Facing the Reality of a Bear Market

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When will this be over?

By Dan Dicker, Oil & Energy Insider:

Oil’s been in a bear market for more than a year – we’ve known that. But now the stock market is entering its own bear market, which changes everything about the way we now need to watch and trade energy stocks. It’s going to make for a very tough year for me.

I am a lousy bear market trader. That only makes sense, considering I made my money trading oil on the floor from 1983-2007. Except for a relatively brief three year period in the late 80’s-early 90’s (when I struggled quite a bit), oil was in a one-sided bull market, traveling from the high teens to over $140 in 2007 as I pulled up stakes and left full-time oil trading –  right before the big collapse.

During the few bear market corrections in oil during my time on the floor, I would sell, but only for very short periods, remaining uncomfortable on the short side and dreaming of the bull market to come, when I would really score.

This ‘style’ carries over to my oil stock positions today, where I have for the past year looked for value moments to buy quality oil stocks – and watched them painfully go a lot lower.  I made a mistake in thinking that the market would only punish overleveraged marginal producers with less than stellar acreage, leaving the good ones alone:  I pointed out more than a dozen ‘walking dead’ U.S. producers as early as December 2014, and reiterated the call in March of 2015, warning investors to keep their powder dry and wait for value on what I called ‘the survivors’.

But the market hasn’t shown the ‘balance sheet discipline’ I thought it would – Recommendations of EOG Resources (EOG) at $72, Hess at $50 and Cimarex at $92 finds shares of each today at $64, $49 and $81 – and a lot of capital invested at pretty bad numbers.

The plus side is that, if you’ve followed me, you’re not in any of the oil stocks I think are not long for this world – you’ve not put money in Halcon (HK) or Sandridge (SD) or Goodrich (GDP) or any of the many others I’ve labeled as goners. And I still believe that the survivor class I’ve found will be fantastic investments – once this bear market is over.

And that’s the point, isn’t it – when will this bear market be over? In oil, I’ve already said that I think things don’t get substantially better until at least the 3rd quarter of this year, which if you poll the rest of the oil analysts out there is incredibly optimistic – most don’t even see 2017 as a likely turnaround for oil. I think they’re wrong, but let’s look at the stock market in general for a second.

A bear market in stocks is one we need to come to grips with, because I think we’ve proven that it’s upon us. China growth numbers are finally going to meet reality and our markets are ready to see the kind of multiple contraction that the end of the 6 years of Federal Reserve “Zero Interest Rate Policy (ZIRP)” is likely to bring.

Going back to our oil stocks, we are in a relatively better place, if only because 2015 was such a disaster for oil – you could rightly argue that much of the contraction in P/E’s to come has already taken place in the oil patch in the last year.

But we can’t fight on in that environment very happily either – while stocks in general may drop another 15 percent from here, it won’t make us feel much better to see our oil stocks only go down by another 8 percent or 10 percent.

So what do we do?

One thing I won’t do is add shares to positions. But I’m also not selling – not yet.

One attribute of bear markets, and especially an oil market which has gone parabolic to the downside, is the almost sure quick rebound, short covering blast. It’s not usually a small one and doesn’t signify a bottom either, although that will be the first question from everyone in the media when it appears.  What it does signify is the fact that everyone has gone the same way at once (as the oil market is today) and is being punished for it.

We need to wait for this move – it’s coming, believe me – and then lighten our positions into it. I am looking to sell shares on many of my oil positions near recent entry points, taking a small loss, and sell calls slightly above those entry points on the rest – leaving a core position in place. With our positions stabilized, we can again wait for the signs that the bear market we’re entering in equities, as well as oil, is moderating, and again look for spots to buy our favored oil stocks for the inevitable turnaround I am still so convinced is coming.

