Category: Oil & Gas

Whenever the stock market, or commodity prices move, analysts and interested parties feel compelled to “explain” why it has moved one way or another via what could be called “Overton Rationalizations”. The Overton Window is a window of acceptable discourse, and the Overton Rationalizations are the window of acceptable causation.

For instance, if the price of oil goes up, there is probably some tin-foil hat nutter who thinks it went up because the reptilian space dominion wants to bankrupt individual consumers, driving them into homelessness so that these intergalactic masters of the financial universe can harvest livers in ghetto back alleys. That’s probably not the case (who am I to know really), but one thing we can say, is that it is not within the “Overton Rationalization” window. That is, the reptilian oil price causation theory is an extreme or fringe “cause” to explain a mundane (appearing) effect (the price went up).

Cause and Effect, in order to be considered thus, must be consistent. At least statistically consistent. The market, due to certain amounts of noise and a dependence of investor sentiment, is at least in the short term semi-stochastic, so some allowances have to be made for small errors in causation.

Within the Causationsphere of Oil Prices, we have something like this:

Apparently, a terror attack in Libya, endangering oil production further, has a negative effect on the price?

You’d think a direct terror attack, plus the devolving situation in Libya would at least merit an uptick or two?

Ahh, but here comes Reuters, to the rescue:

Ahh, I see, the rumor that the US might possibly kinda lift some sanctions of Rusal, which exports Aluminion leads to a fall in Oil Price because: “reasons”?

That makes so much sense…

No, actually, it really does not.

Here’s another fantastic point to consider:

The most disruptive thing to happen in the Middle East in nearly 100 years causes the price of oil to Fall?

Within days of ISIS declaring the new Caliphate, and seizing a whole shitload of territory. The price of oil went into free fall. Because of a magical “Oil Glut” that hadn’t been noticed until then.

Yeah.

The Price of Oil is not determined by the market

Oil is far too important a commodity to allow it to be determined by the market. It is also not a matter of it being singly controlled by the US, Russia, OPEC. It has to be more complex than that. It doesn’t mean it is “rigged” as in it is always up or down based on the whims of a bunch of cigar sucking oil execs, but it does mean that it is strongly influenced not by geopolitical events, but geopolitical strategy.

What the various actors are trying to accomplish has more influence on oil, than any single event.

If you remember, before the collapse of Oil Prices in 2014, the Russian Government built their entire national budget around the $80+ per barrel Oil price. In 2018, all of the sudden, they think that $80 a barrel cannot be justified. Yeah, sing me another one comrade.

What you are witnessing is masterful Kayfabe. Right now, Western Sentiment (The Face), is squarely against Russia (The Heel). Russia gets to play the reverse psychology game, by running in (even ahead of Trump) to champion a lower oil price. This is classic Sun Tzu behavior. Don’t look like you want something you want.

The forces driving up oil, mostly OPEC and Saudi Arabia/Russia in particular, during earning’s season, have created a unique historical opportunity. The manic exuberance of investors is not yet at peek hysteria so I believe there is still money to be made in this sector. My currnet price prediction for oil is that it will end up at $81-$84 within the next 3 months, or come very close to that.

I predict there will be a couple of bumps in the road, but that the main drivers behind the rally are desperate to raise cash in advance of geopolitical instability. Russia in particular desperately needs to balance the negative effects of sanctions against them, and the US needs as many people as possible deeply invested in the petrodollar to try and stave off China’s attempts to supplant them.

I don’t know who will win this fight, China is far more cocky than it should be, inspite of the gross incompetence of American leadership, America has historically had a margin for stupidity, whether or not the US has pushed it too far, I don’t know.

I expect socialists in Venezuela to continue running their oil production into the ground due to the upward adjustment of ideologically pure administrators. PDVSA is proud of its mixture of ideology and production, and like the Soviet Union, it will be awhile before the shit results have a significant number of people turning on their representatives. I expect Western countries to continue to try to push Venezuela over the edge, but Russian and Chinese interference is a distinct possibility throughout South America.

I expect that the failures of $TSLA are also contributing to the rally in fossil fuels, while I have started to look positively on the company for the long term future, the short term chaos in production has dealt a serious blow to the electric car activists, and that kind of rhetoric is less likely to affect weak minded investors.

The Yijing says: #56 Lǚ, Itinerant troops: 1st Changing line: The wanderer is trivial and petty, chopping up his position and seizing calamities.

A first impression is extremely important. Often it cannot be undone, and even if one can show one’s real intentions later, it will never be really convincing.

Update – $HP 10:45 AM

Holy Shit that was a scary drop no? That’ll teach me to open a position when the stock is pressing the upper Bollinger Band, I’m not much for technical analysis, but I had an inclination when looking at the chart that I should wait for a larger correction. Maybe that was my spidey senses tingling. Anyway, $HP dropped something like $1.80+ in 30 minutes. On the largest position I’ve ever opened. Yeah, that’ll do your head in.

Update – China in South America

Many people might not be aware of China’s forays into South America, as I mentioned earlier in the post. Then this comes out: China Sets Its Sights On First South American Refinery. Nobody expects The Chinese Inquisition. How do you say Struggle Session in spanish?

Update – $HP 10:10 AM

Massive selloff at the start of trading for $HP, down 40 cents in less than 15 minutes. Early volume to the downside. Man – red is scary sometimes.

