re: the Oil Sector...and Lukoil/China etc............
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Who supplies it & where it comes from and who can ultimately control (redirect) its flow... has become a very "Strategic" point of discussion concerning Oil.
The FX TV/Cable Movie - "OIL STORM" had a very prescient point...where during an Oil Crisis (70's deja-vu gas lines etc) when Russian Oil Tankers were headed to America to alleviate the crisis... the Chinese stepped in an and upped the bid & bought these Tanker-loads mid-shipment and the Tankers were "re-directed" from the US Shores to China...
Vis a vie the CNOOC-UNOCAL bid...we will learn quite a bit about how "strategic" we view Oil to be....and then there's the 7-11 / Chavez-Venezeula connection as well.
Crude Oil is not trading in a "free market"....it is now openly acknowledged behind the scenes by all of the major participants in the Oil Trading Pits.
- it's a huge windfall to them....they are merely going with the flow and if you haven't noticed whenever the likes of CNBC et al, interviews a Major Oil Trader... their commentary is filled with elementary, simplistic talking points...as they know there is NO FUNDAMENTAL support, or reason for Oil to be trading where it is today....it is entirely a "Wink & a Nod" "Inside-Baseball" Futures Market here.
When Crude Oil broke down and rolled over...(hit $46 a 20% hit) - Goldman Sach's Murti stepped in and made his seemingly irrational call for $105 Oil and refused to be interviewed, or to appear on Camera about it !?!?!?
Then miraculously...Buyers "simultaneously" stepped in putting a seeming "hidden hand Put" under Crude Futures.
- whodathunkit ?
We are still well above the mid-points of trailing 5 Year Inventory/Supply Levels for Crude Oil and Natural Gas....and this is at a time that Global and US Economies seem to be slowing, as inverted Yield Curves emerge Globally and when traditionally Crude Oil would be collapsing if traded freely, or upon it's real Fundamentals.
We have huge International Investment Banks that now have massive Energy Derivatives Trading Sectors that also own significant Assets in Crude Oil & Derivative Fuel Storage and Shipping...
- these are the same Investment Banks that do the bidding of the Exchange Stabilization Fund (ESF...aka the Plunge Protection Team) and were the same ones who facillitated the bail out of LTCM etc. It is NOT as if they do not have a history of facillitating Market Intervention !
People laughed and cited Conspiracy Theory-esque irrelevancy when I talked about the US Government using Crude Oil as a modern Weapon of Mass Economic & Geopolitical Destruction.
...but, it is being used as just that & very soon, it will be increasingly obvious that it is.
Crude Oil will be used to "crack" China...it is already occuring.
China is the only Global Threat to the USA's lone Super Power Status... it is acquiring advanced Military Hardware & Technology at a rate that is alarming the US and is exporting that Technology to Rogue States such as North Korea and Iran.
That is unacceptable - period.
...this is a much, much, bigger issue than the average investor realizes and is a significant factor in US Geopolitical & Economic Policy.
Modern Wars... will not be fought primarially on the Battle Field with Tanks, Troops & Bullets...they will be fought Economically & Politically as well... with the Banking & Financial Markets becoming modern "battle fields" and Commodities & Natural Resources becoming modern "weapons."
We are in Iraq & Pakistan for the Strategic Protection/Control of the Worlds primary supply of Crude Oil and the Pipeline Transmission Geography to China.
The USA most certainly wishes to topple the PLA/Communist Leadership of China...and as there is no desire to fight a traditional War with China... a "war" nonetheless is what is now being fought to slow China's Explosive Economic,Geopolitical & Militaristic Growth, Power & Influence.
At the margin where Politic's and Economics merge - is where Power & Money are acquired & exert their ultimate influence.
- Toppling China's Economy & Banking Systemas has a multiplicity of purpose:
1. To destabilize China and to topple the PLA/Communist Leadership.
2. To enrich the benefactors of the Bush/Cheney "pOILitical" Machine.
3. To provide a Trojan Horse Vehicle in which to "sell" the US Congress & Senate - that slowing China's voracious appetite for Natural Resources & Assets will allow the USA the time to transition to lesser dependancy on Mid-East Oil, to slow the rapid price appreciation of Oil & Natural Resource Commodities that is hammering the US & Global Economies as the primary focus of Bush/Cheney Policy - when indeed their primary Focus is #2 above...
The Economic effects of ramping Oil,Gasoline, Diesel & Heating Oil et al will lag present prices... this Winters Heating Season and an encroachment of $3 Gasoline will be a tipping point imho.
Ramping Crude Prices of course has a potential dangerous double-edged sword risk to the US Economy and thus to the Electability of the ultimate Bush/Cheney "pOILitical machine" Presidential Candidate for 2008 as well.
I am sure many have noticed the "talking points" being used to sell the US Consumer & Voter...that Crude Oil is not affecting the "strong, vibrant" US Economy...that it is a much smaller component of the US Economy today than it was in the past - yada, yada, yada... this while being drugged by the opiate-feel good nature of the Fed's Massive Reflation, the Housing Bubble, an Easy/Cheap Money Refinance Boom, Low Interest Rates and Easy Credit for anything from Auto's to Electronics.
