Crude Oil! Is the bubble about to burst?!?

Question

Will it keep going up by speculators and crooked manipulators (not ALL Enron execs went to jail....) or crash down under 90 where overseas experts know it should be??

Answer 1

You already have a couple of terrific answers.  I doubt that my thoughts will add much, but here goes anyway.

Certainly, the price of oil recently has increased in price much more than what the fundamentals would have suggested.  That does perhaps suggest that speculation is playing a part.  But speculation is not based on non events. It is based on what is currently happening.  The saber rattling towards Iran certainly plays a part as does the projected and current oil demand by countries that are ramping up demand as does the gasoline consumption by all of the wonderful SUVs and pickup trucks as does the sorry state of the U S $ as does the use of corn to make ethanol which requires more energy input than generated output.  A brilliant move that one.

I do hear rumors that people are beginning to park their SUVs and pickups and even throwing them onto the scrap pile.  I also hear rumors that airlines will not be guzzling so many gallons.  All of these should have a mitigating influence on the price of oil.  

A price just under $90 a barrel would not in my mind be considered exactly a crash.  But I guess a $50 drop would be now considered wonderful news.

Answer 2

Perhaps if Iraq starts producing as much oil as it is capable of producing.  And US tensions with Iran calm down.  Then the price of oil will go down.

This may happen early next year, if Obama gets elected as president.

Answer 3

Typically, the Labor day weekend is a good time to peg Oil at it's peak. Afterwards there should be a steady reversal in price.

It's a tougher call than you might think however, an Oil futures contract ($9469 before broker's fees) gains or loses $100 per 10 cent move. Both the risk and reward are potentially gargantuan. Volatility also picks up the week before the near term Options contract expires. So August Oil will expire sometime around the 16th of July. Look for explosive moves by then. The price will naturally gravitate towards the contract that has the highest amount of open interest, regardless of direction.

The biggest strike the sell-side has against it is that international conditions have put the commodity (Oil in this case) in a bull spread. This means that the near futures contract is priced higher than the far (typically 3-month) contract, thus there is no storage factor priced in. It's virtually selling off right at the dock! A bear spread, by the way, is when the 3-month future is priced higher than the near month, putting a premium on both transportation and storage of said commodity.

Answer 4

If there is a 50% margin requirement for crude oil. Otherwise I see it forging higher. You can blame sulfur for this latest rise. Ever since the new mandate to limit sulfur emissions in diesel  oil prices have risen. The event IMO has put sweet crude at even larger premium to sour crudes. I  believe they can't blend as much sour crude in their feedstocks as they used to in the refinery process  and is the reason why refinery margins are now pathetically low.

Answer 5

One can only wish.  And when it does crash there will be no sympathy for those who lose big time.