Archive for the ‘Oil’ Category

There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

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For some reason, I thought shale was invincible… that is, a technology-enabled, found source of additional oil for many decades into the future.

But I just read a ZeroHedge piece — The Shale ‘Miracle’ & The Reality-Optional World Of Bizarro Finance — and apparently shale isn’t going to be the grand savior after all.

The two original big shale plays, the Bakken in North Dakota and the Eagle Ford in south Texas, have now apparently peaked and the baton has passed to the Permian Basin in west Texas. If the first two bonanzas were characteristic of shale, we can look forward not very far into the future when the Permian also craps out. There are only so many “sweet spots” in these plays.

The unfortunate part of the story is that the shale oil miracle only made this country more delusional at a moment in history when we really can’t afford to believe in fairy tales.

Let’s not give up on renewables quite yet!

 

I kinda grew up with Ron Insana, back when he was a news anchor with FNN (Financial News Network)… that eventually become CNBC.  My wife (girlfriend at the time) often remarked that he was our morning alarm clock.

He wrote an editorial today about Trump and pollution and the Paris Treaty that I think is spot on.

It’s short and worth reading, but there’s one point he makes that I often use myself:

Ron said it like this:

I am not a “tree hugger.” I don’t have the necessary scientific background to claim expertise in this area. I don’t know if the changes we are seeing are the result of natural cycles that occur in geologic time, or if they are governed by solar cycles, or are, as many worry, anthropogenic (caused by humans).

To me, it doesn’t really matter. It seems obvious that whatever the reason, we, as humans, should act responsibly when it comes to the care and cleaning of our habitat.

Bravo, Ron.

I like to say it like this:  I don’t care if global warming is real or not… who the hell wants to live in smog-infested cities like LA and Beijing?

It scares me that OPEC is so quiet.

OPEC countries usually love to grab the spotlight during big meetings (and the media loves to shine the spotlight on anyone that looks anywhere close to being an oil minister!).

That’s not happening for the big confab tomorrow, though… where everyone universally believes OPEC will extend their production cuts.  After all, the leading OPEC members said as much in a press conference on Monday.

Quiet is a bad sign… as is the Middle East unanimously agreeing on anything.

Could there be some hugely negative surprise tomorrow?

There have been little chirps here and there about Iran (the #2 player in OPEC) not wanting production cuts to apply to them…

… but nothing disruptive.  Indeed, everything seems civilized… which is a word not many would associate with the players involved.

Unbelievably, I think there’s a really good reason why OPEC may be in agreement:  The production cuts seem to be working.

Crude oil is trading about 15% higher than before the production agreement was announced last Nov.  Maybe more significantly, it dramatically changed the trend line.  Before the announcement oil was spiraling downward, everyone (there’s that “universally” thing again) was sure it would soon be trading in the 30’s.  OPEC’s agreement seemed to single-handedly stop the decline in its tracks…

… and there in lies the major motivation for cooperation:  Oil in the 50’s is a lot better than oil in the 30’s.

Guess we’ll see how it plays out in the next 24 hours or so.

 

OPEC Games?

Posted: May 22, 2017 in Business, Farros, Oil, OPEC, Royal
Tags: , , , ,

To say the oil market is sensitive to news coming out of the Middle East is an understatement.

In November I wrote, “If I Were A Bad (Oil) Guy“… essentially wondering if countries in the Middle East might be jerking oil markets around on purpose to earn a little side money.

Guess we’ll find out this week… there’s another very big meeting on Thursday… and while everything seems quite hunky-dory right now… it will be interesting to see if anyone tries to upset the oil cart this week.

Stay tuned.

P.S.  It’s quite possible that something like this already happened… UWT (which tracks crude oil 3x) was trading just under 23 about a month ago… about two weeks ago it his just above 13.50… that’s a pretty sizable drop in such a short period of time.

UWTI and DWTI are wildly popular 3x ETF’s that track WTI oil.

