I look at the prognosis for oil from two very different sources, for the long term:
1. Baltic Dry Index. When I look at the long term chart for this, http://www.bloomberg.com/quote/BDIY:IND , it is in a secular decline. In fact it is topping at the next level of resistance, meaning this will go down further ( purely technical view)
2. Stock Prices of OIL SERVICE PROVIDERS like Transocean (RIG) and Sclumberger (SLB). RIG' charts are languishing, long term, and the company continues to flouder in delivering OPERATIONAL profits. SLB is better positioned, chartwise, but again , has not gone anywhere.
Why are these important to me?
Baltic Dry is the key indicator of economic activity ( aka , a parallel for chinese production/ consumption engine) . When this starts stirring, expect an uptick in chinese oil consumption, leading to speculation in oil prices.
Oil Service companies do well operationally when rigging activity goes full steam. And that happens ahead of time. For example when oil companies feel that oil prices are headed north in 3 to 5 years' time, they start the prospecting now. The dumber amongst them do a catch up much later only to miss the bus and burn their fingers.
So, when RIG or SLB start delivering operationally , it means that demand for oil is being expected to increase.
I know these are highly counter-intuitive yardsticks, but this is what I follow.
Having said that, two factors at play, will decide oil prices, going forward.
1. There is an OPEC meeting in Nov, where it is widely expectd that they would announce production cuts. the reason for that is, with oil at close to 50 bucks now to the barrel, the OPEC members now have crossed the critical threshold, I believe, where they can afford to cut oil production and yet manage their fiscal balance with reduced receipts from oil sales. That cut in turn , will raise the oil price further, leading to better even better bargaining chips for OPEC. This is a vortex effect.
2. Any Geopolitical indicent of 9/11 magnitude.
Currently the biggest factor working AGAINST any real demand uptick for oil is the continuing slump of the Chinese economy, where it is widely expected that it would take years before the excess capacities created are absorbed and fresh capacities are added. Hanjin bankruptcy: Are South Korea's 'chaebols' in crisis? - BBC NewsThree of South Korea's biggest conglomerates, or chaebols, are having difficulties at the moment: Samsung, Lotte and Hanjin Shipping. Is there a connection?
http://www.bbc.com/news/business-37295185
The bankruptcy of Koean shipmaker Hanjin is noteworthy... blamed purely on slowdown in global trade ( read: much lesser shipments of mines and ores from Australia and other places into China).
Need more proof? Here it is. One of the largest shipbuilders in China has slumped, by the own admission of Xinhua, China's mouthpiece
http://news.xinhuanet.com/english/2016-08/30/c_135645633.htm
Bottomline, I have reason to believe that it is possible to rig up the price of oil to 55 to 60 a barrel. Anything can happen. But the fundamentals in terms of demand and supply do not support any sustained oil price rise - at least not yet.
Again, the price of oil is rigged by hedge funds, and the public seldom gets know how much open positions they hold- especially on the SELL side ;)
1. Baltic Dry Index. When I look at the long term chart for this, http://www.bloomberg.com/quote/BDIY:IND , it is in a secular decline. In fact it is topping at the next level of resistance, meaning this will go down further ( purely technical view)
2. Stock Prices of OIL SERVICE PROVIDERS like Transocean (RIG) and Sclumberger (SLB). RIG' charts are languishing, long term, and the company continues to flouder in delivering OPERATIONAL profits. SLB is better positioned, chartwise, but again , has not gone anywhere.
Why are these important to me?
Baltic Dry is the key indicator of economic activity ( aka , a parallel for chinese production/ consumption engine) . When this starts stirring, expect an uptick in chinese oil consumption, leading to speculation in oil prices.
Oil Service companies do well operationally when rigging activity goes full steam. And that happens ahead of time. For example when oil companies feel that oil prices are headed north in 3 to 5 years' time, they start the prospecting now. The dumber amongst them do a catch up much later only to miss the bus and burn their fingers.
So, when RIG or SLB start delivering operationally , it means that demand for oil is being expected to increase.
I know these are highly counter-intuitive yardsticks, but this is what I follow.
Having said that, two factors at play, will decide oil prices, going forward.
1. There is an OPEC meeting in Nov, where it is widely expectd that they would announce production cuts. the reason for that is, with oil at close to 50 bucks now to the barrel, the OPEC members now have crossed the critical threshold, I believe, where they can afford to cut oil production and yet manage their fiscal balance with reduced receipts from oil sales. That cut in turn , will raise the oil price further, leading to better even better bargaining chips for OPEC. This is a vortex effect.
2. Any Geopolitical indicent of 9/11 magnitude.
Currently the biggest factor working AGAINST any real demand uptick for oil is the continuing slump of the Chinese economy, where it is widely expected that it would take years before the excess capacities created are absorbed and fresh capacities are added. Hanjin bankruptcy: Are South Korea's 'chaebols' in crisis? - BBC NewsThree of South Korea's biggest conglomerates, or chaebols, are having difficulties at the moment: Samsung, Lotte and Hanjin Shipping. Is there a connection?
http://www.bbc.com/news/business-37295185
The bankruptcy of Koean shipmaker Hanjin is noteworthy... blamed purely on slowdown in global trade ( read: much lesser shipments of mines and ores from Australia and other places into China).
Need more proof? Here it is. One of the largest shipbuilders in China has slumped, by the own admission of Xinhua, China's mouthpiece
http://news.xinhuanet.com/english/2016-08/30/c_135645633.htm
Bottomline, I have reason to believe that it is possible to rig up the price of oil to 55 to 60 a barrel. Anything can happen. But the fundamentals in terms of demand and supply do not support any sustained oil price rise - at least not yet.
Again, the price of oil is rigged by hedge funds, and the public seldom gets know how much open positions they hold- especially on the SELL side ;)
No comments:
Post a Comment