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jzneff - The true price of oil is $56 per barrel
Submitted by dogstar2012 on Tue, 06/10/2008 - 18:47
At current rate of $140 per barrel, less 60% futures speculation. Oil is at $56 per barrel. End of story! » |
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This just in
10:35 AM ET June 11
Crude oil inventories down 4.5 million barrels in US. So far the spot price has only gone up about a buck fifty. But the price was climbing all morning. Up about $4 for the day.
US gasoline prices continue to lag, due to relatively high inventory, reduced driving and high ethanol inventories.
Speaking of ethanol... corn just set yet another all-time high.
My sister ate too many cherries and is producing lots of gas
I'm thinking of hooking her up to a little cart.
Speaking of "crude" hah hah...sorry....
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$135
As I type this, the "true price" of crude oil is about $135 a barrel. It's traded in markets, you know. Just like stocks. Bid and ask. I know it's hard to believe that anything is traded in free markets these days, but it's true.
Who is buying the forward contracts? They are almost all commercial, like airlines hedging their fuel costs. A lot of the speculators are insignificant small fry like me. :-)
It's
It's the dollar.
"The wicked flee when no man pursueth, but the righteous are as bold as a lion."
"Endless money forms the sinews of war." - Cicero, www.freedomshift.blogspot.com
Gold/Oil Ratio
Based on the historical gold/oil ratio, dogstar2012's estimate may be correct. The average gold/oil ratio over the last 40 years is 15.2 -- that is, it has typically taken 15.2 barrels of oil to buy 1 troy oz of gold (see http://www.zealllc.com/2005/gorex3.htm for more details). Based on today's dollar price of gold ($871) and oil (WTIC $131), the gold/oil ratio is 6.65, which is much lower than the historical average. If the dollar price of oil were to change such that the gold/oil ratio was equal to its historical average of 15.2, the dollar price of oil would be $871/15.2 = $57.3 per barrel.
The probabilities are good that the gold/oil ratio will mean revert back to 15.2 (i.e. the dollar price of oil will likely drop or the dollar price of gold will likely rise), therefore it would make sense to be long gold and short oil until the mean reversion is complete.
RH
Disclosure: I'm currently long gold, and am selling some of my oil and gas stocks.
Why?
Why should the gold/oil ratio revert to the mean? I'm not saying it won't. Just asking that you "show your work." The only way I see that happening is for gold to go way up, not for oil to come way down.
Disclosure: I am long gold, silver, miners, crude oil, natural gas, oil and gas service companies, fertilizer companies, and probably other stuff that I'm forgetting right now.
Mean Reversion
Hi Jive,
Based on past data, it's highly probable that the gold/oil ratio will mean revert. Take a look at the graph in the link below
http://www.zealllc.com/c2005/Zeal081905B.gif
This graph shows that over the past 40 years, the gold/oil ratio has mean reverted every time the gold/oil ratio has gone to an extreme. However, it is possible (but imho unlikely) that "this time is different", and the gold/oil ratio will not mean revert.
Also, take a look at the following article:
http://www.zealllc.com/2008/gameoil.htm
The data in this article shows that the dollar price of oil has typically corrected sharply after making extended gains, and also states that "This stellar rOil high shows incredibly excessive greed surrounding the May high and adds additional support to the thesis that oil is way overdue for a major correction to bleed off this greed". Again, "this time may be different", so please do your own due diligence.
RH
P.S. Since mining is energy intensive, it costs the gold miners more $/oz to mine gold as the $ price of oil goes up, and so miners may mine less gold. As the new supply of gold decreases, the $ price of gold may increase, so there are fundamental reasons why the gold/oil ratio mean reverts.
Also, the moon is made of
Also, the moon is made of green cheese.
All that moon rock, dust, and science stuff was actually false. And there is a real man on the moon, also made of cheese. His name is Nigel.
