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Oil Breaking Below $50/Gundlach on Oil

Starting to get ridiculous. Additionally, one of the largest drops in decades (drop in last 6 mo is second largest in the last 28 years - http://www.zerohedge.com/news/2015-01-05/there-moar-blood-wti-crude-plunges-40s ) can't be because we suddenly realized we had too much supply.

http://www.zerohedge.com/news/2015-01-05/jeff-gundlach-if-oil-drops-40-geopolitical-consequences-could-be-terrifying
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Comments

  • Australian Energy Giant Makes Bid for Canadian LNG
    By ARI CHARNEY on JANUARY 2, 2015
    In discussing the deal with Apache, Woodside CEO Peter Coleman said the firm had been patiently awaiting this moment for the past three years.

    “We’ve been preparing ourselves–our cash commitments are low, and we have a huge amount of optionality in our balance sheet,” Coleman recently said.

    And now that Woodside is in the catbird seat, expect more to come.

    “We have taken a disciplined and patient approach to identifying the right growth investment,” Coleman said in the deal’s announcement. “We are now in a position to take advantage of challenging market conditions and use cash reserves and existing debt facilities to acquire very high quality assets.”

    In a bear market, cash is king, not only because it offers downside protection, but also because it provides the liquidity necessary to take advantage of market dislocations.

    We expect other well-capitalized energy majors to swoop in with offers for assets or firms as a whole.
    http://www.investingdaily.com/21850/australian-energy-giant-makes-bid-for-canadian-lng-2/
  • beebee
    edited January 2015
    Just a few thoughts:

    We have heard / read about the hoards of cash that Corporate America has been holding. What better way to hedge input costs than by investing some of this cash into oversold commodities.

    In a world of printable weakening currencies even sovereigns might see a strategic value in exchanging printable and weakening yen, renminbi, and euros (cash) into real assets.
  • edited January 2015
    bee said:

    Just a few thoughts:

    We have heard / read about the hoards of cash that Corporate America has been holding. What better way to hedge input costs than by investing some of this cash into oversold commodities.

    In a world of printable weakening currencies even sovereigns might see a strategic value in exchanging printable and weakening yen, renminbi, and euros (cash) into real assets.

    One of the things that has held up so well during this period of commodity deterioration are the commodity exchanges (CME, ICE) as the volatility has resulted in increased volume. ICE remains a long-term holding for me.

  • @scott
    You noted: "can't be because we suddenly realized we had too much supply"

    At times, one may and I consider; that these circumstances tumble right out of the pages of a decent political thriller. Perhaps there are the large monied folks, you know; the ones whose names we don't hear or read attempting to arrange a few geo-political areas. A re-do of the near past for a country or group here or there. Nothing like a good revolution to spin the winds of power.
    And Mr. Gundlach is not incorrect. Too much downside can and would be dangerous regarding black gold.

    Lastly, not all conspiracies are theory.

    Take care,
    Catch
  • We should take anything from Zero Hedge with a grain of salt. First, the author cannot even spell MORE correctly, and these kinds of articles and situations tend to inflame the masses over there. Just read the comments.

    Yes it is something to watch. Is it the end of the world? Not likely.
  • edited January 2015
    Hi @JohnChisum

    Urban dictionary sourcing:

    moar

    1. A combination of "more" and "roar".

    Comments are always very rough at ZH. And yes, I even tend to listen to our government speakers/politicos with a grain of salt, too. Seldom sure about who is speaking/writing the truth. Hell, ZH is probably a schill front for the SEC, NSA or CIA or???. Would be my plan if I wanted to track a certain group of folks.

    And speaking of strange, not that this is the first time; but the largest change I have seen. Unleaded gas had moved to $1.55/gallon last night and remained at that price until 1pm this afternoon then was raised in the whole area to $2.10/gal. How's that for a rate change?????????? That tis a 35.48% rate change.
    Take care,
    Catch
  • I can't keep up with all these changes to the English language.