Because I’m still pretty much the same exact trader I was in 1992 – dreaming of the next bull market, when I’ll make my big score. And I won’t ever leave myself in a position to miss that. By Dan Dicker, Oil & Energy Insider

Turns out, the resilience of fracking unexpectedly extends the timeline in this oil bust. Read…  Even Bankruptcy Can’t Slow US Oil Production Much, it Seems

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  36 comments for “Facing the Reality of a Bear Market

  1. Peepot
    January 17, 2016 at 3:14 am

    I find it hard to imagine there will be a turn around — the central banks have blasted the planet with stimulus and we are pushing on a string now.

    Where will the demand for oil – and other commodities come from?

    The consumer is dead. You can only build so many ghost cities. There are no good jobs being created. Everyone is up to their ears in debt.

    I simply see no drivers going forward.

    We are at the beginning of a deflationary death spiral – the one that Bernanke fears.

    Everything that could be done to try to fend off this moment has been done.

    Oh perhaps we will get some more helicopter money directly into the consumers pocket but that will have limited effect – and it will be short lived.

    This sucker is going to down.

    The last thing I am concerned about is how my investments are going to perform

    I am more concerned about how I am going to stay alive in the world of chaos that is imminent

    • Nicko
      January 17, 2016 at 4:04 am

      It’s not the end of the world, for example, Airbus just sold over 100 aircraft to Iran, the day sanctions were lifted. Some economies are still growing out there.

    • Robert
      January 17, 2016 at 10:30 am

      “Central banks have blasted the planet with stimulus.” Not exactly- what the Fed has done is provide the very banks that own it trillions in practically interest-free money (they still charge their cardholders double digit rates) which they have sat on, waiting to pick the bones of the oil and resource producers on the rocks (where did the idea of Fed as Good Fairy start?). Yoshua had it right when he wrote “The shale oil industry will go bankrupt and investors will lose money, but the shale oil industry will be taken over by new owners[the banks, or their hedge fund subsidiaries] for pennies on the dollar.”

      • Peepot
        January 17, 2016 at 9:30 pm

        Not exactly.

        Have you looked at what has been happening in China — literally trillions of dollars of stimulus have been hosed into the Chinese economy since 2008.

        As for Fed QE that has most definitely entered the economy — have you looked at the hundreds of billions that have gone into stock buy backs — those have driven up stock prices which has been very stimulative.

        And look at the bond market — interest rates have been driven to ZIRP — do you not think that this has had an enormous stimulative impact on the economy? Imagine what the economy would look like with 5% interest rates.

        Have you noticed that nearly 30% of all new car sales are to subprime borrowers at record low interest rates over record low terms — where do you think the banks got the money to extend such loans — what do you think would have happened to the economy if you stripped out 30% of all car sales?

        I could go on and on and on…

        Of course this money that has been churned out by the Fed, ECB, BOJ, PBOC has had incredible impacts on the economy

        Q: What do you think has caused the massive bubble across all asset classes?

        A: Massive amounts of cash flooding into the global economy from QE — coupled with ZIRP.

        And now QE is pushing on a string – the piper wants to be paid.

        Get ready to die

      • d
        January 18, 2016 at 3:17 am

        “The shale oil industry will go bankrupt and investors will lose money, but the shale oil industry will be taken over by new owners[the banks, or their hedge fund subsidiaries] for pennies on the dollar.”

        He is not the only one saying that.

      • saylor
        January 18, 2016 at 11:03 am

        Until the price of oil rises to support the higher cost of production of these particular hydrocarbons, buying into this industry is not going to happen.

        • d
          January 18, 2016 at 8:58 pm

          So you wont buy something for 20% of it real (not today’s inflated market value) value, as it is not currently making a profit.

          Dont let warren buffet hear that, he may laugh himself to death, in this economic climate he and his kind are very useful and important.

        • Peepot
          January 18, 2016 at 9:12 pm

          Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes.

          Nearly half of the industry needs more than $120,” he said


          One would have to be a fool to be long the oil industry….

        • d
          January 18, 2016 at 9:55 pm

          100 – 120 oil is not what they need, it is what they want, to run easy uneconomic wells, at a huge profit.

          @ 50 many of the lower margin fracking plays, are still profitable.

