Login

Energy & Commodities

Plungers Big Trade- Part III The Oil Short

Share on Facebook Tweet on Twitter

Posted by Goldtent TA Paradise

on Wednesday, 19 April 2017 07:06

The big trade of this year positions oneself for the upcoming US recession. In speculating and investing if one can get the main concept right everything else falls into place. Various trades will branch off from this theme. The trade is not priced into the market at all since we are betting against the accepted narrative. We can use various proxies to play the trade, as just about anything economically sensitive may qualify. Base metal producers, car companies, sub prime financiers, retail establishments, the list goes on. The main vehicle I have chosen to execute the trade is the oil price. I have chosen this because both fundamentals and technicals indicate to me it is over priced and due for a fall. It trades deep and has a record of falling under distressed economic conditions. 

“All that we see or seem is but a dream within a dream”- Edger Allan Poe

That’s what we have lived over the past 8 years, an economic mirage. A historic FED fueled reflation rally, that was just a dream. Central banks led by Phd academics applied their unproven pet theories of substituting credit conjured from thin air in place of accumulated savings to stimulate demand. We are now going to see if their theories worked. Von Mises explained in “Human Action” that a credit-fueled boom ends in one of two ways: 

“Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever growing orgy of speculation, which, as in all other cases of unlimited inflation ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis.”

That is where we are right now, at the beginning of the credit restriction, the crisis will then follow. Its time to take the trade before its begins to be priced into the market. The oil market is rife with false understandings that should soon be exposed. Chief among them is that OPEC is in control. A belief in an OPEC put reminds me of the belief in the central bank put which existed in 2008. That dream was soon blown away. The false idea that producers will simply shut down production once they reach their all in costs is simply wrong. Sovereigns and independents have bills to pay, the costs of infrastructure can be written off. 

Diego Parrilla has written a wonderful book “The energy world is flat”where he describes forces converging on the energy markets which ultimately work towards lower prices. These forces have converged to put crude oil on the defensive. Substitution, regional convergence, lower transportation costs have essentially made Oil into strictly a transportation fuel. Oil once the source of power generation is no more. Oil now competes at a disadvantage with virtually most other energy sources.

Consumers have defended themselves in various ways and geopolitics no longer add much of a premium into price with ample storage capacity and diverse supplies. Peak oil turns out was a very linear static view of the world. It ignored the dynamism of the market. These are forces that will exert a downward pressure on prices for years to come and when a faltering economy runs headlong into the largest spec long position of any commodity in history prices will drop.

Distressed producers and investors

Reversion to the mean is a statistical certainty. The only question is what duration do we use to determine it? If one is to look at the oil price spanning the entire modern era (post WWII) the mean price, in today’s dollars, would be around $35. So its not hard to imagine a dip below the mean during a mean reversion cycle.

 

44178 a

Capturing that move below $35 is what this trade is all about. As I said earlier what makes this the Big Trade is not the percentage move, but in getting the theme right and using that theme in your other investments. 



Read more...

Energy & Commodities

SWOT Analysis: A Tie In Best Performing Metals

Share on Facebook Tweet on Twitter

Posted by Frank Holmes - US Global Investors

on Tuesday, 11 April 2017 06:47

Strengths

 

  • The best performing precious metal for the week was pretty much a tie between gold, platinum and palladium with roughly a 0.50 percent gain.  Following the launch of a U.S. missile strike on Syria this week, gold rallied to its highest level in nearly five months, reports Bloomberg. Bullion was pushed back above its 200-day moving average, a level that analysts use to predict whether further gains will continue or stall.
  • Earlier in the week, the minutes from the Federal Reserve’s March meeting “boosted gold prices with the mention of the shrinking of the balance sheet,” said Jingyi Pan, a Singapore-based market strategist, reports Bloomberg. “This agenda could potentially conflict with the pace of rate hikes, therefore placing pressure on the dollar.” In addition, gold advanced after automobile manufacturers reported worse-than-expected U.S. sales for March.

 

  • BullionVault’s Gold Investor Index, measuring the balance of buyers against sellers, rose to 54.2 in March from 51.8 in February, reports Bloomberg. “Political risk continues to drive private investor demand for gold,” Adrian Ash, head of research at BullionVault, said in a report.