    I see the Nikky has performed the customary bow and is now settled in for the day.
  • edited January 2015
    @JohnChisum
    See that Taiwan and Aussieland a bit rough, too.
    Stange Days have found us again........................
    Glad to still have friends in Bondland !
  • Yes Australia is partaking of the pain. I see that crude oil is trying to be positive after US hours albeit just slightly. Up 12¢ at the moment.
  • Former Oil exec"The Coming Oil Glut" by Maugeri, Leonardo stated in 2012 that oil prices would fall because of surging supplies brought on by massive investment in production starting in 2010.

    http://belfercenter.ksg.harvard.edu/publication/22484/coming_oil_glut.html?breadcrumb=/publication/22145/new_study_by_harvard_kennedy_school_researcher_forecasts_sharp_increase_in_world_oil_production_capacity_and_risk_of_price_collapse

    In Nov 2014, he stated that he expects oil to stay in range of 65-80 over four- or five-year cycle. So balance of power shift to US, China.

    http://www.chicagotribune.com/sns-wp-blm-news-bc-oil-assess20-20141120-story.html#page=1

  • edited January 2015
    @equalizer
    Thanks for the above links.Very informative concerning the geo-political ramifications rippling through markets and governments world wide.Far from over.Saudis to continue the price war at the well head !
    Saudi slashes monthly oil prices to Europe; trims U.S., ups Asia
    NEW YORK Mon Jan 5, 2015 8:23pm EST (Reuters)
    "The Kingdom's move to cut its OSPs has been perceived by many traders as a signal of its decision to abandon efforts to shore up falling crude oil prices and, instead, focus on maintaining its share of key markets.

    “The moves are reinforcing that the Saudis just don’t intend to do anything to rebalance (price) levels," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

    Benchmark Brent oil prices held on to earlier deep losses following the publication of the Saudi OSPs (official selling price)on Monday, trading at around $53.50 a barrel, down $3 on the day.

    Some analysts, however, have said they see the changes in monthly differentials as a simple reflection of deteriorating market conditions, not an indicator of policy.

    One trader said that the cuts to Europe may be a result of trying to price out West African barrels from Europe."

    http://www.reuters.com/article/2015/01/06/us-saudi-oil-price-idUSKBN0KE1HS20150106?feedType=RSS&feedName=businessNews

    Ewart: Producers around the world – and in Canada – still pumping oil at record rates
    STEPHEN EWART, CALGARY HERALD
    Published on: January 6, 2015Last Updated: January 6, 2015 6:12 AM MST
    Investment bank Morgan Stanley said production is set to increase in West Africa and Latin America as it warned oil markets are poised for “more trouble” in 2015 as the supply glut grows.

    So much for all the worry about “peak oil” a few years ago.

    The oil market is so well supplied at this point U.S. producer ConocoPhillips apparently added to the bearish price sentiment Monday by simply announcing it had struck oil in the North Sea.

    Canada is producing close to 4 million barrels a day — a record level.

    “Nobody wants to blink first in terms of cutting production,” Craig Fehr, a Canadian markets strategist at Edward Jones in St. Louis, told the Canadian Press.

    Energy consultants Wood MacKenzie published a report last week that warned close to $60 billion of investment in Canadian oil and gas projects — mostly in the oilsands — could be deferred over the next three years if oil prices continue at the current levels.
    http://calgaryherald.com/business/energy/oil-markets-hit-by-supply-glut-more-than-oil-producers-for-now
  • Commodity stocks in Australia getting whacked. BHP Billiton down over 5% at the moment. The others are not much better.
  • Oil tried to be positive but finally gave in and is now below $50 a barrel in trading.
  • edited January 2015

    Commodity stocks in Australia getting whacked. BHP Billiton down over 5% at the moment. The others are not much better.

    BHP not that far from 2008 low. If you think they don't cut the dividend and have a long (and potentially loonnnnggg) time horizon, it's interesting.

    Oil tried to be positive but finally gave in and is now below $50 a barrel in trading.

    It's the same thing that's been seen all the way down - oil tanks, recovers a little/moderately, tanks again, recovers somewhat, tanks again. I believe this is considered the "Whack-a-Mole" technical pattern. Any which way, I thought the $50 level would be defended - guess not.