That means they approximate three times the daily move by WTI oil… and there’s a lot of daily volume so there are no weird trading patterns.

WTI was up about 0.33% today, which means UWTI should have been up about 1% today… and DWTI should have been down about 1%.

But, UWTI was up about 5.5%… while DWTI was down about 5.5%.

That makes no sense.  I’ve tracked these ETFs daily for years and I’ve never seen this.

There are some extracurriculars going on here, most notably it was announced yesterday that Credit Suisse AG is going to shut down the wildly popular UWTI and DWTI ETFs.  I don’t think this affected price because if it did, it would have had an equally negative impact on both.   Instead, both issues had completely mirrored performance today, just as you would expect — only, the mirrored performance was off by almost 6x!

Also, it could have been some kind of rumor out of the “practice” meeting at Doha, but, if that were the case, that would have affected WTI price first, which it did not… WTI was relatively calm today.

I’m trying to figure out whether this is one of those rare times when some kind of inefficiency affected price.  If that’s true, you would expect a snap back rather suddenly on Monday, possibly an interesting trading opportunity.  Problem with that thinking is these ETFs trade in such high volume, that kind of inefficiency is almost impossible.

This one certainly has me scratching my head.

The great historical fiction writer Leon Uris characterized in The Haj how difficult it was to negotiate with the Middle East… I roughly remember the language he used:  “Do you know how hard it is to negotiate with horse-traders that have been negotiating for 1,500 years?”

That’s not a direct quote… just something I read a long time ago that made an impression on me.

It’s also what I’ve observed when it comes to the Middle East.

Sometimes I wonder — since oil is incredibly sensitive to any comments coming out of Saudi Arabia — and since the Saudis clearly have a cash flow problem these days — whether they’re speculating on the side.

In my experience, almost all professions do it… it’s said that an honest bartender only steals 10% of the evening’s take… and that’s why we have insider trading laws and regulators.

I can only imagine how ineffective any kind of laws and/or regulators are in an area of the world as wild, wild west as the Middle East.

If I was a bad oil guy and wanted to make a chunk of cash speculating in oil in the next few weeks, I would have a “practice” meeting and leak that it was an utter failure.  That would send oil plummeting.  Then, miraculously, at the final meeting, I would triumphantly declare success, grabbing victory straight from the jaws of defeat… and, of course, sending oil soaring.

Even though people would eventually unravel the terms of the deal and find that it was mostly hype over substance…

… as a bad oil guy, short term I would still win on both ends of that horse trade.

Just sayin’.

(Note:  The “practice” meeting is in Doha, Qatar tomorrow… and the final meeting in Vienna, Austria on Nov 30th.  Stayed tuned.)

NOV 30 UPDATE:  Well, the timing was a bit off… they mostly waited to about a week before the meeting… but, yes, oil, which had a dramatic move downward in the last few days, is now soaring this morning on the heels of a (still unconfirmed) deal… so there may be bad oil guys in OPEC after all.  Go figure.

The setup:  Since last Friday, it seemed like a deal was completely and utterly dead.  First, it was announced the Saudis would not attend the preliminary Monday session, which was viewed as being a negative sign that the Saudis were putting their feet in the ground, including horrible “R” word rumors:  That they may be reneging on prior agreements.  

Then came the slew of press releases stating things like, “the Saudis can go pound sand, we’re not cutting!”… and “we think a freeze right now is the same thing as a cut in 2017″… and such.  

Over the weekend the head Saudi oil minister was even quoted as saying, “oil is rebalancing, anyhow, so if there’s not an agreement, everything will still be fine.”

Then came the last 24 hours where things appeared to be so bad, the Saudi oil minister even resorted to “sneaking in a side door” to avoid having to face the press and other countries.  Understand there is a lot of pomp and showing of strength (i.e., “mine’s bigger”) at these meetings so not making a formal entrance was also considered very negative.

Magically, though, an agreement — even bigger than what was expected — emerged this morning.  And now oil is soaring.

Imagine that.