oil - What We're Reading - StockBuz2024-03-19T01:31:24Zhttp://stockbuz.ning.com/articles/feed/tag/oilMLPs as Interest Rates Risehttp://stockbuz.ning.com/articles/mlps-as-interest-rates-rise2015-08-16T18:29:37.000Z2015-08-16T18:29:37.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p style="text-align: left;"><em><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291216?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291216?profile=RESIZE_320x320" width="300"></a>I've long wondered about MLP's as interest rates begin to creep higher and crude oil, obviously, remains low. After all, they're supposedly not tied to the price of crude oil, right? Certainly 2015 has not been their "year" as the 10 year fluctuated, leaving me even more cautious but did this translate into a buying opportunity? Consider this interesting piece here by</em> <a href="http://thereformedbroker.com/2015/08/16/the-mlp-myth-blown-to-smithereens/" target="_blank">TheReformedBroker</a></p>
<p>I’m sitting at <a href="http://www.striphouse.com/venues/midtown/" target="_blank">the Strip House</a> with a wholesaler from a large mutual fund / UIT sponsor two years ago. He’s a good guy but he’s there to sell. I’m there to eat <a href="http://www.eatinglv.com/wordpress/wp-content/gallery/strip-house-redux/strip-house-014-large.jpg" target="_blank">thick-cut slab bacon</a> and shrimp cocktail. I told him in advance that I’m not a buyer, but I have an open mind.</p>
<p>He’s showing me an SMA (separately managed account) strategy whereby his firm’s team of experts picks the best MLPs. The pitch is that MLPs are a way to participate in the growth of energy infrastructure but without having exposure to the volatility of oil prices. MLPs, he explains, are uncorrelated to the price of oil because they act like “toll collectors”, earning money based on the flow-through of oil, regardless of what a barrel of the stuff ends up selling for on the spot market.</p>
<p>Last fall, a gentleman from one of the largest investment banks on The Street meets me at a Bar Mitzvah. A week later he’s in my conference room pitching me an MLP fund as a bond substitute. It’s better than traditional fixed income because it stands a better chance of competing with rising rates. “As the economy gets better, MLPs are dealing with higher volumes and thus they can pass on higher income from their increased cash flows. Bonds, with their fixed coupons, cannot do that.”</p>
<p>These scenes have played out at lunch tables, conference rooms, investment committee meetings and due diligence sessions around the country for years now. MLPs are a huge pain in the ass tax-wise, but we are told that the need to file K-1s is a minor annoyance given the many benefits of being in the asset class, namely:</p>
<p style="padding-left: 30px;">a) low correlation to regular oil stocks<br> b) bond-like characteristics<br> c) limited exposure to the volatility of energy prices</p>
<p>It’s a great story. If only it wasn’t complete and utter bullshit.</p>
<p>2015 has seen these and other MLP myths blown to smithereens.</p>
<p>Simon Lack <a href="http://www.sl-advisors.com/mlps-now-look-attractive-relative-to-equities/" target="_blank">details the carnage</a> for this supposedly insulated, uncorrelated sector:</p>
<blockquote>
<p>the use of MLPs as a fixed income substitute has not looked so clever of late. <strong>The asset class sported a -32% total return from its peak a year ago until very recently.</strong> Following a modest bounce, <strong>MLPs are now 28% off their all-time highs (including distributions), and -17% YTD</strong>. Only 2008 was a worse time to be an MLP investor, and pretty much everything was going down then whereas the broader equity indices are currently close to all-time highs. So one must concede that the case for using MLPs as a fixed income alternative has been weakened as a result of their correlation with crude oil and its concurrent 50% slide.</p>
</blockquote>
<p>Lack is turning positive on the space. He notes that there are now 7%-plus yields available in the asset class, combined with the fact that the partnerships have continued to increase their distributions in the face of a horrible industry backdrop.</p>
<p>Maybe he’s right. My point today is not to pass judgment on the whole MLP complex and say that these investments are either “good” or “bad”. Rather, I’m here to relay some important lessons learned from what’s gone on in the space.</p>
<p>The first lesson is that “in theory” doesn’t do you any good when you’re living and investing in the real world. <em>In theory</em>, MLPs should not be overly sensitive to oil prices because they themselves are not making a bet on the future price of the commodity, just the continued need for distribution. What the theorists didn’t factor in is that MLPs are susceptible to an oil rout because the industry relies on continued financing in the bond market and when creditors get skittish, <em>everyone’s</em> cost of borrowing goes up.</p>
<p>The second lesson is that multiple expansion or contraction is not a <em>fundamental</em> phenomenon, it is a <em>sentiment</em> phenomenon. A business can see no change in its underlying fundamentals – it can even see an improvement – but this is not the determinant of what investors might be willing to pay for those fundamentals. MLPs, like stocks, commodities, real estate and works of art, are every bit as subject to the whims of the emotional investor class as any other asset class.</p>
