Author Topic: another leg down in commodities?  (Read 5980 times)

Green King

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Re: another leg down in commodities?
« Reply #20 on: March 26, 2016, 01:17:12 PM »
What has happened however is there has been disruptions in oil from Iraq & Nigeria causing less demand for offshore storage.  I think the Bears have forgotten that the new oil is from some pretty unstable places.

Packer

That's true supply takes time to build up but can disappear in a short period due to political events.  Like what happened in Yemen and Syria.
GK


Schwab711

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Re: another leg down in commodities?
« Reply #21 on: March 26, 2016, 01:19:36 PM »
What has happened however is there has been disruptions in oil from Iraq & Nigeria causing less demand for offshore storage.  I think the Bears have forgotten that the new oil is from some pretty unstable places.

Packer

Further, how many of these unstable regions could actually increase production at higher prices even if they wanted to? The most unstable regions generally seem to be "supersaturated". Unless substantially improved recovery technology is introduced (again), it seems like the aggregate global production is nearing a wall. Iran, Nigeria, and Venezuela all have seen declining production for at least a couple years. Iraq and Russia appear to be nearing a peak in production (both require higher amounts of capital for new production). That's a lot of at-risk production capacity before political risks are considered.

Search country of your choice:
http://www.indexmundi.com/energy.aspx?country=ve&product=oil&graph=production

Schwab711

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Re: another leg down in commodities?
« Reply #22 on: March 26, 2016, 01:24:40 PM »
I didn't make any causal arguments, and in any case causality runs both ways when it comes to commodities and the dollar. I simply pointed out that a) trends are down and b) sentiment is fighting the trend.

Agreed, I suppose my post looks like a straw-man. Didn't mean for it to come across that way. I was also sincerely interested if speculators have ever been net short. I would think they haven't since producers, in aggregate, are always net short.

ratiman

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Re: another leg down in commodities?
« Reply #23 on: March 27, 2016, 04:26:58 AM »
Some background from Chanos on commodity glut.

http://nondollarreport.com/2016/03/china-is-still-a-short-jim-chanos-part-two/



To give you an idea of the magnitude of what happened in commodities… Of the publicly traded commodity companies that were around in the early 1990s, we took a look at capex (capital expenditures) of the major mining companies – the BHP Billitons, the Vales, the Anglo Americans, etc. And from 1991 to 2001, the capex annually of these companies, in aggregate, went from $4.6 billion to $14 billion.

Then in 2001, China entered the WTO and basically the steroids started. The capex for the same companies went from $14 billion in aggregate in 2001 to $125 billion a year in 2012, at the peak. So it went from an arithmetic function to a geometric function after 2001. And that’s what we’re working off of.

Fry: That excess capacity doesn’t go away overnight.

Chanos: Right. That’s not going away. And it’s why the Caterpillars are going to have many years of problems, and the Komatsus, and the machinery guys… I mean, it was amazing how much global economic growth was based on this once-in-a-lifetime Chinese urban buildup. And [the reversal of this boom] is not going away in just a couple of years. It’s going to be a headwind for a long, long time.

Graham Osborn

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Re: another leg down in commodities?
« Reply #24 on: March 31, 2016, 05:26:45 PM »
Here's my 2 cents - oil and commodities are in a bear market.  This seemingly obvious statement has some predictive value.  Commodities tend to run in 18-year cycles.  Jim Rogers predicted the current cycle would end in 2015-2020 back in the early 2000s.  So it has.  When you look at the wasteland he describes for undercapacity at the start of the great bull market in the late 90s, you realize how different the place is that we are now.  Barring some sort of massive military mobilization (and perhaps in spite of), there's no reason for crude commodities to enter a new *secular* bull market for another 5-10 years.

Of course, that does nothing to answer the question of whether crude has bottomed or not.  What we can say is crude is quite low by inflation-adjusted historic standards.  This could be used as an argument for a bounce from current levels.

My view is divided but weighted towards the former argument.  Which as Packer noted the supply/ demand equation for crude has enough variables that the price is impossible to predict, the oversupply problem is likely to place a ceiling on oil prices well below what we saw during the bull phase.  This means that E&Ps are probably a poor buy-and-hold investment, as are crude-oil futures/ ETFs/ the like.  OTOH, we have seen such bearish action on crude over the past 2 years that a significant near-term rebound by 50% or more is quite possible.  I maintain a small position on BNO for this reason with 5% stops.  But I think it is way, way too early to bet on anything more than a bounce.  The ultimate floor is unknowable.
« Last Edit: March 31, 2016, 05:28:33 PM by Graham Osborn »