.  But Hey!! Like NR says, a stopped clock is right twice a day…third-time-lucky perhaps?

So when will that be? Well, looks like the season for oil-bubbles popping coincides pretty-much with the start of Hurricane Season, maybe this time, if not it’s definitely going to be in 2015, and if it doesn’t pop then  I promise I will never write anything about oil, and I will NEVER say anything unkind about butterflies, ever again.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe. Ex-Toxic-Asset assembly-line worker; lives in Dubai.

© 2013 Copyright Andrew Butter- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Andrew Butter 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