THE NEXT MOVE

 Energy prices has been much in the news of late.

Gasoline prices in many areas of the U.S. have dropped below $3 a gallon, according to the Wall Street Journal "delivering a welcome lift to American consumers and retailers heading into the holiday season."

In the meantime, oil prices on Monday fell below $80 a barrel, a 25 percent decline since mid-June before recovering slightly. For four years the energy sector was one of the better performers owing in part to all the fracking that higher prices made feasible. 

Now concern grows almost daily about how low is low enough to roll back much of the drilling. There's been lots of guesses, with some saying $70 a barrel to others $50 a barrel, but truth is no one knows for sure.

The lower prices along with sanctions have hit Russia, not to mention other oil-exporting nations, particularly hard, putting downward pressure on the Russian ruble. And the recent Goldman Sachs report suggesting that the 25 percent drop in prices won't be turned around anytime soon didn't help much either.

Goldman Sachs, however, is hardly alone in this as other banks lowered their first quarter 2015 price expectations for oil. Wall Street is famous for its short-term views.

And the simple answer is: risk. The longer one goes out the more  room there is for error. To be sure trends are important. And they are also pretty safe in the world of predicting, as in more of the same.

So much of the money is now moving to firms that will benefit from lower prices as the gloom grows.

We don't know about anyone else, but we definitely like all this gloom. And here's why.

Let's take the much maligned British Petroleum. Notwithstanding its continuing legal problems connected with Gulf spill, it has, like Exxon Mobil, ties to Russia, not the most endearing thing with investors these days.
 
After announcing it earnings recently, here a quote covering that story.

BP can’t seem to catch a break.

As it struggles with the cost of the 2010 BP oil spill cleanup, it now must confront falling oil prices and declining profits from its stake in Rosneft.

Those challenges were apparent on Tuesday when BP BP announced its earnings, which fell about 18 percent to $3 billion in the third quarter, compared to $3.7 billion in the same period of 2013. Net income for the period dropped about 63 percent to $1.3 billion.

Still, the company put a positive spin on the quarter, emphasizing that it would increase its dividend by 5.3 percent from a year earlier, to 10 cents a share. That is expected to be paid out in December.

To begin with, we think much if not all the ugly Gulf spill news is in the price at this point and the British government has twice spoke to U.S. authorities about the harshness of the prospective fines. Low oil  prices are one thing, resolution of the matter another.

If one is long BP in particular and oil in general one is long the Russian ruble which has taken a huge hit. We think there's much money there once the sanctions get lifted and they will barring Armageddon.

Another big meme today is the lack of demand and the concerns about too much supply as if the market has never seen these things before.  Some are leasing big tankers and storing the stuff off shore. Fracking itself is not the most popular kid on the block and after the upcoming elections things could get riled up there.

The point is, the only thing certain is uncertainty and no one knows when or from where it will come. As former President Eisenhower once noted: "If everyone is thinking the same thing, then nobody's thinking."

The next move is yours.

 http://www.marketwatch.com/story/dumb-money-unloads-bullish-oil-bets-as-prices-pose-threat-to-stocks-2014-10-28?link=MW_popular

 http://finance.yahoo.com/tumblr/blog-smart-money-decreases-crude-oil-shorts-by-record-amount-125003462.html