The key sentences in the article, "First of all, the NYMEX contracts for January delivery close on Tuesday and there are still 132,168 open contracts or 1,000 barrels each (132M) scheduled for delivery to Cushing, OK, a facility that can handle at most, 45Mb of crude and is, at the moment, full."
The other, "Yesterday, Criminal Narrators Boosting Crude were very excited to report that we had a 9.9Mb draw in oil inventories. WOW! That sounds like a lot of oil demand doesn't it? Of course, any real news people would mention that the report clearly indicated that "U.S. crude oil imports averaged 7.7 million barrels per day last week, down by 1.4 million barrels per day from the previous week" but CNBC is not news, is it?"
And Phil goes into in much better detail here:
This is a must read article. Everything Phil says here I agree with and is consistent with all that I have researched as well.
Given what you have said*, is shorting oil the way to make money in this situation? Do you think coal, NG, solar, refining, oil services and related shares will also be taken out and shot? I love a good fact, but I do not mind making money from a lie as long as it is in vogue (I am long a variety of energy stocks, mostly coal and mid-stream NG).
*Eventually, supply and demand will win out as it always does, and oil prices are going to collapse. That PBR will be crushed when this occurs is a given. The hard part is the when.*
doc... I'm not surprised at all. Thanks for the links you provided, I did not read the entirety of them... I don't need to.
I have had this notion about oil manipulation for quite some time now. I am suspect that most all markets(bond, currency, equity, commodity) and even real estate markets can be and are manipulated(as they were through interest rate and loan pricing during the early 2000's). There is simply too much money to be gained in all these markets not to be manipulated.
Previously I believed in markets being driven by supply and demand. I also believed in peak oil... not anymore. In theory, supply and demand should work very well, and still does for things like employment, were hedge funds and banks don't have a means of having it their way.
I have come to the conclusion and now believe that the IMF and World Bank are the primary forces behind oil price manipulation. Names like Morgan Stanley and GS, and hedge fund players and smaller speculators simply add fuel for the fire to help push the markets up or down.
I think commodity markets are one of the easiest to be manipulated. The oil market is the largest of the commodity markets.... unless you consider currencies commodities... I don't. In my view currencies are another asset class. Anyway, the amount of money traded in oil every day is large... about 7.5 billion a day. However, the currency markets are in the trillions a day.
The current state of the equity markets are another example of manipulation, no way should the US major market indicies be at current levels, yet they will likely go higher before lower. I'm very cautious for 2011.
Musk, to answer you question. Yes, if oil tanks, all of the sectors you mentioned should see lower pricing levels... including oil service. The exception that you mentioned is Refining. If oil tanks then VLO, TSO WNR, and even some of the Major integrated companies with large refining sectors like COP will do just fine. The pure Refiners will take off to the upside. From here, $50 oil would benefit the refining sector like silver stocks did when silver went from $20 to $30.
RG: You say: *no way should the US major market indicies be at current levels*
Why not? Because you say so? Because of some great manipulation in all asset classes, all over the world, all at the same time? Because the liquidity that was lost in the real estate melt-down has been partially replaced by the federal government? Don*t be silly...
The global economy is in fairly good shape. Globally, assets are appreciating in the expectation of CONTINUED growth. Millions are being lifted out of poverty and into patterns of consumption which promote demand for everything. This creates rising prices and rising corporate profits.
Domestically, the US indices are well withing normal valuations, interest rates are low and growth is expected to be 3-3.5% which is normal, if a tad low. With some luck we should see unemployment fall next year.
And, yes, some of this is due to government intervention which was undertaken at a time of crisis and has proven to be net positive, even if not perfect. Some is also due to growth in emerging economies, as mentioned above.
This discussion of the international conspiracy to manipulate markets sounds increasingly paranoid*. A simpler explanation for the phenomena discussed is the economic cycle... accelerating after a prolonged and severe recession. Supply is tightening, prices are up and so are inflationary expectations.
The new normal is normal. Instead of decrying an evil conspiracy which does not exist, why don*t we figure out how to make a buck?
*BTW: I, personally, do not believe in free markets... they are always and everywhere manipulated to disproportionately benefit the more powerful participants. Every economy, like every eco-system, has its predators and its prey. This is not to say there is a conspiracy... Predators do what they do naturally. A conspiracy is not required for the powerful to benefit disproportionately from any particular system. In the current context, The Fed has saved all our azzes, and the rich/powerful wstand to benefit most of all.
Doc, Strictly from supply/ demand point of view, I'm not seeing the big increase in supply that you do. see recent years copper output:
World production (million metric tonnes):
over 3 years, that's a cumulative increase in global Copper production of 3.87%. So on an annual basis, world output is barely growing.
--all in a price environmenmt that has been exceedingly healthy in terms of pricing so no lack of incentive.
meanwhile, Chinese consumption has and been growing much faster than 3.87 % on an annual basis... never mind over a cumulative 3 years. (see below)
12-10 - China's copper imports totaled 351,597 tons in November, up from 273,511 tons in October.
On November 23, 2010, the International Copper Study Group's (ICSG) preliminary data showed that world copper production fell short of refined usage by 363,000 tons in the first eight months of 2010.
