Will Algos Push Oil Back To $60? Morgan Stanley Begs You To "Forgive The Macros, They Know Not What They Do"Submitted by Tyler Durden on 04/26/2016 11:58 -0400
“Close your eyes and buy” seems to be the mantra for now. While fundamentals don’t justify a cyclical recovery in oil yet, the market continues to move higher. The primary driving force has been macro funds, index money and CTAs. Technicals and momentum have only added to it, and there is a sense from some of investors that they need to buy for fear of missing out. Similar to 2015, we see a confirmation bias where any bullish data point is embraced outages, weekly US production, etc) and bearish data points are dismissed or spun as a buying opportunity.
"We do not expect the meeting to deliver a bullish surprise as we believe production cuts make little sense given it has taken 18 months for the rebalancing to finally start. In addition, any resolute agreement that would support prices from current levels would prove self-defeating, in our view, as we believe that sustained low prices are required for the nascent non-OPEC supply adjustments to deliver a deficit in 2H16. Finally, a production freeze at recent production levels would not accelerate the rebalancing of the oil market as OPEC (ex. Iran) and Russia production levels have this year remained close to our 2016 average annual forecast of 40.5 mb/d." - Goldman
Large amounts of aluminum traded on the London Metal Exchange over the past couple of years "have at times been in the hands of a dominant position holder." Citing sources at commodity trading houses, warehouses, producers, brokers and banks "one such position holder is U.S. bank JPMorgan."
"It's The Q2 2015 Rally All Over Again" - Morgan Stanley Warns Big Oil Drop Imminent Due To "Rampant Hedging"Submitted by Tyler Durden on 03/14/2016 09:38 -0400
"The current setup is similar to 2Q15. Back in 2015, a rally in prices driven primarily by a USD pullback led to producer hedging and capped deferred prices at $65/bbl. This resulted in a flatter curve, but it also limited the rally in the front to $60 given the state of US inventories. The current rally mirrors this period in 2015 in many ways, only that producers are willing to hedge at much lower levels. As the USD and producer hedging reasserted themselves, that rally proved to be short lived."
Crude oil production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. This means that as of this moment, about 550 million "missing barrels" are unaccounted for "apparently produced but not consumed and not visible in the inventory statistics."
The big news is that the gold-silver ratio closed at 80, a new post-2008 record. Why?
We have made a contrarian call for a falling silver price and a rising gold to silver ratio for years. This ratio has risen a lot during this time. Are we ready to change our call yet?
Sort of like all those do it yourself Gold Mining shows hitting the reality television scene pretty much nailing the near term top in the gold market.
This week, the gold-silver ratio promptly moved up +2.3%. As readers will recall, we have been calling for a ratio value over 80 for a while.
For a long time, we called for a big drop in the silver price. It stubbornly did not, or when it did drop it soon recovered. In the end, we were right and the silver bulls were wrong.
The cobasis briefly peaked around 11% (from around 0.5% previously).
Last week, we asked if silver would have a 14 handle again. This week, the market answered yes we can! How did we know? By looking at supply and demand.
We will be the first to admit that yield curve inversion is not the only factor causing recessions, but through the credit channel it can be an important contributor. Depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system. While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.
If you’re sophisticated and have a bit of luck, you could end holding your gold exposure at zero or even make a profit.