$120 oil by the end of the year is the most popular Comex bet
Posted on 26 July 2011 with 1 comment from readers
In the trading pits of the Comex the most popular trade among investors and hedge fund managers is currently that oil will reach $120-a-barrel by the end of 2011, up from almost $100 for WTI crude today.
Oil prices are rising this week mainly because of President Obama’s battle to raise the US debt ceiling above $14.3 billion to prevent a US default by August 2nd. The dollar is weakening and oil rising in response.
Dollar weakness
However, this could also be the story for the rest of the year. Indeed, you have to wonder why raising the US debt ceiling should be seen as a victory.
A country that is printing money to stay afloat does not by definition have sound money. Why would anybody stay invested in that currency? And as that currency devalues so the price of commodities priced in it will rise.
Bring on $120 oil by the end of the year then. It sounds a very solid trade unless you think the US is going to vote for some more concrete action to start bringing down its debt, although a short-term dollar rally due to a stock market correction is also likely.
There is no realistic prospect of any action to lower the debt or deficit, quite the opposite. The national misperception is that all President Obama has to do is raise the debt ceiling and it is back to business as usual, presumably a rising stock market and flat economy and high inflation.
Should investors in such a market take flight and move their money to other regions of the world? Should they at least diversify some of their risk away from a crumbling currency?
That is the theme of the Agora Financial conference in Vancouver that opens today. It will be interesting to take the pulse of this group of senior individual investors and get to know what they are thinking.
Opportunity UAE
For ArabianMoney’s part we are here to promote the UAE as a logical place for portfolio diversification away from the failing US, Japanese and eurozone economies.
How can one of the world’s major oil producers not deliver above average performance in an environment where oil prices are climbing, especially when its asset prices are at a historic low right now?
The Arab Spring of revolts has not touched the UAE, except to bring a boom in tourism and a capital inflow from the region. There is a major investment opportunity here, but nobody seems to want to see it.
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1 Comment posted by readers:
Hoffmeister, retired head of Shell, predicted on TV an oil price of $150 a barrel by Christmas 2012. He claimed that gasoline in the USA would average $5 a gallon by then.
There seems to be more speculation about the debt ceiling date of August 2 not being a big deal. Many are saying, correctly, that the USA will still easily be able to make debt payments and send out Social Security, Medicare checks, and pay the troops. That would be about it. Most of the rest of the vast Federal Government would be forced to shut down. I think you can bet on a recession should such a shutdown last more than 4 weeks. The housing market will get interesting, as another half-million(?) loans go into default due to a missed payment. Or is missing a home payment on time, no longer a big deal these days?
If no deal is reached, the last hour of trading in New York on Monday, August 1, might be interesting. I’m still hoping to be able to buy Chevron at $30. The Big Oils must come back up, unless we have a revolution and commies end up running the Country. That would be my luck.