Oil Valuation!

Dear Reader,

Here I am going to make an attempt to value oil.

Currently Brent oil trades at 70.52 USD, while WTI oil is priced at 66 USD.

I think Brent could go to 80 USD, while WTI oil could climb to 75 USD.
Why?

Basically, I think the main reason is the global economic recovery. The economic growth of the major economic regions and economies is remarkably synchronous. Furhermore, the production cuts of OPEC and Russia are having their influence on price. US shale oil and gas producers are experiencing a renaissance. USA recently overtook Russia as the largest natural gas producer.

For the whole of 2018, I think Brent price would average 75 USD, while WTI should average 70 USD.

Such prices, however, would represent something of a cap on the price of oil. Canada and Brazil will increase their oil production. Canada and Brazil are producers of expensive sands and deep water oil respectively. But with oil above 50 USD, both Canadian and Brazilian oil production is profitable.

The main beneficiaries from the recent and future oil price rise will be the largest oil and gas exploration and production companies like Exxon Mobil, Chevron, BP, Total, Royal Dutch Shell, Gazprom and Petroleiro Brazileiro. Large shale oil and gas fracking companies like Marathon Oil Corporation and Continental Resources should also benefit handsomely. The largest oil comapnies of the world have since the oil price fall in June 2014 recorded financial losses or poor results. After the oil price increase in the last 3-4 quarters their results should improve markedly and with that their market valuation should increase.

The countries which stand to gain the most are Russia, Brazil and Canada. Russia is stricken by Western sanctions, but the country should slowly adapt to the new environment and the higher oil price should drive a Russian economic recovery.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Tesla, Bitcoin, Stocks, S&P 500, Nasdaq. Bubbles?

Dear Reader,

2018 started with something like an euphoria in stock markets, especially US stocks.

Some say the financial markets are frothy - you have froth, many small bubbles. In tech stocks in 2000 and with real estate in 2007-2008 you had big bubbles - one in technology stocks and another in real estate.

This time it seems we have many small bubbles. However, taken together they form a very big bubble.

The stock markets, US stock indices especially are in the very early stages of a bubble. They keep going up constantly. One of the characteristics of a bubble is that there is a revolutionary technology which is going to change the world. Like the internet in 2000. The internet did transform our world, but the growth priced in some of the stocks back then was simply delusional. Now Tesla(electric cars) and Bitcoin(blockchain) fit the bill perfectly. Revolutionary technology that is going to change the world? Let's look at the facts. What have electric cars and blockchain changed up till now. Not much. Very few cars run on electricity. If you take out hybrids out of the occasion the numbers are tiny. If the government does not subsidize electric cars, without a breakthrough the industry will die. Blockchain harbours the promise to change financial transactions. But which banks have integrated it in their back offices. I do not now of one, So it must be that electric cars and blockchain have future potential. But they have been around for at least four years. When will that potential be realised?

So, in my opinion electric cars and bitcoin seem like bubbles. US stocks are in the early stages of a bubble. The price earnings multiples of US stock indices are near historic highs. But the bull run in US stocks, according to me will run for 2-3 years longer. What could trigger the next big crash in financial markets? I believe the triggers could be many. But the exchange traded funds industry could be key here. There has been stunning growth in the assets under management of the exchange traded funds(ETF) industry. The ETFs now manage more than 4 trillion USD. When the markets start falling the ETFs will start selling and this could exacerbate the fall dramatically.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich