What are the signs that indicate a peak in the oil market? I was speaking to friend, who is an experienced metallurgist-he claims that the copper market peaked this week, and steel is about to peak. Can a market top be determined by the ratio of puts to calls? My friend thinks that traders will be overwhelmed as new oil supplies rush to market-therefore , he expects a big drop (possibly to $85/barrel) by October.
Any thoughts on this?
If your friend is able to predict with any accuracy when a commodity market will peak, he should be a billionaire. Ask him why he isn’t one.
I believe that resistance barriers (up or down) can be estimated based on technical analysis. I don’t think that it would reliably predict any longterm peak in prices (if there even is one).
I think that no one knows for sure. There are certainly several sources out there (Goldman Sachs, T. Boone Pickens) that still see further price increases.
It is interesting to note that commercial banks are not lending to E&P companies based on an assumption of $135 oil (or any where close to it). Tristone Capital provides a quarterly survery showing what banks lend on and the average price for 2008 is $67.15/bbl. I cannot find a link for this right now, but I know they publicly release the survey. It should be noted that banks would obviously be conservative, but there is usually not that large of a disconnect in the what a bank will lend on and the current strip.
In summary, I think nobody knows. Right now you can buy a put (5/08-12/08) at around $95/bbl for $1.00. I’m not sure what you can sell a call at for a $1.00.
Just read an article which I will try to dig up a link for, that was a survey of oil execs by KPMG. The majority were thinking the current price is out of step with supply/demand due to a large influx of money into the futures market. The feeling was we will see a peak and be back down to 100/bbl by the end of the year.
I am not sure about the puts and calls and market tops, those are for options rather than futures contracts. Does the ratio of puts and calls indicate a price top for an equity?
Also I doubt there wil be a rush of oil to the market, rather a drop in demand as the $4/gal gasoline bites into the consumption in the OECD countries.
In terms of actual oil production it already has peaked.
And another article from the same web site, released just yesterday.
Just remember that “peak oil” is a loaded term, and the players in the game all have a vested interest in how it is defined and how it is interpreted.
Duckster, I think your talking about something different then the OP.
<<Must remind self never to have open two Firefox tabs with two related threads.>> :smack: :smack:
Traditionally, market forces determine the price, but oil is a political commodity. Prices may drop only when political forces decide to drop it.
What caused the severe drop in gas prices that took place in the mid-to-late 80’s? I remember gas being as low as $.69 a gallon in some places (where it had been in the upper $1.20’s a few months before).