.....and a January collapse
PERHAPS commodity and equity markets will continue to keep denying the weak fundamentals until bonus cheques for fund managers etc have been signed and are in the bank.
Fund managers, because of the way they are benchmarked, will be desperate to stick close to the performance of stock market indices, said John Authers in this article from the Financial Times.
"It is a disincentive (the benchmarking) to making a big move either into our out of the market even if a fund manager has a strong view that we are heading for a rally or a fall," he wrote.
"This behaviour may yet allow the current stock rally to persist in spite of the disappointing economic data."
The same, I guess, could apply to crude - blowing the case for $45 a barrel by the end of the year out of the water.
Barclays Capital is, in fact, predicting a rise in oil to $70-80 a barrel over the next month with Goldman Sachs forecasting $85 a barrel by end-2009.
So once the bonus cheques have cleared, a combination of sobering economic facts and investors getting out while they are ahead could cause a steep dip in January.
Might we then see another temporary bottom to crude, equities etc and further buying opportunities?
This will depend on government cash remaining cheap and plentiful and an improvement in the real economic outlook.
My bet is on a prolonged trough because we are back to 2006 demand levels in chemicals and presumably lots of other stuff - before the credit-fuelled false-bottomed boom.
Comments (2)
I'm one of fan of your blog and one question I had in mind :
Average crude price was $66 in 2006 and $72 in 2007. If we are going back to 2006 demand level, would it be reasonable to speculate price between $66 to $ 72 now and end of year?
There is good scope of discussions based on two important questions rasied, publised Peterson Institute for International Economics in this summer under [The 2008 Oil Price โBubbleโ] by Mohsin S. Khan
.............
LOOKING AT THE EXPLANATIONS
Developments in the world oil market in 2008 raise two important questions, answers to which have obvious implications for future oil price expectations.
๔ First, was the oil price increase of over 50 percent in the first six months of 2008 a bubble?
๔ Second, if it was a bubble and oil prices overshot their long-term equilibrium level in the fi rst half of 2008, did they undershoot when the bubble burst in the second half
of the year?
...................................
BUT Lack of important quetions to be answered :
" When and how much bubble will burst ? "
Lee from South Korea
Posted by CM LEE | October 5, 2009 12:08 PM
Posted on October 5, 2009 12:08
Dear Mr Lee
Many apologies for the late reply on this.
I think the issue comes down the assumptions around growth versus record-high inventory levels as history of crude pricing isn't much of a guide these days, given the big increases in volatility.
The set of assumptions that are driving futures pricing is that the recovery is just around the corner, and that the high oil and oil-product stocks will quickly evaporate next year when it's confirmed that were in a sustained economic rebound.
I think you know my views are the opposite to this! Hence, I still think that equities, crude and commodities in general have got ahead of real demand which will take longer to catch up.
A retreat to below $50 a barrel. It's possible in the New Year,but OPEC - mainly the Saudis saying this - argue that $70 is the minimum needed for marginal production (oil sands, heavy crude etc). So if this price is breached for a while, they will be an automatic correction upwards, is the argument. Plus OPEC has said it wants to defend crude at our above $70 a barrel. The Saudis can make money at much lower prices, but the Iranians etc cannot.
Best Regards
John
Posted by John
|
October 16, 2009 10:27 AM
Posted on October 16, 2009 10:27