Tag Archives: China

Why Oil Is A Broken Market Ripe For A Short

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Summary:

  • Oil is trading at a premium based on historical data points.
  • U.S. supply is beginning to come online again.
  • Increased oil demand Oil for energy demand in the EU is likely only temporary.
  • Global recession risk is rising.
  • The Iran deal is likely to close.

For some time now, I have believed the oil market to be broken, where data is ignored and outdated core beliefs of the market rule. I first took action on this belief on March 15, 2022, when I initiated a short position in WTI crude (CL1:COM) using WisdomTree WTI Oil 3x Short Daily ETP in USD ($3OIS) through a margin product. I have since sized up my position on 13 separate occasions. I don’t usually disclose my position in such detail, but I believe such a controversial issue must be read with disclosures in mind.

Before diving in, I need to clarify that this article will focus on WTI crude prices, and any reference to oil price uses the price of crude.

For ease of reading, this article will be broken into seven separate points:

  1. Oil is trading at a premium based on historical data points
  2. U.S. supply is beginning to come online again
  3. Global recession risk is rising
  4. Increased oil demand for energy in the EU is likely only temporary
  5. The Iran deal is likely to close
  6. Russian oil is still flowing
  7. Conclusion and risks to thesis
Click here to read the rest on Seeking Alpha

Excel Source Documents

  1. 01-04-1985_to_08-05-2022_Weekly_Analysis_of_U.S._Crude_Oil_Stockpile_Days_Versus_Futures_Price.xlsx
  2. 1972_-_2021_Oil_Production_v_consumption_v_population_v_median_annual_price.xlsx
  3. 1983_to_08-08-2022_Weekly_U.S._Field_Production_of_Crude_Oil.xlsx

Disclosure: I/we have a beneficial short position in the shares of CL1:COM either through stock ownership, options, or other derivatives.

Additional disclosure: While I express my opinion in this article, only you can determine if a specific strategy is right for your portfolio. You should always do your own research before buying, selling, or shorting any stock. Any charts, graphs, or tables not specifically credited to another individual, company, or institution were created by the author using his own research.

While I am not directly shorting crude oil, I have invested in a 3x reverse daily ETF using a margin like product that enables me to profit when crude oil decreases in price. This is an incredibly risky method of investing even experienced investors should think hard before initiating.

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Chasing the Elephant Episode One: Let the Fed Eat Cake

21 Saturday Oct 2017

Posted by in Individual Equity Analysis

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We have released the first episode of the new bi-monthly (fortnightly) exclusive Seeking Alpha podcast! This podcast is the first to be exclusive to Seeking Alpha ever so, please check it out and let me know your thoughts.

  • Interview with Seeking Alpha Contributor Yale Brock on his long pick The Cheese Cake Factory.
  • Roundtable discussion on the upcoming Federal Reserve meeting and the implications of a rise in interest rates.
  • Featuring Seeking Alpha Contributors Yale Bock, Richard Berger, and host Russell Katz.

https://seekingalpha.com/article/4115130-chasing-elephant-episode-one-let-fed-eat-cake

Daily News Breakdown 1/26/2016

26 Tuesday Jan 2016

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  • Daily Market Update
    • The Dow ended the day up 282.01 points or approximately 1.78%.
    • The S&P 500 ended the day up 26.55 points or approximately 1.41%.
    • The NASDAQ ended the day up 49.18 points or approximately 1.09%.
    • Oil ended the day up $1.11 at $31.45 a barrel.
    • Gold ended the day up $14.90 at $1,120.20.
  • Additional News

API Weekly Report:

The American Petroleum Institute reported today that crude supplies increased by 11.4 million barrels for the week of January 22, 2016.  Tomorrow the more significant EIA report will be released.  Meanwhile, as shown above, the price of oil still ended the day up $1.11 a barrel.

China Oil Demand:

Today state-run China National Petroleum Corporation announced their forecast for China’s oil demand growth for 2016.  The forecast cut demand growth from 4.8% last year to 4.3% for 2016.  CNPC also forecasted China’s net crude imports to grow by 7.3% compared to last years growth of approximately 9%.