In fact China has set a goal of 65% urbanization rate by 2050. Over the coming 40 years that means 20 percentage points of urban growth per year, that translates into 300 million rural residents becoming urban residents over this time period. What does it all mean? More copper will be needed. Evidence of this can be seen in copper consumption figures between 1980 and 2010: copper consumption expanded at an annual pace of 10.1%.****
India also provides a very compelling case for copper demand and one only has to look as far as their power needs. According to the International Energy Agency, India's power production needs to rise by 15-20% annually and to meet that, India needs to invest $1.25 trillion by 2030 into energy infrastructure. From this new infrastructure, India's annual copper demand is expected to more than double.
And everything I'm reading from producers such as TCK indicates that the grades for new mines are no where near as good as in the past so costs are escalating even at firms like Codelco in Chile.
Like oil, the supply response to higher prices is appearing to get a lot more challenging. Ditto for Gold, coal, zinc, palladium etc.
And worth noting, are the little bottlenecks that get a lot of attention as supply strains to meet demand. Floods, port accidents leading to Force Majeurs all become much more critical to supply as physical inventories tighten up.
Just think, we have much better technology to find, produce, and bring to market all these raw materials in a more efficient manner than ever before (bigger trucks, vessels etc) but in spite of that, costs are rising steeply.
So now we wait for technology to save us and preclude the need for copper and all these other aforementioned raw materials, right?
Don't hold your breath.
Then layer on the increasingly popular perception that the Chinese and other emerging markets are increasingly likely to either revalue or let their currencies rise vs the USD and it's not hard to understand why there's more of a willingness to look for stores of value.
Only unknown here is if that trend accelerates and starts to affect velocities of money flowing out of the real economy to these stores of value because if it does, bonds will get creamed.
note, I'm not calling for that acceleration just yet but my sense is there are a lot of folks getting their ducks in order.
Look at the mine % utilization. Look at the refinery capacity % utilization. We are nowhere near running out of copper.
The stocks on hand have gone from 1.4 million tons to 1.3 million tons, and the 1.4 million tons was a record total.
World output is barely growing not because of a lack of capacity but because of a lack of demand. Why do you think copper stocks were at an all time high earlier this year?
Developed world use of copper is still down versus 2008, and China's demand has increased a modest 4.5%.
So demand for copper is up like everything else in the last six months, but the numbers here just like with oil, sugar, soy ETC don't justify a doubling of the price.
So, yeah, Wins, world copper demand is up from 14.5 million tons in 2004 to 16 million tons in 2010, but capacity has increased from 16 million tons in 2004 to 19.5 million tons in 2010.
The numbers are what they are, Wins. The reason for the rise in price has nothing to do with supply and demand, and everything to do with the federal reserve handing money to banks and gutless regulators in the UK and US.
That said, I don't see the copper/oil/commodity rally slowing down anytime soon. My guess is, and it is just a guess, and that all these items continue higher. If you own these commodities, get your stops in place so you don't get burned but don't kid yourself, Wins, this is a bubble. The rise in demand and the fall in copper stocks were ridiculously modest.
I did my own research a couple months back by going over the FCX quarter CC's. I saw no major changes in sales numbers all the way from mid 2007-2010.
I simply don't get it. I just don't see how a monster like Freeport can go through a major world recession, and now a supposed emergence from recession and see no real swings in production or demand... so I'm a doubter.
Lack of demand?
Not if you look out 10 years.
I urge you to listen to any number of TCK presentations WRT projected demand looking out 10 yrs vs available capacity projected to come onstream.
As I recall,they project a need for 40 new mine projects over the next 10 years and given the long lead times for start up they just don't see it and they're in the industry.
So huge looming shortages.
As to current processing capacity, that can be in temporary excess because they can't get enough raw material to stay busy and that makes sense because procesing margins have been quite weak even though copper prices are strong.
WRT mine capacity I'm not sure you are reading this correctly. I recall reading something about head grades changing (less rich ores) but also, I'm thinking mine capacity refers to equipment and mine capabilities, not necessarily output capacity that can be easily delivered to market.
IOW, paper copper.
As an exercise WRT current mine capacity utilization,(assuming that that IS an accurate barometer of current capacity to actually deliver physical metal??), you might want to recalculate those numbers should demand increase according to projections this coming year.
You might be surprised at how fast any excess capacity gets utilized.
Keep in mind, 100% capacity utilization in this industry is not very realistic and it would be my guess that that is even more the case nowadays than say 5 years ago.
That said, my interest in copper and other commodities is not based on ST market expectations.
RG, as I understand it, if you look out into the future, copper supply will get extremely tight.
As I recall, India are expected to about double electricity generating capacity(something like half the population has no access to power now)over the next decade and it follows that copper demand will increase because of this.
And they are not alone.
LT trends are your friend.
wins, I don't doubt that will occur in emerging markets ... as India and Brazil. However, I am leery of a bubble in China. But that is in the future. The growth in China and and India should have been offset by the decline in the need for copper in the US and Europe for autos, home building and other economic sensitive manufacturing.
Again, look at Freeports sales number for the last three years... no major increases or decreases to justify the run up to $4 in copper, back down to $1.25 ... and back up to $4 + .
It just does not add up to me. But I do expect India to have an increase in copper demand... I'm an ower of Tata Motors.
I haven't heard of any professors or fellow students that have come out and vouched for him and as far as I know, there's nothing in his body of work that allows us to idependently verify his true academic performance.
If claims are to be made, they should be backed up.
We have nothing.
Simple attendance at an institution doesn't mean anything.
Plus there's a strong suspicion that his books were ghost written so if true, it calls into question everything else.
Personally, I think he's an empty shell.
A product of affirmative action.