My OPEC Strategy

I was rereading Steve Levitt’s blog entitled Peak Oil:” Welcome to the media’s new version of shark attacks” in preparation for the OPEC meeting (I’ll be the one wearing a Kaffiyeh) and I started doing a little math of my own. In previous columns we’ve discussed the oversupply issues, the underlying reasons for oil’s rapid price increase and supply and demand issues - so here we will concentrate on price control options. Using very round numbers so as not to annoy people I think it boils down to this: The world uses 85M barrels of oil a day. OPEC produces 30M barrels, Non-OPEC 55M At $60 a barrel, OPEC makes $1.8Bn a day. A 10% production cut (assuming it does hold the price) costs them $180M a day. A $5 dollar a barrel drop in prices cost them $150M a day. They have to be reasonably certain then, that the benefit of cutting 10% of their production is greater than $5 a day or it’s a double loss. Already it is 20% more profitable to let oil drop $5 in price than to cut production. Now, what if someone cheats within your group? They will put pressure on prices and take it directly out of your share. How much does Saudi Arabia trust Iran? Nigeria? Chavez? Even if they all get along and sing Koom-Bi-Ya and cut production by 10% then what about their competitors? OPEC only supplies 40% of the world’s oil, the rest is supplied by FOREIGNERS! You know we can’t trust them…. It’s just not fair for OPEC to take a $180M per day hit in order to support prices so that their competitors can just swoop in and start supplying their customers. And speaking of customers, those ingrates aren’t keeping up their end of the bargain! Not only are SUV sales off 40% in the US but the airlines have spent billions switching to lighter, more fuel efficient jets that can save over a billion barrels of jet fuel a year. On the whole, demand is off 3.5% since oil first broke $50 in October of 2004. The US expects to produce 10Bn barrels of ethanol a year by 2010, that’s $600Bn less demand! Not only does 3.5% less demand cost OPEC $65M a day but if part of that $100M/day finds it’s ways into the hands of energy competitors (wind, solar, geothermal, coal, nuclear…) it could spur those industries on to grow and do better. If we were to assume that this 3.5% drop in demand persists every 2 years that oil is over $50, then the first thing OPEC needs to do is get oil under $50 asap to stop the bleeding. Once you lose a customer, it is very hard to get them back! So OPEC needs to come out of this meeting with a statement that they will cut back production quotas but not actual production and let us know they consider $50 to be a fair price for oil. Rather than playing the villain, they could accept the inevitable and calm their customers, letting them know its OK to buy that SUV for the holidays. Instead we can expect the usual greed and chaos to dominate the meeting which will leave the market on an uneven keel that will ultimately lead to OPEC, like Lucy and Ethyl, choking on thier own production.
 
 
 

Phil's Favorites

Coronavirus: the blow to the Chinese economy could be felt for years

 

Coronavirus: the blow to the Chinese economy could be felt for years

Courtesy of Chusu He, Coventry University

Investors are still being fairly complacent about the novel coronavirus. After the number of new daily cases suddenly shot up to more than 15,000 on February 12 following more than a week of decline, there were some jitters in the markets. With Chinese authorities saying the increase was due to a decision to broaden the definition for diagnosing people, there were falls in the region of 1% in European markets, and smaller retrenchments in Asia and North America.

It is...



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Biotech & Health

Coronavirus: the blow to the Chinese economy could be felt for years

 

Coronavirus: the blow to the Chinese economy could be felt for years

Courtesy of Chusu He, Coventry University

Investors are still being fairly complacent about the novel coronavirus. After the number of new daily cases suddenly shot up to more than 15,000 on February 12 following more than a week of decline, there were some jitters in the markets. With Chinese authorities saying the increase was due to a decision to broaden the definition for diagnosing people, there were falls in the region of 1% in European markets, and smaller retrenchments in Asia and North America.

It is...



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Zero Hedge

China Adopts 'Cultural Revolution-Style' Social Controls To Crush Outbreak As Death Toll Nears 2,000

Courtesy of ZeroHedge View original post here.

