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Credit deflation and the reflation cycle to come (part 2)


spunko

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1 hour ago, Cattle Prod said:

Now crude inventories get interesting.

US is still at record inventories, but now not far above 2016/2017 levels. Did anyone out there predict that during the 'tank top' panic? And this is despite the ongoing stupidity of governments over Corona. 'Driving season' is over, and as you can see there is a seasonal increase from now into Q4/Q1. If you follow the colours, you can see where oil price crashed in mid 2014: the market called that right as from then on, blue runs into green runs into grey over 2015-2016 as inventories rose from 325 to 500. That's all it takes, a couple of % of consumption, wrt @sancho panza question on this. The increase in stocks here was 2.4% of annual consumption. You could of course have seen this a mile away, production coming on stream is very predictable: you just tot up the sanctioned project pipeline. Many saw it coming, including Art Berman. I didn't, and it's what got me interested in this side of the industry. Predicting decline, however, is much more subtle and technical.

What was happening was high prices 2010-2014 had stimulated shale supply (as well as a raft of megaprojects coming on stream from 2010 onward project sanctions elsewhere in the world).

My guess is (and dyodd, this is just my opinion) that we will see an unseaonal continuing drawdown some time in Q4-Q1. OPEC will continue to hold back shipments to the US till this happens I think, and the reality of shale decline will bite during this period. 

FWIW, EIA reported a reduction in US production today, right on cue, even though imports were up on the week.

image.thumb.png.b8406e0ea763c1cb45e908245a1214a5.png

 

Graph credit to @anasalhajji a very decent analyst, especially on the Middle East.

 

Thought provoking piece there CP.I've been working the last few days and as I was driving around remembered your psot a few days back about the options if we have to use horses to pull cars or labourers to get to the beach etc etc.A dark psot in my opinion as it really highlighted in simple terms how dependent we are on oil.Utterly dependent for the minute.Look at the price of food.How many electric tractors are there?Could they step straight in for diesel tractors?now ehre near is my guess.

Ever since you started dropping in my understanding has improved in terms of the effect of declining production,particualrly US shale(which consituted 83% of new oil supply 2009-2019).

Cut a long story short,riddle me this.......how come when oil is $39,BP/XOM/any big oilie is where it was when oil was sub $20 and heading sub zero? How do you explain that which at first appears a paradox?

 

I will admit,I'm musing on an outlandish set of options punts with some profits from recent PM sales.I'll update @MvR thread as and when,but the gambler in me sometimes loves a 10-1 shot and I'm doing my utmost to tlak my self into buying stocks here

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1 minute ago, MvR said:

Margin rates increasing ahead of expected increases in volatility.

This from Interactive Brokers just now.

 

Interesting so see.Looks like it could be a wild few months looming.

A month's wanring isn't much if direction changes significantly as a result.

How much of the market is traded on margin?iirc it's not much but it's been a while since I studied it.

Obviously they constitute the epitomy of the margins:ph34r:

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1 hour ago, DurhamBorn said:

Indeed,people need to let the cycle play out,adding to holdings on pull backs with divis etc.I expect by the end of the cycle we will see days where oil goes up $40 in a week and gas $2.I hope for a bit more pain though,prefer them to stay down or go down more when divis are landingxD ,i noticed today how well tobacco had done the last few weeks as well.

DB lot of people calling the dollar higher here but I can only downside as per Fed promises?Am I missing something?Flight to safety?Is it really the time for a flight to saftey?

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16 minutes ago, sancho panza said:

Cut a long story short,riddle me this.......how come when oil is $39,BP/XOM/any big oilie is where it was when oil was sub $20 and heading sub zero? How do you explain that which at first appears a paradox?

Same as gold miners, whilst some of it is current price the majority is what it will be in 1 month/6 months/1 years time.  The market never believed it would stay down at $20 for long (it was right), so didn't discount the oilers accordingly.

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19 minutes ago, sancho panza said:

DB lot of people calling the dollar higher here but I can only downside as per Fed promises?Am I missing something?Flight to safety?Is it really the time for a flight to saftey?

Dollar will go down once there is a new fiscal move from the government.Fed is waiting on that i think.Still see 90 and below on the dollar.Probably just under half way through the printing.More likely we over shoot than under shoot on the printing now.

