More on Black Gold and Contrarian Indicators
I caught another interview of Boone Pickens yesterday and I couldn’t help but laugh. He’s predicting $70 crude by year-end 2007. Yeah, right Boone - keep those blinders on buddy. Demand in the latest week was down -3.5% year-over-year, non-OPEC production is at a 30-year high and growing while OPEC is freeing up spare capacity. There is no sign whatsoever that world oil production is even close to peaking. Heck, Saudi is even canceling projects to bring more capacity on line because inventories are so high. To make matters worse for energy stockholders, the XLE has not yet fully discounted the drop in crude as it’s only off 11% from its high while WTI is off about 35%.
Besides closely and objectively looking at the supply/demand picture for oil and the absurd amount of hot money flowing into commodity derivatives and energy sector funds compared with history, there were a couple excellent contrarian indicators that suggested oil prices were (and still are) in a bubble. First, I was receiving several pieces of junk mail daily regarding “the next great oil/energy play” or similar. Secondly, energy stocks were all the talk at cocktail parties over the last year. It was somewhat reminiscent of tech stocks in 1998 and 1999. Always keep your eyes and ears open for information.
Besides closely and objectively looking at the supply/demand picture for oil and the absurd amount of hot money flowing into commodity derivatives and energy sector funds compared with history, there were a couple excellent contrarian indicators that suggested oil prices were (and still are) in a bubble. First, I was receiving several pieces of junk mail daily regarding “the next great oil/energy play” or similar. Secondly, energy stocks were all the talk at cocktail parties over the last year. It was somewhat reminiscent of tech stocks in 1998 and 1999. Always keep your eyes and ears open for information.
posted by Never-Limp at 7:07 AM
2 Comments:
i read yesterday demand was up 1.5%, did yahoo lie to me?
the stocks never came close to reflecting the highs of crude so its to be expected that the stocks won't come down nearly as far either
also the bill passed in the house could do good things for constraining overall supply
It depends on which comps you’re looking at. Total demand over the last 4 weeks ending 1/12/07 compared with 1/12/06 saw demand drop -3.5% from 20,951 to 20,228.
There are some charts that I'd like to show you regarding the price of oil and the energy indexes, but they are proprietary work of an analyst that I follow. They show that the stocks in general still have downside compared to the price of oil.
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