Oil sure is cheap, I don't think it can get much lower

Discussion in 'Commodity Futures' started by Smart Money, Mar 12, 2020.

  1. Ok, so I went long on oil today and I'll tell you why. If I was going to "invent" a nightmare scenario for falling oil, it would be a story that would go like this.

    In the middle of a (alleged) pandemic, following a quick but reasonable stock market correction, a brash young sheik gets in a pissing contest with an egotistical Russian about who can withstand a lower price on oil.

    Meanwhile, as I understand it, ambassadors from both countries are trying to patch things up, and its not in either of their best interest to perpetuate the argument.

    IMHO, kids will squabble with each other until dinner time and mom is serving ice cream.

    To me, it just seems this market is oversold. I watch a 2X ETF get cut in half AFTER THE CORRECTION. That's key...oil had already dropped to factor in a slowdown before the bitch slap fight started. I have a hard time believing that prices can't go back to the post crash/pre argument price in a reasonable amount of time.

    Greed won over fear and I placed a speculative bet. Seems prices are bouncing around a floor and short of a slap fight between a bear and a sheik, I think they'll bury the hatchet in their own self interest and/or their friends will talk them into it. If I'm right, I could double my money. I think that's more likely than losing much on my position.

    Edit: Below is a link that discusses the motives of the players. I can't imagine this gamesmanship won't be short-lived:
    Last edited: Mar 12, 2020
  2. CannonTrading_Ilan

    CannonTrading_Ilan Sponsor

    Not specifically regarding oil BUT...I have seen and heard too many clients in the past saying things like" Palladium is too high can't see it going much higher, Natural gas is below production cost can't go much lower....and more and more etc.

    When its all said and done, markets tend to go to extremes when the fear index is that high so my advise is to try and figure out a game plan in case you are wrong before you enter the market.....On the futures side with this example, I would go long, sell a call above with 45 days or less to expiration and use the money to buy a put etc.

    More on that here.
  3. Sekiyo


    Buy Oil Sell Rhodium ?
    What the hell is Rhodium ? A cryptocurrency ?


    I’d wait 20 $ but it is a good price anyway.


    The last two crashes have lasted about 6 months.
    So maybe next June we will be around 20$.
    Last edited: Mar 12, 2020
  4. Bought gas today for $1.80 (Missouri)
    Sekiyo likes this.
  5. Tomaz26


    Went long oil a couple of days ago too. First with futures at 29, sold at 34, then thought why not use those extreme volatility spikes to my advantage and sold 37 days out ATM puts. Two of them so it is almost 1000 long deltas.. The same as long futures, but my break even price is now below 30.. Will do it again and again and if CL keeps tanking, my entry price will be lower and lower.. At 25 I will just go long 2 CL futures again, no short calls because rallies at some point will be vicious and would not want to limit my upside..

    I mean can oil go lower? Sure. But this is not some stock that can go to zero and with those prices already there will be problems for many countries. Russia is trying to be brave saying they can endure oil at 25 etc, but many countries budgets will be decimated at those levels. US shale is what, 50$.. This can take maybe a year or more, but at some point I think not to far away crude will again be at least 40$ or more..
  6. I hear you, but my logic is that things can't/won't happen overnight.

    First, from what I've read, it will take years and billions of dollars for the Saudis to carry out their threats. When you engineer things, they are engineered to be most economical for their intended use, so increasing performance costs money and takes time.

    Second, we have a sitting President who isn't afraid to enact tariffs to provide protection for our oil industry.

    And Third, from what I've read, the low price of oil will derail the Saudis efforts to transform their country in the manner that their 35 year old leader wants to. Frat boys will always take the money to have a party.

    Yeah, I heard Goldman's forecast too, but I don't believe it. I just can't see oil staying down that long...any news of shale production being curtailed or wells being shut down is going to act like upward pressure. Besides, the TA inside me can see a nice little pennant forming in your chart, and it's not completed, so it needs an up and down cycle at a minimum.

    This stuff is fun, isn't it?
    KCalhoun, Tomaz26 and Sekiyo like this.
  7. Tomaz26


    Goldman forecast if anything is a contra indicator … I still remember when oil was 140, they began touting 200$ oil is within reach and then who knows, 300$, 500$? Well not long after oil colapsed to 25$.. Then when it was approaching 25-30, then began saying how oil can go as low as 5$.. which was a perfect time to go long and zoom back to 80 etc… So yeah, would not take too much of their forecast, but sure, they can eventually be right… I think it is good to buy here and try to lower entry point by selling calls or something like that.. If you sell at your entry price you will eventually be taken out for at least no loss. It can take a few months, a year, sure. But if you take 1-2$ premium each month you will eventually have an entry price of 20$.... Is crude going to be 20$ at some point? Hell yeah… :D
    Ayn Rand likes this.
  8. Turveyd


    Back in 2002 fuel rose to £1.40 per litre, and i expected £5 already a straight increase, expect back to 90p area soon, can afford to drive my SAAB turbo i was saving for fun really full time :)
  9. traider


    Do you guys have to factor in the carry cost of oil. Holding oil is not free as you have to consider storage costs. Oil can remain at repressed levels for a long time.
  10. I think that's an argument for higher oil. When oil is cheap, you can't stock up on it easily. Where am I going to put the cheap gas? That means that lower oil prices today doesn't curtail demand tomorrow because of storage problems.

    Anyway, it looks like oil is really going to bounce today. I have a pleasant decision to make.
    #10     Mar 13, 2020