Category Archives: Energy
The old rules of thumb about the oil markets have been turned on their heads. If it escaped your attention, for the last few years, wisdom that summer carries with it higher prices from more demand have been great…if your goal is to lose money.
Because what has actually been happening is each year, the summer brings with it renewed fears about the sustainability of the recovery, and as the winter optimism from holiday activity slumps, something – maybe speculative buyers in the oil markets, maybe something more complicated than that – slackens and all of a sudden, we get this big rush of inventory that floods our storage centers.
And anyone caught calling plays from their grandfathers old book goes long oil at exactly the worst possible time.
The thing is, for whatever reason, it always seems to get bought towards the end of summer, right when the rule of thumb dictates that oil demand should be falling. Maybe it’s all part of a game. Maybe there’s some reason for it I just don’t understand – I guess having selloffs in the winter months are always more dangerous; what happens if something important, like heating, gets disrupted?
I may not know why this is happening, but I don’t need to be an oil industry expert to know what my eyes are telling me.
SCO is spiking up 5% today, and oil inventories are building quickly. For the moment, everything is just peachy in the markets – actually, in the same day I’m up 5% shorting oil, the rest of my holdings are all largely green.
But it won’t last. We are on the cusp of a nasty selloff that will bring some humanity back to investing and some shame back to the arrogant.
And it will be treated as the end of the world. Or at least until the fall, when buyers likely step back in, claiming “no way that happens ever again…”
I took a small dip into BAS today for $13.03. The earnings report came out and after glancing over the transcript of the call, I’m pleased with the management. They’re vigilant about maintaining cash flow positive operations. They’re controlling costs and margins. More importantly, they took advantage of the bloodbath that soaked through the industry last year, and dropped tens of billions on acquisitions.
Even after the acquisitions, they’re still easily the most cash rich company in the drilling and fluids space that I’ve come across so far. Feel free to chime in with other companies that are similar or better.
The company is steering carefully around their customers, and I think they’re doing a great job. Honestly, I believe the company could sell off again, especially if we get the market correction I’m looking for. But, I sold off some shares at $14, so adding a couple percent here won’t hurt me and locks in that opportunity.
I still have 30%+ in cash and hedging in SCO and EUO. If we get a deeper selloff, I can still take advantage of it. BAS is firmly on my radar.
Here is all you need to know. About 40 minutes ago, the Energy Department reported that oil stocks were up another 900,000 barrels. Inventories currently stand at 4.2% higher than last year, which if I recall were higher than the year before that. Prices are rallying, because the move is “less than expected”. That’s great, but this is just the beginning.
At the same time, gasoline demand has fallen through the floor. Recession is setting in in Europe. China has been disappointing. And US exports are set to get hit in unison.
My expectation is that May – August will be horrible; an exact repeat of the last three years. I’ll revisit these assumptions midway through any selloff, or if one fails to materialize. As for the Fall; I’ve been caught off guard plenty of times over the last few years, thinking “this is the end”. And each time, trillion dollar money balls and hope manage to squeeze me – this year was the exception to the rule.
Well, I’m sick of the rule, and much preferred the exception. So I will likely consider buying into the Fall. But we need to monitor everything and be very careful. This year is exceptional in its uniqueness; a number of very unusual motions will set in starting 2014, including Obamacare and the end of the line for pension gap coverage is looming. Throw in tax hikes and the waves of retiring Baby Boomers leaping every year for the next decade, and I’m not happy.
But I can be crazy if I need to be. Surely, the Fed is aware of all of these problems, and monetary easing is the preferred course of action over letting panic set in. So even though I’m afraid for what’s coming, sometimes you need to let go of reason and embrace the lunatic’s way out.
Uranium prices continue to get compressed towards $0, as a few week hiatus of the blood was met this morning with the first real print in weeks – and it was an ugly one.
My impression is that the uranium market has been dead for months now, while the major players of nuclear utilities and uranium cake producers play a game of chicken with one another. And unfortunately, because nuclear reactors can run so long without refueling, this game can go for a long, long time.
I’ll take a moment to remind you of advice I’ve given before; every now and again it needs to be repeated.
Stay out of the small uranium miners.
Just because I like CCJ does NOT mean I like CCJ’s half-starved siblings. CCJ has a war chest and controls 20%+ of the market. CCJ’s competition sometimes isn’t even producing uranium. If you’re not playing the waiting game with a billion dollar budget, at minimum, I hate to tell you this pal…but you’re prey.
I’m in CCJ from the onset because I know how this ends; countries are not going to diversify away from nuclear power. That would be stupid. However, that doesn’t mean Japan wouldn’t like very much to see its public utilities able to load up on fuel contracts at dirt cheap prices. Or that every other reactor globally wouldn’t like to devour Japan’s reactor fuel should they be forced to market.
In the meanwhile, without a price recovery, CCJ’s stock is going to be horrible. $13 is not out of the question. But they’ll survive, and if you think they have pricing leverage at 20% market share, well…it’s only going to get more ridiculous.
I will buy my next batch of $CCJ if it hits $15.
I have to hand it to the EU countries. We are now years into this crisis, and still they manage to keep their bonds funded. Spanish bonds are easing back down from the 5% mark that had me on my toes. It would appear that the flare up has been contained…for now.
But that’s not the name of this game. They can save themselves as many times as they like. It would be better to ask, “what are the odds they save themselves every time one of these crises kicks up.” Much like a kid juggling eggs in his mom’s kitchen, the prudent bet is that he drops them. The moments leading up to the inevitable wrath bearing down on him are of entertainment value only.
Gasoline prices are imploding. That is merely a factual statement. I can’t decide what to think about it yet. Lower gasoline prices are inherently good for the consumer, it is true. But following the economic reports we’ve been receiving, and right out of Christmas and the optimistic projection parties that come with that time of year, and I’m not entirely sure of the thing being good.
My preference remains withdrawn defensiveness. Lots of cash, hand picked hedges. And only names of quality that I don’t mind being left holding without a bid.
I added a position in SCO for $40.19.
This takes my artificial cash position north of 50%. We are at the “edge of disappointment”, where things are neither good nor bad, but merely “meh”.
“Meh” gets you killed.
Europe will flare up again. Cyprus doesn’t matter particularly. The underlying reason we keep hearing about the EU is because the EU is fundamentally fucked on a spindle. The cost of holding the euro together, not just in terms of money, but in terms of man hours, resources, lost opportunities, bitter resentment, livelihood,…is just immense.
It’s never just about the money. When the economics and numbers don’t work, it should usually be a warning sign that you’re screwing something up largely. Money is a metric for measurement; hence why when obnoxious social justiciers whine about people only caring about the money – refusing to just go along with their latest “great idea” – I have a resounding urge to punch them in the throat.
I really don’t understand why European citizens are subjecting themselves to this. It’s not like they’re avoiding the losses…the pain is coming either way, so it’s a choice of accepting that, making changes to improve their underlying format, and moving on, or…not accepting that, getting the beat down anyway and setting themselves up for more failure later.
Anyways…Italian/Spanish/French debt is docile now, but it’s just a matter of time before the next explosion. Europe continues to miss deficit reduction targets by a quarter mile, and they’re all in recessions.
Dangers to the SCO position would include if the ECB and Fed were ever permitted to team up like Batman and Robin; doesn’t seem in the cards at the moment (or ever), but it’s worth stipulating that I really believe Bernanke & Co would view $150 oil as a “successful policy outcome.”
For the meantime, however, I’ve got decreasing industrial production overseas, an oil production bonanza here at home, and a hundred-years demographic movement towards smaller commutes all playing to my hand.