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Monday, December 27, 2010

oil's tight supply

The tight supply of oil is here again. I noticed this article last night, and it is making me question whether or not to sell a position in PBR at 35. (article)

If the demand is approaching the supply, crude will be past 100 throughout 2011, and that means PBR is very very inexpensive. PBR should be trading around 38-50 instead of current levels.

My portfolio risk tolerance is very tolerable right now, hence the addition of AXPW just now. If it remains, as I think it will. I will wait to sell a position of PBR at 38, and sell the rest above that level.

2 comments:

  1. Happy holidays to you.

    I'm the fellow who mentioned PBR to you recently. For another view on oil (and one on the big picture as well), I would again suggest you look at Philip Davis on Seeking Alpha (the 12/27 article). He is indeed an angry man, but he's no flake (and you might appreciate his humor as well). I'd be curious if you really take issue with anything there.

    Thanks.

    ReplyDelete
  2. many thanks, and a merry christmas and a very happy new year to you too :)

    I just read the article:

    http://seekingalpha.com/article/243705-mandarin-monday-china-tightens-while-snow-chills-markets

    I disagree with him, although I see his humor :) I think he is wrong. I agree with a short-term short to play a potential pull back on equities and oil, hence my current protection. But IMO the pull back will be a muted one. (I don't think the SP500 goes below 1220.)

    Regarding his oil short, he completely ignores the demand/supply concern. There is a lot of supply, but prices are not just measured by 'availability'. A key aspect is rate of usage, and its rate of acceleration. (This is the first time i noticed the number, hence my change in opinion w/ PBR and oil in general.)

    If the world uses 88b barrels a day (which is accelerating use) in 2011, then we have a few weeks/months of available supply. (in tankers and storage) Due to the availability the recession has given use a nice cushion we did not have from 2001-2006. But if max production stays too close to demand, oil prices will remain high.

    IMO, what is happening now is real price discovery, not speculation. The cushion will become irrelevant if demand becomes higher than max production supply.

    (I do not know if you followed my blog a few years back, but I had a very big short on oil when it was trading at 136-147 a few years back. I saw the coming deceleration due to the high price and exaggerated by the coming recession, not seen in the numbers at the time. I do not see the same things now, I see the opposite. With this, oil should not spike upward, I just think it will stay high, benefitting the proven oil reserves of PBR.)

    ReplyDelete