Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Government Shutdown Ends – Markets Ignore Looming Debt and Bond Market Threat - 23rd Jan 18
Stock Risks to Watch: Choose Your Bear Market Dashboard - 23rd Jan 18
Worse than Watergate - Release the Memo - Investigate Uranium One - 23rd Jan 18
CAT Stock Bouncing after JPM Upgrade How High and How Long Can This CAT Jump? - 23rd Jan 18
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

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

© 2005-2018 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