          80 + oil, is speculation and fear. just like gold, manipulated and untenable.

          One of the Ignored and denied Economic contraction Elephants, is that the huge profits on 80 + oil, flowed to the ME and Russia, went into hoards, got wasted on nuclear weapons programs, or otherwise did not continue, in the normal economic flow.

          Just like china with its huge hoards of Gold, Metals Treasury and foreign cash it obtained by unfair trade practices. The stopped it flowing, and now they complain the west is not buying enough.

          Look at the hoard’s in Russia the greater ME and China, then look at western debt, if you cant see it, you have a problem.

          The only thing to do with oil plays that need over 70, is shut them down.

          Just like gold plays that need over 1100, no point in running them.

          @ 20, Kuwait can still pump full bore, as their lift costs are average 6 which still give a GP over 200%.

          You may be a shill for 100 + oil.

          The only thing that has stopped a huge Economic implosion, and still is, is sub 35 oil.

          In this global Economy, 100 + oil = BIG War.


        • Peepot
          January 19, 2016 at 1:08 am

          Based on your take on the situation then let’s say it costs Apple $20 to produce an iphone.

          Do you think Apple could sell the iphone for say $25 and turn a profit?

          Of course not.

          Just like if it costs $40 to extract a barrel of oil you could not turn a profit selling it at $45.

          There are other costs including exploration for new fields — CAPEX, OPEX, royalties, taxes, dividends etc etc etc….

          Countries like Saudi Arabia need massive amounts of money to pay for their social programmes to keep their citizens from hacking the heads off of the leaders…

          I am not shill — I am posting research and cold hard numbers….

          Try reading through these articles if you would like to understand the situation.

          Marginal oil production costs are heading towards $100/barrel

          Bernstein’s energy analysts have looked at the upstream costs for the 50 biggest listed oil producers and found that — surprise, surprise — “the era of cheap oil is over”:

          Tracking data from the 50 largest listed oil and gas producing companies globally (ex FSU) indicates that cash, production and unit costs in 2011 grew at a rate significantly faster than the 10 year average. Last year production costs increased 26% y-o-y, while the unit cost of production increased by 21% y-o-y to US$35.88/bbl. This is significantly higher than the longer term cost growth rates, highlighting continued cost pressures faced by the E&P industry as the incremental barrel continues to become more expensive to produce. The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. Assuming another double digit increase this year, marginal costs for the 50 largest oil and gas producers could reach close to US$100/bbl.

          While we see near term downside to oil prices on weaker demand growth, the longer term outlook for higher oil prices continues to be supported by the rising costs of production.

          This is important because, as Bernstein analyst Neil Beveridge and colleagues note, the cost of producing marginal barrels of oil plays a big role in determining oil prices.

          We’d add that the expectations of said costs also play a big role, but that’s another story… and anyway, the Bernstein team argue their point pretty strongly with this chart:


          The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth.


        • d
          January 19, 2016 at 2:18 am

          Those “Sources” you site are “Tainted” by the oil cartels that had them produced.

          China stopped the internal price fall of its oil at 40 ( as the dollar was still rising that’s probably around 37 today). As below that point it gets harder for their local producers to remain profitable. As most chinese oil is expensive to extract and process.


          The chinese state taxes imported oil, to raise it to the local cost. Then claims the tax revenue will be used for “Alternative energy industry’s” to placate the WTO. That revenue will simply disappear into the, very in the red state coffers

          Plenty of oil out there is cheaper to extract and better quality than than chinese oil.

          Global oil pricing sets the price from the most expensive so that the cheaper producers can gouge at will.

          Which is what you are supporting.

          The producers that can not compete at 20 must cap their uneconomic wells and leave them capped, until true demand, not manipulation makes them economic.

          Not demand OPEC raise prices, or use Iran fear to manipulate prices up into the stratosphere again.

          The sunni states would rater give oil away and hope they can eliminate some of the US shale drilling companies, than shoot at, or see, a fully nuclear armed iran, with the liquidity from oil @100.. In the near term oil is going sideways, or down, US shale will make the new global oil cap well under 100 for many years to come. Get used to it.

