Morgan Stanley: Oil prices may crash

[HenryTo]

Highly recommended article. Andy Xie from Morgan Stanley is an analyst I have followed and is one that I respect:

http://money.cnn.com/2005/06/16/news/international/outlook_morganstanley.reut/index.htm

The two commodities that have been confounding me have been crude oil and copper. The latter not so much because of declining inventory levels. However, crude oil inventory levels have been exceeding its high end of the last five-year range consistently over the last few months, and still oil prices continued to climb: http://tonto.eia.doe.gov/oog/info/twip/twip.asp

This is totally unprecedented. Sure, we have a lack of excess capacity - but we still have excess capacity. And the U.S. SPR is due to be filled to its limits by early August of this year. This will free up 75,000 barrels per day in supply. More important, we will finally have the full capacity (750 million barrels of oil) of the SPR at our disposal should a supply disruption occur in the Middle East, Nigeria, or Venezuela, etc.

My guess is that just like the long bond, some of the hedge funds who are short oil are being killed - which is fueling the continuing spike in oil as they are forced to cover their short positions. One of these days, we will find out for sure but when that day comes, oil will finally enjoy a substantial correction.

The Market Vane's Bullish Consensus on crude oil also surpassed the 70% level early last week - a level which we have historically seen at least a ST correction in the oil price. The CruDollar Index and the Oil-to-Gold Ratio are also at all-time highs. Caution should be exercised in the oil markets and oil stocks going forward.

[Dubious]

I believe the new store house of wealth is crude.

Bad news and oil spikes and precious metals stay flat.

A recent example of this is when the White House was evacuated.

Oil went up and pms just stayed there.

[nodoodahs]

Your May 1 commentary:
sell all commodities and commodity stocks, including oil stocks. I believe they have now topped out in the intermediate term (for the next couple of years).

Your Jun 20 commentary:
Bottom line: My personal opinion is that anyone investing in oil or oil stocks at this point has most probably come too late to the party ... At this point, I still believe commodity prices will continue to weaken – with the latest bounce being just that – a mere bounce.

I picked up CVX as a "value" purchase on 4/20 at 53.58. Since then I've gotten a 0.45 dividend and intraday it's 58.66. Looking at 10.3% in less than a quarter. Planning on holding. With a 3.08% yield and chance of appreciation I like it. Posted as much a month or so ago and heard crickets chirping.

I think commodities and commodity stock prices will be "stickier" than most believe. I don't see copper and steel behaving quite the way the market believed they would a month-and-a-half ago ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Dubious]

Funny how this stuff comes out near the end of the quarter.

Last quarter it was Goldman saying 100 crude.

Hmmm. Get a little trading going for fees, perhaps?

With all these new homes being built and the populations of China and India moving to cities - I am need seeing a slowing in demand for oil world wide. Just look at the sells of bicycles in China falling through the floor yet they still need transportation.