"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Monday, November 3, 2014

Crude Oil Price War Stirring?

I sure think so... What I am referring to is the move by Saudi Arabia to CUT its oil price for oil sold to the US while raising its price to other countries, notably in Asia.

There are some analysts who are downplaying the move as only an attempt by the Saudis to maintain US market share but I think not. I think they are going after the US shale industry.

This is rather interesting if you ask me because of the impact on Russia as well.

Either way, the cut in price by the Saudis has oil traders thinking along a common line right now and that is burgeoning supplies. Economic growth is just too slow to burn through all of the oil that is accumulating.

The impact of falling energy prices should not be underestimated. It does two things:

1.) It benefits consumers and businesses with heavy energy usage such as those in the Transportation sector
2.) It harms the one bright spot in the US economy, namely the energy industry and the companies associated with production, exploration and service to some extent.

I might also mention something more along the psychological front - it feeds the DEFLATION psyche. Look at the plunge in the commodity indices today. Given that sort of environment, gold is going to continue to fall out of favor. Why buy a metal that throws off NO yield in an environment in which commodity prices in general are heading lower?

Here is a chart of crude oil...The black liquid hit a 2+year low today.


If it breaks the support level noted on the chart, we could see another $2.50 break lower from current levels. I also want to remind the reader that based on the most recent Commitments of Traders report, large speculators still remain heavily long in this market by a more than 3:1 ratio.



Just like they are in gold, they are caught on the wrong side of a plunging market meaning the resulting money issues at work will tend to keep the price depressed as rallies are viewed by losing sides as opportunities to get out and cut their burgeoning losses somewhat. It is all about reducing the pain at this point.


19 comments:

  1. Thanks.
    It seems possible that the Saudi's are actually helping the US economy (pre-election) by keeping energy costs here lower even if a by-product of it is putting pressure on US shale companies.

    The Saudi's raising prices on Europe/Asia negates any loss their taking on the U.S. price cut.
    So all in all I think this move by the Saudi's might put more pressure on Russia financially if oil measured in USD is trading lower and in turn lowering Russia's revenue from it. The effect this has on the ruble might be interesting to watch going forward.

    I agree though that this seems a bit more complicated then the Saudi's going after US interests strictly. There's a tangled web behind the scene's I think that isn't apparent to us yet.
    I think if the price keeps going down here or rises elsewhere again and SA keeps making these announcements of adjustments in output or price floors etc then it helps the US more than it hurts it in the long run.
    These oil prices won't stay low forever.

    With all the undercurrents of war in MENA and in Ukraine this might have more to do with putting a crimp in Russia's oil cartel aspirations by dropping price and increasing SA output to satisfy Asia and Europe's demands this winter.

    The US could soak up and store any marginally profitable production from domestic suppliers if it came to it. Plus if US domestic production prices were driven down it seems like that production could be sold abroad very easily especially in light of SA just raising prices to Europe and Asia. Cheaper US fuel would be welcome over in Europe especially with Putin having them over a barrel this winter again.
    If the SA moves aren't specifically about US production then what might it be about?
    In a unrelated topic I can't help but wonder if the Snowden issue (NSA widespread spying revelations/Russia harboring Snowden and maybe not liking what they found out) isn't somehow at the core of some of the current head-butting going on over Ukraine and Syria.

    We might just find out someday.

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  2. Gold and no yield.

    Maybe because there is no other place to get yield ? US 10 year ? Nope. Spanish 10 year ? Nope. S&P or DOW dividends ? Nope. Real estate the world over ? Nope.

    Most people are savers, not investors or traders. Yet today we are all forced to be investors chasing nominal gains because there is no such thing as a perfect inflation hedge. If there were such a thing, a large portion of the "investing public" would not be anywhere near stocks and bonds. Even the most "risk free" bonds, US Treasuries, have the greatest risk of all, currency risk.

    Furthermore, a saver must look deeper than the CPI, or even its shadow-equivalent, for the real inflation that must be protected against. And that is the inflating VOLUME of savings with which one must compete. A perfect inflation hedge would not only keep up with the shadow-CPI but it would also rise in VALUE (as opposed to volume) relative to changes in aggregate monetary savings (nominal gains).

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  3. With creating a spread in oil prices, it won't work out for the Saudis. Just causing a money making opportunity for some players. More like desperation esp. when they want to go nuke to power desalination plants.

    As US companies fine tune their fracking abilities, other markets overseas will come into play. It is like a methane belt or layer is found most anywhere on earth available to tap into.