Conflict in the Middle East:

Today Syrian government forces recaptured a “strategically important” town in southern Syria.  Syrian’s government forces have made significant gains during the recent weeks as Russian airstrikes continue to destroy their opposition.  As President Assad’s government continues to further entrench itself with military victories and the West and its allies remain steadfast in their demands for President Assad to step down the future of Syria remains frighteningly in the shadows.  For more information click here

Escalating US and Russian Tensions:

The Kremlin has officially demanded proof from the US Treasury after Adam Szubin, a US Treasury sanctions official, made an on the record comment to the BBC accusing Russian President Vladimir Putin of being corrupt.  While the United States has put sanctions on a number of Russian officials in the past the United States government has never gone so far as to place sanctions on President Putin himself.  For more information click here

Recommended further readings:

More bad news from investor who called $30 oil a year ago (CNBC)

IMF Welcomes China’s Devaluation of the Yuan

15 Saturday Aug 2015

Posted by in Commentary

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The International Monetary Fund has welcomed China’s devaluation of the Yuan due to their economic need for more exports.  On August 11, 2015 the People’s Bank of China announced the move from a tightly controlled currency to one more controlled by market forces.  The IMF has reiterated the need for China to move towards a more market based currency before China’s recent devaluation in a report published on July 7, 2015 they stated that a free-floating currency is

necessary for allowing the market to play a more decisive role in the economy, rebalancing toward consumption, and maintaining an independent monetary policy as the capital account opens

China recent move towards a more market based currency is clearly an attempt by the country’s government to boost exports after July’s export numbers tumbled 8.3%.  When looking at numbers coming out of China, like July’s export statistics, it is important to remember that they are impossible to verify and are commonly believed the be at least a little manipulated.  After the massive monetary policy shift from the People’s Bank of China one should assume that China’s economy is likely in worse shape than they are currently letting on.

Recently China’s economy became the biggest in the world and with these troubling numbers coming out of China investors should watch them like a hawk.

For more information on the IMF click here

Daily News Breakdown 8/12/2015

12 Wednesday Aug 2015

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  • Daily Market Update
    • The Dow ended the day down 0.33 points or approximately 0.00%.
    • The S&P 500 ended the day up 1.98 points or approximately 0.10%.
    • The NASDAQ ended the day up 7.60 points or approximately 0.15%.
    • Oil ended the day up $0.22 at $43.30 a barrel.
    • Gold ended the day down $15.90 at $1,123.60.
  • China Blast Kills at Least 17 People

Two blasts rocked the Chinese port of Tianjin on Wednesday as over 300 people were injured and at least 17 people were killed including four firefighters.  The first blast was approximately three tons of TNT while the second was approximately 21 tons of TNT.

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Source: The BBC

The Chinese State controlled broadcaster China Central Television announced that a shipment of explosives had detonated.  However, like all news that comes out of China this cannot be independently verified.  The truth is we will most likely never know what happened on Wednesday.  For more information click here

  • More News From Today

For the rest of today’s earlier news click here

China Weakens Yuan Again

12 Wednesday Aug 2015

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The People’s Bank of China on Wednesday set the price of the yuan 1.60% lower than Tuesday’s price for 6.3306 per United States dollar.  The continued move lower versus the dollar by the People’s Bank of China shows just how committed China is to continuing to battle the United States for economic supremacy.  It is also important to remember that China is a communist country and because of their political system they have a smaller number of people who the leader, Xi Jinping, needs to keep happy and he can only continue to do that if the money continues to flow.  Therefore, this could also be seen as a move to stabilize the economy to continue the communist’s hold on power.