<p>Third lesson – Repeat after me: <em>MLPs are not f***ing bonds.</em> Bonds are bonds. A bad year in the bond market is like down 4%, not down 30%. High current income in any asset class is always a function of where risk is being priced. You don’t get 6-7% yields in a ZIRP world without a heightened chance for large principal loss. How many times must we learn and relearn this?</p>
<p>MLPs might be the Buy of the Century at today’s prices. And there is a case to be made that they are a functional and legitimate sleeve for a diversified portfolio. Just go in with eyes wide open and an ear for the kind of myth-making that ascribes supernatural qualities to an asset class that hasn’t lived up to them thus far.</p></div>Will Oil's Fall Damage The Rally?http://stockbuz.ning.com/articles/will-oils-fall-hurt-the-rally2014-12-15T00:40:22.000Z2014-12-15T00:40:22.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://www.brimg.net/images/slideshows/investing/2013/investment-ideas/4-reversion.jpg"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291003?profile=RESIZE_320x320" width="250"></a>I have to throw a flag in from the sidelines calling foul on the learned men on CNBCs Fast Money table Friday (video below) as traders remain bullish on the big screen. In fact, they do not believe crude's fall will impact our rally. Really? Josh Brown stated there was <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291063?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291063?profile=RESIZE_320x320" width="300"></a>no correlation b/w the price of oil and the S&P500 and did their level best to downplay the selling in crude oil. Alright, overlay a comparison chart (left) and you won't see black gold having an enormous impact on the market with a few exceptions BUT, the energy complex represents an average of 6.9% of U.S. GDP. </p>
<p>If it's a bear market, this changes the scenery. Come on Josh; there's much more that you're <em>not</em> saying and we know it. Stay with me here. So typically if we saw a ten percent correction in crude, another sector in the S&P would merely step up to the plate and help lead such as tech or financials.</p>
<p>This time, however, we see regional banks such a Cullen-Frost (who <span style="text-decoration: underline;"><strong>lend</strong></span> to oil names down here in Texas for oil and gas projects) not only falling, but falling HARD on heavy volume......right OUT of a wide range top. It not only took out a years worth of stops, it fell hard below the 20 month SMA which has historically been solid support for this Texas regional bank. Risk of defaults in regional banks? In these parts, one would say "esto no es bueno".</p>
<p>Concurrently, the Barclays high yield bond fund, $JNK and iShares high yield corporate bond fund $HYG (proxys for risk appetite) have all but taken out not only their 2014 gain, but the 2013 as well......closing in on the May/June 2012 low now. If this isn't telling you this is more than a typical correction, it should be.<a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291099?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1291099?profile=RESIZE_320x320" width="300"></a></p>
<p>Now here's where I believe the sell off in crude becomes more important than being said: Capital expenditures being lowered and postponed in energy names and THAT, my friend, is a huge difference than past corrections in black gold. You never had these worries in financials and bonds when crude itself had a 10% correction.</p>
<p>As pointed out by Ashraf Laidi</p>
<blockquote>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291112?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1291112?profile=original" width="259"></a>Yes, Joe the Plumber will have more cash to spend with gasoline near $2/gallon BUT the benefit will be nothing in comparison to the cutback on capex spending. With such low crude prices, companies will postpone capital expenditures, new wells, new machinery, whatever they can which is going to impact every one of their suppliers............and you can see it in all the oil and gas suppliers such as SLB.</p>
</blockquote>
<p>Now *IF* Russia, Saudi Arabia or someone were to balk and cut production, then supply will tighten and prices will rise however at this juncture, no one is blinking. Russia holds almost no debt and tons of cash reserves. They can bide their time as can Saudi Arabia with only $10/barrel needed to remain profitable. Unless a pipeline explodes, this could go on for some time. O&G names with heavy debt I'm sure are already feeling the pain. Just look at the oil services ETF $OIH and you won't want to catch that knife. </p>
<p>If commodities are, in fact, <a href="http://stockbuz.net/articles/reverting-to-the-mean" target="_self">reverting to the mean</a>, I won't be buying any energy names just yet. It could be a while as they postpone projects, tighten their belts, reorganize, restructure and yes, some definite M&A may be ahead. But M&A alone is not a reason for "me" to buy a stock. I want my money <em>working</em> for me; not sitting with losses hoping there's a buyout. Call me crazy but I'm staying away from the energy complex or shorting it further on any spike. By the time all the dust settles, I don't think it will be pretty.</p>
