While Udayan Mukherjee might consider the fall in price of Crude Oil to be an "if-y Phenomenon", may be because he is lost in "Base-ball-ish Cricket", these days, where "ifs and buts" are common lingo; let me jot down my reasonings on why Crude Oil Bubble is heading for a crash:
EXCERPTS OF MY MESSAGE SENT TO PAID GROUPS with some additional inputs from Various Sources:
Paid Members were advised to use this dip in the market, to buy shares using the SIP Method: A Particular Counter was given stress.....What is the name of that Counter??!!
[UPDATED]
The Crude Oil prices are expected to crash to $100---$110 stocks per barrel. There is as such no supply constraints as regards to the global demand of 86--87 million barrels per day with only 2 to 2.5 million barrels per day as the differential. So why there is so much rise in oil price. Let me analyse a few points: 1. A fear of a weak US dollar following slowing US economy is driving the speculators towards the crude oil futures. I suspect that more than 70% is due to speculators passing paper back and forth in an unholy alliance. It will take an exogenous event to pop the bubble. Without one, the feedback loop could raise prices to $150 per barrel, within a couple of months. But if they do not succeed, then Bubble will burst taking oil to below $100 per barrel.
Speculators and buyers are also playing with natural gas. Natural gas is typically stockpiled in the summer in the US when prices are lower. Big money is playing the natural gas buyers by trying to force summer purchases at winter prices. I think these things needs investigation by the world bodies and bring about regulation so that the price explosion can be checked. I am told there was a WSJ (Wall Street Journal) Story, about the FTC investigating the commodity markets in the US. THUS SPECULATION IS A BIG PROBLEM IN THE COMMODITIES MARKET.
Having said that, the perception of further slowing of the US Economy is not correct or is just an optical illusion. In the real case, the situation in the US is just the opposite: the US economy is becoming stronger and hence the dollar will become strong going forward. The Bush administration's $130 million economic stimulus package is expected to give a significant boost to the economy in the second half of this year and help keep the country out of recession.The Treasury Department reported that, as of Friday, 6.2 million stimulus payments had been made over the past four weeks, totaling $4.93 billion. Officials said that figure represents the near completion of all direct deposits with the expectation that the mailing of checks will significantly increase in coming weeks as the government completes the mailing of regular tax refund checks This should boost consumerism and boost spending of the US. So why should the dollar fall further??
But, too much media pessimism about the US economy, is bringing more and more speculation in the "Crude oil Futures". Apprehensions of a falling Greenback, is pushing a growing number of investors to view commodities such as oil as a hedge against inflation and a falling dollar. It is worth noting that a weaker greenback makes oil futures less expensive to investors dealing in other currencies. Many analysts see the dollar's protracted decline as one of the chief reasons for Crude oil prices to double over the past year.
In the short term there could be some problems in the US economy but in the long term the US is bound to become stronger and stronger. This will pull down the Crude Oil prices as the demand-supply difference is still very minimum. OPEC will not allow the oil to rise too high or beyond a limit, because it will hurt the imports of the gulf countries which largely depends good made in foreign soils.
2. Subidised Oil in India is not curtailing its consumption in the domestic market even as the Crude Oil sky rocketed. This is a bad policy by any government to meet its vote bank needs. Thus, as soon as the prices of crude oil derivative (Petrol, Diesel, Gas etc) rises in the Indian markets (which is bound to happen sooner or later), there could be a fall in the consumption by the Indian Masses, leading to a shrinkage in demand of oil world-wide. This could pull the crude oil prices further lower. 3. Now with the reports of US citizens using lesser oil derivatives (less travelling and driving figures considering month on month basis), will further pull the price of Crude Oil down. Hence a price less $100 could be expected in just 6 months time frame. However, there are some seasonable demands at this time every years, but that should not pull up the Crude Oil prices to such astronomical levels.
The rise in Oil prices is less due to demand supply equation as mentioned earlier, but more due to speculative activities-------hence bound to correct.
4. However, some Pension Funds, University Funds of US, have started putting their money in Crude Oil in the US, considering it an asset class--this could have given it a slight push upwards. But the concept is wrong as commodities cannot be considered as asset class due to too much uncertainty/volatility in them. Just consider the condition of Steel Companies in India in late 1990s and early 2000 and now. Therefore, Crude Oil cannot or does not fall in asset class and is bound to correct. 5. There are some talks that US could sell a part of its Strategic Reserves if the oil starts to rise above $150 per barrel If this happens then the Oil prices will further crash to may be around $75--$80 per barrel.
7. With the fall in the sugar prices world-wide, much of its could be diverted to the production in ethanol reducing the "Crude Oil demand" world--wide.
BUT WHAT AILS INDIAN (domestic) ETHANOL STORY?? CAN IT TAKE OFF WITH THE PRESENT SET OF GOVERNMENT PROTOCOLS?? SHOULD WE BUY THE STOCKS OF SUGAR COMPANIES BASED ON ETHANOL STORY WHICH MANY ANALYSTS OF TELEVISION IS SUGGESTING??
