Monday Sept 9 2013
While the gold bugs are busy arguing over whether THE BOTTOM is in, I think a more compelling opportunity lies ahead. Consider this check list.
All industry participants are uniformly, wildly bullish, Check.
A feverish response to the latest boom has resulted in upstart versions of the traditional shanty towns. Now they are called man camps, often featuring mobile home and RV hookups. This is a result of a shortage of housing in the boom area. Check
Traditional players are betting big on the boom. Industry stalwarts are presently constructing what will be some of their largest facilities on the planet in these areas. Check
The Skyscraper Theory is very much in vogue with new higher than ever structures planned where nothing like this has ever been built before, my conversations with developers are that well Dennis we checked the experts and this time it really is different. Check
The last instance consists of Calgary Alberta declared a hotter office market than Houston with new structures planned. A 52 story building begins construction in Midland Tx where the tallest in town now stands at 20 stories.
I am of course referring to the new oil boom form North Dakota to the Permian Basin to the Eagle Ford south of San Antonio. The fuel for most booms, the Gold Rushes for example, is the idea that a formerly scarce and still scarce resource can be readily mined. Butch and Sundance fled to Bolivia to participate in the Tin Mine Rush. The Comstock Lode silver discovery led to riches for William Randolph Hearst dad. Loans from his Mother financed acquisition of his newspaper in New York.
But the heart of all these stories is the former lack of supply, Indeed the driving force of the 1970s oil boom was one one but two oil embargoes. The thinking was that OPEC controlled the supply, therefore price would attain a new permanent high. Yet the new permanent high occurred a mere 18 months after the second embargo.
This time unlike the 1970s, there is no oil shortage. Indeed, there is more oil than ever. The vault over $100, and then $108 has led industry insiders to assume this is a new permanent consequence. But oil has a scant 20 months over the price of $100 in modern recorded history, hardly the making of a new permanent high price.
Yes, the Arab Spring, Syria, Libya crises have propped up the oil price. But as the industry works around the lack of a Keystone XL pipeline, even more crude is rushed to refineries. And no matter what happens in the mid East, whoever wins needs all the oil income they can get as the mid East produces nothing else of any commercial value.
All of which is setting up the potential for a new high.
The price is beginning to assume a sharper and sharper rise, ie a parabolic. This is typical of what happens before a top in a 'hot maret.' And we have the checklist I presented at the start of this post.
Nex year the widened Panama Canal will be a reality meaning hat even more crude can be shipped, increasing the ready supply everywhere.
The similarity to the price action of 2007-2008 is rather amazing. In 2007, oil made a new high, then pulled back for several months, and then took off on a tear to new all time highs. The underlying blue lines then and now suggest a similar pattern now as then. This bears watching. Recall that social mood is always the strongest at the END of a move. Indeed the last $40 of the move in 2007-2008, which would be 40% of the entire move from $12 in 1998, occurred in a mere three to four months.
With civil wars raging across North Africa to the Mid East, we have a perfect set up for a repeat performance.
We remain fixated on a potential top in oil prices for February 2014.
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