    Don't worry though, the White House is monitoring whether the drop in oil prices is having an effect on the stock market.

    http://thehill.com/blogs/blog-briefing-room/news/228514-white-house-watching-drop-in-oil-prices-stock-market

  • Well if the White House is keeping an eye on it then I shouldn't need to worry.

    Yah right.
  • beebee
    edited January 2015
    What's are deep value investors buying as a result of these deep value opportunities?

    One strategy, as a long term investor, is to diversify some profits into deep value stocks (or bonds).

    One deep value metrics is identifying "stocks trading below liquidation value." Most small investors don't possess the tools to identify these individual companies, so find resources that can ( @Scott, @Ted, @Charles...or a good deep value fund manager).

    The following article discusses the process of diversifying into deep value stocks. The article was written a few month ago (Sept 2014). Taking profits, whether as a result higher wages or strong investment returns, need a segregation mechanism by saving these higher wages or taking profits from an investment. They then need to be reinvested into deep value ideas. So, if you are experiencing a boom, in wages or in a particular investment, it might be worth considering:

    "Diversifying into stocks trading below liquidation value verses merely a index fund. It's not simply the act of diversifying into stocks that matters. Choosing select stocks that conform to the value investment criterion also makes a difference in terms of optimizing performance over the long term."

    Article:
    oil-versus-deep-value-investing-smack-down

    Large Cap Value fund choices:
    money.usnews.com/funds/mutual-funds/rankings/large-value

    Mid Cap Value fund choices:
    money.usnews.com/funds/mutual-funds/rankings/mid-cap-value

    Small Cap Value fund choices:
    money.usnews.com/funds/mutual-funds/rankings/small-value
  • bee said:

    What's are deep value investors buying as a result of these deep value opportunities?

    Or I could buy Oaktree (OAK), Blackstone (BX) or other private equity investors who have been buying up distressed bonds and other energy assets. Oaktree did not fare well last year, but given that they are the world's largest distressed investor and aspects of the market are starting to show some signs of stress, it's picking up. Plus, Howard Marks as chairman.
  • edited January 2015
    Fund manager Hodges picking up oil bargains amid energy rout
    Jan 6 2015, 11:19 ET | By: Carl Surran, SA News Editor
    Craig Hodges, co-portfolio manager of the Hodges Blue Chip 25 Fund, says he is going bargain hunting in the beaten-down energy sector because he sees oil eventually rebounding toward $80-$90/bbl.
    http://seekingalpha.com/news/2207675-fund-manager-hodges-picking-up-oil-bargains-amid-energy-rout

    Blackstone places a bet on oil
    Jan 2 2015, 11:49 ET | About: The Blackstone Group L.P. (BX) | By: Stephen Alpher, SA News Editor
    It was less than a month ago when Blackstone (BX +0.3%) Chairman Steven Schwarzman told a conference the time was nearing to put a lot of money into energy, and today his firm's GSO Capital Partners committed up to $500M to help fund oil and gas development for Linn Energy
    http://seekingalpha.com/news/2203045-blackstone-places-a-bet-on-oil

    Conclusion to Howard Marks' Oaktree Capital December Memo © Oaktree Capital Management, L.P.
    All Rights Reserved
    Memo to: Oaktree Clients From: Howard Marks
    Re: The Lessons of Oil
    In particular with regard to the distress cycle, confident and optimistic credit markets permit the unwise extension of credit to borrowers who are undeserving but allowed to become overlevered nevertheless.
    Negative subsequent developments can render providers of capital less confident, making the capital market less accommodative. This cycle of easy issuance followed by defrocking has been behind the three debt crises that delivered the best buying opportunities in our 26 years in distressed debt. We think it also holds the key to the creation of superior opportunities in the future.
    We’ve argued for a few years that credit standards were
    dropping as investors chasing yield became
    less disciplined and less discerning. But we knew
    great buying opportunities wouldn’t arrive until a
    negative “igniter” caused the tide to go out, exposing the debt’s
    weaknesses.
    The current oil crisis is an
    example of something with the potential to grow into that role. We’ll see how far it goes.
    For the last 3½ years, Oaktree’s mantra has been “move forward, but with caution.” For the first time in that span, with the arrival of some
    disarray and heightened risk aversion, events tell us it’s appropriate to
    drop some of our caution and substitute a degree of aggressiveness.
    December 18, 2014
    http://www.oaktreecapital.com/MemoTree/The Lessons of Oil.pdf
  • edited January 2015
    Enterprise Product Partners (EPD), 42nd consecutive quarterly dividend increase (+5.7%), stock still down -5.5%.
  • edited January 2015
    Too much energy? It's starting to look like that $5 we were paying at the pump a couple years ago was just a bad joke. Played on us by whom?

