I turned on CNBC at lunch just and saw the anchor saying "some traders are saying we might see oil in the 30s". Today we saw most E&Ps off 6-10%. I'm even tempted to dip a toe in here for a short term speculation (but have resisted that temptation). It doesn't take a technician to tell you that this chart or WTI doesn't look good:
Right after that they had someone on saying that they were projecting a $70 oil price for the first quarter average! He was saying that the small Permian Basin companies he covered wouldn't have any financial trouble because they had hedges in place. There are still lots of people living in a fantasy land I think. Supply and demand are fundamentally mismatched at the moment and the Saudis are saying they won't cut. I want to see producers say they are dramatically cutting capex budgets before their hedges start to run out. I also want to see the stocks of oil majors pull back more. Exxon is still trading at $90, or 15x analysts' (stale) earnings estimates for 2015.
At some point in the future I think we will see an agreement to cut production that may incorporate the Russians and other non-opec producers such as Norway, Brazil, and Mexico, but there is likely more pain to come first. I want to see total capitulation. I'm buying some broad index funds today but not oil equities yet.
No comments:
Post a Comment