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
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
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

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

A Billionaire Insider Just Made a Bold Bet on Crude Oil

Commodities / Crude Oil Nov 12, 2014 - 12:28 PM GMT

By: Money_Morning

Commodities

Dr. Kent Moors writes: There was a very dramatic development in the oil market last week. It involved a well-known insider and a bullish bet on crude.

Harold Hamm, the CEO of Continental Resources Inc. (NYSE:CLR), announced that his company – a major producer in the Bakken and other U.S. unconventional oil basins – had unwound its hedge positions.


So why is that so important?

Hedges like the ones unwound by Hamm are used to compensate for the possibility of future oil price declines.  In a single bold move Hamm had made one of the biggest bets ever on rising oil prices.

So while the TV pundits are still wringing their hands over the decline in crude oil prices, a deep market insider was preparing for crude to go in the opposite direction…

Up.  
Here’s why I think Hamm and Continental have it right…

What’s Really Drives Oil Prices

First, a number of analysts have been pointing out something over the last few days that I have been saying for weeks now.  The decline in oil prices does not reflect the overall rise in demand.

You see, despite our penchant to view oil only through the lenses of the  trading benchmarks in New York (West Texas Intermediate, or WTI) and London (Brent) the demand that drives today’s prices is not American or European.

The real drive is coming from developing countries. And this is not simply the known giants such as China or India. Rather, it involves the greater (and exploding) Asian market, along with the resurgence developing in Latin America and Africa.

It is true that the emergence of shale and tight oil in the U.S. has prompted revisions in demand expansion by both OPEC and the International Energy Agency (IEA).

But the results still point to:

(1) An overall demand increase by at least 1.2% year-on-year;

(2) and a sustained Brent price of about $95 a barrel and a WTI peg of closer to $88.

Recall as well that the net impact of American shale oil on global pricing is tempered by the current (and over four-decade long) prohibition against exporting U.S. production.

This impact is limited to reducing imports into the U.S. – a situation that has been in place for some time now, and is hardly a justification for the curious read of declining demand internationally.

So, let’s look elsewhere to explain this disconnect.

A second possibility might be indications that Gross Domestic Product (GDP) is declining, translating into an expected forward concern over sluggish or recessionary market projections.

But that’s just simply not the reality either. GDPs are still climbing ­- not falling.

Yes, there have been some concerns expressed over Chinese growth prospects. But those have dissipated considerably as the performance in China continues to go higher. Of course, India has its own set of problems, but even there the prognosis is up.

In the absence of marked downward signals, the BRICS (Brazil, Russia, India, China, South Africa) – the five developing countries now driving primary global interest – are just not giving us any reason to suspect that a cut in the global economic forecast  is warranted.

Expansion may come below some lofty (and unrealistic) predictions, but the aggregate picture hardly justifies the view that a GDP contraction is on the horizon.

A Short Story About Falling Oil Prices

That leaves us with a third reason driving this disconnect. And it turns out to be the 800-pound gorilla in the room.

For some time now, significant money has gone into “riding” the price of oil futures down. This is, in short, a story about shorts period.

Now shorting a stock or a commodity is hardly new. Investors do it all the time if the prospects look promising that the price will be moving south. Of course, heavy short positions may upon occasion dictate such movement, at least in the near term.

That’s especially true if the guys moving the heavy short positions are the same “experts” predicting the fall. In this way, it becomes a self-fulfilling prophecy.

Ultimately, the market will eventually correct for this overemphasis on the down side. When that correction occurs, shorts need to be covered and that always sends the price up even more than the underlying market indicators would seem to warrant.

After all, a recipe for disaster for the shorts is to go into the market to buy the contracts needed to cover rising prices. Even though this would seem to be handing these guys just what they deserve.

This would seem to be the primary reason why both WTI and Brent are priced at levels some $8-$10 per barrel below where they would trade in a normal market.

Take yesterday’s price action for instance. Following several days of a (slowly) recovering price, augmented by two major banks indicating the crude oil pricing fall is over and the major move by Hamm, the price nonetheless began to retreat again.

So then why did oil prices fall yesterday?

Simply this. “Analysts” began sending out mid-morning prognostications that OPEC was not likely to cut production in its upcoming meeting. What they didn’t tell you was that with the Saudis already opposed, it would be difficult for the cartel to approve the cut anyway.

What it did do, however, was to prompt long oil positions to be closed, creating another wave of shorts to replace them.  That’s all.

Let me make this perfectly clear: A stable trading range between $85 and $90 a barrel does not require any cuts from OPEC.

It only requires a trading environment in which the commodity rather than the artificial moves orchestrated by the “flash boys” determine the price.

That day is coming in short order. For those taking a position beyond the end of their own nose, Hamm and Continental have gotten it right.

Source : http://oilandenergyinvestor.com/2014/11/billionaire-insider-just-made-bold-bet-crude/

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