Bullish sentiment returned to $HP, and I began looking favorably again at one of my favorite companies, Helmerich and Payne. After selling off my position in $DNKN for a tidy profit, I was looking for something else to trade. $HP had been ranging the day previously, and I was unsure about my Energy perspective that day (the 17th, perhaps wrongly considering the gap up of $BP), but new reports of declining inventories, and Saudi Arabia broadening it’s target price from $80 to between $80 and $100 per barrel was worth a second look.

A problem, emotionally, that I’ve been facing is lacking confidence in trade ideas. I spent so long waiting for Oil, I allowed my worries to get the best of me and was too timid to take a risk and hold a position over Tuesday. In August I was 6 steps ahead, on Mondays I was 1 step behind. I need to learn to calibrate that to only being 1-2 steps ahead of my trade ideas.

Time will tell, tomorrow could have a black swan event, or hell, just generally bad news, and I could get my face ripped off through my ass. Ah, the life of a retail trader. I’m seriously considering getting Anton Kreil’s equities course, just to have a more solid fundamentals and macroeconomic understanding of trading. I feel unsure about my positions because I can see there are gaps in my understanding about how it all fits together. Just having an opinion on world politics, or culture, doesn’t cut it. You need to have practical understanding of market mechanics, risk management, positioning and so on. And don’t say you can get it free on the internet, you can’t. I spent 2 years researching the markets and economics before I even opened a trading account and there are still fundamental gaps.

Anyway, today WTI consolidated 3.40% gains, ending up at a new high of $68.77 and closing on the gap with %BRENT trading at $73.81.

I waited for the dip at the end of the day, which is usual for $HP especially, and opened a new position at $73.99. $HP continued to fall with a massive selloff, people taking profit to consolidate gains. The end of day sell and buy volume dwarfed earlier moves, after opening my position, $HP fell to 73.48 before a final rally with 2 minutes left to trade gaining 11 cents to finish trading at 73.60.

Picking the bottom is always hard, sometimes with really bullish sentiment, $HP can rally much faster and higher at the end of the day. Chalk it up to my inexperience trading, but then again, catching that falling knife is a fool’s errand. I’m happy enough with my position as it is, and I look forward to tomorrows ups and downs. As long as the position continues to look good going into the coming days and weeks, I might stick with it for awhile.

My prediction is that $HP will make a new high before on or before Friday. I expect moves in the range of 1.5-2% to continue to be standard. Barring any bad news, $HP should do well, considering it is a favorite to beat earnings (practically a shoe in), so we’ll see how the market is affected by the expectation.

Here’s hoping the Oil Industry doesn’t rip my face off with a black swan event.

Accuracy Update 4/18/2018

Interestingly, Oil stalled, and BP didn’t go anywhere. Because I was unsure about the sector, I decided not to re-invest and have moved on to Service Restaurants sector. I am still keeping a close eye on the Oil sector, but it seems to be ranging for the time being. While Oil is progressing, stocks related to them such as $HP and $BP are stuggling.

Another reason I decided to leave the Oil & Energy sector for this week is that a lot of people became very positive/excited about Oil. I prefer to buy the rumor and sell the rally, once everybody starts being maximally optimistic (the Bulls win) I prefer to sell. This is I suppose, the Value Investing/Templeton approach, buy at the moment of maximum pessimism and sell at the moment of maximum optimism.

For the record, my stint from August 2017 to April 2018 in the Oil and Energy sector got me 20.1% return on my invested capital, which I am very happy with.


Original Article Follows

I was considering investing in $BP today. I decided to do an I-Ching and got #2 The Receptive, with changing lines 1 and 4.

When there is hoarfrost underfoot,
Solid ice is not far off.

Just as the light-giving power represents life, so the dark power, the shadowy, represents death. When the first hoarfrost comes in the autumn, the power of darkness and cold is just at its beginning. After these first warnings, signs of death will gradually multiply, until, in obedience to immutable laws, stark winter with its ice is here. In life it is the same. After certain scarcely noticeable signs of decay have appeared, they go on increasing until final dissolution comes. But in life precautions can be taken by heeding the first signs of decay and checking them in time.

A tied-up sack. No blame, no praise.

The dark element opens when it moves and closes when at rest. The strictest reticence is indicated here. The time is dangerous , because any degree of prominence leads either to the enmity of irresistible antagonists if one challenges them or to misconceived recognition if one is complaisant. Therefore a man ought to maintain reserve, be it in solitude or in the turmoil of the world, for there too he can hide himself so well that no one knows him.

Now I am curious.

My reading of the first part is that BP may not be a good long term investment. That couples with the second part which seems to indicate that BP is weak to antagonism from competing forces. As it stands now, $BP is trading at $42.78. I’ll be interested to see how and if this applies at all.

Here is an alternate reading:

Treading on hoarfrost, hard ice is arriving.

Every thing and every time has its Dao. The earlier one sees the signs of this Dao, the better one can act according to it. One’s degree of sight and insight decides about the direction one’s life might take. One’s ability to act in time decides if it actually will.
If you want to marry her, then go for it. But if you are not certain you want the solid ice, then now is the moment to save your ass. In both cases waiting a little bit too long can cause lots of suffering.

Enclosed in a bag. Without fault, without praise.

Don’t judge or choose about good and evil. It narrows the mind and makes it unfit to follow the time. Earth does not choose, it gives every being room for its own Dao.
Many things seem important but are not at all essential for life. Simply stop thinking about them and life comes back in all its splendor: because you keep silent. It is like watching wild animals, they come only if you are not-present, but part of them.