    I recall gold loosing about 70% of its value over an entire decade. Many said that was because the metal is so highly speculative. Here we are watching oil do the same swan-dive - not over a decade, but in 6 months. I don't like it --- because I don't think it portends well for the economy or for any of the financial markets (except Treasuries). Sure hope I'm wrong. Wait and see ... But an old saying: "In case of emergency, crack open bottle and pull out Fed."

    BTW: An ounce of gold will still buy you a nice suit.
    A barrel of oil might buy a pair of cheap shoes to go with the suit.:)
  • edited January 2015
    "I recall gold loosing about 70% of its value during an entire decade. Everybody said that was because the metal is so highly speculative."

    Or perhaps because raising the interest rates into the double digits created a complete washout, then gold gradually gained steam again over the years as we now find ourselves with interest rates in the low single digits. Gold had been up for quite a few years straight - having it down last year is not really all that surprising.

    "Wait and see ,,, But. an old saying: "In case of emergency, crack open bottle and pull out Fed."

    They want inflation. Having oil drop somewhere in the neighborhood of 60% in 6 months makes me not only not believe that they will raise interest rates this year, but if this continues, stimulus could be back on the table. Additionally, how many trillion in QE and we're having this discussion about oil falling more than half in half a year? (Cue the true believers saying, "that would be because it wasn't enough QE.")

    "because I don't think it portends well for the economy or for any other financial markets (save maybe Treasuries). Sure hope I'm wrong."

    I'll still say that oil dropping 60% in 6 months is not "we suddenly woke up and realized we had all this supply." There has to be more at work than that, IMHO.
  • edited January 2015
    @Scott: Good comments on gold. (Meet Paul Volker:). But, I think the speed with which this price change occurred is highly unusual in financial markets. Not unheard of I guess ... but highly unusual.

    Have any other major market sectors ever dropped (1) more than 50% (2) in less than 6 months?
    Maybe ... junk bonds? EM stocks & bonds? Tulip bulbs?
  • Yes, energy...

    image
  • FWIW: Maybe it's time to raise the gas tax !? Do you think anyone would notice or gripe!? It would help with jobs. From what I hear , to many repair jobs ( bridges), & not enough dollars.

    Good investing, Derf
  • You'd never succeed in politics Derf.:)
  • The user and all related content has been deleted.
  • edited January 2015
    Michigan's going to vote this spring on whether to increase the gas tax to repair our roads.

    Damn it's hard not to get cynical about these things. Got a new $35 million dollar football coach at our largest university. But there'll be plenty of cars parked out in the stadium lot with bent wheel rims from our third-world highways.:) Oh - and we got the heaviest weight limit in the nation for the big rigs.
  • Same here
    MADISON, Wis. -

    Fitzgerald says Senate won't approve gas tax hike
    Published On: Jan 05 2015 04:26:35 PM CST

    Republican Senate Majority Leader Scott Fitzgerald says he doesn't believe Republicans who control the Senate will vote for a gas tax increase to help pay for roads projects.

    Fitzgerald said Monday he doesn't think the votes are there for the gas tax hike as proposed by the state Department of Transportation. Raising gas taxes was part of a $751 million package of tax and fee increases proposed by the department to plug a shortfall.
  • Hey Mo: Automatic annual gas tax increase is a crock of do do !! How did it pass the first time around? TSP_Transfer check out Janesville to see they're handling the pot holes.
    Derf
  • As long as the state's don't dip into that highway fund for other purposes. (WA state)
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