Get Out Of The Oil Patch New Paradigm Update

It is human nature to look for bargains – and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the  dollar level it now enjoys.

“We could definitely see $55 next week,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We are probably going to see some violent trading.”

The Saudis are not messing around.

“Whether it goes down to $20, $40, $50, $60, it is irrelevant.”

‘Drifting Down’

Skip York, a Houston-based vice president of energy research at Wood Mackenzie Ltd., said the next price target is $45.

“The market hasn’t seen the response they’re looking for on the supply side yet,” York said. “We’re now in this environment where I think prices are going to keep drifting down until the market is convinced, until the signal that production growth needs to slow has been received and acted on by operators.”

Are you still a client of a portfolio manager urging you to ” stay the course” – or worse, telling you to add to losing positions and losing sectors?

small- and mid-capitalization stocks, both E&P and Oil Service, are trading ~60% below their recent peaks, on average.

  • A growing number of stocks are priced at less than one-quarter of their peak prices achieved less than six months ago.

This is what is happening to oil TODAY ( Dec 22)

Crude Extends Fourth Weekly Decline Amid Supply Glut

Standard & Poor’s Ratings Services revised its outlook to negative for Royal Dutch Shell Plc (RDSA), Total SA (FP) and BP Plc (BP/)as the oil-market rout driven by weakening demand and a flood of supply from American shale fields threatens cash flow into 2016.

The credit-rating company also cast a dim eye on Houston-based ConocoPhillips, saying it’s facing similar cash flow pressure, and said it may cut the ratings on Eni SpA (ENI) and BG Group Plc’s BG Energy Holdings. S&P cited “the dramatic deterioration in the oil price outlook” and the 50 percent increase in debt loads and dividend commitments for the biggest European oil producers since the end of 2008.

Saudi Oil Minister Ali Al-Naimi said OPEC’s biggest producer will seek to maintain market share and that global demand growth this year was slower than expected. Iraq plans to boost its production next year, Oil Minister Adel Abdul Mahdi said. Trading volatility stayed at the highest level in more than three years.

Saudi Arabia is not willing to give up market share,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “With the U.S. production trajectory intact certainly in the next few months, it’s going to be a fight. It certainly looks like oil is heading toward $50.”

Oil has slumped about 21 percent since OPEC decided against cutting its production target last month, prompting a plunge in the value of currencies from the Russian ruble to the Norwegian krone. Surging production and slower-than-expected demand growth have also contributed to this year’s rout. Output in the U.S. is the highest in three decades.

Brent for February settlement dropped $1.10, or 1.8 percent, to $60.28 a barrel at 1:05 p.m. New York time on the London-based ICE Futures Europe exchange. The volume of all futures was 16 percent below the 100-day average. The European benchmark crude traded at a premium of $4.82 to West Texas Intermediate. Prices have fallen about 45 percent this year, set for the largest drop since 2008.

WTI for February delivery fell $1.73, or 3 percent, to $55.40 on the New York Mercantile Exchange with volume 12 percent below the 100-day average. The U.S. benchmark is down about 43 percent this year.

Implied Volatility

Implied volatility for at-the-money options in the front-month Brent contract, a measure of expected futures movements and a key gauge of options value, rose to 49.7 percent, the highest level since August 2011, according to data compiled by Bloomberg. WTI volatility is also at the highest since 2011.

“Nothing fundamentally has changed,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The Saudis have been saying that they are not going to cut production. We are going to see some violent trading with very high volatility.”

The market is oversupplied by 2 million barrels a day, according to Mohammed Al Sada, Qatar’s energy minister. The International Energy Agency cut projections on Dec. 12 for the amount of crude OPEC will need to provide next year by 300,000 barrels a day to 28.9 million.

Wrong Information

Lack of cooperation from non-OPEC producers and wrong information in the market hit prices, Al-Naimi said at a conference in Abu Dhabi yesterday. Saudi Arabia’s oil policy doesn’t target other countries, and if non-OPEC producers were to offer cuts, OPEC probably wouldn’t follow suit, he said.

“Whether it goes down to $20/b, $40/b, $50/b, $60/b, it is irrelevant,” Al-Naimi told the Middle East Economic Survey when asked what price would prompt OPEC to cut output.

Iraq, OPEC’s number two producer, will have output of 4 million barrels a day and export 3.3 million barrels a day next year, Abdul Mahdi said in an interview in Abu Dhabi. Its production accounted for 10 percent of OPEC’s output in November at 3.35 million barrels a day, according to data compiled by Bloomberg.

OPEC pumped 30.56 million barrels a day in November, exceeding its collective target of 30 million for a sixth straight month, a Bloomberg survey of companies, producers and analysts shows.

Output in the U.S., the world’s biggest oil consumer, expanded to 9.14 million barrels a day in the week ended Dec. 12, according to the Energy Information Administration. That’s the highest level in weekly data that started in January 1983.

Shale Boom

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. The three shale plays supplied record amounts in November, said the industry-funded American Petroleum Institute.

The slump in oil is spurring the most bullish bets by hedge funds in four months. Speculators expanded their net-long position in WTI by 14 percent in the week ended Dec. 16 to 217,723 futures and options, U.S. Commodity Futures Trading Commission data show.

and today Dec. 22 Natural Gas Tumbles ( again)

Natural gas futures tumbled to a two-year low in New York as mild weather and record production threatened to expand a stockpile surplus.

Futures slumped 9 percent to the lowest settlement since Jan. 9, 2013, making the fuel the worst performer among 22 materials in the Bloomberg Commodity Index. Gas stockpiles totaled 3.295 trillion cubic feet as of Dec. 12, 47 billion more than a year earlier and above the year-ago level for the first time since 2012, government data showed. The surplus will “balloon to just shy of 200 billion cubic feet” by the start of 2015, according to JPMorgan Chase & Co.

Temperatures may be above normal in most of the lower 48 states through Dec. 26 and on the East Coast through Dec. 31, according to Commodity Weather Group LLC in Bethesda, Maryland.

“The hope of cold weather boosting inventory withdrawals is receding, and that’s opened up a floor in gas prices,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The weather models are generally less supportive for the persistence of cold.”

Natural gas for January delivery fell 32 cents to settle at $3.144 per million British thermal units on theNew York Mercantile Exchange. Volume for all futures traded was 59 percent above the 100-day average at 2:41 p.m. Prices have dropped 26 percent this year, heading for the biggest annual loss since 2011.

‘Downside Risk’

U.S. gas production may climb 5.5 percent this year to a record 74.26 billion cubic feet a day, Energy Information Administration data show.

“Supply growth and mild weather returned working gas storage to a year-on-year surplus for the first time since December 2012,” Morgan Stanley analysts including New York-based Adam Longson said in a report e-mailed today. That “adds to near-term downside risk.”

Gas production from the Marcellus shale formation in the Northeast may climb to 16.3 billion cubic feet a day in January, up 19 percent from a year earlier, the EIA said Dec. 8 in its monthly Drilling Productivity Report. The agency is the Energy Department’s statistical arm.

The low in New York on Dec. 27 may be 36 degrees Fahrenheit (2 Celsius), 7 higher than average, data from AccuWeather Inc. in State College, Pennsylvania, show. Boston temperatures may drop to 35 degrees, 10 above normal.

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter at to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ EnergyI am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M


Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email OR  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

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