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  4. I think the problem with WTI is that the Saudi's are not giving us "the Good Stuff" and using regular unleadead clogs up the nebulizer, blocking effective transmission directly into the bloodstream; for these reasons I recommend using only 150-proof Nitrous Oxide in my "rods" - read more here http://www.tfmetalsreport.com/comment/445462#comment-445462

    Seriously - if Dan is worried about people being obsessivley "married" to their investments, this takes it to an entirely new level

    At least the Good News is that The Silver Nightmare Will Be Over Soon: it was only ever due to "unfairly concentrated positions within the derivatives market" and there will now be a near-term MONSTER RALLY in Silver

    Remember where you heard it first: http://www.silverdoctors.com/ted-butler-the-silver-nightmare-will-be-over-soon/

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    1. Ophelia;

      Butler! Is he still around and is anyone paying attention to him, and if so, what for?
      Think about it: "UNFAIRLY"... unfair to whom? to the silver bears? to those who hedged silver at higher prices? To miners who locked in some forward contracts at a higher price?

      Since when are markets "unfair" because they go the other way than what someone keeps expecting? In the world in which the sane among us live, that is called "life". Life ain't fair but those who follow the charts can at least get a bit of a warning that something is afoot and get out of the way of it or make some money off of it.

      Butler has been screaming the same thing for more years than I can remember about his precious "commercials are always net short silver" idiocy. Maybe he will just go away with the rest of the gold cult leaders and hide but I doubt it. they will be saying the same thing over and over that they have been saying over and over: "silver is due for a rally". Guess what, some day they will get it and then he and those of his mindset will all pat themselves on the back and talk about how smart they are and how well they understand the markets.

      My oh my, we live in a generation that cannot see past the nose on the end of their face and recognize these hucksters for what they are. How tragic that anyone pays the least bit of attention to them.

      Delete
    2. oh, dear, Dan, you rose for that one like a Brown Trout taking a Mayfly :-)

      I just LOVE reading Silverdoctors - it restores my faith in humanity: if you consider just how dumb the average person is, then its a sobering thought to remember that almost 50% of the population is even dumber still

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    3. Ophelia;

      That was a tasty Mayfly!

      It really is sad that so many people keep listening to those who have no credibility and whom have been so wrong, year after year after year. I really do find it astonishing that people are that gullible and quite honestly, it is disconcerting.
      Even a dog learns to avoid getting zapped by an electric fence wire quickly but some of the members in the gold and silver cult seem to love getting electrocuted for some odd reason.
      Like I have said more times than I can remember - precious metals are just one more investment class. Why get so hung up on an inanimate object? Their whole life seems to revolve around the price of a lump of metal. And that is indeed a tragedy.

      Delete
    4. OK, here is my second cast - this time using a slightly different Fly (The Speckled Embry)

      "This is purely manipulation by high-frequency and algorithm programs and it sets the tone for each trading day and permits the powers that be to keep the pressure on the price. This is all part of how they attempt to keep the public away from gold and silver. But gold and silver are the only real money and it remains the arch enemy of the failing fiat currency system. So the central bankers are in overdrive here trying to discredit gold and silver.

      http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/11/3_Silver_Is_One_Of_The_Greatest_Opportunities_In_World_History.html



      ..... a swirl in the pool....... a dark torpedo-like shape darts forth out of the depths ....... the jaws open and............

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    5. Ophelia;

      here comes the trout...

      seriously, I know John personally and actually like him as a person. I just strongly disagree with him.

      Also can you see the subtle shift in those who posit the "manipulation" scheme?

      It used to be every single take down lower in the metals was the result of "the cartel". I have spent the last three years debunking that false claim and noting hedge fund activity and documenting that in my COT analysis. The facts are too obvious to dispute.

      So the GIAMATT crowd has had to grudgingly admit that it is not the cartel now doing the hits; it is now HFT and algorithms that are responsible. This is almost farcical because the truth is that when gold experiences one of those sharp rallies that it experiences from time to time, guess where those are coming from? Yes, hedge fund computer programs.

      This is what is called "selective outrage" and it all stems from the fact that the price is not going the direction they think it should go so someone must be blamed.

      The other simple fact is that they have been dead wrong about the precious metals for the last three years. That is the real truth and no amount of subtle sleight of hand or shifts in words and blame can change that sad fact.

      Delete
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    7. I have walked this Earth for two-score years and almost fourteen, and I can honestly say that I have never in all my days come across such a menagerie of social inadequates and psychological misfits as are to be found amidst the Goldbug fraternity.

      Everyone is entitled to be wrong once in a while: it happens to all of us. I can even pardon not having the good grace to publicly admit the error of ones ways. But what simply beggars belief is the insouciant arrogance with which these twats keep parroting the same lies and nonsense that has been proven wrong and wrong again, again and again, without batting an eyelid

      I don't care any more: I have my fishing to distract me :-)

      Delete
    8. Ophelia;

      You should see some of the emails I receive from these people. They are vile, warped and downright evil. Seeing people get this worked up over a piece of metal is frightening.

      For me, trading/investing is about making money and profiting. For way too many gold cult members, it has everything to do with "being right". That is why they will sit there on their lump of metal to the bitter end.

      Like I said, gold is insurance. You buy it and hope you never have to use it but some of these people are like the guy who prays that his house will burn down so that he can collect the payoff not realizing that he now has a pocket full of money and no house to live in.

