Skip to main content

Pssst! -- the best trade in the world; an insider's track

First off the title is a bit of a lie (ok one huge lie).

Yesterday the oil market was at a flutter because draws against reserve where higher than anticipated.  Guess what happened today, oil prices crashed right back down to the $48.99 level -- when they had been as high as $50 yesterday.

You ask:  What's going on?
The answer:  No body knows!

The oil markets are nearly fungible; there is a bit of a spread between Brent and WTI but the difference in price is more cause by technical issues (when the spread is substantive) than anything else.  In fact, as reserves rise the cost of adding to reserves rises exponentially, hence the prices of crude drops (its a zero sum game).


Now look at the price of oil -- yesterday there was a panic because the draw from reserves was about 2MM bbl higher than anticipated.  Today, well today the market took stock and realized that it meant nothing.  Because it was the same issue that I mentioned above about Brent Vs. WTI -- oil was at the wrong place; it was a location blip that cause the market to overreact.

Some would say that this overreaction is how brokers make money, but in fact its not how brokers make money, because you cannot time or analyze these movements, you may be lucky as you may be unlucky.  The draw occurred because although there TOTAL amount of reserves is unchanged, the location of these reserves gave a false signal -- that took traders and analysts a few hours to figure out.

So there you go, a bit more market mystery revealed.  Because of the elections and the possible move by the Feds to raise interest rates the market is somewhat jittery and looking for reason to "go the other way"  yesterday's announcements that specific reserves were below a certain level that would show renewed economic activity (beyond what was expected) led to yesterday's price spike.

Now you know a 4% price movement in the WTI was caused by incorrect information!

No position in Brent, WTI or S&P500


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…