About Oil Prices

Money Morning asked:


By Jason Simpkins

Associate Editor

Money Morning

The U.S. trade deficit grew in October as both the volume of oil exports and our trade deficit with China surged to a record highs. A widening deficit means the United States will not be able to rely on trade to help pull the economy out of what may be the longest recession in the post-World War II era.

The U.S. trade deficit grew to $57.2 billion in October, a 1.1% increase from $56.5 billion in September. Imports fell 1.3% to $208.9 billion, but exports fell even further, dropping 2.2% to $151.7 billion - the lowest level since January.

On reason for the reason for the larger deficit was more lopsided trade with China. The trade gap with China increased to a record $28 billion, up from $27.8 billion in September. China last year supplanted Canada as the largest source U.S. imports. Since joining the World Trade Organization in 2001, China has also emerged as the fastest growing major export market for U.S. products.

A record amount of oil imports also sent the deficit soaring, offsetting a significant decline in crude prices. Petroleum import prices fell 25.8%, with the average price for a barrel of crude tumbling by $15.56 a barrel to $92.02. However, that decline was negated by a record-high 70.9 million-barrel increase in oil imports. The sheer increase in the volume of imports drove the U.S. oil bill up by 3% to $37.7 billion.

Trade was also dampened by a resurgent dollar, which made U.S. products more expensive to foreign markets. The dollar surged 17% from mid-July to the end of November, reaching its highest level in three years on Nov. 21, Bloomberg reported.

“Trade is going to be a significant drag on fourth-quarter growth,” Dean Maki, co-head of U.S. economic research at Barclays Capital Inc., told Bloomberg. “The slowdown in foreign demand is hitting manufacturing.”

Trade added 1.1 percentage points to U.S. economic growth in the third quarter, when gross domestic product (GDP) actually shrank by 0.5%.

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Investment News



Caroline

Pablo Terreros asked:


get sick every time I drive past a gas station these days. How about you?

Where I live, we’re not at $5 per gallon yet, but we’re not too far from it either. Just the sight of the cost for a gallon of gas is enough to make someone want to vomit.

Why are oil prices so high? Well, it’s because of the economy or we don’t drill enough or big oil is gouging the prices or this, that, or the other.

Look, here’s the bottom line. Why are gas prices so high? The correct answer is, “Who cares!” At this point the only question you should be asking yourself is, “What am I going to do about it?”

You have no control over the daily price of oil. However, you do have control over how much money you make.

True, your boss may have you on a set salary, but this is America. You can choose to increase your income via other means than your job. You can choose to make more money by working from home.

The advantage of working from home is quite simple. You make more money without being dependent on a job or a boss who will set your salary. You set your own hours allowing you to decide when you make more money and when you don’t.

Of course, the greatest advantage of making more money from home is that it costs you no money for gas. If you find a part time job, you are going to lose a lot of that money to other expenses like $5 per gallon gas. If you make more money from home, your commute is a 10 second walk to your computer.

True, you still need to market and advertise and who knows what else. Again, you have the edge here.

How many places on earth can you reach with the internet? All of them.

How much does it cost to reach someone thousands of miles away on the internet? Nothing.

If you spend no money reaching people and no money driving to a place or work or business, how much of the money you bring in do you get to keep? All of it.

So, again, it really doesn’t matter why oil prices are so high. All that really matters, for you, is what you are going to do about it. You can stay on your current course and drown as oil prices go up. Or you can make more money from home and compensate for oil prices that you cannot control.

Jill

♥♥DANNI♥♥ asked:


I was just talking to my dad about oil prices and how outrages it is. If you could plz help me by telling me how much oil prices are where you are and where you are from. I am making a chart. All who can help Thank you in advance =)

Stephanie

Chris Vermeulen asked:


While gold was extremely popular the past few years, I think its safe to say crude oil is unbeatable for popularity, as it’s a resource which almost everyone uses on a daily basis and it effects all of us in the wallet when oil prices rise as fuel, shipping costs and petroleum products start to cost more and more. This is the first time I have REALLY noticed everyone is following the price of oil. When kids start talking about it, then you know its being watched like a hawk from all types of individuals and traders.

When crude oil peaked at $147.90 back in July, people were starting to panic. The increase on fuel alone was really taking a toll on commuters and shipping costs went through the roof, which hurt almost every business in some way. That being said, oil is now back down at support and looking ready for a bounce. Let’s take a look at the charts.

Crude Oil Monthly Chart Explained

The monthly chart is by far the most over looked chart, because it seems so far out of most people’s trading time frame, that they just don’t check to see what things look like from further distance. I will admit that is a boring chart to watch, as it moves as slow as molasses but it still provides excellent support and resistance levels, which we do not see on the weekly or daily chart. Currently the monthly chart of crude oil has pulled back to the 200 day moving average, which is generally a good place where buyers step in. Also to take that same price level and see that it’s also a long-term support level, really starts making things look better for a possible bounce.

