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Strategies & Market Trends : The Art of Investing

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Dec 19 4:00 PM EST

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To: robert b furman who wrote (6316)	2/4/2023 2:34:18 PM
From: Sun Tzu	Read Replies (1) of 10709

You are absolutely right - but I was discussing something a bit different. Let's dig in a bit deeper. Yes, if you are buying the producers, then so long as the price of oil remains above 72 (and ideally above 76), then most of the producers will have good FCF and will pay out good divs and their stocks is a buy (within reason). Furthermore, any jump in the oil prices, say due to China open or Russia drops or whatever will be an exponential boon. You will get no arguments from me on that. Now, the name of the game is prediction and more accurately being early with the right prediction. To that end people examine all sorts of data. One of the things you want to look at is the difference between spot+carry costs and the futures contract. When oil went negative, that difference jumped to sky - showing that nobody expected that aberration to last. And furthermore you could see how the expectations changed as the summer of covid wound down. The same thing, but in opposite direction happened when retail "investors" were drooling over the prospects of $300 oil. This calculation is not some magic crystal ball and at the end of the day it is just what the market participants are speculating about. But it is still an important item to have awareness of before you add your own 2c to it and place your bets. Among other things, it should help you decide when the tide is turning or at least what is priced in. Oil companies are going to make money for a long time. But the demand curve (not just the quantity demanded) is now different due to prevalence of work from home. And it will further change as different components of demand curve change. I am far from coming to any conclusions on how to trade it. But on the whole, I'd be a buyer of oil and oil companies under 70 (esp. < 65) and seller at over 100 - subject to some TA and FA. That is the easy part. It is the in between stuff that is always hard and takes work.

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