Another bonkers week out there in the floating bubble we call the world. From Sleeping tablets that induce racist rants to butter fingered goal keepers and last but not least…Journo’s faking news. Not sure the last one is anything new but it certainly had Putin and his buddies jumping for joy. Off the hook on that one it would appear unless of course he had a twin brother…
Last week apparently saw the weight of Oil shorts vs longs via hedge funds swing in favour of shorts for the first time in 3 months. Hence, you should expect the usual plethora of negative news stories to be circulating as the Hedge funds seek to maximise their positions and play with your mind. The truth is… with Oil near 3 to 4 year highs, you really would expect the US rig count to be higher. Yes it is rising, but it’s a country mile away from where it was when Oil was last trading in the $80’s. OPEC are set to meet up on June 22nd and if any past meetings are to go by, the headline news should be known a day or so before the official release. Calls to raise output are being confused with a yearly increase in supplies. The reality is, OPEC are already millions of barrels down due to issues in Libya, Venezuela and soon to be ‘IRAN’. Increasing output should not be seen as a negative – quite the opposite. This is not about flooding the market, but more about avoiding $100pb+. The Saudi’s have said for sometime now that they are keen on $75pb to $80pb ahead of their world first Saudi Aramco IPO set for next year. Keeping the range steady is an opportunity for OPEC to test the market out. Unfortunately the casino style market we trade and invest in is more about making money from wild swings than steady ships. The idea that Oil could trade in a tight range for the next 2 years+ would be enough to put some hedge funds out of business. Too much fun has been had over the last 4 years (or ten) and it would be healthy for all involved (US Oil Industry included) if some kind of formal agreement to support oil pricing at a set range could be drawn up. That would mean some kind of cap on US production too which might raise some eyebrows. But the fact is, it might be better making money from a steady $70pb to $80pb range for 5 years+ than a range of $80pb one year and $50pb the next. US shale ironically ‘needs’ a steady market to ensure investment returns. Without the latter, it’s possible that US production could begin to decrease in the future even with PoO in the $70’s. The fight for market share is decades long and I doubt it will disappear anytime soon but playing the ‘long’ game might help all involved plan for the future, a future which at present looks heavily under supplied due to lack of new projects and developments. Whilst PoO will consolidate before and after June 22nd, the bearish case for Oil has all but gone. It’s now more about what price is best for a barrel…over the next 18months… $75pb or $85pb (Brent). Catalysts such as Iranian sanctions should keep the PoO shorts tight.
Week 22 Review:
The Daily Mail top picks open up a small lead which is an impressive turnaround after being 10% down earlier in the year. That’s almost a 20% swing. The Guardian picks demonstrate a more familiar flat and boring bluechip market symptomatic of being near all time highs. The slow summer period is already upon us and news is light. TheShareHub top ten look solid but a few picks are still short of where they ought to be. Big news should be coming from CERP and HUM – both should confirm cash flow positive positions are increasing via greater production volumes. Outside the top ten picks TheShareHub’s 2 x heads up picks for the year are PDL and MATD. The delayed/disputed diamond sale has hit Petra Diamonds hard and last week saw the launch of a discounted rights issue. In theory, once the RI has been done, the company should be in good shape again. It might take sometime for the dust to settle but I would expect to see PDL back above 90p before year end. And finally, MATD… the minnow on the verge of super major sized exploration is just weeks away now from first spud of a whopping 4 x exploration well programme. The market should wake up a little once a firm spud date in July has been confirmed. At 11.5p, it has the potential to double in price and that’s before any discovery is made. Risks remain but with 4 drills in total, surely they can bag a big one. Don’t rule out a late farm in deal either… the recent Results RNS seemed to hint that partners are still being sought even though the company is fully funded. Interesting.