Summary:

  • Taiwan reports 1st coronavirus death
  • Hubei reports 1,933 new cases, 100 deaths
  • Hubei health officials report 1,933 new cases, 100 new deaths
  • Taiwan taxi driver who died from virus carried passengers from mainland, Hong Kong, Macau
  • Singapore reports 3 more cases
  • Total cases aboard 'Diamond Princess' climbs to 355 as US prepares to evacuate citizens
  • Indonesia says 6 passengers from Westerdam cruise ship tested negative
  • There are now at least 68,500 cases worldwide, and at least 1,665 de...


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Members' Corner

How to Stop Bill Barr

 

How to Stop Bill Barr

We must remove this cancer on our democracy.

Courtesy of Greg Olear, at PREVAIL, author of Dirty Rubles: An Introduction to Trump/Russia

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The Technical Traders

Is The Technology Sector Setting Up For A Crash? Part I

Courtesy of Technical Traders

One thing that continues to amaze our research team is the total scale and scope of the Capital Shift which is taking place across the globe.  For almost 5+ years, foreign investors have been piling into the US stock market chasing the stronger US dollar and continued advancement of US share prices. It is almost like there is no other place on the planet that will allow investors to pool capital into such a variety of strong assets while protecting against foreign capital risks.  Yet the one big question remains – when will a price reversion event hit the US stock
market?

So many researchers, even our team of researchers, believe we have found the keys to unloc...



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Kimble Charting Solutions

Joe Friday Says Germany (DAX) Could Rally 30%, Happy Valentines Day For The Bulls!

Courtesy of Chris Kimble

German DAX Index “weekly” Chart

The German DAX is one of the more important global stock market indices, as it represents the largest economy / market in the Euro Zone.

So it would be a real treat for the bulls to see this stock market index breakout as we celebrate Valentine’s Day.

The facts, Ma’am. Just the facts; The German DAX looks to have formed a bullish ascending triangle over the past 3 years and it is currently attempting to breakout above the top at (1)....



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Insider Scoop

Nissan Shares Tumble To Decade Low After Q3 Earnings Miss

Courtesy of Benzinga

The shares of Nissan Motor Co. Ltd. (OTC: NSANY) dropped to a decade low on Thursday after the company missed third-quarter earnings estimates and significantly cut its annual forecast for the financial 2019 year.

What Happened

Nissan, on Thursday, reported a net loss o...



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ValueWalk

Russell 2000 Index (RUT) hits an almost one-month high

By Gorilla Trades. Originally published at ValueWalk.

Ad the Russell 2000 Index (INDEXRUSSELL: RUT) hit an almost one-month high today, commenting on today’s trading Gorilla Trades strategist Ken Berman said:

Q4 2019 hedge fund letters, conferences and more

Russell 2000 Index (INDEXRUSSELL: RUT) Outperforms Large-Cap Benchmarks

While the overnight session was nothing short of scary stocks held on to most of yesterday's gains and small-caps even extended their winning streak. The Russell 2000 Index (INDEXRUSSELL: RUT) hit an almost one-month high today, finishing higher for the fourth day in a row while outperforming the large-cap benchmarks, and since the Volatility...



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Chart School

Dow theory warning from the Utilities Index

Courtesy of Read the Ticker

Charles Dow died in 1902, and the investors should thank him for his ever lasting Dow Theory Analysis.

Carrying on this blog theme looking at the Utility stocks. Previous post.
Dow Jones Utility index could trade like the FANGs
Formula for when the Great Stock Market Rally ends



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Digital Currencies

Bitcoin Price May Hit $27K All-Time High By Summer, Predicts Fundstrat's Tom Lee

Courtesy of ZeroHedge View original post here.

Authored by William Suberg via CoinTelegraph.com,

Bitcoin is primed for average gains of almost 200% over the next six months, one of its best-known supporters has told mainstream media. 

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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