Trevor Sykes: BHP is a red hot buy, page-69

i never take much notice of people within an industry when they talk about price outlooks - they are always the worst at seeing inflexion points. ive told industry people in 3 different industries about big impending price - supply/demand shifts in my career - not once have they listened.

the shift occurred every time.

and nearly all price surges start from a period where the market seems almost frozen - often with a bear trap down shift just before. sydney property, chinese equities, nickel booms - they all get preceeded by a lull where you could hear the birdies tweeting

thats not to say oil has to rise at any particular time - but

a) by 2nd quarter next year should be seeing serious declines in us horizontal well production based on the 18 month life cycle

with no more finance to small groups to do new wells - that could be a time for price lifts

b) equally, russia or saudi arabia could change their stance - and send brent in a upward slant

c) the USD strength should be neutralised by next year if rate increases in December - thats been part of the downward driver for all commodities since 2012

the risk is nearly all to the upside on oil - given the extraordinary convergence of factors that have driven it low - but the question is 'when'.

what people fail to factor in is the huge amount of demand of chinese heavy machinery, industrialisation and manufacturing thats no longer going to be there - ever again.

thats masking fairly good uptick in consumer demand.

its the same for commodities cycle after cycle - the muppets who run these big resource companies build for a demand growth curve that doesnt stop growing - and within 5 years it does - then they spend the next 5 years in oversupply as the growth shifts from construction to consumption

every time its 'gonna be different' - and it never is

the thing in oils favour though is the cost structure of the industry - higher cost producers are privately owned so more likely to respond to economic shifts by taking out supply - not like iron ore where its chinese soes

and energy intensity per capita is increasing exponentially - so in a consumption part of the economic cycle the energy that goes toward electricity will continue to climb - putting upward pressure on part of the boe pricing matrix