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1 hour ago, sancho panza said:

a good friend what we were buying and now he's texting me worried he's down 10% on BP and Shell..........

Fucking amateur😭😭😭

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I’m not sure how the traders at work do it, just quoting what I’ve heard on the trading floor. I’d have been happy to ask about if I still had a job, but our government’s OTT Covid response put paid to that. That said, I would have thought that most of us lowly retail investors would almost certainly buy VIX futures or calls.

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4 hours ago, DurhamBorn said:

Indeed,people need to let the cycle play out,adding to holdings on pull backs with divis etc.I expect by the end of the cycle we will see days where oil goes up $40 in a week and gas $2.I hope for a bit more pain though,prefer them to stay down or go down more when divis are landingxD ,i noticed today how well tobacco had done the last few weeks as well.

Agree, even IMB showed some green shoots in my portfolio today...wonder how long that will last ?! :-)...and as for BATS, the only share that hasn`t gone red in six months!

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6 minutes ago, Harley said:

Straddles?

I wouldn't buy straddles personally.. the expected volatility is already priced in so they'll be expensive. Put calendars  ( buy a longer dated put, sell a shorter dated put at the same strike price ) are a cheap, low risk way to go long vol, though your profits are limited. Alternatively, long call spreads in the VIX ( or the UVXY ETF.. though bare(bear?) in mind UVXY is one of those synthetic ETFs that's constantly losing value except in a big vol spike, so timing is important.  There's another strategy I haven't experimented much with called a bearish butterfly which looks promising, in all but rapid up moves. Personally I find long vol trades hard to time, like timing the shorting of a stock. I'd rather wait until the the vol spike has happened, then go short vol.  That's mostly because it's what I'm used too though.   btw sorry for the single paragraph. my <return> key seems to be broken..

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1 hour ago, harp said:

Anyone buying this dip in PM's/miners/physical? Brutal last few days

Out of liquidity.

My RDSB ladders average 10.225...

Would like to ladder in sub 10 to get my average down.

But Mrs Panda wants her gold draped stuff back from the pawners.

Had some AUD finding it's home today at BP sub 2.4. But..

Mrs Panda says no.

That's me done. Out of ammo. Still. 

Come mid December, Marcus paying circa 0.7% my divis will be north of 4.7%.

Great. Thanks all. Awesome thread.

 

 

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12 minutes ago, MrXxxx said:

Agree, even IMB showed some green shoots in my portfolio today...wonder how long that will last ?! :-)...and as for BATS, the only share that hasn`t gone red in six months!

My Grandmother invested in stocks 'n' shares but only every bought tobacco and distillers ones as her motto was when times get hard people buy more whiskey and fags.

Always did very well with them.

Born just before WW1 she was in her early 20's during the great depression and raised my mother during WW2 and worked in a pub and then managed a transport cafe before Motorways were properly invented.

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1 minute ago, Chewing Grass said:

My Grandmother invested in stocks 'n' shares but only every bought tobacco and distillers ones as her motto was when times get hard people buy more whiskey and fags.

Born just before WW1 she was in her early 20's during the great depression and raised my mother during WW2 and worked in a pub and then managed a transport cafe before Motorways were properly invented.

Well perhaps someone needs to have a word with Diago...did a @YRS on me from day 1 :-) :-) :-)

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2 minutes ago, MrXxxx said:

Well perhaps someone needs to have a word with Diago...did a @YRS on me from day 1 :-) :-) :-)

She did exit the stockmarket 25 years ago though, when she kicked the bucket...

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3 hours ago, Majorpain said:

Same as gold miners, whilst some of it is current price the majority is what it will be in 1 month/6 months/1 years time.  The market never believed it would stay down at $20 for long (it was right), so didn't discount the oilers accordingly.

I get what youre saying there MP but I think there's I think the markets looking the worng way here and for me it looks like an opportunity that comes along once in a blue moon.

Assuming demand sticks to the EIA curve below(I'd tend to bet on over rather than under shoot),I don't think markets are factoring in the extent of US decline which is what @Cattle Prod might have been referring to earlier.

Short story long,OPEC could be in a strong postition to squeeze prices higher but that needs a more knowledgeable opinion.At the very least there doesn't appear to be that much slack on the production side given the clear drop in US production given equilibrium currently running at 94million bpd demand versus 91 million bpd production.US production has dropped 2.3 million bpd since March........

