03-31-2020, 04:52 PM
(03-31-2020, 03:41 PM)fenders53 Wrote:(03-31-2020, 03:20 PM)vbin Wrote: I am chest deep in oil.and ready to go neck deep. We will see super cycle in oil once demand comes back and high debt companies have filled ch 11( don't get me wrong, I am not happy people leaving jobs but that's what will happen unfortunately. )
Not that you have ever listened to me before on oil but........... Wait for a little more blood in the streets. We are getting close. Nobody is out of business yet, hardly anyone has cut a dividend yet. Capitulation has not happened yet.
What is your thesis that oil demand recovers anytime soon? That has to happen in a big way. You believe the virus is doing VERY real damage right? (your short positions say you believe that and you put your money where your mouth is). That thesis absolutely flies in the face of oil being anything but treacherous for many months. We know demand is dead for a good while. I can only think of one way the supply chain is disrupted and nobody is in the mood to start a regional war right now IMO. The US GOV will do absolutely nothing to raise gas prices in an election/recession year. That would be political suicide. They might fill up the strategic reserve. There is enough oil floating off shore in storage to cover that in a month or less.
I will never invest another nickel in oil until companies are panicking. It has to be starting but I haven't seen it yet.
WTI is down 66% since January. I don't think we have lost 66% of the economy before my LEAPs expire in 2022. That is my thesis. That is overly simplistic, but that is the thesis in a nutshell.
Energy traders are smart folks. I know quite a few. The folks who trade futures contracts for WTI are well aware of the economic consequences of COVID-19, the supply chain disruptions and demand shocks, Russian/Saudi attempts to bankrupt American shale producers, and the sudden filling of tankers with oil that can't profitably be sold. Crude is fungible, prices itself in real dollars according to global demand, and is the primary input of most of the world's industry. It is, for the most part, an instantaneous readout on what the economy is doing right now, like RPMs on an engine.
If any investing space appears to be accurately reflecting the current screeching halt in industry and commerce, my estimation is that crude oil and industrial metals is that space. Unlike the S&P 500, WTI has gone straight down by 2/3 since January, reflecting the huge dropoff in demand and increase in supply. Sure, it might drop down to $15 or so on a panic day. Likewise, it could easily pop to the high $20s on the tiniest bit of good news.
I think $5 USO LEAPs will do alright in this environment. Contango is always a risk in such situations, but I think there are going to be some huge up days for crude at the first inklings of good news.
Unlike the RPM gauge of crude pricing, I don't think broader equities markets have yet digested and priced risk. There's a lot more push and pull there, with different guesses as to what the forward-looking outcome may be. Those market makers don't ultimately need to sell a commodity right now (in a way which affects futures pricing for that commodity).