Crude Oil Monthly Trading Chart



Crude Oil (USO Fund) Weekly Chart Explained

The weekly chart is really exciting to look at because oil has sold off so hard and it’s become the talk of the world, everyone wants to catch the bounce in oil price when it does finally bounce. I can see oil bouncing back up to the $60 level but only time will tell. I don’t forecast or trade with a bias; I am strictly a technical trader. You can see how popular it has become simply by looking at the volume on the chart. Only 12 months ago it was trading an average of 30 million shares and now it’s blasted higher to over 200 million shares each week, indicating we should see some type of reversal soon. This prolonged steep sell-off is starting to show signs of a bottom. The downward trend line has been tested as prices are starting to slow the speed of decline. Also the MACD is getting close to crossing over as the downward momentum is slowing.

Crude Oil Weekly Trading Chart



The Trading Time Frame – Crude Oil Daily Chart Explained

The daily chart of crude oil is what most traders use and it is also what I focus on for generating entry and exit points. A couple of weeks ago, I mentioned we needed oil to break higher above our down trend line and then correct (sell back down) to lower our risk, as we will be able to draw a support trend line once oil reverses and generates a reversal candle.

This daily oil chart shows us that oil is starting to find more buyers, as we had a nice bounce in price 2 weeks ago and heavy volume also shows interest is climbing. The MACD (momentum) has been on an up-trend for a couple of months indicating that we should see a shift in trend soon. And to top that off, stochastic has bottomed and started to head higher, which is bullish for the short term. Oil can also be traded using the leveraged exchange traded funds (ETF) DXO and DTO, if you want more bang for your buck.

Crude Oil (USO Fund) Daily Trading Chart



Crude Oil Conclusion:

Oil continues to be in a strong down trend and waiting for a low risk entry point is crucial. Picking bottoms or chasing rallies just doesn’t perform well over the long run. Following a basket of ETF’s like USO, DXO, DTO, XLE, GLD, DGP, GDX, XGD.TO and more, allows me to catch moves within the gold and oil sector. My strategy is conservative and I do miss a number of good trades, because I need risk to be under 3% before I jump. Generally within the basket of ETF’s I follow, I will get one or two signals when the market reverses or bounces off support. And that is the fund where I put my money. I prefer to trade GLD and USO, but if GDX gives a signal I trade it when the time is right. Quality trades are what I focus on finding/waiting for and I avoid a ton of high risk losing trades, which are the silent killers. One high-risk trade losing 7%+ will cripple your profits for the year quickly. I continue to wait for an entry point, which could be just around the corner if things work out.



Frances

non_stopangel asked:


I was just wondering because every time there are huge price increases in overseas crude oil (the raw material our domestic oil companies use to make most of their gas and other products.) The oil companies always report increased profits, usually record profit increases. Is there any other industry that anyone can think of that has record profits whenever their raw material prices increase. That seems a little unreasonable to me if they are pricing their products fairly. Or am I wrong?

Brenda

Peter Jones asked:


There seems to be a surplus of crude oil at the moment. For all of OPEC’s calls for production cuts there is precious little evidence that these calls will translate into serious action.

Most of the nation states outside of the Middle East, and many of those within it, desperately need the revenue flows to balance Public Sector books.

In the recent past, action from local administrators in countries like Venezuela and Russia has meant that there is almost no outside financial help to be had when times get tough.

If dealers drive oil even lower, and it remains there, then the consequences could be quite severe.

Economists make much of the fact that the emerging markets will take up any slack in western demand. However with fuel efficiencies getting ever greater the increased demand from economic growth must be considerable just to keep up with reducing requirements.

It looks to many investors that the price will continue to go down. If so, those spread betting on Crude Oil to decrease further will be the ones profiting from the fall.

Of course, if there is a concerted effort to decrease supply then the risk of a price bounce or permanent return to higher levels could catch out the speculators.

OPEC recently inspired such a rally when it announced a production cut. However that rally was both muted and short lived.

Whilst many fear the cartel and its potential power, the world has seen past evidence of poor attempts by OPEC to rein in production. According to Financial Spreads it looks like the traders see no reason to expect that this time will be any different. If the price remains at the current levels for some time the temptation to ‘pump just a little more’ will become extreme as State coffers begin to dwindle.

Crude Oil is now around the $50 mark but there does appear to be some support at just below this price. Especially if the OPEC partners can actually implement the output cuts rather than just agree to them.

Easier said than done. And the failure of any such implementation is what many of the speculators are really betting on.

Countries such as Venezuela and Russia are massively exposed to a falling oil price. Their economies are geared to the higher revenue flows. Sustained periods below $60 might make for political upheaval with extreme shifts to the left or right possible.

