Gregor.us

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Thanks for your blog. I appreciate your expertise. I concur in your opinion (though I have nothing to offer in the way of credentials). Please keep up your work.

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Thanks Gregory. Well, I eat, sleep, and drink oil and energy stuff and have done so this decade. But it's a Socratic experience because as the knowledge builds up on one side, the awareness of of surprise builds on the other.

Oil is interesting on many levels. Here is one: oil is such concentrated energy in transportable form, that in small amounts it performs a large quantity of labor. That means that when oil is plentiful, the amount of available labor that oil performs goes into mega-surplus. But when oil is tight, it's labor "force" becomes powerful through scarcity. Hence, we see this exaggeration reflected in the price--which is an imperfect measurement.

Cheers,

G

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upside of high price, innovation, alternatives .... downside of high price, "enemies" more powerful ... plus many others ....

upside of low, downside of low .... etc.

soooooooo many variables in this oil/energy dance ....

don't know how you do it ...

intuition, i think

thanks for great tweets

gregory lent

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Great article! Totally in agreement about light rails and train system. Why the US is so far gone in public transporation that is EFFICIENT and comparable to the train/light rail systems in Europe and Japan is beyond me. Which brings another thought: Why hasn't Amtrak been more vocal in infrastructure investment? Or have they?
Thanks, Gregor!

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Hi,

In general I do not give specific investment advice on my website. Bloggers have to be careful about that. More broadly, however, that's not really my focus. I try to tackle the big issues. Besides, as I am sure you are aware, everything possible can be at the back of a particular stock, and then "stocks" in general become a lousy way to play a theme.

Royal Dutch Shell has the best downstream exposure that I know of generally, in Europe. But, again, that's not an investment recommendation.

FWIW, you might read over the goals I lay out also for my newsletter. Same thing, no individual stock advice. The main reason is that so many people are offering this already, I am trying to do a different value-add proposition. But the most important thing is that I want broad readership.

I strongly suspect that in 2009, energy is going to be back on the front page again, and that investors will start placing a premium on geo-political safety in an unstable world.

This decade, Canada has been my preferred investment country to play oil and gas--though, as you can see, low prices hurt the oil sands producers alot.

HTH

G

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it's an informative blog. i like it :D

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Europe's largest independent refiner, Petroplus Holdings AG (PPHN) on the Swiss exchange is at its lows right now. Here are the refineries it owns. http://www.petroplusholdings.com/bus_ref.php

If this is not a good way to play this move, let me know. There are lots of dynamics going on in European oil and gas and I am no expert in this field.

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Do you have any ideas as to which refiners in Europe will be most benefited by this change ?

From my knowledge most of the publicly traded refiners are all vertically integrated and not pure play refiners.

Here is a list of NON US refiners, but none are European, so seems there is no direct way to play this.

http://finviz.com/screener.ashx?v=111&f=geo_not...

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I see. Thankyou. Now I do understand.

OK. My view based on historical trends is that that is the kind of structural switching that takes place over a much longer period of time. That outsized spread that the world experienced between Diesel and gasoline would need to be sustained for longer.

This is very tricky stuff to analyze--specifically--consumer trends in diesel vs petrol autos keying off price trends. I generally don't attempt to figure it out, and leave it to others.

What I do pay attention to however is that distillate remains the flexible fuel especially for developing nations as it's a lot easier on their Refining complexes.

HTH

G

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"I am not aware of any ability the world has to switch quickly between diesel and gasoline."

At least in the UK, the decision to buy a car that runs on diesel or "petrol" is generally economic. Presumably the economic rationale for buying a diesel rather than a petrol car has now diminished as petrol prices have come down. I hope that clarifies my original point.

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Sorry, I meant the spreads... I was just referring to the table you had linked to. If these charts are accurate, it doesn't look like we're seeing backwardation in the contracts: (https://www.theice.com/productguide/productDeta...)

Thanks!

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But surely the fuel economy appeal of diesel as for cars should have lessened now that gasoline is back to "reasonable" levels?

I don't understand this framing. I am not aware of any ability the world has to switch quickly between diesel and gasoline.

My view is as follows: the world chose diesel years ago, and the world runs on diesel. It's only the US that is still very concentrated on gasoline.

I suspect I am unable to truly answer your question because I don't understand it or the assumptions in it. I certainly agree industrial demand for diesel has dropped recently. I also hold the view that here in the US, we have seen a 3rd year of switching away from Heating Oil to NG on the East Coast.

For me it's really simple: Brent has been higher bid than NYMEX because NYMEX still has antiquated pricing off of inventories at Cushing OK, and Brent tells the story better of global supply/demand.

