Posts Tagged ‘oil’

I examined long term the relationship between oil and stock market.

The correlation is there, but sometime it is “in range” instead of directional.

Let me explain

The markets really likes oil being between $75 and $112.

It has a positive bias until $40.

Under $40 or over $112 is incrementally negative.

The current status of the market so is negative and if oil goes to $20 or even $10….a bloodbath would ensue.

What is the consesus on oil from the oil traders and commodities futures?

A bottom in late February/March around $25/$20 and then a recovery around $50/$47 by October and December around $40.

So we can extrapolate for the market an overall weakness for the whole of 2016.

A crash would occur late February/ early March taking out the current low, which would be a perfect moment to buy.


All this reflects a Chinese market bottom around 2,500/2,400


Winston Churchill said “The further back you look , the further ahead  you will see”.

If we look at the 1970s on gold in this perspective it looks very similar to the current situation

1970 USD35

Then a furious rally in 1974 to USD 180 (peak USD 195).

Then a mega crash in 1976 to US100 (and it really was an effort to keep the $100 as everyone left gold as it shows that exceptionally bad forecast from that period as usual from Citibank (and all the rest such as Goldman Sachs) (which usually tells you the reverse of what you should do (for one reason or another, your choice).

“The economic recovery that is now under way in most countries will likely continue for the next year, gold will lose some of its allure as an investment…[and] with inflation on the wane…[we] foresee the possibility of a price as low as $60 an ounce.”

Then Gold closed the decade…not at USD 60 as per Goldman forecast, but at over USD900 in the 1980!

So if the pattern should repeat we could see a low around USD900 this yearwhere everybody will leave the boat….and then it will soar to USD 12,600 by 2020 (USD9,000 inflation adjusted) (even I do not believe it – it is just maths applied to the 1970s situation….and I hope not as it would means that all my nightmares would come true).

Whatever the outcome for gold – this looks like the mid cycle lull. Hopefully not hinting at a USD12,600 rally.

What you should do? Just be un-emotional. The gold position are meant to be an hedge, so just let it be.

A similar situation (previously discussed, so I do not delve in it…there is a specific post in early January ) in 1985/86 the oil went as low as USD10 …which would be now USD35. Then it recovered to the equivalent of USD65/USD75 and stayed there till 1993 (US invasion of Iraq)

By the way in the 1970s the stock market really got killed – and as usual in 1982 the big Investment banks where pumping article re The Death of the Stock Market…just at the beginning of the greatest bull market 1982/2003

A crazy little thing called OIL

Posted: February 4, 2015 in Uncategorized

Wow…oil plummeted over 50% since October and recovered over 24% in 2 weeks.

What is happening? The glut of oil made shelving a lot of new projects – 352 oil rigs where idled just in the last 8 weeks – BP shelved USD20 billion on new investment.

A study of Goldman Sachs showed than USD1 trillion investments in oil are not profitable under USD70.

Also Shale Oil rigs have a fast decadence rate if not continually improved (the second year the shale oil flows decrease by 70%).

And you still need oil, not just for cars – but for everything (for your clothing to the kitchenware).

So this glut automatically creates a shortage for the future.

But also all this could be a fake as there 19x the normal volumes on oil future. That said oil cannot stay at this prices for long.

UPDATE: since the oil move have been initiated by the Saudis that dominate the oil market you have to examine what they want and if that has been achieved:

– Get rid of US shale gas. Not yet achieved – it is seriously endangered, but -due the hedging of positions – their mission has not yet been achieved.

-Get rid of the Assad regime. Russia and Iran are the ones that sell weapon to Syria and they did not back down – mission not yet achieved (if ever)

So, for now, the oil trade is still very dangerous

Gold and oil 2015

Posted: January 13, 2015 in Uncategorized
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Oil has been the great casualty of 2014…what will happen to it?

Looking at  the similarity with 1986 and the current much more challenging geopolitical situation (previously described)  oil will probably try to find a base about USD35-40 between now and the third quarter of 2015. In the third quarter of 2015 two things should happen. The oversupplied stock will start to decrease and also the the protective hedges set by the US shale oil producers will expire. This combined effect will probably get oil up to $65 by the end of the year.

The great unknown is the geopolitical side. Nigeria, Libya, Iraq, Iran and Venezuela cannot withstand such low prices for oil before dissolving in non-state entity, easy prey of Islamic State and the likes of it. Also the terrorist have a clear objective in disrupting the Suez Canal passage – it will not be easy as they stand against some of the most ruthless secret service alliances (US, Israel, Saudi and Egypt), but they will try. An attack there will sharply bring oil back to USD 100.

Gold: gold probably will basing all year and end up towards $1,300. There are selling pressures, but with all the mounting tensions around the globe is hard to see it falling too much.


ISIS in Iraq and the markets

Posted: June 23, 2014 in Uncategorized
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Well, the something is wrong is clearly ISIS in Iraq and the oil prices.

Notwithstanding talks of the Iraq government fight back the situation on the field is quite murky.

ISIS is not just ISIS “terrorist organisation”. It is also allied with numerous Sunni’s tribes and Sunni ex Army units as the fight is not ISIS vs Iraq, but Sunnis vs Shiites. 

– Isis control most of the North -West (aside the Kurdish North)

They actually dismantlement the borders with Syria and Jordan, allowing reinforcement to pour in. There are fonts that their forces in Syria have substantially decreased.

