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Strategies & Market Trends : Bosco & Crossy's stock picks,talk area

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To: badog who wrote (9415)	5/4/2005 1:47:33 PM
From: Crossy	Read Replies (3) of 37387

Badog, I have no idea and as you say no crystal ball. My "feeling" is that $40 will be a floor in concrete. And the upside ? No idea either. Now that's not much you might say. Wrong ! The reason is I try to place my investments in a way that it won'T matter too much - that is my goal. Let me first address the "inventory watching" habit of traders and market participants. there are a lot of rule of thumb formulae out there trying to equate inventory build with a downward reaction and trying to establish a correlation. Well, that's fine and a nice way to practice statistical calculus. But is it a valid approach from a theoretical point ? I would tend to disagree. Such models need to have the "ceteris paribus" assumption, as in an "experiment" - you have to have ALL OTHER VARIABLES CONSTANT. But in reality, and exactly in the oil environment now, there is no thing such as these that you could call "constant" or "as before". Some examples: The US is still the top place of world demand and had a chronic supply deficit, especially of light sweet crude. Due to this WTI was NEARLY ALWAYS PRICED at a PREMIUM TO BRENT. Take a look ! The premium is gone. WTI trades at a discount. not for a short period. But for quite some time now already. Another tidbit. The Oil strip curve (term structure of futures maturity). In the past you had to PAY for the luxury of "storing" petroleum and distillates. The cash spot price was at a premium to the front month future in the commodity and the curve nicely sloped downward. This was called "normal backwardation". It was "normal" indeed and all the inventory models (how inventory builds affect commodities) reflect the assuimption that storage is avoided by producers whenever they can (Just in Time like). Hey, now we have a prolongued contango, especially between month 1 and month 2 you get PAID FOR STORAGE. We shouldn't thus be concerned about buildups. This is what should be expected if you are paid a "fee" for doing this... Just two examples that all these "rules" were based on their original context and it would be dangerous to forget about this. Regarding investment ideas, the oil price is exactly something I do not want to have to project to suceed. Becasue I simply can't. All I know is that the shupply cushion of OPEC is narrowing down and by the end of the year demand for light sweet crude at $50 could even outstrip supply by a material degree. What I like to do is findg small to midisze firms that can "survive" at a reference price of $20, that thrive at $35 and zoom ahead north of $40. Any temporary weakness will nicely be cushioned by acquisition moves and exploration activities. What is more development is ensuring a nice growth trajectory. Such firms can double output over 2-3 years. That'S the "secret" here I think. Big oil cannot grow at all. They have to do all they can, literally on a treadmill, just to stand still. Somewhat similar to inflation - you have to run just to stand still.. hope this helps CROSSY BTW: I really like RRainman's VPC.V (Valkyries Pete) right now. You got to understand that domestic pricing in Russia is close to $30 right now and the WTI netbacks are largely decoupled from the movement of the international markets, way more depending on domestic demand (which is zooming ahead). This means over some interval it is protected by temporary weakness on the international oil price front in an odd way, simply because it is not likely mirrored in Russia domestically.

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