          The oil industry that has been Systematically GOUGING the global consumer, is going to see some long overdue Darwinism.

          We haven’t seen peak oil, we may be at peak demand, for oil.Soon somebody must do a little better than Elton Musk and crack hydrogen fuels wide open.

          Time for uneconomic producers of gold and oil, to have their price manipulative cartel’s, that ensure them profits, smashed.

        • Peepot
          January 19, 2016 at 9:55 pm

          Try this article — the author is an actuary with no connections to the oil industry whatsoever:

          A person often reads that low oil prices–for example, $30 per barrel oil prices–will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it:

          Oil producers can’t really produce oil for $30 per barrel

          A few countries can get oil out of the ground for $30 per barrel. Figure 1 gives an approximation to technical extraction costs for various countries. Even on this basis, there aren’t many countries extracting oil for under $30 per barrel–only Saudi Arabia, Iran, and Iraq. We wouldn’t have much crude oil if only these countries produced oil.

          More http://ourfiniteworld.com/2016/01/19/why-oil-under-30-per-barrel-is-a-major-problem/

        • d
          January 19, 2016 at 11:12 pm

          Keep stepping backwards, and one decade you may strike reality.

          I haven’t suggested oil should stay artificially low, to stimulate the economy, and wouldn’t. That is Keynesian, and Keynesian dosent work for anybody, except Keynesians.

          I am saying expensive to run operations must fold, not have the price driven up, to make them profitable, which is Keynesian manipulative gouging. (See Below)

          When oil is high, it drives everything else high, EXCEPT WAGES.

          If you want long term 100 oil YOU HAVE TO AT LEAST DOUBLE WAGES in developed country’s, or the whole thing is unbalanced, and unsustainable.

          Same as single generation housing affordability, it is coming to the end of its sustainable scale, and must implode UNLESS WAGES AT LEAST DOUBLE.

          Since the, 80’s real wages, and real wage purchasing power, has continuously gone down, whilst oil and everything else driven buy it, has gone up.

          There is currently no demand to justify 100 oil. Further 100 oil is not short , let alone medium term, sustainable, without a MASSIVE increase, in real western wages.

          Oil will not stay @ 20 or 30 for decades (unless the Sunni Shiite oil war, stays cold, that long), I am not advocating such

          There is plenty of oil (Supply) to sustain world demand, at under 65. Further fracking will keep oil under 65 FOR DECADES.

          Unless, Manipulators, speculator, and fear merchants, are again, allowed to rule the oil price. Which you advocate.


          Many of the fracking operations are not currently profitable under 35. Due to their debts and debt service costs. Many of them will go bankrupt.

          The fields will not go out of production, simply change hands.

          The new Owners will not have those debts, or their service costs, and will be able to sell profitable, at less than the old operators.

          How much less?

          You need the average US fracking brake even, after the coming financial restructure heading for the industry. Put a margin on that, and it could be your oil price ceiling, for decades. I guarantee you it is closer to 43 than it is to a 100.

          Non US oil producers, will still do well at that price as they sell in US $.

          The current US $ Strength, is all that is keeping some Au gold mines Working. Gold mines (Particularly Open cast) like fracking, are not that expensive, to turn on, and off, with the price fluctuation.

        • Peepot
          January 20, 2016 at 2:14 am

          It is actually pretty simple:

          The price of oil must be in excess of $100 or most producers will stop producing.

          The economy cannot tolerate oil priced anywhere near $100 because it destroys growth.

          The central banks understand this — that is why they poured massive stimulus into the economy starting in 2002 or so when the price of oil started to climb over $35.

          Stimulus – including debt, subprime lending, QE ZIRP offset the impact of high oil prices for over a decade.

          But the central banks are pushing on a string.

          All commodity prices have collapsed because the economy is damaged beyond repair now.

          As we are seeing these low prices are not stimulating demand — demand continues stagnate — or even drop.