THE REASON WILL BE SENT TO PAID MEMBERS FIRST AND WILL THEN BE TABLED HERE IN THIS BLOG.
8. Despite rising demand for diesel, many US analysts argue that oil prices have risen well beyond levels that can be justified by supply and demand fundamentals; an increasing number of analysts are referring to the situation as a bubble. Moreover, the U.S. demand for fuel and oil has fallen this year. THIS IS JUST A BUBBLE AND IS WAITING TO BURST TOO SOON FOR TOO BETTER REASONS.
HOPE I COULD THROW SOME LIGHT ON THIS BURNING TOPIC OF DAY, AND COULD SOME IDEA WHERE THE PROBLEM LIES. A CRASH IN CRUDE OIL PRICE IS INEVITABLE AND JUST ABOUT TO HAPPEN..........ONLY KEEP WATCH HOW SOME HEDGE FUNDS GO BUST AFTER THE EVENT LIKE IT HAPPENED A COUPLE OF YEARS BACK. INFLATION AND CRUDE OIL PRICE RISE: Inflation in the domestic market is not expected to rise too much in future unless government goes for huge rise in Oil prices in the domestic market. It is because food prices are going to fall subsequently due to good crop and US thinking of reducing the import duty on the corn used for the production of Ethanol. The price rise in Cement and Steel are already kept on hold.
SO SOME ECONOMISTS ARE JUST SPEAKING WHITE LIE THAT INFLATION MAY TOUCH DOUBLE DIGITS WITHIN 6 (SIX) MONTHS; LIKE SOME US ECONOMISTS DEMONISED THE US SUB-PRIME CRISIS & COMPARED THE RECENT US SLOWDOWN, WITH THE GREAT DEPRESION OF 20th CENTURY.
Already price of some commodities have started to fall and a good monsoon will further taper-off the price rise. So the inflation is going to be steady around 8% for some more weeks to come. If the Indian Government considers inflation above 5% to be necessary evil then it should ban futures trading or else continue with its growth oriented policy, with demand-supply equation taking care in the Commodity Futures Market.
It is just a foolish on the part of any government in the World to speak of low inflation and at the same time allow speculation in commodities' market. Governments world-wide should choose either of the two and not both. It is speculation which is driving the price of commodities more than the actual demand-supply equation.
BY THE WAY WHY DID THE NEPC INDIA LTD (NEPIN) RISE TODAY AND WHAT TO DO WITH THE SCRIP. MY ANSWER IN THE SECOND HALF OF MONDAY .....PAID MEMBERS WERE ALREADY SENT THE MESSAGE AS WHAT TO DO ON NEPC INDIA LTD, ENNORE COKE LTD AND RELIANCE INDUSTRIAL INFRASTRUCTURE LTD.
Why Southern Online Bio Technology Ltd (SBTL) is best bet at this point of time??!!
1. It is into IT sector and gets 100% of its revenues from the domestic market, insulating it from the vagaries of any fluctuation of INR. With the number of intenet users rising everyday, SBTL has great future going forward. It is also diversifying into content development. Already you are able to see the Andhra Pradesh Public Service Examination results through its web-site.
2. Demand for diesel has spiked in China, where power plants in some areas are running short of coal after last week's earthquake. But even before the quake, Chinese diesel imports were rising sharply. China's government has released nearly 170,000 barrels of fuel from its strategic petroleum reserve this week to ensure adequate supplies in earthquake areas. Thus "China is just diesel--hungry," on the eve of Beizing Olympics. Diesel is used to fuel most industrial vehicles, and is a big part of the reason why prices for food and consumer goods are rising. ANY OVERSEAS CONTRACTS FOR DIESEL COULD RE-WRITE THE STORY FOR SOUTHERN ONLINE BIO -TECHNOLOGIES. IT IS ALREADY IN TALKS WITH VARIOUS OVERSEAS CLIENTS AND SOME NAMES COULD COME UP IN THE NEAR FUTURE.
3. From this quarter it will be able to sell more than 75% of its produce to domestic user industries-----don't forget even selling diesel at this price it is making profits for the company and not losses like Oil Market Companies. Any rise in the price of diesel in the domestic market will expand its margins in the trade. This will help prop both its top and bottomlines.
4. The company at present is dependent on the villagers for the Oil seeds to be used for the production of Bio-diesel but it has also applied for the lease lands where it can go for its own production cutting of risk of procuring the seeds from outside. It however does not have any problem as far as the raw materials are considered.
4. The Company has gone for a preference issue at almost double the CMP of the shares of the company to the Promoters. This only instills confidence in the management who are a group of technocrats of high quality.
Please visit their web-site for more details on the Southern Online Bio Technologies Ltd: http://www.sol.net.in/.
5. The second plant of the company is coming up in the next year and hence the production will become double within one year. The company could also get a contract from Indian Railways soon. The current order from APSRTC will increase as Bio-diesel is less polluting that the normal diesel. The recent demand for Renewable Energy companies by the investors in the Share Markets world-wide, could also push its share price up. Japan is already started to use "Green Technology" to make its hybrid cars.
6. The Company is expected to get benefits in the form of Carbon Credits in future due to the popularisation of clean technology.
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