Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Stock and Commodity Market Ratio Messages - 2nd Sep 14
Gold Price - The Thin End of the Wedge - 2nd Sep 14
U.S. Inflation Pressures in Core Food Components - 2nd Sep 14
Independent Scotland Currency, Plan A, B, C or D - British or Scottish Pound? - 2nd Sep 14
Gold and Silver Price A Critical Juncture - 2nd Sep 14
Gold and Silver Precious Metals Complex Contradiction and Potential - 2nd Sep 14
France And The Long-Gone Thatcher Moment - 2nd Sep 14
Stock Market Approaching An Important High? - 2nd Sep 14
Gold, Silver Price Summer Doldrums Coming to an End - 2nd Sep 14
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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