Author Topic: Post-election oil spike?  (Read 2426 times)

Grigory

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Post-election oil spike?
« on: November 13, 2016, 12:17:30 AM »
I know, I know, market-timing is usually a bad idea. That said...

Facts:
1. Oil is currently very cheap.
2. Russian economy is heavily dependent on natural resources.
3. Due to low oil prices, Russia is broke.
4. Putin and Trump are very close.

Speculation:
Trump will help Putin out by driving up the prices of oil shortly after his inauguration. I'm not sure what the exact means would be - simple rhetoric, fist-shaking, making actual demands to Saudi Arabia to start paying for protection (and thus introducing panic into the equation), etc.

Even if I'm wrong and the price of oil doesn't spike within then next 3-4 months, it's still priced rather low right now and will make for an easy swing trade sooner rather than later. Thoughts?

Cottonswab

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Re: Post-election oil spike?
« Reply #1 on: November 13, 2016, 12:42:40 AM »
Oil is cheap, but I don't think you understand the market well enough to speculate with a high probability of success. 

To be a long-term investor, you have to understand the marginal cost of global oil development and production and the reserves that are economically viable at different prices.  The oil industry has historically been characterized by cyclical periods of underinvestment and overinvestment. 

That being said, I am currently overweight on oil majors and Russia, but I have a low cost basis from the overreaction / crisis period and plan to start selling in 2017 or 2018, when I will be FIREd and my capital gains taxes will be lower. 

BrokenBiscuits

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Re: Post-election oil spike?
« Reply #2 on: November 13, 2016, 03:36:51 AM »
Oil is currently cheap compared to previous values.
If you are familiar with The term -cyclically adjusted price-to-earnings ratio, commonly known as CAPE... then you will see that Russia has a low CAPE rating.

You can read more about CAPE here http://www.starcapital.de/research/stockmarketvaluation

If you believe, as the opening post does, that Putin's Russia will benefit from trump being elected then you have 3 reasons to consider investing in or upping your investments in Russia.

2 of those reasons can be backed with an element of fact and 1 is more of a hunch. Ie I think Russia will do well with Trump as president because of their "special relationship".

Personally I already invest in Russia because of CAPE and the low oil price per barrel and did just about double my holding as soon as I found out Trump was elected.

In the 3 days since, the fund I invest in rose about 2% the first 2 days each day and dropped just under 5% the final day. So, with that small sample it's not benefitted as yet. I'm in it for the long haul though and in theory , when investing at the low end of CAPE and potentially the bottom end of oil prices ... prices should go up. Obviously this is all just my opinion based on the evidence available and my interpretation of it.  I know most of you guys like to throw into vanguard and never think about it again so may not want to consider this approach, even theoretically.







« Last Edit: November 13, 2016, 03:38:54 AM by BrokenBiscuits »

MustacheAndaHalf

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Re: Post-election oil spike?
« Reply #3 on: November 13, 2016, 06:48:25 AM »
Grigory - why aren't you more focused on Saudi Arabia's actions?  You don't even mention OPEC, the oil cartel that controls oil prices.  By taking too narrow a view of how oil price works, I think you're mirror a larger problem of thinking you know better than the market.

DavidAnnArbor

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Re: Post-election oil spike?
« Reply #4 on: November 13, 2016, 07:04:34 AM »
Grigory - why aren't you more focused on Saudi Arabia's actions?  You don't even mention OPEC, the oil cartel that controls oil prices.  By taking too narrow a view of how oil price works, I think you're mirror a larger problem of thinking you know better than the market.

And to illustrate this point read the NY Times article about T. Boone Pickens hope that OPEC will cut production:

http://www.nytimes.com/2016/11/13/your-money/t-boone-pickens-risky-business.html?_r=0

Grigory

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Re: Post-election oil spike?
« Reply #5 on: November 13, 2016, 09:42:17 AM »
Grigory - why aren't you more focused on Saudi Arabia's actions?  You don't even mention OPEC, the oil cartel that controls oil prices.  By taking too narrow a view of how oil price works, I think you're mirror a larger problem of thinking you know better than the market.
But I am, I am. ;) OPEC has been trying and mostly failing to jump-start the oil prices over the past couple of years. The biggest development on the oil scene right now is Putin's BFF getting elected to the most powerful job in the world. With my background (Russian) and degree (political science), I would be extremely surprised if the Trump administration didn't do anything at all about the oil prices.

We can all agree to disagree and just revisit this thread a few months from now. ;) (Temporal bookmark: USO is currently trading at $9.77)

dividendman

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Re: Post-election oil spike?
« Reply #6 on: November 13, 2016, 10:21:35 AM »
Everything Trump and the Republicans are saying and have shown to support in the past indicate to me that there will be more oil supply coming from the United States.

What this does to prices of course is hard to determine, but it should skew to lowering them.

TomTX

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Re: Post-election oil spike?
« Reply #7 on: November 13, 2016, 12:11:24 PM »
Everything Trump and the Republicans are saying and have shown to support in the past indicate to me that there will be more oil supply coming from the United States.

What this does to prices of course is hard to determine, but it should skew to lowering them.

The (remaining) US oil producers have slimmed down and gotten very efficient. Less effort/cost for more return.  Before the bust, they were fat, inefficient and throwing cash at ANYONE. High school kids dropping out so they could start making 6-figures in West Texas.