      Delete
    9. I keep seeing the words "disinfo agents" or "psyops" mentioned on certain sites regarding posters who have a different point of view who are getting slammed in a knee-jerk fashion for bringing up clear headed questions or observations that point out some of the huge gaps in "logic" the 'bug camps seem unaware ot uncomfortable with.

      Has it ever occurred to some 'bugs ( of course not) that some paid posters might be out there extolling pro-PM views on their own site who try to keep everybody all frothed up over gold/silver while it's crashed backwards for years?

      If you think about it, all the "special guests" or "insiders" brought onto those sites are pumpers and cheerleaders who only say one thing...gold and silver are going higher, much higher no matter what.
      Present reality be damned, just ignore it.

      I'm no so sure why being objective angers or frightens some folks and they need to shout down some views that might actually be sound in their reasoning.
      How does someone blot out any shred of sound alternative thinking from ccomplished, educated people while embracing a guy named Jackass or Turd who can't or won't ever consider they might've been misleading or wrong?

      Is it persecution/paranoia or a bad case of oppositional defiance 24/7 that has them thinking they're involved in some type of rebellion or rebel alliance they're participating in while secluded or segregated in their bunker blogs?

      The disinfo agents and trolls they refer to might actually be residents within their own commune. That much is self-evident.

      Which might explain the private message spying on the members that took place in an attempt to protect the inner sanctums ego's and the myopic messaging going on there?

      It's beyond weird.

      Delete
    10. DPH;

      What you are describing is THE CULT PHENOMENON. That is why I refer to it as the gold cult. That it what it is, pure and simple.
      Those trapped in a cult cannot see any logical inconsistencies because it is an "US AGAINST THEM" mentality.
      They believe that they are involved in something greater than themselves and that is their commitment to the cause that supercedes any pain, difficulty or hardship that they must endure because in the end, these, the faithful, will be rewarded for all of that.

      It is a religion with its own priests, prophets and seers. It has its sacraments and its belief statement.

      The god worshipped is the metals.

      Delete
    11. An idle thought has occasionally drifted across my otherwise untroubled mind: what IF some of the contributors are paid or otherwise incentivised to write comments? That may well tll you something about their motivation and sincerity, but does it tell you anything at all about the validity or veracoty of their comments?

      As an example, take Harvey Organ. (Go on, please, take him - anywhere, just take him....) - a spirited and industrious amateur who is hopelessly misguided and entirely unqualified to pass an opinion on anything even remotely pertaining to Precious Metals. Contrast him with e.g. Louise Yamada, who is a career professional who is now making a business out of selling advice. Who has the more pertinent insights? IMHO it could be EITHER, and the fact that Harvey is a rank amateur does not of itself mark him out as either Einstein or the Delphic Oracle

      In brief, I would prefer the views of a paid prfessional over those of a misguided diletannte any day of the week

      Delete
    12. I was offered several ounces (4-5) of silver to contribute a weekly article over at _ _ _ _ but declined after initially mulling it over.
      At that point I was already on the fence as far as bolting from there so the silver incentive to stay on wasn't a factor. I was done there no matter what and I saw where that site was headed (and currently sits). I made the right choice for myself at that time.

      So it doesn't seem too farfetched that some posters might be incentivized to stick around and contribute posts of various kinds for mulltiple reasons.

      To be clear, I was never paid or offered anything to merely post and I'm not accusing anyone of being paid now to post comments.
      But as I said earlier it seems possible that some folks might have some type of incentive to contribute or post that purposely keeps inline with a sites prevailing sentiment or marketing strategy they hope to sell merchandise or services off of.

      Instead of disinfo agents that seek to disrupt a site it seems probable that some sites cater to certain outside contributors that mutually (monetarily) benefits each other for cross marketing purposes.

      Maybe instead of looking for disinfo agents from outside they should instead look from within at those who try to instantly discredit anyone who offer up differing logical outlooks.

      Why are certain sites so guarded and reactive to objective thought when just about anyone with a pulse realizes that some or most of the guidance that was pounded into them was illogical to some degree and completely biased if not looney?

      If the last 3 years (and more so recently) hasn't convinced anyone that some elements of the permabull/doomer camp need to be questioned then nothing that happens will.

      They'll go down with the ship and feel good about it. Loyalty and investing have no place in one's portfolio especially if that investment is viewed as insurance.

      Who obsesses over insurance and catastrophes or collapses and more importantly why is it frowned upon to bring up reasonable questions one might ask of their so-called insurance agent?

      What are they hiding from and WHY?

      Delete
  5. Grouping silver with gold is quite ignorant. Silver is not a central bank reserve.

    And the gold bugs have been wrong for 3 years. Yet the best performing asset since year 2000 is gold.

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  6. Waking up and seeing oil melted back another $2.00+ overnight surprised me a bit.
    How much lower will oil slide?

    And Good Morning to all! :-)

    ReplyDelete

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