          The central banks are out of ammo.

          We are in what is known as a deflationary death spiral.

          And it was caused by the fact that the low-hanging fruit of the oil tree was picked — and all that’s left is the expensive to extract stuff.

          Get ready to die.

          Because there is no way out of this.

          The symptom will be another massive financial crisis — many times worse than 2008 — and the central banks will be powerless this time…

          Because they have used up all their ammo trying to delay this for as long as possible.

          Think of Peepot when this unravels and you are eating boiled rat under an overpass.

          This is as good as it gets so best to make the most of it

        • Peepot
          January 20, 2016 at 2:19 am

          “Many of the fracking operations are not currently profitable under 35. Due to their debts and debt service costs. Many of them will go bankrupt.

          The fields will not go out of production, simply change hands.”

          Wrong – most of them are not profitable without $100+ oil. I have given you the evidence of this – you prefer to ignore all the other costs associated with running an oil company.

          So if that is the case what is the point of buying an asset that needs $100+ to break even — when the price of oil is at $30?

          Even if the price were $1 you’d be losing $70 on every barrel you pumped out of the ground

        • d
          January 20, 2016 at 3:21 am

          As they are only US fracking fields, it wont matter if they stay closed will it. Overdue Darwinism.

          You are in conflict with Buffet on this, my money says. Buffet knows what he is talking about, and you dont.

        • Peepot
          January 21, 2016 at 3:41 am

          Warren Buffett’s Berkshire lost $11 billion in market selloff

          Warren Buffett says he’s lost $2 billion on IBM

          Buffett certainly wins the award for having the roughest year – as his position in Berkshire Hathaway took a $7.8 billion hit.

          Warren Buffett Is Losing His Mojo

          “Last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie [Munger] or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.”


        • d
          January 22, 2016 at 1:57 am

          Berkshire can afford to, and will sit it out, I guarantee they take more shale fields as well.

          They will come out the other side ahead as they did not Finance their conoco purchase.

          The taxpayer will be eating those warren/Berkshire losses on conoco for a while.

        • Peepot
          January 22, 2016 at 4:48 pm

          The point is was making is Buffett is frequently wrong.

          I do not kowtow to him or any other ‘financial expert’

          I prefer to do my own thinking and come to my own conclusions. If they do not line up with those of Warren Buffett, then I will assume Warren Buffett may be wrong – again.

          Unlike others who seem to be unable to reach their own conclusions, who invoke the name of some famous person and expect others to immediately turn 180 on a position.

          I call this the ‘Paris Hilton syndrome’ It is a powerful force in America

        • d
          January 23, 2016 at 12:42 am

          Warren isnt wrong on oil, he just did a, https://en.wikipedia.org/wiki/Meredith_Whitney and was early, which can be just a fatal. But will not be in his case.

          Watch them take Conoco, or force it into a consolidation where they come out ahead, or use it a a vessel to take a large segment of the shale industry.

          Either way, the only people who will loose anything from this deal are, the tax payers.

        • Peepot
          January 23, 2016 at 4:23 am

          Early and wrong as the same thing.

          Name dropping is a lame way to try to argue a point.

        • d
          January 23, 2016 at 4:41 am

          Early and wrong are not the same thing watch Berkshire turn a profit on conoco, They wont be paying any tax this year.

          Whitney alerted a market sector, that was complacent, a lot of small people, will bail those munis, before they go pear-shaped, thanks to her.

          Guarantee you a lot of people still in Puerto Rico, wish they had paid more attention to her, 18 months ago.

          Name dropping????? now if I said I was talking to warren/whitney, and they said you might have an argument.

          Warren is easier to write than Berkshire and easier to remember. He is a good person, so we use his first name.

          Whitney was a CNBC Hack ,who may be a 1 hit wonder, timing wise, Jury still out on that.

        • Peepot
          January 25, 2016 at 3:01 am

          So he turned a profit on conoco — see the billions he lost on the other trades that I referenced.