If oil goes back up, they will simply ramp the drilling and fracking. Around half the drilling rigs in the USA are currently idle. This time, they have a lot of lessons learned.

waltworks

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Re: Post-election oil spike?
« Reply #8 on: November 13, 2016, 03:05:09 PM »
Trump's stated policy is to reduce regulatory burdens/encourage greater domestic energy production. Given the large numbers of idle drilling rigs in the US right now, I'd assume that would drive prices lower, if anything.

It's possible that he won't be able to (or willing to) actually do that, but I don't think I'd invest based on your reasoning.

-W

Metric Mouse

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Re: Post-election oil spike?
« Reply #9 on: November 13, 2016, 05:40:55 PM »
Trump's stated policy is to reduce regulatory burdens/encourage greater domestic energy production. Given the large numbers of idle drilling rigs in the US right now, I'd assume that would drive prices lower, if anything.

It's possible that he won't be able to (or willing to) actually do that, but I don't think I'd invest based on your reasoning.

-W

While i agree, I am mainly posting to follow and check up this time next  year. :) Good luck with your investment, op.

MustacheAndaHalf

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Re: Post-election oil spike?
« Reply #10 on: November 13, 2016, 06:43:27 PM »
Grigory - why aren't you more focused on Saudi Arabia's actions?  You don't even mention OPEC, the oil cartel that controls oil prices.  By taking too narrow a view of how oil price works, I think you're mirror a larger problem of thinking you know better than the market.
... With my background (Russian) and degree (political science), I would be extremely surprised if the Trump administration didn't do anything at all about the oil prices.

We can all agree to disagree and just revisit this thread a few months from now. ;) (Temporal bookmark: USO is currently trading at $9.77)
Oil prices rising doesn't prove you had the correct reasoning.  If someone claims an even number of posts in a certain thread means the stock market will go up, does it make the theory correct if the stock market goes up?

powskier

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Re: Post-election oil spike?
« Reply #11 on: November 13, 2016, 10:55:22 PM »
Grigory - why aren't you more focused on Saudi Arabia's actions?  You don't even mention OPEC, the oil cartel that controls oil prices.  By taking too narrow a view of how oil price works, I think you're mirror a larger problem of thinking you know better than the market.
But I am, I am. ;) OPEC has been trying and mostly failing to jump-start the oil prices over the past couple of years. The biggest development on the oil scene right now is Putin's BFF getting elected to the most powerful job in the world. With my background (Russian) and degree (political science), I would be extremely surprised if the Trump administration didn't do anything at all about the oil prices.

We can all agree to disagree and just revisit this thread a few months from now. ;) (Temporal bookmark: USO is currently trading at $9.77)

OPEC has not been trying to jump start oil prices, OPEC has been trying to reduce the US market share of oil production. They have been quite successful at shutting down much of our fracking( expensive ) production. If Trump does as he said and ramps up production through cutting red tape or reducing taxation he will basically help keep prices depressed by adding more oil to an already glutted market. OPEC controls oil production, they have access to the cheapest oil around.
At the risk of sounding harsh, I don't think you have even a basic understanding of the oil market and as such I would advise against trying to time this sector.
In all other Trump -Putin relations, Trump is going to get his giant ego massaged by a ruthless and experienced authoritarian who will have his way with him.
Have a nice day.

Grigory

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Re: Post-election oil spike?
« Reply #12 on: November 13, 2016, 11:56:24 PM »
At the risk of sounding harsh, I don't think you have even a basic understanding of the oil market and as such I would advise against trying to time this sector.
In online discussions, much like in investing, it's best not to make statements of this caliber based on mere assumptions and 2 posts...

The OPEC efforts I was referring to are the Doha conference in April and the Algiers meeting in August. Both fell through because of Iran and their inability to get everyone on board. In his recent interview with Bloomberg, Putin himself acknowledged that merely capping the output wouldn't do much good - it would take a reversal. (Or, and that's my personal commentary, an oil-related crisis, which wouldn't be too difficult, given that a lot of the oil producers aren't in the most stable regions...)

Another interesting factoid is that a Russian-born oil oligarch gave a fair chunk of money to Trump's campaign.

As for Trump's campaign promises to expand domestic oil and natural gas production - he's already started back-pedaling away from his key campaign promises. He might still follow through with them, but there's also a good chance he doesn't.

After all the effort the Russians have put into supporting Trump's campaign, I highly doubt he wouldn't help them out at all. But, like I said, let's wait and see. I'm not going all in, but I'm setting aside a chunk of my portfolio for this thought experiment.

Have a nicer day. ;)

DavidAnnArbor

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Re: Post-election oil spike?
« Reply #13 on: November 14, 2016, 10:12:31 AM »
I think Trump will appoint someone to the Secretary of the Interior who would likely green-light all the Alaskan oil drilling that corporations aspire toward, regardless of environmental degradation or Inuit tribal concerns.

It's precisely the evil effects of oil drilling that is propelling me to buy an electric car within the next 2 years, I'll see if I can swing it. Unfortunately, I'm still dependent on a car.


powskier

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Re: Post-election oil spike?
« Reply #14 on: November 14, 2016, 06:44:44 PM »
Alaskan here with great insight into our oil patch....the "green lighting" is political salesmanship. Our oil is expensive and a $4 billion state deficit means the advantageous oil tax regime here is coming to an end.

Grigory, you had mentioned nothing about OPEC, hence my statement. Very basic.