Personally, I have to say that on current output levels, $60-$80 would appear to be the stable level. However that is vulnerable to wild swings as momentum and fear drives prices to extremes.

Mexico recently announced that they had hedged $1.5bn worth of oil at $75-$100 per barrel to protect themselves from falls. Whether other countries have hedged to similar levels remains to be seen.

Other nations have built spending plans on the price of oil staying above $80. Going forward, one expects plenty of posturing and talk of restricting supply to force up the price.

Unfortunately for the Oil producing nations none of them really trust each other when it comes to production levels.

The talk of consensus will always go hand-in-hand with the suspicion that one or more of them is exporting out the ‘back door’ ie gaining the higher prices without suffering the lower output income.

Time for a short term bet on the prices to fall further?

Spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.



Gerald

Andy Adams asked:


For the majority of 2008 we have had many price hikes imposed on us from gas and electricity to flight costs. Flights have long been a popular expense with many cheap flights companies cropping up from nowhere in the early 2000’s and now with many of these companies going bust or having to place large price mark ups it’s had a significant effect on the numbers of people going away this year.

The reason for the prices being so high was down to the price of natural oil going up early in 2008 and this meant that a wide range of oil by-products shot up to cover this cost increase. Most notably petrol and fuel for vehicles had increased to unprecedented levels and sparked outrage as many people tried to cut back on using their cars.

The flights companies were the hardest hit though as they are probably the highest consumers of fuel for each and every plane and flight costing thousands in aircraft fuel. Many people were faced with additional charges when they got to the airport and definitely left a sour taste in the mouths of British travellers with some refusing to pay and duly being refused to fly.

Now, as any British motorist will tell you, the cost of oil has dropped and prices for fuel have dropped considerably and many have wondered why the ramped up fuel costs for flights haven’t changed. That is up until now as British Airways has pledged to knock off a third of the fuel surcharges that have become synonymous with the airlines as of late. This means for most flights this means roughly £35 per flight will be discounted.

Since MPs and consumer groups have complained about the still present charges and now BA as well as Virgin Atlantic has cut their charges for most flights. Despite this welcome news many families will still be feeling the pinch as hundreds of pounds will still be added to the cost of their holidays. A family of four taking flights to New York could be spending an extra £500 on top of the cost of their flights and in many cases the surcharges can account for half of the total cost of the flight.

The drop in surcharges is certainly a step in the right direction but many travellers have been warned that for now the past few years where we have enjoyed cheap flights to anywhere we please may be over for a long time to come. Timing your holiday right is probably the best way to reduce costs with many last minute deals and out of season trips being the trips that get the most favourable discounts.



Virginia

Joe asked:


By Jason Simpkins

Associate Editor

Money Morning

Speculation that oil prices are beginning to bottom helped push crude contracts higher yesterday (Wednesday), as traders closed out short positions and rumors surfaced that both Russia and the Organization of Petroleum Exporting Countries (OPEC) are planning to cut production next week.

Light, sweet crude for January delivery rose $1.45, or 3.4% to settle at $43.52 on the New York Mercantile Exchange, after climbing by as much as 7% earlier in the day. Futures have plunged roughly 70% since hitting a record-high $147.27 a barrel in July. However, they may be set for a rebound as traders close out short positions and production cuts offset slackening demand.

Traders who took short positions on crude contracts, or placed bets that prices would fall, are buying contracts to cover those bets now that oil has dropped more than 20% in the past two weeks. Their exit from the market has been expedited by the belief that prices are nearing a bottom, as well as suggestions that both OPEC and Russia will cut production next week.

Russia will air proposals on oil production cuts no later than December 17, Sergei Shmatko, the nation’s energy minister, told Interfax.

“Right now we need to see where we stand with respect to OPEC’s stated position,” Shmatko said. “I know that OPEC is preparing serious plans to cut production.”

Shmatko added that OPEC President and Algerian Oil Minister, Chekib Khelil was keen “to see Russia in OPEC,” but that Russia rather see “non-OPEC suppliers consolidate their position in order to keep the market stable.”

OPEC members are scheduled to meet in Algeria on Dec. 17 to discuss further production cuts. Oil has fallen more than 30% since the cartel last slashed its production quota, a 1.5 million barrel per day (bpd) reduction on Oct. 24. Analysts anticipate the OPEC that the next supply cut could be anywhere between 1.5 million bpd and 2.5 million bpd.

“The expectation of an OPEC cut is going some way toward curbing the downward momentum in prices,” Toby Hassall, an analyst at investment firm Commodity Warrants Australia, told The Associated Press. “A cut of 1.5 million to 2 million barrels a day seems like a reasonable range.”