          The point being he gets things WRONG.

          He’s not doing so well these days is he….

          Maybe Obama has stopped meeting with him and handing over tips so he can front run…..

          End of the day — don’t piss on people just because they Warren does not agree with the position.

          That is just lame

        • Peepot
          January 20, 2016 at 3:05 am

          The problem is that if oil prices rise then that destroys economic growth and we end up right back where were started.

          Of course oil prices have been collapsed for over a year now and we are not seeing the expected stimulative effect on growth.

          So don’t expect demand for oil to surge. Which means oil prices aren’t likely going anywhere but further down.

          Oil producers cannot cut because they need cash flow. Just like all other commodity producers cannot cut.

          They need to produce MOAR to make up for the drop in prices.

        • d
          January 20, 2016 at 3:35 am

          “Of course oil prices have been collapsed for over a year now and we are not seeing the expected stimulative effect on growth.”

          Actually you are, the oil price drop prevented a consumer implosion in the US holiday season. Other parts of the world are only now starting to see real relief at the pump and you already want to manipulate oil unnecessarily back over 100.

          Outside the US a lot of people have learnt a little, what they are doing with those saving is clearing debt.

          The global economy is going to keep on going sideways and down until the china lie, along with all the corruption, and malinvestment that goes with it, flows out.

          Or china starts a shooting war, which it will blame on others, to resolve many of its internal problems, in a cloud of secrecy. Like it did when it entered the war in Korea.

  2. Peepot
    January 17, 2016 at 6:43 am

    Heard of the Baltic Dry Index? Analysts warn 70% crash of key world trade barometer to record low shows global economy is grinding to a halt

    Read more: http://www.thisismoney.co.uk/money/markets/article-3401567/Key-barometer-world-trade-crashes-record-low-worrying-sign-global-economy-grinding-halt.html#ixzz3xV7H4urM

    Commodity Prices Are Cliff-Diving Due To The Fracturing Monetary Supernova


    This is Where Industrial Production Normally Meets a Recession

    Painful – that’s how you can describe the slew of recent US economic data. And today’s data dump was even worse.

    On a regional level, there was the Empire State Manufacturing Survey. The Current Activity Index plunged to the lowest level since March 2009. The last time it had squeaked into positive territory was in July 2015. The Expectations Index plummeted by an unprecedented 29 points, also to the worst level since March 2009.

    Thank God it’s only regional. But wait…. California’s Inland Empire Purchasing Managers Index, which tracks manufacturing in the Inland Empire, started losing its grip in August and in December plunged to the lowest level since the dark days of February 2009.


    Q4 Will Be The Worst U.S. Earnings Season Since The Third Quarter Of 2009


    You might want to stick the cork back in the champagne bottle….

  3. Yoshua
    January 17, 2016 at 6:55 am

    The shale oil industry has brought 5 million barrels per day on line in the U.S, which has reduced imports with 5 million barrels per day. This has brought the oil price down and reduced the trade deficit through import cuts and through price cuts on the remaining imports of oil. This has strengthened the dollar and since oil is traded in dollars the oil price has fallen even further down.

    The fall in oil prices has hit oil producing emerging markets and their currencies have fallen with the fall of the oil price. The fall in the value of their currencies has made their oil production cheaper since their production is in their own currencies, while the sale of oil is in dollars. The fall of the value of their currencies has made it possible for them to continue their oil production.

    The U.S shale oil production is in dollars and a strong dollar makes the production of expensive shale oil even more expensive to produce compered to conventional oil produced in weak currencies by emerging markets.

    The oil producers in emerging markets have dollar denominated debt to service on falling revenues from oil with falling oil prices.

    The shale oil industry will go bankrupt and investors will lose money, but the shale oil industry will be taken over by new owners with pennies on the dollar who will continue the production and the oil war will continue.

  4. January 17, 2016 at 7:12 am

    “Turns out, the resilience of fracking unexpectedly extends the timeline in this oil bust.” That resilience is going to be like being sick at your stomach, but going for seconds, and end up with foodborne botulism.

