iBankCoin
I've been doing this a long time.
Joined Oct 7, 2015
88 Blog Posts

Humble Pie, a bit of Irish Luck, and notes from the Dark Side

Remember the final paragraph of my May 30 post, people:

“I reckon I’ll be holding through 2019-2020. And remember, a spike in crude prices is often just a geopolitical event away. As always, this is not advice, this is an opinion. You lose your shirt betting on volatile crude oil, don’t come crying to me, rube”.

‘Do you see a tall, dark formation of shale oil?’

Playing the oil sector has a vibe not unlike your average mine field. I haven’t sold a fucking thing. Here are a few reasons why I’m not crying the blues:

My horizon is long-term. I don’t give a rat-fuck what mouth-foamed short sellers bring to the conversation. People who actually know what they are talking about see a rebalancing of the sector in 2018-2019. I am betting on companies that have clearly stated they don’t anticipate profit until that time. One bad report from the EIA (after eight positives in a row) changes nothing. Wise men trade EIA data on a monthly basis or longer, not weekly. My big bets are on growth plays, not value plays. Do I wish I had bought $CHK at $4.50 instead of $5.50, of course I do. Do I care? Hell, no. With their asset base, it will be much, much higher in a couple of years.

Today’s Disclaimer: Don’t play this game with your IRA. If you don’t have a separate trading account stuffed with cash you can afford to lose, you are reading the wrong blog. This is gambling, Bubba. This is my play money. Buy some Berkshire Hathaway and walk away, son. And re-read my advice above.

…and then there is this:

As Brent crude oil closed on Wednesday at its lowest level since before OPEC and other nations agreed to cut output, someone bet half a million dollars on prices surging to $80 by year-end. (Bloomberg) — As Brent crude oil closed on Wednesday at its lowest level since before OPEC and other nations agreed to cut output, someone bet half a million dollars on prices surging to $80 by year-end. Options to buy 10 million barrels of Brent crude for $80 a barrel in December traded Wednesday, far exceeding the next-largest contracts, according to exchange data compiled by Bloomberg. Placed in two trades, the transactions were especially large given they were to purchase crude at 66 percent above the day’s closing price.

I don’t trade crude options. Or God-forbid, futures contracts (you would have to be out of your mind to trade crude futures).

Speaking of Geopolitics, keep one eye on events in the Middle East. The saber-rattling by the Saudis towards Qatar is most-likely the result of The Donald’s trip to Saudi Arabia to meet with the heads of Sunni Islam in advance of new sanctions against Shia Iran. Saudis have been buying massive amounts of arms for quite some time now. Conflict with two Iran proxies is possible. The implications for crude pricing would be profound. And don’t count on Libya or Nigeria either with crazed terrorists crawling about like ants. Venezuela is dissolving in a puddle of piss.

 

China is growing. India is growing. They will not be powered by the sun. Continue to stick your head in the sand and deny the obvious.

I hedged my bets by, well, hedging. Buying a healthy slice of $DWT, a 3X Short ETF, substantially lessened my risk and exposure. The Plan was to quickly sell the $DWT for a loss as I watched my oil stocks soar. Oops. However, that cut my losses almost in half.

I don’t have to tell anyone the results as the weaker stocks in my Oil Basket got decimated within 2 minutes of the surprise build. I didn’t even get to witness the carnage as I was on the golf course. That surely saved my score on the back nine. Yet $DWT rose a healthy 15% Wednesday and added almost 3% on Thursday.

Oil stocks are now ridiculously oversold.

I am still holding $DWT and will most likely sell it on Tuesday morning when I anticipate more short-selling from ravenous speculators on the short side. I also bought gold ($AU, $GLD) and added to $TLT. I sold the $AU early in the week for a quick +15%, the $GLD has not been as friendly but I’ll keep it around for a short time. My trading account and my current oil basket shows a few names rebounding strongly this morning even though Crude futures are currently selling at $45.72. My oil basket, currently consisting of 13 stocks plus the $DWT ETF, can be seen inside Exodus.

At this point I look at which equities in the basket are showing buyer interest at these levels and which are showing further downside. Not counting $DWT, my oil basket comprises about 8% of my day-trading account.

The nightmare has been $SN, aka “Dirty Sanchez”, my worst trade in decades. This would be followed by $WLL in the negative column. Neither has shown any life post-mortem. In the case of Sanchez, the Eagle Ford gets no love while the Permian gets showered with rose petals. That makes absolutely no sense, but so it goes. I will sell my Sanchez in two years at a substantial profit. Bank on it. I’m betting that Whiting is the target of M&A.

I like to watch after-hours and pre-market traders to get an idea of who is bottom-feeding what. Signs of life are apparent in $APA, $CHK, $PDCE and my largest holding, $XOM. In fact, $XOM, which I bought on June 1st, is in the green for the week. $CDEV, my second-largest, has a low cost basis as I bought the bulk of it at the ~$10 IPO.

I may pick up some $CVX as well. Both oil giants now have enormous exposure in the Permian Basin and coupled with dividends should bring me good cash flow over the next few years. $CVX has by far the largest footprint in the Permian and $XOM, via acquisitions, is a major presence as well.  $XOM was already battered over the last year and is selling at 52-wk lows.

Once again the API report on Tuesday was off by millions of barrels, although their numbers on gasoline and distillates were pretty much in-line with EIA.  Despite using the same data as EIA (as per the API website), one simply cannot trade the API data with any certainty at all. I have written about this in the past, and should have known better. So in essence, the 5% drop in /CL on Wednesday was purely on crude storage numbers. That is an overreaction by any measure, but that is driven by the spec futures traders, a volatile crowd of catamites.

Nothing has changed. Crude production numbers were down in the EIA report. I think you missed that. Catching a bottom is never an easy task. Oil is oversold. Patience.

Yet there will always be noise. Filter the noise:

Deputy Finance Minister, Vladimir Kolychev, told TASS that the Russian Finance Ministry expects the oil price will drop to $40 per barrel when the oil production deal expires in the first quarter of 2018

Let’s revisit the subject next week. Salaam.

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7 comments

  1. The Maven

    Update: My oil stocks are spiking suddenly, even though there has been no movement in the futures price. I have sold $DWT.

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  2. mensch

    Saudis really acting like war is imminent. Trump is talking shit about Qatar too, seems like a green light to Saudi to me.

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    • The Maven

      Candidate Trump: “The Saudis are not our friends”. President Trump: Behold The Orb.

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  3. sarcrilege

    How does global debt/financial meltdown and implosion of global economy but no WW3 plays into these calculations? Because that’s a very likely scenario w/i the next 10-12 mos.

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    • The Maven

      Been waiting for a European meltdown for so long, it starts to fade into memory. Banksters.

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  4. ironturd

    Timeline for oil company profitability with leveraged balance sheets is 2018-2019, and what’s the timeline and outlook for fossil fuels over the next two decades

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    • The Maven

      Totally agree on timeline. Hence the bets on names with enormous short% of float. Patience. Beyond that, who knows.

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