Wheres can this UPI article be found that everyone keeps referring to??
The Drudge report times out.
-
=http://www.geocities.com/barrybolton187/lok.jpg>
-
=http://www.geocities.com/barrybolton187/lok.jpg>
-
Announcement from ERM has made my day. :)
-
Great article by @Dancing earlier in this thread (linked below) which talk a lot about many points I raised –main countries including US, Russia and Iran; importance of OPEC decisions, oil politics, disputes within OPEC on Saudi’s position; etc.
http://hotcopper.com.au/threads/oil-macro-analysis.2582727/page-42?post_id=16474692
Just a few points on today -
1) Close movement with oil
I’ve been pointing out over the last few days that that LNG is very sensitive to oil prices (in both directions), and we saw that again today. LNG was the clear winner today of all the energy stocks that I follow with its 7.36% rise. At close no.2 was STO with rise of 3.47% (I pointed out yesterday too that while LNG was flat, the only one higher was STO). Great performance considering that many energy stocks like FAR, SXY, SEA, KAR, OSH, WPL all actually had falls today with some others being flat. Perfect example of what I was saying over the last few days of LNG’s moves with oil.
Note that this has pros and cons. The close association seems to have been the trend of late but there is no guarantee it will continue. But if it does, then, LNG could be a great bargain around this price as a spectacular short, medium and longer term investment.
But if you believe that oil has much lower to go, then it could also mean that there is a lot of pain to come.
Also don’t forget the sharp rise after Aug 27 in the 3 day rise of oil when LNG soared with oil’s rise but came crashing down much more later.
2) Main participants and today's move because of Russia and politics
I mentioned yesterday that Saudi, Iran, US and Russia IMO are the main parties determining oil’s future. I’ve covered each of them in points 13-16 of my original Aug 27 analysis.
http://hotcopper.com.au/threads/oil-macro-analysis-pros-and-cons.2582725/?post_id=15890294
There are lots of comments earlier in this thread on some of the participants; so I’m just highlighting my understanding on each of them, in case anyone wants to have a deeper look. The actual reality is far more complex than what I explained and I just tried to simplify some very complex politics, based on my limited understanding.
But today’s oil rise also involved Russia, as can be seen and politics was an integral part of it. I mentioned yesterday too that oil is a deeply political commodity, and the political situation is ever changing.
3) Saudi
I’ll just copy my understanding of Saudi (one of the most important countries to understand). People can read the others from my original analysis if they wish. –
“Saudi Arabia has the power to change the situation any time it wishes, IMO. IMO, Saudi decides how low oil can and should go. Right now, low oil prices are a competition to US shale and are also affecting the economies of Russia and Iran. So, Saudi could indeed persist with low oil prices. OPEC will be meeting in Vienna on December 4 next. So, this could possibly mean uncertainty and low prices all the way till December.
a) Saudi benefits by falling oil prices by thus taking out high cost US shale oil companies from the market.
b) Saudi benefits by low oil prices as it puts a lot of pressure on both Iran and Russia, with whom it does not get along.
c) Saudi might also want to send a message to the major powers of the implications of their improving relations with Iran
d) Lastly, Saudi might want to send a message to the major powers that if they allow Iran to bring more oil to the market, the impact will be much lower prices.
e) Saudi again wants to defend its share of the market at all costs in a low price environment, using the excuse that if they cut production, then other higher cost producers would flood the market with oil in any case (Similar reasoning used by BHP/RIO for iron).
Thus, it appears that Saudi seems most likely to persist with no cuts to production and support lower prices for as long as it can, to send a message.
The only thing preventing Saudi from doing so is the impact it will have on Saudi’s own budget over time and possible social unrest if the kingdom will have to start cutting down on social welfare. And this is the reason why IMO Saudi cannot continue this policy indefinitely.”
Above was my analysis in August. These points still hold true and are very crucial to understand.
4) Worsening geopolitics
“The geopolitical situation continues to deteriorate the world over, as countries seem to be moving closer to a “bigger” war. If something serious does happen, then this would be positive for oil. Let us hope that this does NOT happen!” – extract (point 22) from my Aug 27 analysis
http://hotcopper.com.au/threads/oil-macro-analysis-pros-and-cons.2582725/?post_id=15890294
“Worsening geopolitics could always lead to a "big war" as I mentioned in my original comment. Indeed, we can see a very tense situation in Syria in recent times that has drawn all these 4 countries that are not only battling an oil war but situation between them is getting tense in Syria. Although this is oil positive, we should all hope that this never ever happens.” – extract (point 9) from my Oct 27 analysis
http://hotcopper.com.au/threads/far-stable-oil-macro-analysis-update.2625323/?post_id=16267916
Unfortunately both those warnings of mine are coming more and more true
An excerpt from Nov 16 article - “Oil prices edged up on Monday on geopolitical concerns after Friday's deadly attacks in Paris claimed by Islamic militants, but gains were muted due to a global crude glut.
France carried out large-scale air strikes against Islamic State sites in Syria overnight, giving oil market investors reason to step up buying activity after a week in which crude benchmark prices fell as much as 8 percent.”
http://www.cnbc.com/2015/11/15/oil-...ays-near-august-lows-after-paris-attacks.html
And of course we know that oil rose immediately after the Russia-Turkey conflict with Syria the hotspot for global tension once again as articles earlier in this thread have mentioned.
Keep in mind that UNFORTUNATELY prospects of a big war in the time to come (hard to say when) seem to be worsening. This is positive for oil but really we should hope it never happens.
5) Tug of war with conflicting positives and negatives for oil
But once again like the earlier spike after the French attacks earlier this month, focus is once again shifting a bit to the global oil glut, taking away from some of oil’s gains for the day.
http://www.reuters.com/article/2015/11/25/us-global-oil-idUSKBN0TE04I20151125
Note that oil is being pulled in 2 directions. The oil glut is not going to go away so fast. At the same time, the middle east conflict is positive for oil if it escalates further. Combine this with WTI oil close to 40 and the soon upcoming OPEC meeting, we have an incredible tug of war that can go anywhere.
I mentioned yesterday that if Saudi does not cut production at the OPEC meeting, oil could have a sharp fall. But a serious escalation of Russia - Turkey tensions could be oil positive negating all that.
Hard for me to say which of these factors will be dominant, but I can only point out the influencing factors, and people IMO have to adapt to whichever factor becomes more dominant.
6) Conclusion
Note that I’m more longer term oriented generally. I might have gotten a lot of short to medium term stuff right but that was not my intention, and just part of basic macro analysis which I enjoy doing, and thought of sharing with you guys. I’ve explained many more relevant factors in my longer term macro analysis and many of those factors become relevant from time to time.
I’ve still got lots of bearish concerns about oil for the next year as I wonder how the oil glut issue will resolve itself and especially with Iran keen to dump more oil on the market. Also I think we have a lot of other broader macro level bubbles yet to burst and bursting of them can trigger a deep global crisis, and as was the case with the last GFC, oil could take a huge hit.
I’ve not really done much research on LNG, and my comments were more from the point of its close correlation so far to oil’s movement. My observation proved correct again as seen today but there is no guarantee that it will follow. If it does follow then obviously, there could be some spectacular returns from this point forward, as today illustrated. Also LNG has been so incredibly beaten in the last few months in such a short time (especially recently), that the stock could be waiting to shoot up on any excuse.
Good luck to LNG holders and I hope things work out great for you guys.
Cheers
Add to My Watchlist
What is My Watchlist?