    • d
      January 19, 2016 at 2:34 am

      True, except it will be Third’s, Fifths and possibly Eighth’s spanning decades, I think as the franking Tech, can be applied to older smaller and disused fields in may places. Close to existing refining and consumption points.

      How dry are some of those old fields, when you apply fracking tech and the tech to come to them?

      And as Yoshua correctly states many of those fracking plays will be a lot more profitable for their next owners than they are for their current ones. As the next ones will own them @ 20% of true cost (APP).

  5. Uncle Frank
    January 17, 2016 at 10:57 am

    It didn’t take long…
    Middle East stock crash wipes £27bn off markets as Tehran enters oil war

    Prospect of the Islamic Republic pumping an additional 500,000 barrels a day sends stock markets in Dubai and Saudi Arabia into tailspin


  6. Ptb
    January 17, 2016 at 12:13 pm

    I heard an analyst last week saying that global trade had slowed for the first time in 30 years. I guess China was the last bastion of growth and now that they’ve started to slow down, we’re all going to go with them. Except most of the rest of the world is slowing from a much lower level.

  7. B Tilles
    January 17, 2016 at 12:40 pm

    Commodity markets like oil are tough to figure out because there are lots of variables: supply, demand, storage, interest rates, international tensions etc. But we know supply is abundant and may get worse with Iran re-entering the markets. (Is this really news, I.e. isn’t it already priced in?). I think this is where a lot of us continue to be surprised by the resilience of supply regardless of price. I agree with you that 2016 is the year of reckoning for highly leveraged producers. If you’re of an “Austrian” bent the term mal-investment comes to mind aided and abetted by lower for longer interest rates.

    But if demand also drops off sharply due to a Fed-induced economic contraction, and prices drop even lower (I.e. the it’s 1937 all over again scenario)– then watch out below. Not even the majors will be left unscathed.

    I also really like your advice to try and patiently wait for the bear market in oil to end before re-entering the markets. Great advice but tough to follow sometimes. Do you have a view as to the nature of the price bottom? A steep “V” (easy call if there’s an uptick in geopolitical unrest) or perhaps a more protracted journey in the “wilderness” of low oil prices? Thanks again for your thoughts.

    • economicminor
      January 17, 2016 at 4:27 pm

      “Fed-induced economic contraction”

      Well there may be a grain of truth here but the demand in the US has been on a downward slide for pretty much since the peak in 2007. Before that it was up on leverage. American’s have no will power. They want the best of the best even when they can’t afford it. Wages haven’t gone up in over a decade and most of the *New* jobs are low pay.

      The FED didn’t do this, the Republican Congress with some lousy leadership in the White house for about 3 decades has done this. Oh the FED has played its part but the real blame goes to our Congress who sold us out..

      Now the consumers can’t or won’t borrow more and demand is sliding even faster. China needs buyers, we were the buyers.. Without us, who is there? So blaming this on China is also a diversionary tactic. Their down turn is a result of our lack of demand. Our recession isn’t because of them but their recession is because of us.

  8. Nate
    January 17, 2016 at 1:50 pm

    Did you mean $HES is at 38/39?

  9. nick kelly
    January 17, 2016 at 8:36 pm

    This is known as being so close to the trees you cant see the forest

  10. john tucker
    January 24, 2016 at 3:04 pm

    Wall Street and the Federal Reserve are still pitching to the shills that “low oil prices are good for the US economy, they give consumers a break that they will spend on other stuff”. There’s some commenters here saying the same thing. But the average consumer is still light-years away from solvency …. having to pay rents that are astronomical, locked into car loans underwater, and huge student loans, unforgivable even with bankruptcy and even though the education did NOT help get a good job, having to pay child support payments, and now being hit with double digit health insurance increases thanks to Obamacare …

    Most investors are too timid (or too big and fat!) to sell short. Most investors are going to get the fleecing of a lifetime here. The only ones who might survive will be those who are short now ….

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