Friday, January 29, 2016

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.


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