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Oil bubble (2008) = Tech bubble (2000)

As world watches what's coming out of meeting between oil producers and oil consumers in Jedah, I am thinking - do we have oil bubble of 2008 similar to tech bubble in 2000 ? Just from back of the envelop calculation (w/ completely hypothetical numbers) , if there is about $10 B invested in oil indexes, ETF (like USO), futures and swaps, this would create demand of 80 million barrels of crude (at $125). If every month additional $1B is getting invested in these oil related futures, it would create additional demand of 8 million barrels per month. No wonder we are seeing oil prices north of $130.

I fully support Obama's call on band on oil speculators (and possibly commodity speculators) or at least force them to not allow them to trade on margin

Obama suggested ban on oil speculators

During last 16 years, there were always problems during US election year. In 1992, US economy was coming out of recession from a deep housing/employment crisis, in 2000, we had tech bubble bursting and in 2008 we have subprime and housing mess and oil/commodities bubble

It takes new administration (and I hope we have completely new administration with Obama in lead) to clean up the past mess and move the country forward.

/Shyam

Comments

Anonymous said…
Hey shy

went to san fran this weekend

thanks for the new delhi rec...good stuff and excellent lamb vindaloo

Only thing that really makes me think that oil is less a bubble is this

these "speculators" always roll futures contract...at the end of a futures period one has to take physical delivery(seller sells crude long futures buys the crude) of the crude oil...unless there are huge tanks where these very well funded "speculators" are storing and hiding crude then a bubble it is not...it is a true supply demand imbalance...also note the difference bet. light sweet and sour crude

Having said that I do hope it is a bubble, however if you are a light sweet or other oil producing country and you are selling oil futures (assuming you have excess production capapcity) why would you not just sit on the bid for days weeks etc...no one seems to be doing this

remember futures contracts demand physical delivery at the end of each cycle...many speculators choose long dated contracts or roll them near the end of the futures cycle...now if speculators were driving up the market why would the price of oil not drop dramatically near the point of physical delivery? That is one point that no one seems to be able to answer

having said that one of my favorite guys Soros has said it is speculators, although many others have said it is not...I am at a quandry and I just stay the heck away with the exception of a couple of USO puts that hedge a bit of my short equity positions
1:22 PM
Anonymous said…
PS

if obama suggests ban on speculation what is next...ban on equity specualtion...ban on bond speculation

That is a very very slippery slope

as if bernanke has not already done enough with BSC obamos move and as santelli says, "we might as well put a hammer and sickle on our flag"...Lets hope paul volcker knocks some sense into him
1:25 PM
Shyam said…
Larry,

Good to know that you liked food at New Delhi stuff. I understand your point about slippery slope and why not ban on equity futures if Obama is suggesting about ban on oil speculation. Only difference is oil (or for that matter commodities) have finite supply - equities are in a way paper tied to company fundamentals.

I think we should not ban oil futures completely but make it more transparent since airlines and other businesses do need futures to work to hedge their risks. Making these trades transparent and open should at least address part of the problem.

/Shyam
8:10 PM
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