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

E-scooters, bikes and urban mobility: lessons from the streets of Paris

 

E-scooters, bikes and urban mobility: lessons from the streets of Paris

Rue des Tournelles, Paris, November 5, 2019. Four Voi scooters wait hopefully for potential clients, with a Lime and Dott sprawling nearby. Behind them, a Velib’ rider has made his choice. Leighton Kille/The Conversation France , CC BY

Courtesy of Tiago Ratinho, IÉSEG School of Management

Mobility is a crucial challenge for global cities in the 21st century. The growing impact and ...



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Zero Hedge

Victoria's Secret Caves To SJW Critics, Cancels Fashion Show

Courtesy of ZeroHedge View original post here.

To all of those pro-inclusivity activists who accused Victoria's Secret of being the paragon of "outdated" sensibilities when it comes to female beauty, congratulations: You won.

The New York Times reports that the lingerie company's annual fashion show has been cancelled as the brand struggles with its longtime CEO's association with Jeffrey Epstein, the convicted pedophile who allegedly killed himself (or was murdered) in his prison cell in ...



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Insider Scoop

4 Energy Stocks Moving In Friday's Pre-Market Session

Courtesy of Benzinga

Gainers
  • Seadrill, Inc. (NYSE: SDRL) shares surged 6.2% to $1.03 during Friday's pre-market session. The market cap stands at $176.0 million.
  • Chesapeake Energy, Inc. (NYSE: CHK) stock moved upwards by 2.3% to $0.59. The market value of their outstanding shares is at $2.6 billion. According to the most recent rating by Morgan Stanley, on November 13, the current rating is at Equal-Weight.
  • Halliburton, Inc. (NYSE: HAL) stock rose 0.7% to $21.25. The market value of their outstand...


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Digital Currencies

Bitcoin Busts Below $8,000 To One-Month Lows

Courtesy of ZeroHedge View original post here.

Another sea of red across cryptos this morning after tumbling in early European trading (it's been an ugly 7 days as the image below shows)...

Source: Coin360

Bitcoin Cash is leading the decline on the week along with Litecoin...

Source: Bloomberg

But Bictoin's psychological plunge to a $7k handle is most notable...

Source: Bloomberg

...



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Kimble Charting Solutions

Junk Bonds About To Send Stocks A Bearish Message?

Courtesy of Chris Kimble

Are junk bonds about to send stocks an important message? It looks like it from this chart!

Junk Bond ETF (JNK) has created a series of lower highs and lower lows over the past couple of years, inside of falling channel (1). When it broke support in early 2018 at (2), stocks struggled to make much upward progress for the next few months.

The rally off support last year saw JNK hit falling resistance a few months ago and some softness has set in. The small decline of late has it testing a series of higher lows at (3).

What JNK does at (3), looks to sen...



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Lee's Free Thinking

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

 

NY Department of Welfare Announces Increased Subsidies for Primary Dealers, Thank God!

Courtesy of , Wall Street Examiner

Here’s today’s press release (11/14/19) from the NY Fed verbatim. They’ve announced that they will be making special holiday welfare payments to the Primary Dealers this Christmas season. I have highlighted the relevant text.

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released the schedule of repurchase agreement (repo)...



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The Technical Traders

VIX Warns Of Imminent Market Correction

Courtesy of Technical Traders

The VIX is warning that a market peak may be setting up in the global markets and that investors should be cautious of the extremely low price in the VIX. These extremely low prices in the VIX are typically followed by some type of increased volatility in the markets.

The US Federal Reserve continues to push an easy money policy and has recently begun acquiring more dept allowing a deeper move towards a Quantitative Easing stance. This move, along with investor confidence in the US markets, has prompted early warning signs that the market has reached near extreme levels/peaks. 

Vix Value Drops Before Monthly Expiration

When the VIX falls to levels below 12~13, this typically v...



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Biotech

Why telling people with diabetes to use Walmart insulin can be dangerous advice

Reminder: We are available to chat with Members, comments are found below each post.

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



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Chart School

Dow Jones cycle update and are we there yet?

Courtesy of Read the Ticker

Today the Dow and the SP500 are making new all time highs. However all long and strong bull markets end on a new all time high. Today no one knows how many new all time highs are to go, maybe 1 or 100+ more to go, who knows! So are we there yet?

readtheticker.com combine market tools from Richard Wyckoff, Jim Hurst and William Gann to understand and forecast price action. In concept terms (in order), demand and supply, market cycles, and time to price analysis. 

Cycle are excellent to understand the wider picture, after all markets do not move in a straight line and bear markets do follow bull markets. 



CHART 1: The Dow Jones Industrial average with the 900 period cycle.

A) Red Cycle:...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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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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About Phil:

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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