If you were smart enough to know that oil was going to keep dropping while everyone else kept thinking they were getting in on the ground floor, then you’re definitely smart enough to throw in a couple derivatives and live large. However, I’m guessing there’s a large portion of hindsight that is helping you judge the market as full of “idiots”.
IMO speculating on short term movements of oil is sure death.
You might be lucky five times in a row, only to get wiped out the next 2 times.
@ purealpha : be careful dude 
Nope, my thoughts on this are posted all over the internet, and probably documented on this thread/site (I don’t remember and don’t have time to scroll back). I’ll say it again in clear English. There was ZERO reason to think that because oil momentarily stopped its decline in December that that was “the floor”. Similarly there is ZERO reason to think that because oil has momentarily stopped its decline here in January, that this is the floor. This thinking “oh it bottomed, let’s buy!” and then disappointed “oh no it wasn’t the bottom let’s sell!” is just stupid/weird. I have rational expectations; that declines go until the over-producers are forced out of the market and supply/demand stabilize. See no reason why oil can’t hit $40, or even $30, and the whole deal could take a good amount of time. We do not know, and I do not speculate, but I know nothing has been concluded…
Sorry, I didn’t understand this…I’m not speculating on oil.
Based on the reaction to supply so far in the market, this seems like it’ll be a problem for 12 months. I wouldn’t be shocked if it goes lower. But perhaps the supply will have a sharper cut back in the coming months
Looks like the decline has resumed; WTI lower Monday morning @ $47.30 going into pre-market. Goldman’s thoughts make sense, you can’t have the shale dorks jumping back in the moment prices have “stabilized”, only to send prices lower again. You need to keep it low for long and crush their dreams…
Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market.
“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.”
For those wanting to learn and others who follow this industry, John Kemp at Reuters emails out a daily “What to read” on the energy sector. Email him at john.kemp@thomsonreuters.com to get added.
"Baker Hughes reports that another 61 oil-directed rigs were idled last week, making 188 rigs idled since Oct 10 – 12 percent of the total. It was the largest single-week drop in rigs since 1991"
Supply forecasts are lower today than a year ago. Why are prices 1/2? If this is an efficient market, then demand is the driver here. I maintain that as my view. What has changed? Supply is down, albeit modestly. So demand expectations must be way down for the price to fall.
I don’t think it’s 100% one way or the other. But I think it will be fixed by the supply side and not demand. I don’t think oil is acting efficiently, as the demand side changes weren’t shocking (at least to me, they seemed expected and relatively minor). But at any rate, if OPEC stays unified the prices will recover as supply decreases and they get their market share back. Then OPEC may not even need to cede production for it to rise.
It won’t take much for supply to drop a lot, given the depletion curves on those shale wells.
total oil supply capacity is 5M barrels above total oil demand. there is about 3M barrels in excess capacity among OPEC nations ex-Iran and 2-3M barrels in excess capacity in Iran. if the viewpoint shifts to some of these barrels coming to market, oil will trade at its fair price of $20-$40 or whatever it is. oil at $100 was never true equilibrium and was artificially priced due to OPEC supply dynamics.
Seems rational to me. Interestingly, the Goldman report actually forecasts growth in world oil demand in 2015 and 2016 on the last page. Given that and the +50% decline in oil prices, you’d think OPEC was flooding the market with oil…but they aren’t. They are holding current production levels steady. Sure, there is suspected spare capacity but it’s always been there. Price discounting for market share is scary in cartels, but it’s not ‘cut the price in half’ scary.
U.S., Canada, Brazil and Iraq production is growing, with most pronounced moves in the U.S., but we’ve known that for a while now. U.S. production growth is partly explained by the wide WTI-Brent spreads we experienced in recent years, and U.S. production growth isn’t impacting Brent spot prices much considering the export ban.
Goldman does excellent research and the piece this morning has good analytical content, but Goldman has been pumping high oil prices (Brent +$85/bbl) for years now, despite growth in U.S., Canada and Brazil. I see a major disconnect here, and I’m not sure their piece this morning explains it.
Oil seems to be trading off sentiment and technical factors. I saw some technical guy on CNBC/Fast Money last week saying Brent has technical support in the low $40’s and he expected it to trade there. To me that’s a major long-term opportunity if you’re able to get a good E&P/Integrated that’ll develop reserves efficiently (not all do).
^ Yeah, so when I look at the GS research, I’m left with the thought “what the f*** did you not see all these “obvious” realities last year when your forecast was 2x this level.” A bunch of economists and strategists displaying hindsight bias and projecting things they honestly have zero clue about. I’m not saying I have a better idea of where prices are heading. I have no idea. But neither does GS or anyone else that is pretending. Show me the guy that called Brent $45 in January last year and I’ll buy him a beer.
^But you don’t think an analysis of the supply side can give some indication on how long it’ll last? I’m not too concerned about predicting bottoms or tops or upside down cat patterns, but more understanding how long it’ll last. Honestly I think there is a real risk at this point (although not a huge risk, but it exists now) that there will be a “new normal” in oil prices. I think natural gas is much more favorable, because of the different market structure and changing demand profile (as well as export ability).
^ No. Analysing the supply side six months ago versus today is not materially different get GS pretends that it shows a 50% reduction is appropriate. This is a more complex market than any one “expert”
yeah, nobody was going to forecast $45 as nobody thought we’d see this kind of collapse. i was looking for $95 Brent when it was at $115, which to be fair was near the bottom of most forecasts and at least got the direction right, haha. but direction is all that matters b/c a forecast of $95 still meant being 50% underweight Energy.
i don’t think GS is saying they knew that this would happen, but now that it has, the impact on the market could be lasting. the market is trading on sentiment - the sentiment that OPEC will not support prices and the massive speculative position outstanding in oil futures which needs to unwind.
WTI>Brent?
Sorry man, I had a brainfart and somehow thought that you were shorting oil futures or something.
Its probably easier to short futures then to try to roll over hedges on my small cap Canadian stocks… Ugh… Liquidity… This is some dark days. Just getting silly bearish now.
Not so optimistic anymore eh’ ?
Just kidding.
I also made a move too soon in buying Total a few weeks ago, currently - 4% on that line.
In hindsight it seems pretty clear that the barrel was not unlikely to keep on falling, but who cares…
Hang in there m8, it will eventually reverse, even if it keeps on falling in the short term.
That well may be so, but you can’t call everyone else idiots unless you actually put money on oil dropping further. I’ve posted and told people lots of predictions that turned out to be correct, but they don’t count because I had nothing at stake and I didn’t actually act on it.
The only person who has a right to call everyone an idiot who didn’t think oil would drop this low (which by the way is probably 95%+ of investors at least) is the person who shorted oil futures out the ying yang and is now sitting pretty in the Bahamas. If you truly knew oil would keep dropping and those who thought otherwise are idiots, to the same point that I KNOW that creationists are idiots, you would have shorted oil futures (even if you don’t normally speculate on oil). You obviously had suspicions or predictions, but they weren’t strong enough to actually put money on the line.