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some stocks are behaving in very interesting ways lately.
01-28-2015, 05:32 AM
Post: #1
Oil in particular, and associated markets like drilling equipment companies.

US fracking for oil has driven the supply-demand ratio drastically to the side of supply. Which has caused the price of oil globally to tank pretty badly.

In November OPEC met to discuss what to do about the price of oil. Many expected them to choke down production to float prices. They decided in split decision to do nothing at all though, as several of the member nations were in dire financial straights and did not want to decrease pumping rates at all.

The price of oil was floating on the expected decision which was not what they did. As a result of their decision, Oil tumbled rapidly down past $50/barrel. Some estimates speculate it could hit $35/barrel, although future speculation is keeping it floated above that level for now.

$45~ish/barrel is cheaper than it costs to operate many drilling set-ups. For example, canadian deep oil, and US fracking, and most of the deeper or harder to reach oil deposits in the world are only profitable to drill at $50, $60, $70, or even $80 a barrel. Sweet crude right under the bedrock costs at least $45 to drill per barrel.

So basically, right now, the price of oil is "at cost" for drilling it out of the very easiest to operate oil wells. Many of the wells in the world are operating at a loss at that price.

That means cutbacks in current well production are imminent, layoffs, etc. And new drilling is practically non-existent for a number of months now.

These market forces are not instantaneous in their effect. By the time oil does rise in price, the impact of laying off oil laborers, and failing to sink new wells, will mean there will be a boomerang effect driving prices not just 'up' but 'relatively high'. Which in turn will encourage new well drilling, etc.

Anyway, it's a ripple in the supply demand dynamic. It has happened before. And it will happen again.

The interesting thing is that to exploit the ripple, you can buy into oil at a price that oil companies "cannot" profitably sustain (WTI Crude is at 45.15, and Brent Crude is at 48.16, as of yesterday at close.) Which means that if everything I just said turns out to be misguided bullshit, it will still rise in price. Although granted, it could still fall a ways down before turning around.

I am eyeing it very closely, and planning to buy in within the next month. Likely spreading it across several top oil ETF's, possibly also an equipment supplier or two. (i do NOT recommend multiplicative "leveraged" ETF's for longer term market plays, those really are a slot machine). Sadly, i noticed that the top ETF's rose yesterday by several percent, even though oil fell a bit. Too many people looking at what i'm looking at Wink
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01-28-2015, 05:42 AM
Post: #2
Yea interesting, its all about the sancstions against the mighty mother Russia...

Russia lived the Stalingrad and they think Russia will get scared because of more expensive yoghurts.

мёртвое море знаете???
путин убил...
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02-28-2015, 10:09 AM
Post: #3
Interesting thank you for this, Kath do you do this for a living? Tech Analysis and stuff.
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02-28-2015, 10:46 AM
Post: #4
I set a plan like this as a thought form. Try inventing a thought based on reason and logic. Sound persuasive and voila.

~best regards.
╟▲KyFixorus the Wise▲╢
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03-01-2015, 09:55 AM
Post: #5
Kyfixorus, can you explain this a bit more please.
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01-24-2016, 09:18 PM (This post was last modified: 01-24-2016 09:20 PM by wannabwiz.)
Post: #6
Hi all

Sorry to bump an old post, but nearly a year on from the OP and the oil (WTI) has continued to nose dive lowest $28, Kath looks as though you are onto something here. Kath come back and give some insight please, this is really interesting.

wbw
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02-11-2016, 04:19 AM
Post: #7
Sedna will Retrograde on Algol in September.
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02-11-2016, 04:30 AM
Post: #8
Current predictions have oil at historically low prices for the next decade. Wallstreet blames this on American exporting energy now that they are producing more than they consume.
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01-27-2018, 02:32 AM
Post: #9
sorry i didn't reply to this thread a long time ago.

sanctions vs. russia could profoundly impact crude... but only if they were widespread in the international community. if the USA alone sanctioned russian oil, it would have nearly zero effect, since it would just be a matter of reshuffling which oil is bought by whom. For example, if china were to buy a million barrels of russian crude, they would buy a million less barrels of saudi crude, which the US would buy from saudi, etc. The supply/demand equation would be largely unaffected except for transportation costs of the product in a few cases. Sanctions only impact the international commodities if they are enforced by a large number of countries, such as the sanctions vs. Iran half a decade ago.

I don't do this for a living "professionally", but I am moving towards stock investing being my primary source of income, and eventually only source of income.

The $28 price was quite nice, it actually touched 24.95 briefly on one day, though you likely won't see that figure posted in histories which only show the closing prices or group whole weeks together for simplicity. $25 was a buying trigger for a number of investors, so it only dipped below that threshold briefly. I don't personally buy crude oil directly, if i did I would have set the buy trigger at $25.10. But I buy into oil ETF's, which react in value to oil's price on a slight delay. So i bought the etf's the day after. I sold them several months later when oil had climbed back above $40. I think it was around $43. Unfortunately, the market value of your stock in oil etf's are affected by expected changes in the value of oil. So i didn't see a 72% gain, more like 35%, or 20% after taxes. Still, not horrible, for 3+ months of investment time. There are many 'suits' who would kill for 10% anual gain.

Oil won't be at historically low prices for a decade. Currently it's up around $70, though I do feel that's a bit of a bubble right now. Still, it could snowball going into summer... but that's a big "could". I don't ride the 'maybe's with my bankroll. Also, the US doesn't net-export oil by the way. That's simply false. Actually the US doesn't export domestically produced oil at all, that's banned for the past 40+ years. But we do produce more than we used to due to changes in the oil drilling technology, and fracking. We still import oil substantially.

We do produce enough to drive the price down though. US production can scale up to profitably push prices towards the $40-$60 range (though this takes time). I feel the current $70 is a bit of a bubble... especially considering the value of the dollar is currently fairly high, which makes $70/barrel much more pricey than it sounds as an international commodity. Also, while crude stockpiles have fallen by about 20% off their high peak, we still have "a lot" of oil glut in storage. And refined product (gas/diesel/etc) stockpiles are fairly high too. The supply/demand doesn't support $70/barrel at the current relatively high-ish value of the dollar. Maybe if Cushing OK stockpiles were well below 400mil, but we're not there yet. That said, speculation could drive it up going into summer, but the bubble would eventually pop. In a nutshell, it's a game of chicken for those who own crude as product for sale. They see the value rising, so they think they want to wait to sell, but if it rises too much, the value will become transparent as a temporary bubble, and demand will shy away, then the price tumbles. So they wanna wait, but not wait too long. Also, they have bills to pay, for storage, oil rigs, workers, bank loans, etc. So they can't sit on product forever. My crude oil investment outlook is 'wait n see, buy if there's a strong bubble pop'.

Probably the most interesting spot in oil right now would be companies that supply the hardware and equipment for drilling, since the current bubble is surely floating the sales of such hardware (that's pure speculation, i haven't checked).

As for sedna/agol/retrograde... my thoughts on astrology can be summed up with 3 words "personal validation fallacy". My stock investing however, is rooted in supply, demand, politics, and psychology. which is infinitely more complex, but in some cases (the ones i buy heavily into) entirely predictable. I don't roll dice, half of the people on wallstreet are rolling dice, sure, but mostly my strategies are founded on exploiting those people.
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