While the average American is lulled into complancey by the Housing Bubble, Cheap & Easy Credit and American Idol...significant change is occuring in the world that will effect America for decades to come.
Just as we will ultimately pay for the Massive Mis-Allocation of Capital that fueled the Tech & Internet Bubble 5 years ago, that is now fueling the Bubble Du Jour in Housing... we will also ultimately pay for the Mis-Allocation of Capital in US Energy Policy.
Instead of spending hundreds of Billions of Dollars on accelerating the development of North American Oil & Gas Assets & Alternative, or New Energy Technologies...that will lead to US ENERGY INDEPENDENCE via the investment in and the development of: Non-Traditional Natural Gas, LNG, Tar/Oil Sands, Hybrid-Auto's/Higher CAFE Standards, Conservation & Efficiency Policies and Technologies etc... the Bush/Cheney "pOILitical" Machine have instead enriched the Investment Vehicles of their supporters like The Carlyle Group, Dyncorp & the Defense & Oil Contractors via spending $300 Billion+ in Iraq - while Oil Prices have doubled and the only benefits have gone to the Halliburtons & Defense Contractors...
Money fuels all Politics and Oil-Money quite obviously fuels the Bush/Cheney Machine.
...it should surprise no one, where US Policy and MONEY were directed, nor whose pockets it is enriching.
- that is the US Political System...where the average US Congresman spends literally 90% of their time raising money and campaigning.
Maybe what is yet to come vis a vie "pOILitics" - will serve as a catalyst to push Americans to finally institute a complete overhaul of our US Campaign Finance Laws.
Tradingwise...the Oil Boom is taking on "Bubble-esque" qualities.
The XOM's & BP's are NOT transferring present Oil Prices into Cap Ex Spending based on anything near these Prices...and for obvious reasons.
But, just as being "right" about the Tech & Internet Bubble at NASDAQ 3,500 ...did not profit anyone who dared standing in front of that irrational Train.... being right, but standing in front of the Oil Train carries the same trading/investment risk.
In Commodity/Cyclical Sectors - making money has never been difficult....keeping it, has been the challenge.
Keeping Money made in the Oilpatch has ALWAYS required - Walking Away - while still in the Sweet-Spot Peak of Sector Fundamentals, Earnings, Commodity Prices and perhaps most importantly... Investor Sentiment.
...and that is hard to do.
But, THAT - is what will be required...to be able to "keep" the Big & Easy Money already made.
In Volatile Cyclical Sectors only a Fool plans, or desires to still be "all in" anywhere at, or near the top.
As identifying "THE TOP" requires a massive amount of Luck, Skill and Anticipation...the far better plan & strategy is to identify when the "Big & Easy Money" Portion of the Cycle has passed.
"Bad Macro" Economics emerging on the Horizon have always trumped "good micro" Sector Fundamentals...and given the US is still the Engine that Pulls the Global Economy, given the softness in Europe, given the still relatively Wageless & Jobless Nature of the US Economic Recovery, given US Consumer Debt Levels, given the risk to Sentiment that a rollover of a Housing Bubble portends, given Debt Levels, given a "0" Savings Rate in the US and given the warning signs of Inverted Yield Curves and Rollovers of the Dow Transports etc... the Shadow of "BAD MICRO" is starting to appear on the Horizon of "Good Micro"...
I think a moving Options Straddle is still the effective method to Trade the Oilpatch in this Environment.
I went short at the end of March atop the Jan to March parabolic run... took my 10/15 points & $10-$20 in some high flyers and covered my shorts & bought some outling Calls & LEAPS for upside volatility.
The Best Risk:Reward Bet I see on Crude Oil is that it is not going to stay at $55/$60....but, that VOLATILITY is the play...ie: $40/$45, or $75/$80 given the Political WMD use of Crude Futures vis a vie China....and thus the Options Straddle.
Personally; I prefer to give the 'Patch enough rope to hang itself... to patiently wait for suceeding Rally's and to short into those Rallies and when covering to take a "portion" of those Profits and to ladder Calls & LEAP Calls out of the money.
A Moving Straddle with a Short Bias... the Short "bias" coming from what I belive to be a disconnect from the true underlying Fundamentals and the "gaming" of Crude Futures that I know exists.
I'll take some profits on those Calls & LEAPS instituted on the covering of the retracement pullback off of the Jan to March run should the OSX mount a rally to 160ish.
I'll wait for signs of exhaustion, cash in the Calls & LEAPS and go short once again.
...when, not if....China Cracks, the US Economy Rolls over and US Energy Policy gets passed.
- these are all factors driving Crude higher and ultimately when any 2 of the 3 above come to fruition... CRUDE OIL collapses and does so violently.
Being right on the Oil Story - is never required to make money in the Oilpatch...but, is always required to keep that money.
- being right, along with having a Trading Plan & an Exit Strategy...is something that the majority of Tech/Internet Bulls did not have 5 years ago and seemingly few Oilpatch Permabulls possess today.
Tic' Toc`
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