Weaknesses

 

  • The worst performing precious metal for the week was silver, with a fall of 1.30 percent.  Late Friday CFTC data showed that money managers actually increased their bullish opinion on silver to the highest level in more than eight months. Profit taking, post the morning surge in precious metals prices, late Friday pulled silver into a loss for the week.  Gold reserves in China’s central bank remained unchanged for the month of March, coming in at 59.24 million ounces, reports Bloomberg. This is the fifth straight month that gold reserves have remained unchanged.
  • Despite Goldman Sachs encouraging investors to have “patience” for the commodity market in the wake of a waning price rally, inflows into ETFs linked to raw materials have significantly plunged in recent weeks, reports Bloomberg. Goldman believes the pace of economic growth in China will drive raw-materials consumption. In a similar fashion, RBC Mining & Material Equity Team cut its precious metals recommendation to underweight from market weight for the second quarter, reports Bloomberg. It upgraded bulk commodities to overweight from market weight and fertilizers to market weight from underweight.
  • In Canaccord Genuity’s Precious Metals Note this week, the group says we may see potential NAV multiple compression in the sector. It notes margin compression, rising management compensation, declining IRR hurdle rates and rising operational and geopolitical risks as potential headwinds that could temper enthusiasm for gold producers.

 

Opportunities

 

  • In its U.S. Economics report this week, Macquarie Research says that demographic forces are intensifying, as the share of population 75+ begins to rise. Because of this, the group says the economy is confronting two headwinds, or “double trouble”: 1) a closing of the output gap and the end of slack and 2) unprecedented demographic change that has accumulated over the past seven years is now intensifying. They believe the Fed Funds may normalize at 1.5 to 1.75 percent and the 10-year Treasury yield at around 2.3 percent, well below consensus of 3 percent for Fed Funds and 3.5 percent for 10-year yields.  With CPI running at 2.7 percent, it is likely we will continue to see flat to negative real rates, thus supportive of gold. And in a note from BMI Research, the team says gold can be supported as the Fed is likely to raise rates only once more in 2017.
  • The technical team from Desjardins says that the gold price (COMEX) has substantial potential upside. The team notes that total known ETF holdings of gold have increased around 2 million ounces year-to-date, implying a gold price of $1,310 per ounce. Similarly, Comex paper claims to physical gold continue to soar to 45:1, while deliverable gold has contracted by 50 percent since the start of the year.
  • Zacks Investment Research highlights Klondex Mines in an article this week, calling the company an “off-the-radar potential winner” and saying it looks well positioned for a solid gain, but has been overlooked by investors lately. Klondex has seen estimates rise over the past month for the current fiscal year by about 22.2 percent, although that is not yet reflected in its price, as the stock lost 21.7 percent over the same time frame, Zacks writes. The company carries a Zacks Rank #2, a strong buy, further underscoring the potential for its outperformance. Another company with positive coverage this week is Rye Patch Gold, initiating a buy recommendation from George Topping from Industrial Alliance Securities. Topping predicts that Rye Patch will trade at 75 cents within a year, implying a potential 124 percent gain.

 

Threats

 

  • The Senate voted along party lines on Thursday to change the Supreme Court’s longstanding rules and effectively eliminate the filibuster for Supreme Court nominees, reports Bloomberg. Now it will only require 51 votes, not 60, to bring a nominee up for a confirmation vote. The Senate confirmed on Friday Judge Neil Gorsuch as the new Supreme Court Justice, restoring the generally conservative majority. Some commentators noted that this may embolden President Trump to now pick even more judges for the bench that are more divisive, since a simple majority will be all that is needed to confirm.  Similarly, Adam Posen, president of the Peterson Institute for International Economics, says that Trump is likely to pick a Fed chairman who is “very responsive to him.” 
  • In its Global Precious Metals Comment this week, UBS points out that European diesel share decline accelerated in March, supporting its view on platinum group metals (PGMs). Diesel share in the top five European auto markets declined, bringing the share of diesel vehicles to a multi-year low of 40.6 percent. The UBS Global Autos team expects this trend to accelerate further out, resulting in falling platinum demand.

 

4-10fh

 

  • Goldman Sachs writes this week, that after five years of operating cost deflation, we expect costs to start responding to the 40 percent rebound in metal prices witnessed since January 2016. Once earnings tailwinds, we believe these core cost drivers should now start putting upward pressure on the full spectrum of global cost curves, Goldman continues. Additionally, the group notes that not all costs can be controlled, explaining that around 85 percent of the copper industry’s opex improvement was driven by what it considers to be “uncontrollable costs.”

