Oil macro analysis, page-82

Hi guys,
Brief update for those interested –

As I mentioned earlier, I’ve done a macro analysis on Aug 27 with some updates on the FAR and LNG forums (all links in earlier comments in this thread). I’ll just add some thoughts today –

1) Bloodbath

In my comment on Nov 24, I warned of the following –

“Very key moments for oil in the form of 40 WTI support and the December 4 OPEC meeting are at our doorstep. Understandably the market is tense. These 2 points continue to be very important short term catalysts IMO. “

“If Saudi does nothing, then there could well be a sharp fall or even a bloodbath.”

Dec 8 update – As many would know, there is no output target from OPEC. An excerpt from an article.
“Friday's meeting in Vienna ended with the 13-member group abandoning even the pretence of an output target for the first time in years, leaving all members free to open the taps as they fight for customers.”
http://www.copyright link/business/...l-price-to-near-sevenyear-low-20151208-gli1bo

Yesterday on international markets and today on the ASX, we had the bloodbath that I thought we would have.

Today’s bloodbath was across the energy sector – OSH down by 16%; STO down by 13%; SEA by 12%; LNG by 12%; HZN by 11%; AWE by 11%; KAR by 6%; BPT by 5%; DLS by 5%; WPL by 4%; SXY by 4%; ORG by 3%; FAR by 3%, etc.(please cross check figures)

I mentioned recently that LNG seems particularly sensitive to oil prices and today too, LNG unfortunately moved with the broader oil price

2) Strong US dollar
Unfortunately, over the past few weeks, it has been the perfect storm for oil – No output targets from OPEC, critical level of WTI 40 breached and to add to oil’s woes, the US dollar too has been strong for some weeks.

I covered it in my August analysis-
http://hotcopper.com.au/threads/oil-macro-analysis-pros-and-cons.2582725/?post_id=15890294
Excerpt –
“I’ve explained this in much more detail in my gold analysis; so I won’t go too much into it here again. One of the important reasons for fall in commodities like iron and oil besides the obvious global slowdown is the rising DXY (US dollar index). Soaring DXY approaching the 100 levels simply crushed commodities
http://www.barchart.com/chart.php?s...=0&g=1&p=MO&d=X&qb=1&style=technical&template
Above is a 25 year chart of DXY and we can see how falling DXY in the early part of last decade was accompanied by a simultaneous boom in commodities while gradually rising DXY over the last few years has been accompanied with commodities being crushed
Soaring DXY over last 1 and a half year contributed to crushing of several commodities like oil and iron that had still not been hit as bad (compared to gold for eg which took a hit much earlier)” – excerpt from earlier analysis
http://hotcopper.com.au/threads/oil-macro-analysis-pros-and-cons.2582725/?post_id=15890294

I’ve covered more on the dollar in my Aug analysis if people want to read more. Dollar was soaring a short while back, and that too has added some stress on oil. Luckily for oil, DXY has been marginally weaker over the last couple of days. Nevertheless DXY almost close to 100 does put stress on oil.
Fed meeting is coming up soon and that will give some further direction

3) Selling by US instos

As I mentioned 1-2 weeks back, I would be wary of energy companies with a lot of US instos as shareholders as there could be some vicious tax loss selling for some energy stocks over the next week at least if the oil price continues remaining lower

4) 30 level

I’ve warned many times that if that there is a sharp fall below 40, there could be a bloodbath and even the 30 level cannot be ruled out.

We are in the midst of a massive global oil glut, and nothing can be ruled out right out and even the 20 level.

Some excerpts from an article –
“Global oil prices could fall as low as $US20 per barrel next year, as OPEC’s decision to abandon a formal production quota exacerbates a bulging supply glut.

We could see a short-lived phase of all-out panic, which could trigger a free fall situation,” he said. “With no signs of non-OPEC producers, such as US and Russia, cutting back, the near-term outlook for oil remains very challenging indeed.

Mr Hansen said that downward pressure on crude oil prices would intensify in the first three months of 2015 because of increased output from Iran and a seasonal rise in US stockpiles.

Goldman Sachs also warned that OPEC’s inconclusive meeting could trigger further falls, to as low as $US20 per barrel, and said that prices were now likely to remain “lower for longer”.”
http://www.theaustralian.com.au/bus...k=599cf0703d07f78631b364db5a154aaf-1449555093
I've underlined several key words from the above article.

5) Conclusion

As mentioned by me recently, I’m not following much of the individual energy stocks but am more into macro analysis of the entire sector.

If anyone has read my few macro analyses on the oil forum, LNG forum and FAR forum, they will see that much of what I thought of the sector has come true, and I’ve hence stayed away from the sector as a whole. It is difficult for me to point out exactly which of the pros and cons will hold true but I’ve covered most of the factors that will impact the price of oil.

Note again that my comment is not LNG specific and I don’t know much of the company. My interest in the broader oil sector right now is more academic and I’m still wary right now of entering the oil sector when so much of what I thought could happen has happened.

I’ve covered a lot of points in earlier analyses – so I won’t repeat them again. Key points for energy sector as a whole in coming few months are possible tax loss selling by US instos in December; for LNG in particular - its seemingly close movement with oil; possible oil glut worsening for a while with added Iranian oil; oil being attracted to 35 and 30 handles if it continues remaining below 40; broader macro and commodity weaknesses; upcoming Fed meeting, etc.

Rest assured that I'm not downramping or anything of the sort and have actually warned much of this months ago, and am to a large extent just highlighting those points again.
I do hope things work out for you guys and genuinely wishing you guys the best with your stock and whatever decisions you take.
Cheers