Trading Financial markets : Oil / Brent Crude

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Wed Feb 03, 2016 4:49 pm

A Brief Comment on Oil

Given the volatility of oil prices in 2015, which continued and accelerated at the start of 2016, we thought we’d make a brief comment on the oil space. A friend of ours (Thanks, Phil) pointed us to a Bloomberg survey of 36 oil analysts that was done around October 1, 2014. Oil had traded just above $100 a barrel in the summer of 2014 and had fallen to around $85 (WTI) and $90 (Brent) per barrel at the time of the survey. The analysts made estimates of the average price per barrel from the fourth quarter of 2014 through the first quarter of 2016. In the two quarters following the survey, the actual price of oil was almost half of what even the most pessimistic analyst predicted it would be during that time. And those “Titans of Oil” also predicted an average price close to about $100 a barrel during the first quarter of 2016, with the most pessimistic analyst still predicting a price above $95 a barrel. That’s a far cry from the $25-35 range it is trading at as we type these lines.

We bring this up not to point out any flaws in those predictions. The mistake for anyone not required to make these kinds of predictions lies in trying to make them at all. As Yogi Berra said, “It’s tough to make predictions, especially about the future.” It is nearly impossible to predict the prices of things such as stocks or commodities over any short period of time. But that doesn’t mean that companies tied to a commodity price can’t be worthwhile investments. The key, for us at least, is to explore these areas for potential investments where the downside doesn’t rely on a certain commodity price. The upside may depend on the price of a given commodity, but if we are confident about the downside protection and we think that any downside risk is more than offset by potential return even if prices remain depressed, then we may get interested. This often leads us to look at niche service providers with good balance sheets, and while we’ve yet to commit any capital to companies in this space, the recent and significant downturn has us exploring several potential opportunities.

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Wed Feb 03, 2016 6:05 pm

Andy i wasn't saying oil is not a long term investment. I thought most people on this forum would be looking for the shorter term. As Markmeets302 pointed out getting long term exposure to oil is no straight forward for the average punter.
Just an extra bit of info last week JPM reduced their price target for this year

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Fri Feb 12, 2016 8:37 pm

crude jumps more than 10%. Wacky week. Love the volatility!

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Thu Apr 14, 2016 9:51 am

Make you wonder what pay rise Bob Dudley 'would' have got if BP was doing well..
They have made thousands and thousands redundant this year..I think he's a cheeky bugger! :D
Think I could rough it on 14m a year

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Fri Nov 03, 2017 7:58 am

Brent and WTI futures are in backwardation. Usually a sign of low inventory and increasing demand

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