 

http://usfunds.com/



Energy & Commodities

Crude Oil Remains Positive In Asia On Geopolitical Tensions

Share on Facebook Tweet on Twitter

Posted by Investing.com via Seeking Alpha

on Monday, 10 April 2017 07:25

LYNXNPEB7C0BA L-1Investing.com - Crude prices gave up some of the early gains in Asia on Monday with tensions on the Korean peninsula in focus along with the fallout from a missile strike by U.S. forces last week on a Syrian airbase that drew a sharp rebuke from major oil producers Iran and Russia.

On the ICE Futures Exchange in London, Brent oil for June delivery wrose 0.14% to $55.32 a barrel. Elsewhere, the U.S. West Texas Intermediate crude May contract rose 0.25% to $52.37 a barrel.

Last week, oil futures settled higher for the fourth session in a row on Friday, extending a rally to the strongest level in around a month after two U.S. destroyers based in the Eastern Mediterranean fired 59 Tomahawk cruise missiles at a Syrian air base, which the U.S. said was in retaliation to Bashar al-Assad's alleged use of chemical weapons against his own people.

Oil pared some of the gains later in the session as concerns about a wider escalation in the region faded and U.S. economic data weighed on global markets.

But analysts said the initial knee-jerk reaction to the airstrike may have been overdone given Syria’s role as a very minor oil producer and after U.S. officials described the attack as a one-off event that would not lead to wider escalation.

Meanwhile, oil traders continued to focus on the ongoing rebound in U.S. shale production, which could derail efforts by other major producers to rebalance global oil supply and demand remained in focus.

Oilfield services provider Baker Hughes said late Friday that the number of active U.S. rigs drilling for oil rose by 10 last week, the 12th weekly increase in a row. That brought the total count to 672, the most since September 2015.

Earlier in the week, the U.S. Energy Information Administration said that crude oilinventories increased by 1.57 million barrels to yet another all-time high of 535.5 million.

It was the 13th weekly build in U.S. stockpiles in the past 15 weeks, feeding concerns about a global glut.

Market participants, however, remained optimistic that OPEC would extend its current deal with non-OPEC producers to cut output beyond June in an effort to rebalance the market. In November last year, OPEC and other producers, including Russia agreed to cut output by about 1.8 million barrels per day between January and June.

A joint committee of ministers from OPEC and non-OPEC oil producers will meet in late April to present its recommendation on the fate of the pact. A final decision on whether or not to extend the deal beyond June will be taken by the oil cartel on May 25.

Investors will keep an eye out for monthly reports from the Organization of Petroleum Exporting Counties and the International Energy Agency to gauge global supply and demand levels.



Energy & Commodities

Gold, lumber buck rough first quarter for commodities

Share on Facebook Tweet on Twitter

Posted by Marketwatch

on Tuesday, 04 April 2017 08:08

MW-FJ383 commod 20170330142848 ZH

As the first quarter ends, losers outnumbered winners when it comes to commodities—undoubtedly much to the disappointment of those who expected the sector to build on last year’s bounce.

“The first quarter of 2017 has been disappointing, especially after last year’s brief, but promising rebound from a 5-year downtrend, as commodities just haven’t managed to gain any traction into the post-[U.S.] election year,” said Adam Koos, president of Libertas Wealth Management Group.

....continue reading HERE



Energy & Commodities

Trading Room: A Look at Copper & Natural Gas

Share on Facebook Tweet on Twitter

Posted by Trading Room via SafeHaven

on Friday, 31 March 2017 07:42

Trading Room will focus on classic technical analysis. Elliott wave analysis will be for support and for targets/invalidation points.

Copper (Spot)

TECHNICAL ANALYSIS

Screen Shot 2017-03-31 at 7.20.57 AM

....for analysis and much larger and clearer charts go HERE



<< Start < Prev 1 2 3 4 5 6 7 8 9 10 Next > End >> Page 7 of 201

Free Subscription Service - sign up today!

Exclusive content sent directly to your Inbox

  • What Mike's Reading

    His top research pick

  • Numbers You Should Know

    Weekly astonishing statistics

  • Quote of the Week

    Wisdom from the World

  • Top 5 Articles

    Most Popular postings

Learn more...



Our Premium Service:
The Inside Edge on Making Money

Latest Update

The Better Part of Valor

You probably recognize the title as the second half of a well-known quote.   The more commonly used longer quote is “discretion...

- posted by Eric Coffin

Michael Campbell Robert Zurrer
Tyler Bollhorn Eric Coffin Jack Crooks Patrick Ceresna
Josef Ozzie Jurock Mark Leibovit Greg Weldon Ryan Irvine