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Support the Constitution of the United States
SUPPORT OUR FOUNDERS' AMERICA
Support the Constitution of the United States
Truth? How can you remove
Truth? How can you remove elements from the equation and refer to your result as being "true"? In my book that is a fraudulent calculation. The truth includes all of the relevant information. Regardless of whether or not speculation affects oil prices, speculation does exist.
It's the same thing the government does with the inflation index numbers in order to keep things looking good on paper. Housing, energy and food costs are all necessities but for some reason the gov does not consider them important enough to be part of the inflation calculations. How can they do that and call it a truthful calculation?
...
If you can do a contract for 2mb of oil per month
for one year. I can get you a contract for about $80 per barrel. CIF.
Of course most of this is all above your heads the pipe lines are full of crude and oil can mainly move only one direction in the pipe lines. I have seen lines waiting for the fuel to be delivered to the local distribution place. They are not allowing all the oil to flow even from Canada. Who is making all the profits. For at the max it costs only $16 per barrel to get the oil out of the ground here locally (in the uSA) as low at $3 in mid east and $5 up north in AK. there is 42 gal in a barrel and a barrel will produce over 45 gal. of refined fuel. Your fed and states taxes per gallon are around $.42. Plus there are drilling taxes on local crude. coming out of the ground.
I know most will say your nuts. I have seen the mentality here before. So I will leave this as is. Take Care
Thanks
May GOD Bless each and everyone.
I pray that God may see that Ron Paul will not be hurt or wounded, that he may become our next full two term President of the united States of America!
Tim
Thanks
May GOD Bless each and everyone.
I pray that God may see that Ron Paul will not be hurt or wounded, that he may become our next full two term President of the united States of America!
Tim
Thank you for posting
That's important. Most don't understand how to negotiate. Price is price. Volume equals better deal.
No negotiation
The price of crude oil is not negotiated. It is traded on markets, just like public stocks. Potential sellers put in "ask" orders. Potential buyers put in "bid" orders. When the highest bid is equal to or greater than the lowest ask, a contract is automatically entered into by the two parties.
However, you should note that commodities that ARE negotiated for are also at record high prices. Check out potash, for example, and the soft foods that are not traded on markets.
If that were the only reason...
Wouldn't toilet paper prices be going through the roof?
Think about it!!!
40 Years ago...
... the value of one ounce of silver could purchase about 4 gallons of gasoline. Today the value of one ounce of silver will purchase about 4 gallons of gasoline. I believe that the "fuel crisis" is a massive devaluation of the dollar by both our own government and the Federal Reserve.
18 months ago ...
Forty years ago, the oil situation was totally unlike today. The US was swimming in the stuff.
Eighteen months ago, four ounces of silver would buy a barrel of crude oil. Today it takes EIGHT ounces of silver to buy a barrel of oil.
here is a good interview....
http://www.cnbc.com/id/15840232?video=755108158
He talks about using Rothbard's true money supply to measure the increase in the money supply, and also points out how the fed's inflationary policies account about for 90% of the increase in the price of oil.
"Truth is treason in the empire of lies." - Ron Paul
I agree
Everything he said made perfect sense to me.
enough already
dogstar,
You are confusing value with price. The price of anything is whatever someone is willing to pay for it. So unless you are offering to sell us some oil at $56 per barrel, you are wrong. As well, you are assuming that all the open interest money in oil is speculation. Speculators in the futures markets only keep the market liquid for producers,end users, and hedgers. Most of what you are characterizing as speculation is really cross hedging against the dollar. Get your facts straight.
So unless you have a crystal ball, zodiac calender mood watch or some physic ability unknown to the rest of us, how in the world can you tell anyone what the motivation is behind the purchase of a futures contract? You can't. Your rational for your hypothesis is at least 60% speculation.
You appear just to be an attention hound regurgitating something you read on a blog somewhere. I am sure I will regret asking this, but; what is the basis of your claim?
