Have oil stocks exhausted their run - forex trading automated system

Have oil stocks exhausted their run ~ forex trading automated system

Floyd Norris, the chief financial correspondent of The New York Times, suggested in his blog today that we are looking at "The Beginning of the End for High Oil Prices". What is the basis of his optimism? He argued that oil stocks have been lagging oil prices lately, and therefore equity investors must believe that high oil prices are causing demand destruction which will eventually reduce oil prices and oil companies earnings.

I beg to differ.

Look at the long-standing spread relation between an oil stock ETF and an oil commodity ETF, e.g. XLE vs USO, which I have been commenting on and tracking since October 2006. At the moment, this spread is within 1.4 standard deviations of its historical value. See my table here (subscription required). In other words, oil prices and oil stock prices are at approximately their long-time historical average. I would hardly call that suggestive of the beginning of the end.
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Are high oil prices due to hedge fund speculation - andrew forex trading system

Are high oil prices due to hedge fund speculation ~ andrew forex trading system

The economist Paul Krugman advances an interesting argument today in the New York Times against the idea that high oil prices are due to hedge fund speculation.

He believes that speculative buying can lead to persistent high prices (which has been the case for the last few years) only if there is physical hoarding. Yet oil inventory level has been normal for this period.

Indeed, I have been trying to find a mean-reverting strategy to trade oil and oil-related assets for some time now. So far, none have outperformed (even on a risk-adjusted basis) just buy-and-hold energy stocks for the long term!


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