Captain Advisory

Friday, July 3, 2015

Morgan Stanley and Goldman Sachs about 'What Happened with the Oil Price Collapse'

3 July 2015, 13:11

Morgan Stanley Exits Oil

Falling prices have impacted heavily on investments in the commodities markets. Many companies are now steering well clear of commodities on the whole. More and more of the big companies are now staying away from commodities trading, but this has paved the way for companies like Castleton Commodities International to become one of the major players in the industry. Of equal importance is the fact that analytical data on commodities trading is now more difficult to come by. Since so many of the analysts that conducted their research are no longer physically involved in commodities trading, there is room for new players to enter the market.

Goldman Sachs

Goldman Sachs has been pessimistic about U.S. oil producers re-entering the market now that the oil price has increased over $60 per barrel. What is likely closer to the truth is that U.S. oil companies will start entering the market when the price of WTI Crude and Brent Crude approaches $70 per barrel or more. And that will likely be insufficient to get oil production pumping at full capacity. While production of oil has flattened out, and will drop off, oil inventories are also falling at this time.
At this time, the rig count remains unchanged. As the number of operational wells continues to decrease so the supply of oil will decline too. This will then assist in further driving up prices. It is possible that the price will stabilize in the $70 – $80 range, making it uncomfortable for consumers in the U.S.

Prices will be unlikely to hold if oil wells increase their production when prices rise. By the middle of 2016, it is possible that cheap oil will no longer hold and prices will rise. If oil prices are going to rise, falling inventories and fewer oil wells in operation must come to pass. What is clear is that global oversupply has deteriorated and demand is generally weak. Market movements do not appear to be based on fundamentals, but they will win out in the end!

Friday, June 26, 2015

WTI OIL Breakdown

18 Years Ago This Country Collapsed Almost Overnight. Is This Time Different?

Submitted by Simon Black via SovereignMan.com,

In late June 1997, eighteen years ago, this part of the world felt pretty normal.

People had jobs. Inflation was fairly low. The economy was growing. Confidence was high. Life was great.

For years, most of the economies across Asia had seen meteoric, credit-fueled growth. Capital was pouring in from all corners of the globe, feeding a construction boom and stock frenzy.

Property prices soared. Stock prices soared. It was a classic bubble.

My friends who have been living in the region for decades tell me stories about how people bought property with the expectation to flip it and make a 50% return in no time.

Or they’d invest in the stock market without the slightest bit of analysis, simply because ‘stocks go up.’

That was the prevailing attitude in Asia back then– this time is different, and the good times will last forever.

But it all unraveled, practically overnight.

Thailand was hit first when a nasty currency swing caused the economy to practically grind to a halt. And the pain quickly spread to the rest of the region.

The local currency here in Indonesia, the rupiah, plunged 83% from its pre-crisis levels.

Dozens of banks went under, credit dried up, and many depositors got wiped out.

Then something interesting happened: the Indonesian economy simultaneously experienced BOTH inflation AND deflation.

On one hand, asset prices collapsed. Stocks dropped like a rock, and people felt much more poor.

But as the currency fell, suddenly imports became MUCH more expensive. So retail prices actually increased as consumers paid more, especially for imported goods.

This is about the worst economic scenario imaginable– asset prices falling with retail prices rising. But it happened.

Three important lessons I’d like to highlight:

1) Perhaps the great financial debate of our time is whether the unprecedented monetary expansion over the last several years will result in inflation OR deflation.

There are many a brilliant mind firmly entrenched in one camp or the other.

And the point is, there could easily be BOTH.

2) No one can predict precisely WHEN a correction will occur. But when the great unraveling does unfold, history shows that it happens very quickly.

3) People allow themselves to believe impossible things.

They’ll believe that asset prices can, will, and SHOULD go up forever.

They’ll believe that conjuring trillions of dollars out of thin air is consequence-free.

But they refuse to believe in the possibility that something will go wrong.