Recapping My Great Calls on Oil

by: Phillip Lyon August 17, 2008 | about stocks: DBO / OIL / USO    

Phillip Lyon

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I have written quite a few articles about the speculation in oil over the last few months and I want to revisit some of those articles because I have been proven correct.

First, there can no longer be a debate about whether the excessive rise in oil futures was due to speculation or supply and demand fundamentals. It was obviously due to speculation. In fact, the last thing oil was trading on during its run was supply and demand.

Oil was trading based on the falling dollar, potential supply disruptions in Nigeria and Iran, and self-serving bullish calls (actually flat our pumping) from Morgan Stanley and Goldman Sachs (their hedge funds were long oil). When oil was making its run towards $150 traders were completely ignoring supply and demand fundamentals because demand destruction had been evident for a few months.

In fact, the peak in the price of oil corresponded to sheer speculation. There was a rumor that was floating around that Israel was going to attack Iran on July 4th. I wouldn’t be surprised if Morgan Stanley started this rumor considering they made the call for $150 by July 4th. In any case this event did not happen and the price of oil started to collapse almost immediately afterwards.

Another reason for the rise in oil was the hoarding of oil by China due to the Olympics. They had been hoarding oil to run electric generators to cut down on some of their pollution. This was never mentioned, however, when traders continued to pump oil due to what they said was strong Chinese demand.

In any case, I think the debate about speculation vs. fundamentals has been put to rest and the talking heads who completely disregarded speculation look pretty foolish now.

I also want to point out that I was very close to calling the top in oil. I wrote that oil was close to a peak on May 27. At the time oil prognosticators were still pumping oil and very few people were calling for oil to go down. However, oil did peak just a little over a month later.

I also mentioned in that same article and in previous posts that when oil did start to collapse that you should buy airlines. If you would have followed this trade and bought airlines at their lows you would have a huge gain. In fact, America Airlines, which was briefly a stock recommendation, has almost tripled from its low.

I just wanted to point out some of the great calls that I have been making that will not show up under my “stock performance”.

Disclaimer: I have no position in oil futures or any of the companies mentioned.

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This article has 17 comments:

  •  
    Aug 17 04:19 PM
    Your second paragraph proves that you understand nothing about financial markets. All price movements are speculative. That's why they say that the market is FORWARD LOOKING.
    Reply | Link to Comment
  •  
    Aug 17 05:33 PM
    Interesting view at last,where do you think Oil/Gas is heading in the next 1.2 weeks as I day trade Nat Gas/Crude Oil futures and have options on it.
    Maybe your opinion can show me something I have been missing (20% up from last 2 weeks buying/selling Crude,Gas).Just throw here some numbers,don't be afraid.I really like you.

    Mark Medes
    Reply | Link to Comment
  •  
    Aug 17 05:53 PM
    All of us are right some of the time but look back at this article in two years (or less) and if your words don't humble you then you really should stock up on lip stick because you just love yourself to much...
    Reply | Link to Comment
  •  
    Aug 17 06:08 PM
    Interesting disclosure. If you think you are so smart about oil prices why don't you have any money on it? It is easy to make lots of predictions and be right some of the time, but if you don't put money on it how do you keep score?
    Reply | Link to Comment
  •  
    Aug 17 07:22 PM
    Wow you have called a top in a market in less than a month of declines. Pure speculation huh? You really think you are much smarter than you are. This market is much smarter than you.
    Reply | Link to Comment
  •  
    Aug 17 08:03 PM
    You are right Lyon. Supply and demand mean nothing during a bubble. Everything you hear is BS.
    Reply | Link to Comment
  •  
    Aug 17 09:18 PM
    Amazing what a genius you are. I'll bet that the last 6 years of this oil bull you were constantly declaring oil was in a bubble. When oil goes to $300/barrel in 2011 and then $500/barrel in 2014 you will still be blowing the bubble horn. I suggest you get educated about why oil is in a very very long term bull - Peak Oil. I certainly hope that you are putting your money where your mouth is.
    Reply | Link to Comment
  •  
    Aug 17 10:11 PM
    You never should own an airline.
    Reply | Link to Comment
  •  
    Aug 18 08:14 AM
    So with one hand you keep patting yourself on the back. What are you doing with the other hand?
    Reply | Link to Comment
  •  
    Aug 18 08:18 AM
    Oil price was not a bubble? You oil bulls keep listening to the talking heads, China, War, Iran, India, hurricanes, etc. Good luck. But the price keeps going down. Current price tells all.
    Reply | Link to Comment
  •  
    Aug 18 08:48 AM
    Speculation?Supply and demand.Fire this guy.
    Reply | Link to Comment
  •  
    Aug 18 08:53 AM
    we knew all along it was speculators & hedgie funds were causing all the pain @ the pump.
    > jack
    Reply | Link to Comment
  •  
    Aug 18 10:38 AM
    Yes buy airlines, ford and GM...... Great deals in a world of declining energy supplies, lack of spending money on the part of the consumer, and total lack of any response to a changing auto market by GM. One of the big three automakers will be bankrupt in five years. The airlines can only go one way. And it is not up.
    Reply | Link to Comment
  •  
    Aug 18 10:42 AM
    well people are tired of the dark age fossil fuel, too much of a headache and too polluting, they preferr new age technology like electrical or hydrogen-water, at least to drive a car to work.
    Reply | Link to Comment
  •  
    Aug 18 04:54 PM
    Peak oil... More of that?

    I really like the $500 ppb 2014 schtick...

    lol...
    Reply | Link to Comment
  •  
    Aug 18 10:21 PM
    I also thought that oil prices were excessive at $130/barrel and loaded up on DUG. I cannot justify my decision based upon investment "logic", but I don't have to since I answer now only to myself for my investment decisions. However, I am repulsed by your statement that "There can no longer be a debate about whether the excessive rise in oil futures was due to speculation or supply and demand fundamentals..." You sound like Al Gore and his position on global warming..."
    Reply | Link to Comment
  •  
    Aug 26 08:57 AM
    Ok, lets see, what will todays oil bulls put out, hijacking of oil tanker, hurricane danger, pipeline disruption, Israel fly over in Iraq? If you believe these daily concoctions then you accept the fact that oil is/was trading on rumors not market numbers. If you think they were concoctions meant to pump the price in time for settlement, then there is no arguement. Oil speculation simply means that price momentum is disconnected from reality and driven by cynical price manipulating forces more or less artificial in nature. Peak oil is a reality of course, but has little to do with futures contracts two or six months from now. It's fair to say that commercial space flight is a reality, but no one is buying space suits just yet. It's a tad early to corner that market.
    Reply | Link to Comment
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