All of a sudden that implied 3% or so drop in US shales contribution to world production could be enough to create the sort of buzz that a 2% perceived supply deficit created back in june 2008...???

It seems to me that $40 WTI is a function of whterh US shale prod can be maintained

Highlights are mine.

https://www.eia.gov/outlooks/steo/report/global_oil.php

  • Brent crude oil spot prices averaged $45 per barrel (b) in August, up $2/b from the average in July. Brent prices in August were up $26/b from the multiyear low monthly average price in April. The increase in oil prices has occurred as EIA estimates global oil markets have shifted from global liquid fuels inventories building at a rate of 7.2 million barrels per day (b/d) in the second quarter to drawing at a rate of 3.7 million b/d in the third quarter. EIA expects inventory draws in the fourth quarter of 3.1 million b/d before markets become relatively balanced in 2021, with forecast draws of 0.3 million b/d. Despite expected inventory draws in the coming months, EIA expects high inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices. EIA forecasts monthly Brent spot prices will average $44/b during the fourth quarter of 2020 and rise to an average of $49/b in 2021 as oil markets become more balanced.
  • EIA estimates that global consumption of petroleum and liquid fuels averaged 94.3 million b/d in August. Liquid fuels consumption was down 8.2 million b/d from August 2019, but it was up from an average of 85.1 million b/d during the second quarter of 2020 and 93.3 million b/d in July. EIA forecasts that consumption of petroleum and liquid fuels globally will average 93.1 million b/d for all of 2020, down 8.3 million b/d from 2019, before increasing by 6.5 million b/d in 2021. EIA’s forecast for growth in 2021 is 0.5 million b/d less than in the August STEO. The downward revision is largely a result of lower expected consumption growth in China, which EIA now forecasts to grow by 1.0 million b/d in 2021.
  • EIA estimates that global liquid fuels production averaged 91.5 million b/d in August, down 9.7 million b/d year over year. The decline largely reflects voluntary production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+), along with reductions in drilling activity and production curtailments in the United States because of low oil prices. EIA expects global liquid fuels production will rise to an annual average of 99.3 million b/d in 2021.

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https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

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2 hours ago, Popuplights said:

Fucking amateur😭😭😭

The annoying thing is he's in lower down than I am xD:ph34r:.He's a very good frined and a very bright boy but goes to show you that investing isn't necessairly for everyone.

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5 hours ago, leonardratso said:

well fuck me, ive been trading in and out of NYSE:SPI for about 4 hours, £180 is now £1000, will i piss it all away before 9pm?

 

ended badly, nyse circuit broke it 2 or 3 times on sells and all momentum was gone, it dropped like a stone into the end and just went into bear trap for after hours, i managed to flog it all but probably only made £100 or so, still, never mind was just passively in and out of it anyways, i went in when it was already 700% up so i expected to get slaughtered, was higher that AH rise has gone, so glad im out. Now for a £100 quid pint.... oh shit... ok, how about a £100 steak in a restraunt... ah fuck.

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1 hour ago, leonardratso said:

ended badly, nyse circuit broke it 2 or 3 times on sells and all momentum was gone, it dropped like a stone into the end and just went into bear trap for after hours, i managed to flog it all but probably only made £100 or so, still, never mind was just passively in and out of it anyways, i went in when it was already 700% up so i expected to get slaughtered, was higher that AH rise has gone, so glad im out. Now for a £100 quid pint.... oh shit... ok, how about a £100 steak in a restraunt... ah fuck.

Easy come easy go. Well done for being philosophical about it.

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2 hours ago, MrXxxx said:

BATS, the only share that hasn`t gone red in six months!

I know, the thought of those poor bastards smoking themselves to death cheers me up no end.

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Per FT, big increase in private equity (PE) using loans to finance dividends.  For example, this month 24% of the money raised in the US loan market has been used by PE to finance dividends.  The two year average is 4%!

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47 minutes ago, Harley said:

Per FT, big increase in private equity (PE) using loans to finance dividends.  For example, this month 24% of the money raised in the US loan market has been used by PE to finance dividends.  The two year average is 4%!

ExxonMobil calling....

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