“Dogs of the Economist”…

by Jim Colburn • Saturday, January 30, 2016

The Economist magazine updates the larger world stock markets and compares returns from a year ago, in dollar terms… Using just the table, the bottom 5 are Brazil, -49.8%; Columbia, -49.1%; Greece, -40.7%; Egypt, -39.0% and Turkey, -34.3%… Top 5 include Hungary, +29.3%, China (the SSEB), +17.3%; Denmark, +14.9%; Japan (Topix) +0.5%; Japan (Nikkei 225), -.07… Even the most contrarian of contrarians would have trouble moving money into the “Dogs of the Economist” …




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‘The big boys don’t know’ where crude is headed next…

by Jim Colburn • Saturday, January 30, 2016

From Ira Epstein via Yahoo News:


Here is the headline quote:

“The big boys don’t know. We’re in an area of uncertainty. And that area of uncertainty means don’t pay attention to them as much as you do to yourself and the charts and what you’re reading. Their benefit is to talk up their stock price, not what’s going on in oil.”

But here is the good stuff:

“You’re getting to a point where people are trying to pick bottoms,” he said. “When people start picking bottoms like this just because you’re at a number, be careful.”

He also says that you “can’t sell the breaks anymore” but you “can still sell the rallies”.

This is the “color” we miss from the days when most trading was done in the pits…

And, of course, the little guys don’t know, either…


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Strong Hedging Protections Roll Off, IHS Says

by Jim Colburn • Saturday, January 30, 2016

Some good stuff from IHS:


“As oil prices continue to decline, North American exploration and production (E&Ps) companies have hedged just 15 percent of their total production volumes for 2016, including 14 percent of oil and 18 percent of natural gas, leaving the companies largely exposed to current depressed market prices, according to new analysis from IHS (NYSE: IHS), the leading global source of critical information and insight.

According to the IHS Energy Comparative Peer Group Analysis of North American E&Ps, production hedging for the group of 51 companies studied will fall even more significantly in 2017, when just 4 percent of total production will be hedged, including only 2 percent of oil and 7 percent of gas, IHS said.”


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Mean Reversion, Ugh…

by Jim Colburn • Friday, January 29, 2016

Someone actually calculated a mean price for crude oil going back to the 1800’s:



From the article:

“But Deutsche Bank’s Jim Reid argues that if you look at the long-term trend for real-adjusted prices, then today’s oil price situation isn’t actually as “extreme” as most people think it is.

“A long-term real adjusted chart … shows that the average price (in today’s money) since 1861 is $47/bbl. So current levels are low but not exceptionally low relative to long-term history,” he wrote in a recent note to clients.

And this:

“”Nevertheless,” Reid adds, “in this year’s long-term study if prices stay at similar levels it will be the first time our long-term mean reversion exercise will show positive return expectations for oil since we first started it over a decade ago.”

“Although we don’t claim to be experts on oil markets our long held belief is that commodities that are factors of production are unlikely to outstrip inflation over the long-term as if they do there will be alternatives found. Clearly this can take years if not decades to resolve so even if we’re correct commodity cycles can still last a long time before they eventually mean revert.””


Trading strategies based on mean reversion are doomed to fail.

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Storage comments, panel discussion on “GCC Countries in the New Oil World”…

by Jim Colburn • Friday, January 29, 2016

Last night I attended a panel discussion entitled “GCC Countries in the New Oil World” at the Center on Global Energy Policy (Columbia/SIPA) (http://energypolicy.columbia.edu/events-calendar/gcc-countries-new-oil-world-0).  You can see it here:  http://energypolicy.columbia.edu/watch

In the Q&A, Adam Sieminski, Administrator, US Energy Information Administration was asked about storage space in the US.  He said that oil storage is about 70% full, that Cushing now has pipelines that move crude to the Gulf, that we can now export oil and that storage on tankers is available.  So, he did not see a problem with storage availability going forward.  Sieminski also referred to December 3rd’s Today in Energy for more on storage:  http://www.eia.gov/todayinenergy/detail.cfm?id=23992  One question will be answered soon: will production fall and/or demand rise enough before we run out of storage…




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Total U.S. Crude Stocks…

by Jim Colburn • Thursday, January 28, 2016

Not a market in balance…



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Core Labs CEO lays out a bullish case for oil…

by Jim Colburn • Thursday, January 28, 2016

On Mad Money, last night, CEO and Chairman of Core Labs, David Demshur, said he expects a recovery in oil prices later in 2016…  He talked about  “decline curves” which show a reduction of 2.6 mbd of production for 2016.  Add to this an increase in demand of 1.2 mbd and a total of 3.8 mbd of new barrels will be needed…  He also said that $10 oil “just can’t happen” like in 1986 when the world had “10 to 12 mbd in spare capacity”…

It’s not long:


And, yes, of course he is talking his book!  But the news has been so extremely bearish lately, above is a counter…

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Saudi Arabia Keeps Pumping… NY Times…

by Jim Colburn • Thursday, January 28, 2016

The NY Times does a great job today laying out Saudi Arabia’s conundrum:


“But Mr. Bordoff and other analysts say that from a Saudi perspective this is not an opportune time to consider cuts. Not only is Iran’s re-entry on the global market expected to increase supplies, but Iraq has also been increasing production rapidly.

Still, though the Saudis are burning through their financial reserves, there is no danger of depleting them soon.

Because of that, Bhushan Bahree, an OPEC analyst at the energy consulting firm IHS Energy in Washington, expects the Saudis to stay the course.

If Saudi Arabia cuts production on its own, Mr. Bahree said, “What is next? Iran produces more; Iraq produces more. So what have they done? Pushed the price up temporarily but lost market share, which they may have difficulty recovering.””





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Iranian Crude Exports Tough, Reuters…

by Jim Colburn • Wednesday, January 27, 2016

From Reuters:


“It is still very difficult despite the sanctions removal. Dollar clearing is an issue, banks’ letters of credit is an issue, ship insurance is an issue. Loads of people are still very cautious,” said a senior trading executive.

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Periodic Table of Commodities, US Funds…

by Jim Colburn • Tuesday, January 26, 2016

Here is a very cool chart from US Funds http://www.usfunds.com/media/files/pdfs/researchreports/2016/Periodic-Table-of-Commodities-2016.pdf :


After a return of -45.58% and -30.47% in 2014, 2015 is crude oil due to be up in 2016?  This table, of course, is from the perspective of “long only” and the small print (click on the original link to see) suggests that it shows the “principle of mean reversion-the concept that returns eventually move back towards their mean or average”.  Could someone please tell me what that long term mean or average is?  For crude is it $100 or $18?  And I assume implied volatility is mean reverting too?  From a risk perspective, I find the concept that “the market can remain irrational longer than you can remain solvent”, attributed to Keynes, to be much more useful and practical… But I like the chart..



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