oil stocks ready to run

B

billyjoerob

Oil is moving but the stocks aren't.

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The wrong-way traders are fighting the oil breakout.

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(if link breaks, here http://www.schaeffersresearch.com/streetools/indicators/putcall_open_interest_ratio.aspx?TICKER=USO )

The oil service stocks look to breakout of massive inverted something.

http://stockcharts.com/h-sc/ui?s=OIH&p=W&b=5&g=0&id=p65586599801

Producers ready to breakout.

http://www.finviz.com/quote.ashx?t=XOP&ty=c&ta=0&p=w

Whiting Petroleum beats, ready to hit new highs. High oil weighted producer.

http://finance.yahoo.com/q?s=wll&ql=1

Topping on the cake . . . peak oil nutters shut down the oil drum.

http://www.theoildrum.com/node/10059
 
The conventional wisdom is that all this new fracking is weakening the power of OPEC, and once Iraq and the new shale sources come online, it's just a matter of time before oil goes back to the old range of $80 to $95 or even lower. The current price is elevated due to misguided or temporary fears about the ME. This is wrong. The truth is that the new production has given the Saudis more power. All the new North American shale and tar sands capacity has a very high floor, and that additional capacity is additive to the Saudi swing capacity. It's as if the Saudi's just added another 5 million or whatever barrels that cannot defect from the cartel below $80. The Saudis can now raise the price to the ceiling, to $120 or $125, whatever the peak is before demand destruction sets in. And that number is high, because the incremental demand in India and China is relatively price insensitive.
 
Quote from billyjoerob:

The truth is that the new production has given the Saudis more power. All the new North American shale and tar sands capacity has a very high floor, and that additional capacity is additive to the Saudi swing capacity. It's as if the Saudi's just added another 5 million or whatever barrels that cannot defect from the cartel below $80. The Saudis can now raise the price to the ceiling, to $120 or $125, whatever the peak is before demand destruction sets in. And that number is high, because the incremental demand in India and China is relatively price insensitive.
More...

I don't follow this. How does increased capacity give the Saudis the ability to raise prices? Are you saying increased capacity will create increased demand which will result in higher prices?
 
The marginal producer sets the price, and the marginal producer is high cost. It's as if Canada joined OPEC and made an iron-clad guarantee to never defect below $80. That makes the Saudis swing capacity much more powerful. In effect, the Saudis can lower or raise the price like turning a knob. Remember that in the olden days, if Saudis cut back, another OPEC producer would step in and pick up the slack. Today, Iraq can add another 5 million barrels to world supply, as long as the marginal producer is Canada, price will not go below $80.

I could be very wrong about this, of course. Glad to be corrected.
 
Quote from billyjoerob:

The marginal producer sets the price, and the marginal producer is high cost. It's as if Canada joined OPEC and made an iron-clad guarantee to never defect below $80. That makes the Saudis swing capacity much more powerful. In effect, the Saudis can lower or raise the price like turning a knob. Remember that in the olden days, if Saudis cut back, another OPEC producer would step in and pick up the slack. Today, Iraq can add another 5 million barrels to world supply, as long as the marginal producer is Canada, price will not go below $80.

I could be very wrong about this, of course. Glad to be corrected.
More...

I know very little about this stuff, to be honest. I did some searching and found an article from January 2012 that appears to support your thesis in the main. I'd have to do some more studying before I could make any reasonable decisions based upon fundamentals.

http://www.risk.net/energy-risk/fea...-oil-gaining-market-share-setting-floor-price
 
The run in the USO only reflects increased backwardation, not a run in oil. The "roll yield" is increasing, and USO benefiting from that. It's true that WTI is up, but the price of oil is probably still within a range. All true, but the increasing backwardation reflects pessimism about future price, despite current high price. But peak oil not refuted by spot price over $100. Pessimism also reflected in this piece from WSJ:

http://online.wsj.com/article/SB10001424127887323971204578629942158096414.html?mod=WSJ_Markets

Investors in the ETF should enjoy their downhill run while it lasts. With physical inventories still high, U.S. oil output high and global economic growth looking lackluster, it may not be long before they reach the bottom of the valley again.
 
if oil stocks are not moving; however, oil is.....well, don't force some 5th grade analysis and trade what you see.

people like to have reasons, causalities, etc... but most of the time they miss the bigger picture and act like stock A must move because this happened to B.

remember, smarter people than you have better information.
 
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