Sunday, 4 January 2009

Trading in Jan 2009: Oil

This site does not provide financial advice and anything that you read here should in no way be construed as financial advice.

Trading in shares and commodities has seen the average investor lose 50% of their money in 2008!

Ouch. Think before you click.

That is really painful. Sadly, I lost money too, although having got some better strategies together toward the end of the year manage to come way back up from the October low.

One of the things that turned it around was Imperial Energy. A Russian oil company that was long a target for India's OGNC. The share price was up and down, even a month before the deal closed at the year end the shares were 50% below the final offer price, which had actually been agreed in the Summer. The Indians tried to get out of the deal.

So for this year, I am looking far more at some macro level political economics (my master's degree finally comes in useful) for direction. Particularly for resources, which have been shot to pieces this past year. I can't see at all where oil is going, but unless the dollar collapses it will likely bounce around in a 50% range from where it is today.

In the long-term though, we all know the price of oil is going back up. Which is why owning the stuff still in the ground makes sense. If you are China and India or other cash rich, resource poor states, now is a huge opportunity to build a strategic stake fro a fraction of what it would have cost just 6 months ago.

As well as Oil, Gas too is a big player; as ND has been showing re Russia. Owning Gas assets is about to be a big deal and some UK firms are quite well placed. Indeed for oil and Gas the FTSE and AIM markets have a huge variety of options. Many are pure gambling bets at the moment as the small companies are as likely to run out of money and go bust as get bought by Sinopec et al.

Overall though, with valuations ruined by the current deleverage oil companies are very vulnerable. In any sector that is vulnerable there is consolidation.

(Except Banks obviously, they just get nationalised and given more money by global taxpayers. Another topic on macro political economy for next week.)

10 comments:

Anonymous said...

How's this for something Macro? Fed says go to quantitative easing. Ought to be good for gold and MAYBE silver

Anonymous said...

Will broony follow?

Steven_L said...

I lost £1,200 last year, that's 120% of the money I planned on losing.

My Q1 strategy this year is stop spending and save save save and get my £1,200 back.

Then I might jump back in the markets. Otherwise I'll just be chasing my losses.

Got to take the pain now.

Guido Fawkes said...

I had a dream a couple of days ago that copper would go up. I have never traded copper in my life.

I rationalised it the next morning as my subconscious telling me that industrial collapse sentiment was overdone.

I took a look at copper futures, restrained myself from buying a contract only because I couldn't figure out what would be a reasonable price target / stop loss. Also the potential embarrassment of losing money traded on the back of a dream.

CityUnslicker said...

Anon - Hmm, gold. i did very well out of long and short positions in gold last year.

not so sure this year, when we have a huge bout of deflation for much of the year, i can't see how that tallies with gold shooting up.

Silver however, is very undervalued and I have a chunk of my portfolio doing nicely there. 20% up in 2 months

Anon - Broon will think up new taxes, just as he always does.

Steven - A wise move, trends say the markets should bottom this year and it will be a good buying opportunity

CityUnslicker said...

Guido,

I did well out of shorting copper from Oct to Dec last year. Closed out positions as it goes sideways from mid Dec to now.

When the deleverage is over all resources are going to be massive buying opportunities.

when trading resources on ETF's I use 20% stop loss margins rather than 10% as the daily spikes can be a right bitch to the wallet.

As for going on a dream hunch, you inner self is clearly dying to be back in the markets; or else your reading too much financial info and it is too hard to let go. Try some, er, lighter reading - see if your dreams improve!

Anonymous said...

If I were Guido I would stop eating cheese.

Anonymous said...

From Jessie

"An acquaintance who works for a small precious metals fund sent this to us today, asking if we had ever heard of anything like it.

The short answer is no, but this is not a strong area of specific expertise, and we never attribute to a bad intent what we can attribute to sheer incompetency, especially when dealing with large organizations.

But nevertheless it does bring into question the integrity of the Comex records and their contracts, and the condition of their audits and inventories. We would have a fit if someone did this to us after an online auction or a personal purchase transaction. Why should the Comex be allowed to sell what it does not have, and then dictate new terms after the fact?

When you are promised specific bars with specific serial numbers of a specific size and weight one week, and they are not available the next when you actually affirm that you wish to receive them, that brings up the same kind of red flags that have been so notoriously ignored by regulatory agencies in other recent cases. Of course the Comex is no Bernie Madoff.

But it does put a fresh emphasis on the old adage, "When in doubt, take it out."

We accumulated 3 emini gold contracts on Comex for December delivery and we had been given serial numbers and weights last week for the 3 bars we were to receive.

Today we are informed that Comex, which is now a division of NYSE Liffe, is invoking a rule in which they can deny delivery of individual mini bars (roughly 33 ounces) and issue you only a Warehouse Delivery Receipt (WDR) against your mini-contract unless you have 3 WDR's, and then they'll issue you a 100 oz. bar.

Otherwise, if you have only 1 or 2 mini-contracts, you only own a WDR, which you sell by shorting a mini against it. If you own a WDR for a 100 oz., they encourage you to safekeep the gold at the Comex and hold a vault receipt.

CLEARLY, the Comex has run out of the bars that were being delivered to holders of emini contracts. Our back-office guy told us that he's been doing Comex deliveries for 30 years and he's never seen anything like this, and he's never heard of this NYSE Liffe rule on the mini contract.

Fortunately we have 3 WDR's and we will be getting delivery of a 100 oz. Comex gold bar.

But this whole episode brings into the question the validity of the Comex gold inventory. More importantly, the Comex is now going to issue WDR's, which are paper.

Are they becoming a "fractional" reserve depository, where they can issue several WDR's against the same bar of gold, knowing that some of those people will opt to keep storage on Comex and never require actual physical delivery?"

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