Oil: What You Need to Know

From Hypothetical Oil Bubble Hypothetically Could Burst:

The [Barron's] author stresses the impossibility of predicting anything with total accuracy (of course this is true, but investors, unlike journalists, must risk such predictions) before returning to the "ifs" and adding the nutty notion that even under ideal circumstances, oil will only fall to $100:

"But it's impossible to know with precision when the bubble will burst. The Saudis could roil the markets with a pronouncement June 22; the dollar could revive or demand could plummet, or all three. And if prices start falling, the downturn could accelerate, sending crude back to $100 -- where it would be cheaper, but still far from cheap."

The article mentions how airlines and retailers might benefit if an oil bubble pops. And it points to oil companies like Devon Energy (DVN Quote), Apache (APA Quote) and XTO Energy (XTO Quote) that can get hit badly, while larger ones like ExxonMobil, Chevron and ConocoPhillips might fare better. Are they saying that if oil plummets, airlines and retailers will do well?!? That's crazy talk!

And the specific breakdown is, again, way too hedged. How small oil companies would get creamed and larger ones fare better I don't know. It seems that if all those "ifs" happen, all the oils will get creamed.

Read the full the article.

Plus, don't miss these oil-focused "Business Press Maven" videos on TheStreet.com TV: They Just Don't Get Oil! (Jul. 7: Marek Fuchs marvels at the obvious error The Wall Street Journal made in predicting $200 oil.), They Just Don't Get Oil! (Jun. 23: Fuchs cleans up Barron's tragic oil spill.), They Just Don't Get Oil! (May 21: Fuchs slaps his knee in laughter at a Business Week headline about oil prices.) and They Just Don't Get Oil! (May 13: Fuchs bemoans the fact that the business media ascribes 1,423 reasons to May 12's blip in oil prices.).

From How Oil and Water Futures Affect Ag Stocks:

There is a clear connection between water, grain, animal protein and oil. Irrigation of farm land is far and away the biggest use of water (at about 70%). Food production is also very energy intensive. Agriculture accounts for a full sixth of U.S. energy consumption.

Between 1945 and 1994, the U.S. crop yield grew three-fold, but the energy input grew four-fold. The trend has reached the point of diminishing returns. Oil itself has become more energy intensive. In the 1940s, it took about one barrel of oil to get 100 barrels. Now that ratio is closer to 1 to 10.

At current production rates and given the current level of technology, some oil producers are projected to run out of oil in the next 10 to 15 years. Many countries are going to face severe water shortages. There are some pundits who suggest that the next wars are more likely to be over water than oil.

Read the full article.

From The Money's in Oil Refineries (Video):

Dan Dicker says regulatory involvement is bringing oil down, but it's still a long-term bull story.

Dicker: "There's clearly going to be -- again -- an enormous desire to have exposure in the oil markets... I have the refiners on my radar now. I mean I've been suffering with them -- they've had a horrible time in terms of margins, based on high crude oil and low prices of relative products to them. However, now that oil has come off a bit, those margins are restoring themselves very, very quickly and Tesoro (TSO Quote) and Valero -- particularly Tesoro has made a tremendous move."

To watch the video, click the player below:

From Forget Fundamentals When It Comes to Oil:

So here, in no particular order, are the arguments and proofs of "speculative oil."

The Growth Factor

First, the growth of commodities as an asset class is unprecedented. We need no litany of numbers to prove this point. We can merely look at the volume numbers being posted by all the major commodity exchanges over the last few years.

In oil, I will draw upon numbers from my previous trading home, the New York Mercantile Exchange. At the end of 2007, Nymex reported average daily volumes of 1.485 contracts per day, an increase of 25% over 2006. So far in 2008, growth has continued at an astronomical pace: January volumes increased 6% over the same period in 2007, February was up 28% and March increased an astounding 62%.

We don't need to be geniuses to recognize where most of this growth is coming from. It's not new commercial interests looking to hedge exposure to the ramping oil markets. Whether from managed futures, algorithmic programs, hedge funds or individual traders who are widening their repertoire from just stocks, it all represents an enormous increase in flow of speculative trade.

Read the full article.

Need Oil Exposure? Don't Know Where to Start?

In "How to Outperform the Market and Manage Risk With ETFs," Scott Rothbort writes that you can use an industry-specific exchange-traded fund (ETF) as a "placeholder" as you do the necessary homework on individual stocks. The U.S. Oil Fund (USO Quote)(USO Quote) and Oil Services HOLDRs (OIH Quote) are two oil-focused ETFs.

To stay up to date on oil, visit the TheStreet.com's Energy/Commodities section.