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Oil Price Strategy Update



The call to short the bugger at US139 now looks really good. As I am posting this Nymex Oil is at US123. Assuming I am holding the short position at US139, what do I do now? Take profit? Let it ride? For reasons why I called for the big shorting, please reread my posting a few weeks back (June 8, 2008). The reasons are still valid.

Suddenly now you don't hear about oil supply being unable to meet growth in demand. Why suddenly so quiet? This is an important lesson, the media and market pundits pander to try to explain the trend and take the current price as "god-given correct prices". Hence truth is exaggerated at any point in time, if there is truth at all.
Now its demand destruction to the forefront.

If I shorted at US139, I'd be pretty happy to ride along as I am waiting for US120 to be broken, which to me, will be a very huge sell signal to most chartists. At US119.90 I would be doubling up my short position. Why don't I double up now at US123 you might ask. Well, things are still fluid, it could hang around the present levels for another few weeks, which to me would be base building - if it does that, and does not break US120 by mid-August, then I should take profit on my short position as I would interpret that as the bulls still having the upper hand.


Hence I am looking forward eagerly to US120 being broken because it will fall pretty quickly to US105-110, the level which I think there will be better long term support. Once it breaks US120, that is considered as pretty positive for equities in general and should move all markets up by 4%-5%.

p/s photos: Porntip Wongkijjanon


Comments

Jackie Lee said…
Special bulletin - Last week various analysts said there was talk that Mexico, the world's fifth largest oil producer, was hedging its bets - the country was said to be signing contracts to deliver oil several years into the future at today's prices. Essentially, it was betting oil prices have peaked.

One analyst, speaking on background only, said he had confirmed Mexico was locking in futures contracts. He said it was being done at the behest of the Mexican government, eager to balance a long-term budget, rather than a bet by state oil company PEMEX, that prices will fall.

But could Mexico's move inspire similar steps from other oil producers, and cause oil prices to fall further?

"Absolutely," said Neal Dingmann, senior energy analyst at Dahlman Rose & Co., a New York-based energy investment boutique. "It could create a top in [oil prices] in the near term."

Dingmann said about 50% of the production from the firms he covers - mostly small firms - has been sold for future delivery at today's prices.

Saturday July 19, 2008
alpha said…
Dali,

The fall in oil price may not benefit the markets indefinitely when an equilibrium is reached to acknowledge that the fall in oil price reflects a slower economic growth. Once oil breaks USD120, will all markets rise by 4-5%? It's quite an realistic number if there's still liquidity sloshing around. Anyway, you got a very good call on oil!

May I have few questions and some suggestions that I am greatly appreciated if you could put them into perspective.

i) Do you use any sort of TA in coming up with your targets for markets? TA may look more superior than FA that lacks the timing element.

ii) I read your article on windfall taxes on IPPs and CPO companies, nicely written, and was wondering if you could write about oil and gas subsidy structure in Malaysia. It would be great if you can have numbers on cost of energy paid by consumers vs industrial players. I strongly applause the gov move to remove subsidies but why dont the gov does it the same across the board. It appears to me that the consumers and the wage takers like me are the ones that affected the most.

iii) And on the same note of windfall taxes, why dont the governement impose taxes on MNCs in Malaysia. Their tax holidays never end. It's a screw up policy benefiting the big capitalists at the expense of local industries.
solomon said…
If you checked some of the information posted in NYMEX and CFTC, you can notice that the speculation interest had dimmed for a while lately.

My prediction last couple of weeks that USD120 /barrel had reached. It will hover around USD100-USD115 next few months, unless geopolitical situation change again.

If Dali prediction is correct, equities will rise. Next question, do you buy the idea that those stock badly bash since MAR08 will return? Construction stock for spillover effect from steady rise in Gamuda. (En Wan sure say no)

Business model and cashflow wise, I am checking on Zelan. Would this stock privatise? What say you Dali?

Yesterday run-up in one of the construction stock puzzle me. Can the major shareholder make a statement on the privitisation plan while on trading hours. Wondering this is acceptable or perhaps it was again wrongly interpreted in online news??

In short term, I am positive on equities.
Ben Gan said…
The pictures you posted and together with the music are really refreshing. I like it.

The fast retreat of oil from US147 to 124 per barrel is a good indicator that we have seen the peak of oil which is likely to remain unsurpassed for at least the immediate future.
As to whether 120 will be breached, it may not be able to do so in its first attempt.
Anonymous said…
Crude oil prices 'could hit $170 per barrel'

Prices for crude oil could rise as high as $170 per barrel this summer, according to the president of Opec. Chakib Khelil, predicted the increase from their current levels of around $134 per barrel in an interview with French television station France 24. He told the broadcaster: 'I foresee prices probably between $150 and $170 this summer. 'That will probably decline a bit toward the end of the year.' According to Mr Khelil among the factors set to influence the predicted...
moneycrazy said…
This has nothing to with Oil Price. I would like your opinion on BNM decision to hold BLR rate. Frankly, I am disappointed as I view it as very short-sighted and detrimental to our economy. The strategy seems to be growth at all costs and to hell with the Ringgit and Inflation.
The Rock said…
Raising the rate will not change inflation as it is a supply driven not Demand driven inflation. And if indeed the oil price and other commodities are on the way down, why raise rates now? I think Zeti is doing a better job than Ben ! or Greenspan. Traditional economic theories are no longer accurate in times of uncertainty like now. Look at the Eurozone. Is inflation coming down after ECB raised the rates? NOPE.

Note the timing of collapse of the oil trader in US and the reversal of oil futures a few weeks ago. Reported in The Edge recently. And Congress is debating 12 bills on measures to curb energy speculation. What would u do if u are a hedge fund? U take profit in case the Congress actually pass any of the law - since u have no idea of the outcome of the debates.

Net Long positions have dropped by more than 10% in the last few weeks alone from 1.36m to 1.21m. [The Edge]

If LONG squeeze happens, oil may crash through USD100. There is no safe asset class anymore.

Liquidity - the SWFs and a lot of mutual funds are sitting on piles of cash. Not the banks anymore.

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