Skip to main content

Could oil have finally found its floor?

Well rumors are that Saudi Arabia has suggested that every producer cut production by 5% -- again this is a rumor and nothing may come of it during OPEC's next meet & greet.  Again agreements can be made and they can be broken. On top of everything Iran is back in the oil game, for real, and things there are getting interesting. Gartman -- a loathsome analyst said that we will not see oil at $40 "in his lifetime"  -- well that could be long as it could be short, but again aside from some free publicity I don't see how Gartman can make that call.  18 months ago oil was at $110.  Who would have called oil at $30 then?

Europe keeps on being fun, as is Japan with "no negative interest rates ever" -- at least until this morning.  Banks in Europe keep outperforming (NOT) the sad truth is that Europe is in a slump and the first to be affected are financial institutions.  Looking at charts none of Europe's major bank have reclaimed their market cap of 2007, and the Italians are not doing well at all.  

The bond market has decided that things are tough and pricing has suddenly gone up (despite stocks going higher).  My gut feeling is that the market is primed for QE (insert number here) after the Feds have finally realized that growth in Q4/15 was 2.5%, 1.7%, 1.0% 0.7%; somewhat below their Q4/15 estimates.  Maybe the Feds are now focusing on Q1/16, but it remains that a lot of indicators are negative -- the worse is employment that seems to be slipping and has in the past been a fare barometer of economic heath.

US banks have to be hoping that the oil sector recovers -- America is now a net producer and as such is looking for higher prices.  The banks have lots of loan exposure to the E&P sector and that could be an issue going forward.  Its not a "housing market size" problem but its an issue.  Agains stories of Chapter 11 are running across the market -- some look like BS while other may be real as the borrowers are nearing price levels where even variable costs are no longer covered.

My instinct is that oil prices, if not done, are near their lows.  Unless things in China get worse and America joins Europe in a recession.  Already states such as Texas and Oklahoma are reeling from the drop in oil prices.


Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…