Daily News Breakdown 8/10/2015

11 Tuesday Aug 2015

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  • Google is now Alphabet

Google announced on Monday that they were forming a parent company called Alphabet.  Don’t worry this is not a splitting of the company Google, but rather a more streamlined consolidation of the company as a whole.  As we have seen recently Google has become more of a Berkshire Hathaway than just a search engine as they have dabbled in everything from cars to extending life indefinitely.  But what does this mean for investors?  In truth not much in the short-term; investors who currently own Google will just have their shares transformed into Alphabet stock and will keep their current number of shares.  However, in the long run we can look forward a company that is more focused as the parent company structure allows each department to coexist separately rather than a jumbled mess.

For a more detailed analysis from Jim Cramer click here

  • Shake Shack Earnings Beat the Street

Shake Shack released its Q2 2015 earnings on Monday and destroyed Wall Streets estimates of 3 cents per share on $43 million in revenue with $48.5 million in revenue on 9 cents per share.  The stock, in after hours trading, is up 7.73%.

  • People’s Bank of China Lets Yuan Depreciate

The PBOC set Tuesday’s Midpoint at 6.2298 per U.S. dollar which is a decrease of approximately 2% from Monday.  For a more detailed account click here

  • Gold Above $1,100 Again

Gold reached as high as $1,108.80 on Monday the highest price since July 21, 2015.  This was due to a less than expected jobs number released last week.

  • Oil Ends the Day Up

Oil ended the trading day Monday up 2.48% at $44.96.  This was due to an outage at a refinery in Whiting, Indiana due to a malfunction on Saturday.  However, the rally was short-lived as oil is now down 0.80% at $44.60.  The rally on Monday should not cause anybody to think that oil has hit the bottom.  Always remember to look at the bigger picture; in this case Saudi Arabia, Iran, and United States’ drillers.  Oil has not reached its bottom and I would not care to guess where that is until we receive accurate and definitive numbers out of Iran.

  • Kyushu Electric Power Restarts Reactor At Sendai Plant

After the 2011 Fukushima disaster all of Japan’s nuclear plants were shutdown for safety inspections and evaluations.  Since the plants were shutdown Japan began to rely on the importation of fossil fuels to power the country.  Even though over $100 million has been spent on fitting new safety equipment to the reactor there are still large protests over the restart of the power plants as Japan is in an earthquake prone area.

  • Australia to Cut Emissions

Australia has pledged to cut greenhouse gas emissions by 26% to 28% below 2005 levels by 2030.  As more countries pledge less reliance on fossil fuels is this the end of oil dominance?  I think so.  For more information please click here

Daily News Breakdown 8/8/2015

08 Saturday Aug 2015

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  • Apple’s Fall Unveiling

Buzzfeed reported that on September 9, 2015 Apple’s (AAPL) will host its annual fall unveiling of new products.  While this date has not been confirmed by Apple Buzzfeed cited sources familiar with Apple.  CNBC reported that a new iPhone, Apple TV, and possibly an iPad Pro were to be announced.  If these are the only new products that Apple is releasing I believe this should be cause for concern.  Since Steve Jobs died Apple has not come out with a single revolutionary product and has not conquered any new markets.  The Apple Watch was, in my opinion, a testament of how Apple no longer sets the trends but rather follows them.

  • Verizon Announces New Phone Plans

Verizon recently announced they will no longer be offering the option to subsidize a phone in return for signing a two-year contract.  Under the new plan options the consumer pays $20 per month per smartphone line and must choose between one of four data packages.

  1. $30/month for 1GB of shareable data
  2. $45/month for 3GB of shareable data
  3. $60/month for 6GB of shareable data
  4. $80/month for 12GB of shareable data

This announcement is a clear move to combat attacks by rival T-Mobile who made a similar move two years ago.

  • China’s July Export Numbers Disappoint

China’s July export numbers added to China’s continuing economic troubles falling 8.3% versus the estimated 1%.  The decline in exports was led by demand from Japan falling 13%, the European Union 12.3%, and the United States 1.3%.  The common consensus surrounding numbers that come out of China is they are generally, at least to some degree, falsified.  This lends the question is the Chinese economy in much worse shape than China is letting on?