TFN eNews: “Goldilocks” market for oil?
Published via e-mail broadcast on December 7, 2009
In today’s TFN eNews:
* How long will perfection last?
* China demand will push up prices
* Stop-losses: Andrew’s take
Dear TFN eNews reader,
Are current crude oil prices “juuust right”?
Saudi Arabian Oil Minister Ali al-Naimi seems to think so. He said today that at $70–80 per barrel, crude oil prices are in the “right range.” No need to curb production. No reason to push it, either.
The price level around $80 was somewhat of a magic number last year. The world over, governments in oil-producing countries had built their 2009 budgets around it. For the first half of the year, that turned out to be quite optimistic. Oil prices began falling in August of 2008 and kept falling all the way to March lows. Demand followed suit as the “First World” countries saw their economies grind to a halt.
But while the U.S. economy continues to shed jobs, global oil demand hit rock bottom last May. Now, it’s well on its way up again.
Current consumption is actually almost 5% higher than it was last year!
Oil demand in 2010 is expected to rise sharply, mainly due to growth in Chinese and Indian oil consumption.
The “consensus” opinion is that oil demand will grow by 1.3 million barrels per day (bpd). At the same time, supply will increase by only 800,000 bpd.
The 500,000 bpd surplus of demand over supply is expected to drain 150 million barrels out of oil inventories by the end of 2010.
*** China is not only buying up commodities like crude oil to make use of its stash of depreciating dollars. It’s been using its huge export earnings to fuel domestic consumption.
It’s now increasing its efforts to increase its crude oil and natural gas production in the western part of the South China Sea.
But this will take time: Cnooc, China’s third-largest oil company, plans to expand its output in the area to 20 million cubic meters — by 2015
In the mean time, China is expected to use 8.3 million barrels of oil a day this year. That’s 9.8% of global consumption and 46% of Asia’s total demand. Based on the historical rate of increase, China may account for half of Asia’s oil demand next year!
And that’s not taking into consideration the growing consumption of gasoline by private consumers: China has been stoking domestic consumption by tax incentives and direct and indirect subsidies. The middle-class dream of owning a car is becoming reality for thousands of Chinese households.
Can you imagine what this will do to prices?
The TFN Hot Stock Confidential team has pulled together a concise report, including three oil-related companies that won’t just benefit from the 2010 oil boom… they actually pass on a big share of their Fofits to shareholders. Find out more right here… http://www.todaysfinancialnews.com/HSC/OIL/EHSCKC06.html
*** Last week, while reviewing our open positions, the TFN team got into a heated argument. No, all chairs remained “four on the floor” and no pottery was airborne. But like any discussion involving both principle and principal, the exchange was spirited.
And it wasn’t even about politics! Let TFN’s “calming influence” Andrew Snyder present his point of view!
“When it comes to investing, there are almost as many profit strategies as there are stocks to invest in. Everybody’s got their opinions, and many of them will make you money. But nothing is more agreed upon than the notion of a stop loss.
Last week, Christoph, Laura, and I got into what turned out to be an hour-long discussion of our various exit strategies. It was interesting, to say the least. Of course, our opinions are highly biased. As publishers, portfolio managers and trading-service operators, our actions sometimes stray from our philosophies. I won’t bore you with the details of our discussion, but I will let you in on our conclusion.
“In this top-heavy, data-sensitive market, stop –losses are more important than ever. The basic notion of a stop-loss, setting a firm sell point, has been beaten to death amongst financial pundits. There isn’t an editor or advisor out there that has not written about or discussed the subject.
“I will give you the details of how I manage the idea of how to get out and when: There are two uses for a stop-loss, protecting an investor from significant losses and locking in gains in case a position turns around and heads south. Whether you use a plain-vanilla stop-loss or a dynamic trailing stop doesn’t really matter. What matters is at what price your exit is set to take place.
“For many investors, 15% is a popular stop-loss for conservative plays, with 20% or even 25% used for more volatile plays. With any stop-loss, volatility is an important, if not the most important variable. That’s why I propose a stop-loss strategy with volatility as the key determinant.
“As traders, we have many ways of determining volatility, but the most common form (which is far from perfect) is through measuring beta. This statistical measurement shows how an asset’s price moves in relationship to a standardized baseline. In almost all cases, the S&P 500 is that baseline. If a position has a beta score of 1, it moves in line with the broader market. If the figure is above 1, the asset is considered to be more volatile. Less than 1, the asset is less variable. And anything below zero moves the asset moves inversely to the market.
Like I said, it is not a perfect measure of volatility, but it works.”
Want to see proof? Let Andrew walk you through the numbers:
*** Shocking Prediction for 2010: “Crude oil will hit $150 a barrel”
These 3 reasonably-priced companies not only will pass most of their profits on to shareholders… but stand to gain 20%, 50%, even 100% as oil prices soar! Read on… http://www.todaysfinancialnews.com/HSC/OIL/WHSCKC01.html
*** Quote of the Day:
“If we can prevent the government from wasting the labors of the people, under the pretence of taking care of them, they must become happy.” — Thomas Jefferson
Recommended Reading:
3 Penny Stocks With Winning Potential
Stop-loss strategy: When to pull the trigger
Today’s Top 3 Financial News Stories:
MoneyNews.com – Unemployment, Foreclosures to Hamper Recovery “Now that the Great Recession appears over, the economy looks to be entering a Rocky Recovery, in which much of the nation will continue to struggle well into 2010.”
FT.com — Gold extends correction as commodities retreat “Gold prices fell on Monday, extending their correction, while oil prices dipped and base metals retreated as commodity markets made a weak start to the new trading week.”
Bloomberg.com — Yen, Dollar Rise on Rate Outlook, Gold Falls Most in 14 Months “The yen strengthened and the dollar rose to its highest level in a month against the euro as investors weighed whether the world economy is recovering fast enough to warrant higher central bank interest rates. Gold headed for the steepest two-day retreat since October 2008.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Next Article: A lot to think about today
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