Saturday, January 10, 2015

OIL WILL DROP TO $30: here's what you need to know

Here's some weekend newslinks for you:

Bespoke - 4Q14 earnings season begins Monday. I think that means an end to the US market pukage. After all, who wants to still be reallocating when earnings are coming in? And how much of a boost will companies get from the dropping oil price?

Reuters - SEC to investigate synthetic ETFs' effect on market volatility. Dear Mark Flannery: top of your list should be XIV, the short $VIX ETF. I love it a lot as a trading vehicle, but it's causing havoc in $VIX futures; and that affects the algos, and so you've got a massive positive feedback system that you need to check into. Plus, nobody else seems to have figured out exactly what the effect is.

New Deal Demoncrat - my predictions for the 2015 economy. NDD keeps it simple and looks at the leading indicators to see what the future will be. In summary:
[W]hen looking at the long leading indicators, all of them are moving in the right direction. Two of them: corporate bond yields and housing as a share of GDP, are a year or more out from their best readings, and so counsel some caution. I would like to see how housing fares in the Q4 GDP report issued later this month, but if this metric continues to move in the positive direction, then it is a safe bet that growth - including jobs and wages - will continue throughout 2015. Depending on what happens with governments' contributions (as set forth just above), my expectation is for YoY growth in 2015 to be approximately equal to its 2014 levels. If gas prices remain low, and housing picks up soon enough due to lower interest rates, then this may be the best year of the expansion yet.
Personally, I think oil drop to $30 and stay there, which means at least 1.5% added to US GDP, mostly into the hands of people with the highest marginal propensity to consume. This is massive and people aren't paying attention.

FT Alphaville - floating storage for oil is back. Commodity traders are buying tankers to store oil at sea. Sorry guys, that's not going to end well: oil is going to drop to $30 and stay there.

BI - Rosenberg calls oil a "classic bubble". Sorry Rosie, we're nowhere near the bottom yet. Oil is going to drop to $30 and stay there.

Reuters - only 1.6% of world production at risk at $40. Toldya! Quote:
At $40 a barrel, around 1.5 million barrels per day (bpd) are cash-negative, located mostly in oil sands projects in Canada, WoodMackenzie said after analyzing 2,222 oil fields which account for the majority of global production.

"Being cash negative simply means that the production is more costly than the price received. This does not necessarily mean that production will be halted," Robert Plummer, Corporate Research Analyst for Wood Mackenzie, said.

The first response is usually to store oil produced in the hope that the oil can be sold when the price recovers, while the decision to halt production is complex and often costly.

"There is no guarantee these volumes would be shut-in. Operators may prefer to continue producing oil at a loss rather than stop production - especially for large projects such as oil sands and mature fields in the North Sea."
And if production doesn't drop significantly at $40, the price will drop to $30: we already saw this with gold, didn't we?

Reuters - Alberta leader warns of sustained deficit. And now we get to watch that right-wing economic miracle of Alberta collapse like a house of cards built on oil revenues. You're not morally superior, guys: you just got lucky for a couple years. So how are you going to deal with a $15 billion dollar annual budget deficit? That's worse than we have in Ontario, but with 30% of the population! Man, you guys suck. Oh well, at least it means your stupid Conservative Party disappears off the face of the earth. Maybe Harper can go back to writing propaganda for a think-tank, it's the only real job he's ever had in his life.

FT Alphaville - Buttcoin's upcoming capital crisis. Ha ha you guys suck:
We’ll sign off with the simple point that unless a massive amount of new capital is transferred into bitcoin market sharpish — which is not impossible, since there are still a number of deep pocketed believers out there — it’s hard to imagine the asset class going any other way but south. Furthermore, it’s unlikely at this stage that either price rigging, mining cartels or lower energy costs will be able to reverse that trend.
Well, at least it'll be a learning experience for all involved. After all, you can't make money investing until you've learned how to lose money, right?

1 comment:

  1. So if they keep pumping, and the economy keeps slumping, then oil will keep dumping.