Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Why the Pundits are Wrong About Crude Oil Prices

Commodities / Crude Oil Sep 26, 2014 - 12:11 PM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: Several pundits attributed yesterday’s spike in oil prices to the recognition that the fight against ISIS in Iraq-Syria will be a long one.

As usual, the 30-second TV wonders missed the boat.

Of course, the ongoing chaos in the Middle East is certainly a factor. To the extent that oil traders begin to calculate its impact into their risk models, there will be an effect.


However, when it comes to what actually moves oil prices there are more important factors now in play.

In fact, there are three major price influences these “analysts” have ignored…

The Changing Nature of Oil Prices

First, U.S. inventories are coming in at the lowest levels in almost a year. After two months of overproduction, some rebalancing is taking place. There are plenty of reserves to bring up, but crude oil prices will rise a bit in the process.

Second, after witnessing several headlines that (inaccurately) portrayed a noticeable decline in global demand, those figures are on the rise again. The truth is by the end of this year we are going to experience the highest daily demand worldwide ever recorded.

This element is often misunderstood by many in the U.S., where an accelerating largess of unconventional supply (shale, tight, and heavy oil) is often set against a perceived level of subdued demand. Western Europe is held in the same regard when it comes to demand; even more so given that the economic situation there remains more constrained.

But as I have written several times, it has been quite some time since the Western world has actually led the international demand bandwagon. The actual rise in demand is generated elsewhere, and crude oil prices follow accordingly.

The difference these days is the recognition that the price commanded in the market for crude oil does not take its bearings from any perceived shortage of supply. Those who still follow a “Peak Oil” approach have been forced to revise their reasoning. Now it’s all about the availability of affordable supply.

But given the amount of extractable, unconventional oil available throughout the world and the fact that more than 80% of it is located outside North America, nobody believes they will wake up in the morning any time soon to a lack of supply.

And finally, the way geopolitical events impact oil prices has changed. A few years ago, the rise of ISIS, the ongoing civil war in Libya, and the crisis between Russia and Ukraine would have been enough to add $10 to a barrel of oil in no time.

But not any longer. Unless events physically impede the flow of oil – for example, a closing of the Strait of Hormuz between the Persian Gulf and the Arabian Sea – oil traders tend to discount the impact of geopolitical events.

Of course, the real harbinger for higher prices is uncertainty. A prolonged crisis slowly eats away at trading complacency and influences prices at the same time. There is still a marked tendency for traders to peg prices a bit higher to offset the inability to quantify all of the causes at work.

The New “Matrix” For Oil Prices

The important point here, however, is this: Oil prices now operate under a very different matrix than they did only a few years ago.

That requires a revision in your investment strategy. Company profitability is no longer dependent simply on a rising price for the raw materials. Instead, better returns are coming from companies that do a better job of extracting, processing, transporting, and distributing product in a more efficient way.

Currently, a strong dollar has been pointed to as a reason behind subdued oil prices. Given that virtually all crude oil globally is denominated in dollars, a stronger greenback does allow for production and transit to occur at a cheaper cost.

Nonetheless, this is not as big a factor as many would have you believe. The oil trade has more to do with the availability of dollars in foreign banks needed to finance the trade than any real dollar-to-a-barrel-of-oil exchange rate. And here, the expansion of bank controlled dollar-denominated derivatives has more to do with the balance of trade and price than the strength of the currency itself.

Aside from a major crisis exploding upon the scene (and returning us to those knee-jerk reactions of the recent past), you can expect that oil prices will occupy a narrow range of highs and lows. Both the reality of supply and demand and the ability of new sourcing to compensate for the volume at risk seem to be pointing us in that direction.

Separating the Winners from the Also-Rans

Still, there are a few new wrinkles being added to what investors need to consider.

For one thing, the U.S. can now rely on domestic sourcing to meet demand for the foreseeable future. From almost 70% of daily demand being met by imports, the American market (with some support from Canada) is headed toward effective oil self-sufficiency within the next decade.

This is leading to renewed calls for oil exports from the U.S. I regard this as being almost a guarantee in the near term. American volume will then begin to participate in the higher-margin pricing dictated by other parts of the world. The U.S. is already doing this in refined oil products, where it is already the world’s leading exporter.

All of which means we are moving quickly into a very different mindset.

It is the position of a company (both geographic and where it is located in the process of bringing oil to market), its ability to keep to a budget, where it focuses its main activity, and what assets it uses and targets that will separate the winners from the also-rans.

It is not going to be as simple price alone. A rising tide will not lift all boats.

But a crude oil pricing range of between, say, $85 and $100 a barrel will provide us with more than enough opportunities to profit. And if the price strays very much in either direction, there are plenty of ways to identify the best moves.

Source : http://moneymorning.com/2014/09/25/the-best-hope-for-reducing-taxes-isnt-what-you-think/

Money Morning/The Money Map Report

©2014 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