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Forbes: Oil prices to fall...

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yasir1212

Well-known member
Joined
Dec 15, 2004
Posts
154
Let's hope Steve Forbes' bold statement holds true....

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/08/31/cnoil31.xml&menuId=242&sSheet=/portal/2005/08/31/ixportal.html

Forbes predicts oil will drop to $35 within a year

Steve Forbes, the billionaire business publisher, predicted that the oil bubble will burst inside a year and the price will plunge, as the impact of Hurricane Katrina sent the price of oil soaring to new record levels.

He spoke as Katrina shut down almost all the flow from the Gulf of Mexico, which provides over a quarter of the United States' oil. "I'll make a bold prediction. In 12 months you're going to see oil down to $35 to $40 a barrel," he said. "It is a huge bubble, I don't know what's going to pop it but eventually it will pop - you cannot go against supply and demand, you cannot go against the fundamentals forever."

Oil production in the gulf was down by 92pc, or 1.4m barrels, and gas production fell by 83pc as the hurricane threatened severe damage to the installations in the region. In response, the price of Brent in London spiked $3.22 a barrel to a record $68.09 while in New York oil was up $2.65 a barrel to $69.25 during late trading.

Analysts said it was unclear how much damage the hurricane had done to the 4,000 platforms and 33,000 miles of underwater pipelines in the gulf since few companies have been able to send helicopters over the region.

Shell said an aerial inspection of its Mars platform indicated some damage to its upper deck. Mars produces around 147,000 barrels of oil and 157m cubic feet of gas a day - 15pc of the Gulf of Mexico's overall production.

A spokesman for BP said there had not been any damage at its Mad Dog, Holstein or NaKika platforms but all of its 350,000 barrels a day in the region had been shut in. The US coast guard said seven rigs were adrift.

The Louisiana Offshore oil port, the largest import terminal in the US, has been shut, as have several refineries. The St Charles refinery, owned by Valero, is under 3ft of water.

The cut in the oil supply prompted the US government to promise that any shortfall would be made up from the stockpiles of the strategic petroleum reserve, which contains around 700m barrels. Last night one West Coast refiner applied for emergency supplies.

Mr Forbes said the whole concept of the strategic reserve was pushing prices higher. "The speculators know now that no matter what happens to the price of oil Uncle Sam is there buying almost every day," he said. "Stop the buying and in fact throw some of that oil on the open market, boy that would throw it in turmoil and send the price down."

The oil market has become a target for investors, since the returns have been significantly higher than those from the stock or bond markets in the past couple of years. Fundamentally there is enough oil to go around.
Stockpiles are full and Saudi Arabia has promised to step up production to 11m barrels a day.

"This is sheer bubble speculation. I'll be blunt, there's hardly a hedge fund in North America that hasn't speculated on oil futures," said Mr Forbes. He added that when prices did fall, the impact would make the dotcom collapse "look like a picnic".

Dominic Bryant, an analyst at BNP Paribas, suggested that increasing oil production could actually fuel price rises, since there would be less spare capacity available to meet any future shocks. He said prices could keep rising if Katrina turned out to be as destructive as Hurricane Ivan. The damage Ivan did to the region's underwater pipelines took six months to mend and added $10 to the oil price in the month following the storm.
 
If it will drop to $35 a barrel, why is it now at $70 a barrel....and why will it drop to $35 a barrel?
 
Flying Illini said:
If it will drop to $35 a barrel, why is it now at $70 a barrel....and why will it drop to $35 a barrel?

I thought Mr. Forbes explained it quite well: oil is at $70/bbl now because idiotic speculators have bid the price up. Oil will be at $35/bbl because that's what the fundamentals point to. Speculators can only hold the price up for so long. Eventually, the market will return the price to where the fundamentals say it belongs.
 
mzaharis said:
Why was NASDAQ at 5000 at one time - fundamentals?

Nope, same reason as oil: crazy speculators. They learned the hard way too.
 
PCL_128 said:
Nope, same reason as oil: crazy speculators. They learned the hard way too.
PCL,

You do understand that there is just as much profit from NASDAQ 5K to 2K as from NAS 2K to 5K, right?

And as far as speculators, there are many who have profited from the move to $70 and have already profited from the move back to $68 and will continue to do so regardless of the direction. No reason to lose the farm or even your airplane.

The equity and commodity instruments available for trading are so incredibly liquid it is prudent to manage the extremes.
 
Traderd said:
PCL,

You do understand that there is just as much profit from NASDAQ 5K to 2K as from NAS 2K to 5K, right?

And as far as speculators, there are many who have profited from the move to $70 and have already profited from the move back to $68 and will continue to do so regardless of the direction. No reason to lose the farm or even your airplane.

Very true. However, for every person that profited from the drop in the NASDAQ, there were many other people that lost their shirt. Very few people get involved in shorting. However, many average Americans get involved in these ridiculous bubbles, and they get hit hard when the bubble pops, as it always does. It's much better to invest in something that is supported by the fundamentals than to try to guess the next move of the various futures contracts.
 
PCL_128 said:
Very true. However, for every person that profited from the drop in the NASDAQ, there were many other people that lost their shirt. Very few people get involved in shorting. However, many average Americans get involved in these ridiculous bubbles, and they get hit hard when the bubble pops, as it always does. It's much better to invest in something that is supported by the fundamentals than to try to guess the next move of the various futures contracts.

I would agree with your logic for people who do not work the markets on a daily basis. The average American you mention. I would not suggest those who are otherwise engaged day to day to trade equities or contracts for the short term.

However, even for average Americans, any position filled should always have a protective stop loss in place and strictly followed. Regardless of how market savy one may or not be (and I am far from savy), no one should risk so much of one's captital that a position's failure seriously impacts that capital balance. I know that is easy to say and harder to do. Fear and greed, same story as always. There really is no need to lose one's shirt. Just be disciplined and control that capital. Just as I feel that short term trading is not the best fit unless you have the time, niether do I believe that Buy and hold strategies are the best for the average investor.

As far as guessing the next move of futures contracts or stocks, everyone that enters a position is guessing the move. Some trade with longer time frames and greater stop limits than others, but all are guessing. Fundementals are a great way to determine your guess, but I can attest to the fact that technical indicators work very well also.

For a recent example (8/5/05), I went long on BIDU during its IPO at a weighted average of 1000 shares @$70 and sold at an average of $132.73 about three hours later. The maximum amount of capital risked was $1200 (a SL order placed for $68.80 later replaced at $100 or so with a $10 trailing stop). I knew nothing of the stock except that it was an IPO and entered based on a price volume discrepancy I have traded with for years. I have no such examples of large losses because I always limit my losses. Of course I have many losing trades but they are never so large as to endanger my capital.

While this is an extreme example and is more akin to a lottery win than a sucessful trade, it does demonstrate that one does not need to have any idea of the value of a stock to profit and that one can realize substantial profits while mitigating the risks associated with the very narrow time span the equity is held. As far as futures go, that is where the real profit potential lies mostly based on the leverage available. A dollar buys a lot of product relatively speaking but one can actually lose more than invested because of this leverage. And based on the margin calls I have seen discussed, it does happen.

Anyway, happy investing and I hope all turns out well for everyone in the markets, although I understand that is not a probable outcome.
 

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