Saturday, March 7, 2015

Oil Bottoming?

You wish.

Back in the 2nd week of Jan, I outlined a few things about why I believe that we are not yet at a bottom for oil. With oil higher than it was back then, I still maintain that we haven't seen signs of a bottom yet. The 3 signs that I am are looking for are:
  1. USD reversal
  2. Outflows from Oil
  3. Rig count stabalization
I think where we stand on the USD is pretty clear. Almost every single currency around the world is hitting multi year or decade highs. Today is another day where we see the USD accelerate from the rest of the currencies. I am personally so surprised how long and far this herd trade has gone.

Outflows from oil hasn't happened yet. There is no fear. Until I start seeing people throw in their hats and quit, I don't think it's very constructive to jump in. The number of USO shares outstanding is just.... staggering! The lack of fear tells me this space isn't over yet.



Finally, rig count has not been stabilizing. From the previous count, it seems like it did, but the most recent count shows that it is still falling. Less rigs = less oil, right? Wrong.


I STILL have the same thesis as before. Everything is just much much worse than what it seems to be.

I am waiting for the 3 signs that I outlined above to flag to me that Oil is finally bottoming.

I really ought to look the O&G, offshore and shipping companies next to screen them into my watchlist. I have about 30 counters that passed the initial screen, I'm hoping that I can chop down the list in half and throw away those with the weakest balance sheets. I smell opportunity amongst all the dead bodies soon. Ahhhhh.

6 comments:

  1. I think otherwise

    all the negative news on oil has already been factored into the market already

    ReplyDelete
    Replies
    1. Hey Anon, agree to disagree.

      At the price levels we are at and where producers make money, I think it is a pretty darn attractive level, especially for a longer time horizon. Waiting for a lower price is being quite greedy.

      However, with oil in contango and a large chunk of the "demand" going into storage, I interpret it as the actual demand being much lower than what it seems to be. Upside looks limited, while downside seems aplenty in the short term.

      Delete
  2. can you share the 15 counters for discussion?

    ReplyDelete
    Replies
    1. Hey Anon,

      It will take me a while to trim my list, but here are the names of the counters I have before I start chopping. It's just a quick and dirty list.

      Rickmers, FSL Trust, Singapore Shipping Corp, Pan United, Marco Polo, Vallianz, Otto Marine, Tiong Woon, ASL Marine, Chuan Hup, Civmec, Falcon, Gaylin, Heatec Jietong, Jason Marine, KTL Global, Kim Heng Offshore, Mermaid Maritime, MTQ Corp, Nordic Group, PAAC OSH, SBI Offshore, Sinwa, Swissco, Viking Offshore, XMH Holdings, ES Group, Yangzijiang

      Of course, also Keppel, Semb Corp and Semb Marine

      In my opinion, I think the names here are much better investments than the other ones not listed here, ie Ezion, Pacific Radiance, EMAS, Swiber, etc.

      Delete
  3. penguin not in the 30 ?

    ReplyDelete
    Replies
    1. Hey Anon,

      Unfortunately not. They seem like a decent company, but I do not like their erratic dividend policy. As someone not invested in the counter, I am skeptical that the minority shareholders will be taken care of. Hence, my exclusion.

      Delete

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