Demand for oil has plunged over the past six months, with the onset of what is shaping up to be a severe global downturn. In its last monthly oil outlook, issued Nov. 17, OPEC trimmed its 2009 demand forecast by 530,000 to 86.68 million bpd. The Paris-based International Energy Agency is expected announce a cut to its 2009 forecast in its monthly report, set for release tomorrow.

Still, many analysts believe the market has “overshot” the downside to oil, and that further production cuts will be enough to create a floor for prices.

“We’re probably in the early stages of forming a base at the moment, and the price will likely edge up toward $60 or $70 by the middle of next year,” Hassall said. “We probably overshot on the downside the same way we overshot to the upside earlier this year.”

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Alicia

Money Morning asked:


By Keith Fitz-Gerald

Investment Director

Money Morning/The Money Map Report

Many of my neighbors here in Oregon are enjoying the big decline in gasoline prices, particularly those who still own SUVs, pickup trucks or any of the other fire-breathing, piston-clanking monstrosities I’ve seen on the road recently.

And no wonder. Gasoline prices in our neck of the woods have fallen between 60% and 70% since July, when oil closed at a peak price of $145.29 a barrel. Here in Oregon, that means that my wife and I don’t feel like we’ve been mugged every time we fill up.

But what happens when the prices start going up again? Global demand for oil will fall this year for the first time since 1983 as the world financial crisis saps demand, the International Energy Agency said a week ago. That has some people believing that prices will remain low.

But I wouldn’t bet on it – at least not for long.

The Organization of Petroleum Exporting Countries (OPEC) is making loud noises that it wants to see $75 a barrel again soon, which would represent a 70% increase from the $43.60 a barrel where oil closed yesterday (Tuesday). OPEC, supplier of more than 40% of the world’s oil, is ready to make a “big” cut in supplies when it meets in Oran, Algeria, today (Wednesday), Venezuelan Oil Minister Rafael Ramirez told journalists.

How much of a production cut we’ll see is anybody’s guess, depending on who does the cutting and who actually abides by the agreement over time. But we’ll know very shortly.

Russia recently announced, after years of going it alone, that it wants to actually join OPEC. Now OPEC has asked Russia to cut oil output by between 200,000 and 300,000 barrels a day to help revive prices, OAO Lukoil Chief Executive Officer Vagit Alekperov said in Moscow on Monday. And Russia may well do just that.

A price of $60 to $80 a barrel would be consistent with a global production cut of about 2.5 million barrels, and that’s a figure apparently supported by OPEC representatives we spoke to. Leonid Fedun, OAO Lukoil’s deputy chief executive officer, noted in a recent Bloomberg News report that “there is a consensus [among members] to reduce production.”

This highlights something that’s often missed in the Western media, where the price of oil is typically associated with the price of gasoline and how that price impacts driving habits. According to CNN, MSNBC and a whole host of others, evidently that’s what matters to us.

But in OPEC-producing countries, it’s a different story. There the price of oil is more typically associated with external trade relationships and hard currency requirements that are policy level decisions often made at the expense of individual concerns. And I don’t have to remind you that most OPEC member countries don’t exactly specialize in freedom of choice, so the odds are high that what the energy ministers want, the energy ministers will get … but that’s a story for another time.

Here’s one other point to consider: With all the media’s focus on OPEC, there’s been little mention of China, India and the whole host of emerging markets that are still experiencing double-digit growth in oil demand. That’s not going away.

The bottom line here is that it would behoove interested investors (and people who like to drive less fuel efficient cars) to hedge any potential future rise in gasoline prices sooner rather than later. Here’s one quick and dirty way to do it.

If you drive 20,000 miles a year and your car gets 30 miles to the gallon at a time when fuel costs $1.75 a gallon, you are looking at an annual fuel bill of $1,166.67. If OPEC gets its wish and oil rises by 70%, gas prices may rise in tandem. Therefore, buying the equivalent share value of your projected annual fuel expenditure in such exchange-traded funds (ETFs) as the United States Oil Fund LP (USO), the iPath S&P GSCI Crude Oil Total Return Fund (OIL) or the United States Gasoline Fund LP (UGA) could be just the ticket.

As prices rise, so, too, will the value of your investments. If prices fall further, you’ll obviously lose money, but you’ll be paying less at the pump at the same time.

Granted, what I am proposing is not a perfect hedge. Among other things, there are potential capital gains to contend with when you sell 12 months from now – taxes, transaction costs and a whole host of other variables that could come into play. At the same time, you could simply alter your driving habits, which, of course, would change the value of your calculations midstream.

None of that really is material, though. Hedges are never perfect.

But they do offer you a chance of “being in the neighborhood” when it comes to protecting your wallet from what could be vastly higher oil prices to come.

[Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is on a mission to reduce his household energy consumption by 25% through conservation - without altering or compromising his family’s lifestyle. This is the seventh installment in a periodic series in which he updates us on his progress.]

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Mildred