The Kurds (Sunni) are both courted by ISIS (and Saudi) not to get involved and by Iraq’ Maliki (logics would tend to favour ISIS and Saudis which are Sunni).

Syrian aviation is bombing positions of ISIS in Iraq to show Iran that they are doing their part (but now ISIS got hold of American land to air weaponry).

It is pretty clear that ISIS want to mount an attack to Baghdad from the West side.

As per Iraq, with the help of Iran, it is amassing a 50,000 army north of Baghdad for a counter-offensive – that could be successful or not. But it could be as the Iranian backing is very powerful.

– Saudis have warned Iran against interfering with Iraq

– The so called potential alliance Iran-US, seems not happening.

naturally all this influence oil Brent now is at $115 (it  was 100-108 before this) and, if it breaks $120, the two major resistances are $127 and the terrible $150. The target $127 seems pretty achievable.

The deal US/Iran can be very important for you.

Iran currently exports 750,000 barrel of oil per day, while its non- sanction capacity is 2,500,000 barrel of oil per day – practically the difference is a full 10% of the US oil consumption!

The Oil (WTI) now still trades within its “band” around USD 94, but specially after Christmas there will be a slow descent which will increase under USD92.

Now Iran will be allowed to export 1,000,000, not the full $2,500,000. The oil will probably slowly descend towards is  no risk price of $75/80. When and if Iran will be allowed its full capacity (probably 2015 if nothing goes wrong) we could even see oil around USD 65.

This is practically a boost of 10% in every company and even in your wallet when you go and refuel your vehicle.

Wag a dog was a beautiful movie about how a Government can fake a crisis in order to distract people and achieve other objectives. That is what I think of Syria and why, in the end, it will just another buying opportunity in the market – unless there is a serious miscalculation somewhere.

A gas attack is a terrible thing. But in the 1980s thousands of Iranian and Kurdish died of gas attack (from the US supported Saddam) and nobody said anything….because there was the greater issue of the Cold War and a nice terrible 8 years war was distracting two large Arab country.

Now we have the US which has to answer because a red line has been crossed (nothing to do with the gas poising…less of a 1,000 people on a 110,000 death war). But it does not want Assad to collapse as the projection give Al Qaeda as a clear winner of an Assad fall. That is the real motivation before the delay in action and the call for limited strikes.

Moreover it has the side benefit to distract everyone from the US Fed tapering…..but more important solve the looming Debt Ceiling debate in October.

It also opens a realpolitik alliance with Iran (apparently Oman’s leadership went to Iran with nice US messages and openings). If you noticed Iran has been much more restrained than usual in their threat.

Israel actually likes the situation of a weakened but not out Assad (apparently the Occupied Golan Heights have a lot of oil underneath and if no-one is there to contest it is all theirs….or better the contract of oil  extraction has been already assigned to Genie Energy (owned by…guess (and cry) by Jacob Rothschild and Rupert Murdoch)  – Please note in international law is illegal to use resource of an occupied country (Singapore vs Japan, International Court of Justice sentence 1945)

The party that really wants the fall of Assad are actually the Saudi as they fight for the Middle East supremacy against Iran (there is even a theory that if it was not the Government to use gas – it could be some Saudi sponsored element).

In effect all brings to a “show war” more than a real war. Also Russia show is more to get credits in other negotiation than anything else.

Yes there will be some real consequences as some Hezbollah actions against Israel (nothing new there….it just usually does not make the news).

As usual with any war, there could be unintended consequences: Hezbollah and Assad’s brother are the one to watch. And the master puppeteer – the Saudis

Obama bluff has been called and there will be war. And there will be death. Americans will be again seen as heroes and ruthless killers at the same time.

Obama last year declared that a gas attack would be a clear red line because he thought Assad was not so stupid to conduct one.

What really happened, nobody will know. has it really been staged by rebels to provoke an attack (smartest move from rebels on a verge of defeat- but they do not seem to have the weapon delivery systems to conduct such an attack – US “Mission Impossible” kind of spies? Difficult – Saudis spies….that could have a chance). Was it Assad? He is not stupid…I do not think so. What I think (and it is of no consequences) is that some rogue part of the Syrian Army (Assad’s bloodthirsty brother or  some Iranian proxy) did it.

As a famous Italian comedian, Pirandello,  says ” It is so (if you think so)”.

The reality is that the Obama’s bluff has been called and war will be. Otherwise Iran and North Korea and anyone else (Russia, China) will know that their own red line do not exist.

Obama clearly does not want “boot on the ground” and has delivery weapon systems to proceed with “stand off attacks” (attacks carried from outside the Syrian airspace). 4 US Navy Destroyers are already in place. Strategic bomber can attack from bases in the UK and Saudi Arabia and the US 5th Fleet with two supercarriers are less than 48 hours away. There is at least one nuclear sub around there.

Thursday the UK Parliament has been urgently recalled.

What Syria (and its allies) can do. Syria has a good air defense system, but very limited offensive capacity (specially considering that they cannot risk to “disturb” also Israel. Iran can be a nasty surprise probably asking Hezbollah to attack/kidnap Westerners in Lebanon. Russia has already played its card with Snowden.

So it should be limited. But war is war. And oil and gold will start running again (well they already started) and the market will have its own (overdue) correction.