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Friday, March 29, 2024

Thursday Flip Flop – Earnings Send Us Off Again

SPY  5  MINUTEI was going to say something nice about yesterday's gains – but they are GONE already

That's right, the Futures have reversed all of yesterday's BS low-volume gains so fast, I didn't even have a chance to say that I don't trust the gains because they were based on low-volume BS BUT the long-term technicals were starting to shape up.  But they're now gone.

Have I mentioned how happy we are to be in CASH!!! lately?  

Still, I hear a lot of you silly people are still playing this ridiculous game so let's pretend it's not all just manipulated BS aimed at tricking you out of your money and talk about earnings and the economy as if they matter – OK?  

Oil shot up 5% yesterday, from $54 (/CLK5) to $56.70 on the nose which made the weak retrace line $56.16 and the strong retrace line $55.62 per our 5% Rule™, which works best when a market is being entirely traded by machines that are programmed to take your money.  I'll let you be the judge of whether or not that's happening:

While it's possible to have healthy consolidation at the strong retrace line ($55.62) a failure there can quickly lead to a 50% pullback ($55.35) but a failure at the 50% line means the whole move was BS and you can expect to see $54 tested again before you'll get another run-up.  We got off on the wrong side of oil on Tuesday, shorting into the NYMEX contract rollover next week, but those of us caught with open contracts scaled into a break-even at $55.50, so now we're just watching that line to see what happens.  

Those are the technicals but FUNDAMENTALLY, OPEC is reporting a huge surge in production, further feeding the glut with a predicted surplus of 1.5M barrels per day projected for 2015 despite optimistic projections of "steady" demand (or lack thereof).  The bullish case for oil rests entirely on the HOPE that US production will be cut back in the second half of 2015 (but it's only April 16th).  

Last November, when OPEC also announced it was keeping its production unchanged, oil prices dropped 7% in a single day – we'd be very pleased to see a repeat performance today as we've already adjusted our oil bets in 3 of our Member Portfolios to be short-term bearish after cashing in on yesterday's gains at 2:59, in our Live Member Chat Room, about 10 seconds after oil peaked.  Think that 5% Rule™ isn't useful to us?  

As you can see from this chart, the US is importing much less oil than it has in the past.  In fact, since Obama took office, oil imports have dropped 50% and that has made the Dollar stronger (we don't flood the World with them to buy something we just set on fire) and it has improved our trade balance and created millions of energy jobs at home and cut the cost of gasoline by 50% since the Bush disaster.  

What you don't see though, is how the weekly oil inventories are manipulated by imports since we do still import 7M barrels per day and it doesn't take much, since our storage is nearly full, to fool people into thinking there was a draw in inventories.  That's what happened yesterday when the EIA reported a smaller-than-expected net build in oil of "just" 1.3M barrels vs 4.1Mb that was expected but, what the headlines didn't tell you was that we imported 7.7M barrels LESS oil than the previous week.  

Stock price graphsHow do they manipulate the imports?  That's very easy, all they have to do is hold back a couple of tankers (1-2Mb each) and have them drop off on Sunday (the next week) instead of Saturday and slow down a couple of pipelines, shave a little off the survey (yes, it's just a manual survey) and PRESTO! fake inventory numbers.  There's also the subtext here that they HAVE to slow imports because our storage areas are filling up and it's harder each week to find a place to put all this oil.

As you can see, we are 2.5 standard deviations over the TOP of the average range for storage.  That's 100M extra barrels of oil in storage and that's a lot, considering we're importing half as much oil as we used to as well.  So, while we have a bit of a relief rally because yesterday's build wasn't as big as feared – let's not get ahead of ourselves with expectations because the data was manipulated and OPEC isn't cutting back and neither are the US producers because their "Lifting Costs" (the cost of producing oil after drilling is complete) are just $17 per barrel:

People tend to confuse the "Finding and Lifting" costs with the production costs but, for existing wells, the Finding has already been done and now they only have to pay to LIFT the oil out of the existing well and that really isn't a very expensive proposition.  THAT is why oil prices go so much lower than you think they will – the margins on oil are unbelievable (because the whole thing is a scam that is ripping you off for Trillions of Dollars – which I've been telling you for years) and what we have now is a war over which set of bastard manipulators (the US Cartel or OPEC) will manipulate their production lower in order to create false supply shortages so they can go back to ripping us off at $60+ per barrel again.  

That's what all this is about, two criminal enterprises duking it out for the right to screw the consumers.  OPEC has been milking us for so long that the US Cartel decided to hone in on their action and "Drill Baby Drill" so they could get a bigger cut of the profits by exploiting US resources instead.  

After all, when they drill in other countries, they have to pay a percentage to the country they are taking the oil from – but not the US – we just GIVE our natural resources away AND we give them tax subsidies to do it!  But that's another post entirely, let's just focus on the war between the US Oil Cartel (which has no name so they can pretend it doesn't exist) and OPEC (the old school cartel).    

The reason this is all coming to a head now, in 2015, is because the oil that is in the ground in the US (a 20-year supply) is now a depreciating asset.  Between better mileage cars (thank you Obama once again) and more solar, wind and wave power (Obama again), the day's of using fossil fuels for power are fading fast.  

Renewable energy growth has doubled in the 6 years and oil use has dropped 10% over the same period.  At this pace, in just 15 years, the US could be consuming less than 15% of it's energy from petroleum.  But the pace is accelerating as Obama has mandated even more efficient cars with US manufacturers on track to hit an average of 54.5 miles per gallon by 2025.  That is double where they are now and that, by itself, would knock out 1/3 of our current petroleum consumption.  

Those are just the trends we do see.  There are also wild cards such as Lockheed Martin (LMT), who claim they will have a working commercial fusion reactor within 10 years.  Something like that would be a quick death for fossil fuels but they are already dying a slow death as we learn to be more efficient in our consumption and battery technology makes it easier to power ourselves with renewables.  That means the tens of Billions of barrels of oil reserves that constitute the bulk of the Trillions of Dollars of valuations of the energy companies are now on the clock – and the clock is winding down fast!  

So they have to drill baby drill and sell what they have while they can but OPEC also has a lot of oil in the ground that they want to sell while they can and so we have the current production wars that are flooding the markets with oil – whether we want it or not.  

We are just at the very beginning of the renewable energy cycle and the people who own the oil have a very real fear that a good portion of their stocks are going to end up rotting in the ground as the World moves on without them.  

Meanwhile, we'll begin to get earnings from the energy patch but we're going to be a lot more concerned with their forward-looking production statements.  We're long the servicers because we don't think the cutback expectations will be met and we are expecting oil to stabilize back around $60 over the summer – but this run-up has been too much, too soon.  

 

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