Thursday, December 18, 2008

Do you think I could park an oil tanker in Clayton for a couple of years?

My vision for the oil market has been that oil will rebound when the US dollar falls. Well, the US dollar is stumbling like a bond trader out his last Wall Street Christmas party, but oil can't find a bottom - it traded $36/barrel today (down from $147 this summer).

So, has demand fallen 75%? Of course not. Demand is down some, and it's likely to fall some more in the near future, but there seem to be other things influencing the price of oil.

1) OPEC cut - Everyone expected a historic cut to save the day and push prices higher. When everyone expects something to happen, there's a pretty chance that you should take the other side of that bet (it's how Vegas makes money of you). After the historic OPEC production cuts everyone waited for a rally that never came.

2) Everyone is an Energy Trader - In 2006 - 2007 everyone was trading heavily in commodities (including oil). The popularity of oil as an asset class has plunged along with it's price. Many new energy investors (hedge funds, pensions, John The Barber) are blowing out positions so that they don't have look foolish on their year end statements. In simple, supply/demand terms, there are a lot more sellers of oil, than buyers.

Again, the plunge of the US dollar should eventually push oil back up sharply, but let's enjoy $1.50 gas while we can. We might never see it again.


GE gets whacked...

GE is the bluest of the blue chips in the US and today S&P put their debt on a "negative" creditwatch. The implications of this are widespread. There is no greater proxy for the global economy than GE. In essence, S&P put the global economy on negative creditwatch. This dovetails with yesterday's news that leading economic indicators are still falling. Despite all of the cheerleaders on TV telling us that the sun'll come out tomorrow, there is an awful lot of bad news still hitting the tape.

"The ratings agency said Wednesday that the outlook revision reflects, in part, concerns relating to GE Capital's "future performance and funding."

S&P credit analyst Robert Schulz wrote in a research report that, "In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade."

Google Earth does NYC in 3D.....

Google Earth has gone through the painstaking process of turning 1,000's of two dimensional images into a 3D rendering of Manhattan. I guess it's sort of cool, but it feels a little Google is going NASA on us. Yes, we know tang tastes good. Do we need to test to see if it tastes good in space?

Any guess on what business model could be based on this type of rendering? Video games? Virtual travel (the joys of NYC without all the pigeons and annoying tourists)?


1 comment:

Anonymous said...

The oil markets have been driven by speculators who have manipulated these markets...using irrational fear about the Iraq war and the "peak oil" scare. You will notice we dont see T Boone Pickens anymore now that the oil prices have plunged. The dollars value on the world market wont have anything to do with the price of a barrel of oil...OPEC and the futures market controls the price. OPEC cut off production if the prices plummet further..rising the oil prices. Add a little fear into the mix...and the weasely speculators will make their next killing off Main Street America. Get IT?