Tag Archives: Oil

OPEC Production Cuts are a Joke

OPEC countries are reliant on oil and the cash flows they receive by selling oil at any price.

There will be no agreement to curtail supply. Reality and the incentive to cheat will trump talk and fantasy every time. What’s even more hilarious is that this time around they are inviting non-OPEC producers to cut production. These guys are gold:

LINK: Who Exactly Will Cut?

The oil market seems to be catching on lately as Brent oil is off around 12% from its mid-October highs:

brent

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They’ve Talked The Talk. Can They Walk The Walk?

The price of oil has surged recently on talks of production restrictions by OPEC and Russia:

Brent:
oil

At the Schroders conference in Lisbon in September, someone made a very interesting remark: “if the OPEC guys actually thought they could pull off production cuts, the price of Brent would be up through $60 on insider trading…” I had never quite thought of that ‘insider trading’ dynamic, but it makes sense:

1) An OPEC minister or a proxy calls his broker in London
2) Buys oil futures
3) Broker gets the hint, piggybacks on the trade.
4) This starts happening at a number of London brokers
5) Oil price gets driven up on evident insider trading

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A Note From Chief Maverick

Here’s link to my mentor and uncle Mal Spooner’s most recent post. Mal has over thirty years experience managing investment portfolios, founded and ran an award winning mutual fund company and is now a professor to students that probably can’t believe their luck in landing a prof like him.

In this post, he cuts to the heart of the matter about equity valuations and oil prices. Having invested in and financed oil companies throughout his career, Mal possesses a fundamental understanding of the oil industry that goes far beyond the daily permutations of the price of oil. There is a massive difference between charting oil prices and having gone to visit countless drilling installations and understanding the realities of the oil business.

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Oil & Stocks: Time to Break Up

The corollary dynamic between oil prices and major stock indices is one of the more confounding trends in financial markets right now. This article sums this complicated relationship nicely.

LINK

To expand upon the theme of lower oil prices being a benefit to consumer, it is worth pointing out that two years ago, American consumers were paying $4 per gallon at the pump. Now they are paying $2 per gallon. Therefore, filling up the tank on an SUV has gone from $120 to $60. If you filled up your tank twice a month, that’s an extra $120 in your pocket every month. To borrow from one of the commentators in the article – that’s a lot of Starbucks! (Actually, my illustrious uncle Mal pointed out the gas price/Starbucks trade to me over a year ago. Great call Mal!)

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Pessimism -vs- Optimism… And a Brief Comparison of Hysterical Oil Prophecies

When I began my career as an institutional equity trader in Canada fourteen years ago, commodity prices where just about to make one of the most fantastic runs in market history. China was rising – and it was hungry. Hungry for the copper that would be needed for millions of miles of power lines. Hungry for the uranium that would power their new power stations. Hungry for the nickel and iron that would create the stainless steel needed for millions of cars and household appliances. Most of all, China was hungry for the lifeblood of modern industry and economic growth: oil.

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