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Monday, December 5, 2016

Oil going to $70..... in 12 months

I have been an oil bull for some time. Those who saw my posts at Dumbmoneytracker would know that. I am also a bull on the Oil Stocks/Gold stocks  and Oil to Gold ratio over the next 12 months.


This morning we saw the usual asstalking from zerohedge, documenting how OPEC production hit a high.
http://www.zerohedge.com/news/2016-12-05/opec-oil-production-hits-new-all-time-high-brent-surges-16-month-high


For the past 3 months ZH ran multiple articles showing how oil was going to breakdown like it did in 2015....when that failed they throw this nonsense.
ZH is about 2 clicks away from the ludicrous Gold bugs..so I lump them in the same category.


Here is the real oil situation.
1) Current Demand is 300,000 barrels lower than supply. Estimates have it even higher than supply in some cases.
2) Expected demand increase is 1.0-1.2 Million barrels per day next year.
3) OPEC plus NON-OPEC have agreed to cut around 1.5 Million barrels a day of supply.
4) Mega Projects coming online fall off a cliff in the 2018-2020 time frame.


By December 2017 I expect the market to be in a 2 Million Barrel plus deficit. At the minimum we will see $70.
\Will OPEC Cut? I think they will . The talk has been about the shale oil in US but the real hit to supply has been the Mega Projects and those have been gutted left, right and center.
Stay long the oil bull. Don't get cute and don't try and short this. It will rip your balls off.

23 comments:

  1. I agree about shorting oil at this point, although I will be trading in and out, while holding a core position for now. Probably lighten the load around 60.

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  2. ZH is more of a misinformation site than a news outlet.

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    1. True. But they are indirect Gold Bugs so they deserve my highest level of disrespect. Gold goes up " Look the system is collapsing!!!!!!!!" Gold goes down "Look somebody sold $5 billion worth!!!!!!!"

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  3. Sold 1/4 Eur/USD longs at 1.0789. Up 200 pips. Loved this trade. Stop on remaining now at 1.058. Not losing money on something that has been so good.

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  4. Gold filled the gap. I have unloaded my remaining NUGT at 8.69 and will hold silver for now. Probably by GDX on the right price action.

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  5. If real rates start rising around the world......Gold will be under tremendous pressure. I am hoping we get a good counter trend before that happens but I have my finger on the trigger ready to take profits.

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    1. It will take some real rate increases to have any serious effect on gold. Not this .25 point crap. I'm skeptical whether the present economic and debt climate will lead to that.

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    2. I have to disagree for a few reasons.
      1) It is not the 25 basis point short term move but the move in the 10 and 30 year bonds that is the bigger driver.

      2) The impact is much more from a low base. Going from 2% to 3% is offering pension funds and savers 50% more interest.. a piddly amount overall but still a 50% increase. From 10-11% would be just a 10% increase.

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    3. Very true. I'll wait to see if this monster bond bull is really over.

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  6. I grabbed a 1/4 NUGT at 8.42 before but am exiting at 8.58 for quick scalp. Sorry for lag in posting, but I do have a life.

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  7. The relationship between bonds and gold is certainly very confusing around this timing.

    Around now is an 8 year cycle low in gold, but it also coincides with a very possible decades long bond cycle low (I'm talking about 20-30 year long term bonds, not short term duration bonds).

    So it's possible that something similar to 1976 could occur, where bond rates go up, and gold paradoxically also goes up.

    Or the gold cycle low could extend another half year to 8.5 years, as bonds and dollar keep moving up, and gold could make a double bottom or a lower low, in a continuation of its bear market.

    I felt strongly about buying gold in August 2015 for a likely move up, as the dollar took a hiatus, but I'm unsure around here.

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    1. Look at real rates and the relationship becomes a tad more clear.
      If Long term yields go up but inflation rises faster...Gold should do well.
      If long term yields fall, but inflation falls faster...Gold will do poorly.

      You can run the other combos :)

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    2. This might help.
      http://goldsilverworlds.com/wp-content/uploads/2012/11/real_interest_rates_vs_gold_price_1970-2012.jpg

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    3. Thanks a lot, very interesting. I don't know how to judge real inflation relative to bond rates though.

      I bought the gold sector on 10/7, because I thought Trump may win, and that the next gold cycle low may fall higher, due to his inflationary policies.

      I had thought Trump would win the popular vote, but would struggle with the electoral college. But his campaign manager confronted that head on and focused heavily on Midwestern states, so then I thought Trump really would likely pull it off.

      But I wasn't sure about that early November election timing, because that's a very mild 8 year cycle low, despite pro-inflation fundamentals.

      So I got the election right, but only my short bonds and long dollar reacted well, and the rest I got wrong. :)

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    4. You got the big stuff right...that is all that matters :)
      For Inflation use full CPI (not core) for the last 1 year and subtract that from 10 year and 30 year yields.

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  8. Well I see a potentially very interesting conversation brewing here. Unfortunately I need to concentrate on the market for potential last hour action opportunities. Then followed by the fact that we got some more snow last night and this morning so out to try and get in a little skiing. I'll check back in this evening if life permits to continue the enlightenment.
    Good luck.

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    1. Have fun and good luck trading in the last hour!

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  9. Any oil stock picks to load monday? Already have rig, cpg, bte, ne. Wondering if i should just add or look elsewhere.

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    1. Not sure what is right for you,but I own ESV, NE, CPG, OIH and some canadian juniors.

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  10. No chance to load anyhow, they went crazy. Haha

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  11. This comment has been removed by the author.

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