HTH.

G

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Gregor, why are gasoil (and heating oil) cracks so bid (relative to their own history or relative to the gasoline crack)? European and Asian demand were cited as the reasons earlier this year and in late 2007. But surely the fuel economy appeal of diesel as for cars should have lessened now that gasoline is back to "reasonable" levels? And surely the industrial demand for diesel should have declined/be declining commensurate with the general decline in global industrial production?

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Hi,

I'm pleased to see a backwardation come into the GASOIL spreads (not sure if
you meant the spreads or the contracts) as it indicates a better
supply/demand balance.

I think ino.com got the spread calculation wrong, however, when they
reported 31 December spreads as there appears to have been an incorrect
marking of GASOIL too low, as Brent prices rose.

If you are correct that GASOIL prices themselves are in backwardation, that
is bullish too.'

'G

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Why are the forward GASOIL contracts for January, February, etc. much much lower?? Actual prices or just a presentation error?

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I didn't understand you tweet saying that this corresponds with equity market bottoms. What was your point?

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i think this resolves w a move higher in oil

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Thanks for your patience in explanation when responding to good-natured seeking of advice. A chunk of time ago, I had seen you mention DBO on twitter and have this in mind should I seek a position. I respect and appreciate your care in sharing expertise, and distinction from giving stock-picking advice.

BTW anyone interested: others have mentioned the messed up long-term internals of multiplier ETFs, where I had found the multiplier DXO when reviewing DBO from my earlier research.

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Thanks for your patience in explanation when responding to good-natured seeking of advice. A chunk of time ago, I had seen you mention DBO on twitter and have this in mind should I seek a position. I respect and appreciate your care in sharing expertise.

BTW anyone interested: others have mentioned the messed up long term internals of multiplier ETFs, where I had found the multiplier DXO when reviewing DBO from my earlier research.

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She probably won't. I'm guessing it will be forward-looking? We don't have an introspective culture. We don't have accountability. We don't revere the truth in public discourse. That being said, I expect Obama to keep his word and try to change this. It would be creepy cool if she could capture that yearning for change the way Frost foretold the bursting ambition of JFK.

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Now that I have a blog I take care to not give any specific stock picking advice.That said, I wrote years ago on the flawed structure of vehicles like USO which get killed on the roll from contract to contract when the crude oil futures curve is in contango (every month subsequent is higher in price than the preceeding month.)

In short, there is simply no substitute for the time required to read the entire prospectus of all these commodity ETFs. There are a whole bunch of Oil ETFs and they do, in fact, operate differently. You also have to visits the websites and see which specfic contracts they are holding, and how do the roll from one month to another.

I could provide you with some of these answers. However, what I have found is that in a context of incomplete information, any answers I supply are more often misunderstood.

Therefore, my advice is as follows: research the following Oil ETFs USO and DBO. Discover how they differ from each other. Read their prospectuses and then visit their websites and see which contracts they are holding. Also, put that into context with the crude oil futures curve which you can see here.

The only satisfactory answer one can come up with on these commodity ETFs is the one you make on your own.

HTH

G

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I have a question for you regarding contango and the trade that one would put on to profit from this imbalance...The USO etf tracks oil prices so given this huge contango from one month to the next, what would be the effect on this ETF once the Jan contract expires and the Feb is the new front month? Would the ETF go up or down? I can't quite get my head around this effect. I mean logically it would seem that the tracking ETF's for oil would instantly go up since oil is quoted at 33+ and then all of a sudden it's quoted at 42+? Am I reading this right? Thank you for any education you can provide on this since I'm new to oil trading...

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Thanks Mike. I was also remembering that Frost, like Ted Williams, was born in California yet sealed his association with New England via the career.

I'll be impressed if Alexander, chosen by Obama to read next month, slips in even one reference to this economic situation. Won't happen.

G

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Frost actually composed a poem for the occasion but could not read his notes in the glare of the sun and snow. He was forced to recite "the gift outright" from memory. The intended piece was prescient. Check it out some time.

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I hold the view that printing in order to avoid default (not enough buyers for new US Treasury debt show up to successfully roll over maturing debt) is de-facto default.

I see your question alot.

Let me ask you: if all the debt of the UK was denominated in Sterling, and then when the UK tried to roll over debt and no one bought new debt, thus depriving the UK of funds to pay off the maturing debt, and then the BOE just printed up more Sterling to pay off the old bond holders and bought the new issue--what do you think other holders of UK debt would start to do?

They would dump the debt en masse. The game would be over, yes?

Monetization is a ponzi scheme, at some point, don't you think?

G

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