The Trend Is Oil’s and Stocks’ Friend

10/11/2007 12:00 am EST


Peter Way

Founder and CIO, Peter Way Associates

Peter Way, editor of Block Traders' ETF Monitor and Block Traders' Oil & Gold Monitor, says the big money is betting on continued strength in stocks and oil prices.

The media, including investment media, repeatedly worries out loud about the coming financial disaster (their newsworthy appraisal) aggravated by the greed of lenders for profits and of borrowers for a better standard of living-even though the Federal Reserve has now made it clear that it is not about to let a disaster develop.

Perspective is essential to investment success. It is one of the most difficult things to maintain. Those who can gain investment perspective and maintain it are able to get paid handsomely. Deservedly so.

There's plenty of good news for investors, both in the US and worldwide. That's why new commitments to exchange traded funds grew by $15 billion in [recent] weeks, a 155% annual rate of increase. While worry, like the poor, will always be with us, trading on it rarely wins the hand.

Over half of the increased ETF investment, $ 8.25 billion, came in the International and Global sector. That will soon be the biggest group, about to overtake the Broad-Based Index ETFs, which grew by only $ 3.75 billion, or at merely a 95% annual rate.

On the other side of the table, out of 256 covered ETFs, only ten had reductions in their investments, of trivial amounts. Looks like the consensus is that now is a productive time to invest in stocks.

[Meanwhile, we can see what] the big, well-informed, experienced, sophisticated, every-day traders in crude oil really think can happen to crude prices-not just prices for the front month of November 2007, but month by month for the next year, and at six-month intervals to the end of 2009.

The top of those possible [trading] ranges are rarely below the record price set in September on the October 2007 contract at $83.32. Several reach above $85.

On the other end, possible low prices do not get significantly below the September 2007 contract's settlement of $69.47-until we get to December '09, when there is held to be an outside chance that crude might go as low as $62.50 (just as there is an outside chance that between now and November 2008 it might climb as high as $88.80).

But for the next 12 months, don't look for any $2.00 gasoline, and brace yourself for some $3.00+ fill-ups. (That's already the norm in San Diego and some other less-favored places in the US)

The world demand picture is not easing. The difficulty major oil companies have had in trying to maintain proven reserves in proportion to production is not getting any easier. Many think that it is bound to get worse.

The handwriting is on the wall, in letters big enough you have to holler to read 'em, that the majors will need to acquire independent exploration and production (E&P) companies to get their reserves. That movement, already started, will only intensify in coming months and years.

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