NO NO NO
There is no value. Take the dollar out of it and compare it to the price of gold. there is no fluctuation. That is what RP is saying. It's all manipulation. Smoke and mirror and fear of peak oil.
Oil has doubled
Oil has doubled PRICED IN GOLD since Jan 1, 2007. Priced in SILVER, oil has doubled since Jan 1, 2007.
Ron Paul folks, get educated. There are three principle drivers of prices: supply, demand, and inflation (money-supply/velocity).
Listen to Financial Sense News Hour. Check out the May 31 show. Just google for it.
You are twisting Dr Paul's words
There is a value to everything, whether it is dollar denominated or not. You make my case for me by stating " compare it to the price of gold". If oil can therefore be compared to gold ( in value), it then has value. The dollar, though it has been losing value, still has value. Dr Paul has stated correctly that all fiat currencies eventually have collapsed. You sir are twisting words and avoiding my question to you. Below is the definition of value.
Merriam-Webster:
1val·ue Listen to the pronunciation of 1value
Pronunciation:
\ˈval-(ˌ)yü\
Function:
noun
Etymology:
Middle English, worth, high quality, from Anglo-French, from Vulgar Latin *valuta, from feminine of *valutus, past participle of Latin valēre to be of worth, be strong — more at wield
Date:
14th century
1: a fair return or equivalent in goods, services, or money for something exchanged2: the monetary worth of something : market price3: relative worth, utility, or importance 4: a numerical quantity that is assigned or is determined by calculation or measurement 5: the relative duration of a musical note6 a: relative lightness or darkness of a color : luminosity b: the relation of one part in a picture to another with respect to lightness and darkness7: something (as a principle or quality) intrinsically valuable or desirable
I am in agreement that oil is overpriced.Especially as historically related to gold. However you stated that 60% of the price was speculation. I simply asked you how you could prove the the price of oil was inflated by speculation and not cross hedging, hedging or some other rational. You still have not responding to the question.
The true price of oil is what you agree to pay.
Americans are still buying, so the price of oil must be correct.
___________
Lisa C.
http://www.women4ronpaul.com/
"Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all."
-Dale Carnegie
Ron Paul "Sign Wave Across the USA" -- November 5th!
Actually...
Actually, individuals in the US are driving less. However, they constitute a very tiny part of the market. There is no demand destruction overseas. In emerging economies, demand is surging. Even in the US, shippers and truckers cannot choose to stop buying fuel - not until it gets even more expensive.
You are right Lisa C
Board Hottie. Within lies the downfall. You are not agreeing. You are held hostage. It cost me $100 USD to fill a 30 gallon tank on my Lincoln Navigator. I get 13 MPG in town, 16-17 on highway. I ride my bike to the store and I'll wait this out. Short term cycle so to speak.
Peace Sister!
I was fortunate to sell my
I was fortunate to sell my Navigator back in September. These days there is very little interest in the big gas sucking vehicles. I now drive a small car that gets nearly 40mpg and while it is nowhere near as nice as the Navigator I smile every time I fill up the gas tank and it is not 3 figures.
...
lol I parked my 08 suburban
lol I parked my 08 suburban and bought a 06 vw jetta tdi.. 40 mpg in the city and 50 mpg on the highway! 56 bucks to fill the 14 gallon tank and fill it every week and a half and not every week! I know the feeling! 56.00 bucks vs 136!
as for me and my home, we shall worship the LORD
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
;-D
Like yourself, Americans will stop buying. When that happens in significant numbers, the price will no longer be "correct".
Lincoln Navigator to a bike? How's your ego hangin'?
Riding a bike makes you feel like a kid again.
___________
Lisa C.
http://www.women4ronpaul.com/
"Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all."
-Dale Carnegie
Ron Paul "Sign Wave Across the USA" -- November 5th!
I have no ego
I am a reflection of myself, and you to for that matter.
Peace
Gas station
When I filled up my car the guy wasn't buying it.
End of story.
Short term BS
He doesn't know. He sells smokes and beer to make money