<p>Bottom line on the rally, yes, I think it's going to weigh on the rally. How much is yet to be seen but this is not your typical 10% oil correction. Financials may not be able to help take up the slack. Then there's the strong U.S. dollar. Oye. The holidays can't get here fast enough. With them comes lower volume and <em>usually,</em> less selling pressure. Unless it's different this time.</p>
<p><object id="cnbcplayer" width="400" height="380" classid="clsid:d27cdb6e-ae6d-11cf-96b8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=6,0,40,0" bgcolor="#000000"><param name="allowfullscreen" value="true"> <param name="allowscriptaccess" value="always"> <param name="quality" value="best"> <param name="scale" value="noscale"> <param name="wmode" value="transparent"> <param name="salign" value="lt"> <param name="src" value="http://plus.cnbc.com/rssvideosearch/action/player/id/3000338656/code/cnbcplayershare"> <param name="pluginspage" value="http://www.macromedia.com/go/getflashplayer"> <embed wmode="opaque" id="cnbcplayer" width="400" height="380" type="application/x-shockwave-flash" src="http://plus.cnbc.com/rssvideosearch/action/player/id/3000338656/code/cnbcplayershare" allowfullscreen="true" allowscriptaccess="always" quality="best" scale="noscale" salign="lt" pluginspage="http://www.macromedia.com/go/getflashplayer" bgcolor="#000000"></object></p></div>Energy Contagion - The Big Unknownhttp://stockbuz.ning.com/articles/energy-contagion-the-big-unknown2014-12-08T17:35:22.000Z2014-12-08T17:35:22.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12/20141208_energy2_0.jpg"><img class="align-right" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12/20141208_energy2_0.jpg?width=400" width="400" /></a>Indeed, I've read much concern over this area as oil collapsed so it does merit a warning.  From <a href="http://www.zerohedge.com/news/2014-12-08/energy-bond-risk-soars-fresh-record-high-stocks-slump-20-month-lows" target="_blank">ZeroHedge</a>:</p>
<p>The S&P 500 Energy sector stocks are down over 12% year-to-date, tumbling over 3% today to fresh 20-month lows. <strong>The spread (or risk) of high-yield energy credits surged again today, breaking above 850bps for the first time</strong>... The overall high-yield credit market is being dragged wider by this contagion as hedgers try to contain <a href="http://www.zerohedge.com/news/2014-11-30/imploding-energy-sector-responsible-third-sp-500-capex">the collapse that is possible</a>. For now, <a href="http://www.zerohedge.com/news/2014-11-30/imploding-energy-sector-responsible-third-sp-500-capex">the S&P 500 remains entirely ignorant of the fact that over a third of its CapEx was expected to come from this crushed sector</a>...</p>
<p>According to DB</p>
<blockquote>
<blockquote>
<p><strong>US private investment spending is usually ~15% of US GDP or $2.8trn now</strong>. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil <strong>and gas producing structures and 30% is energy related in total</strong>. We estimate global investment spending is 20% of S&P EPS or 12% from US. <strong>The Energy sector is responsible for a third of S&P 500 capex. 35% of S&P EPS from investment and commodity spend, 15-20% US</strong></p>
<p><strong> </strong><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/11/capex%20spending.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/11/capex%20spending_0.jpg" height="260" width="600" /></a></p>
</blockquote>
</blockquote>
<p>In short, while nobody knows just how many tens of billions in US economic "growth", i.e., GDP, will be eliminated now that energy companies are not only not investing in growth spending or even maintenance, being forced to shut down unprofitable drilling operations and entering spending hibernation territory, the guaranteed outcome is that US GDP is set to slide as the CapEx cliff resulting from Brent prices dropping below the $75/bbl <em>red line</em> under which shale is broadly no longer profitable will offset any GDP benefit unleashed from the "supposed" increase in consumer spending.</p>
</div>Net Petroleum Imports At The Lowest Levels in 26 Yearshttp://stockbuz.ning.com/articles/net-petroleum-imports-at-the-lowest-levels-in-26-years2013-05-31T22:42:16.000Z2013-05-31T22:42:16.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290254?profile=original"><img class="align-left" style="padding: 15px;" src="http://storage.ning.com/topology/rest/1.0/file/get/1290254?profile=RESIZE_180x180" width="150"></a><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290283?profile=original"><img class="align-right" src="http://storage.ning.com/topology/rest/1.0/file/get/1290283?profile=RESIZE_180x180" width="175"></a></p>
<p>I'm sorry but you just know in your gut that the entire "limited supply" was just a ploy. I've always found it amazing that once the big boys switched over their rigs from gas to oil, not only were we pumping out more of the black stuff, but surprise surprise they found boatloads of the stuff in Bakkens leading us towards energy independence!</p>
<p>The US produced more crude oil domestically during January-April this year at an average rate of 7.11 million barrels per day (bbl/d) than in any comparable period in more than two decades going back to 1992. Meanwhile, imports during the first four months of this year fell to the lowest level for that period since 1997, sixteen years ago. Together, the increased domestic production this year and the declining dependence on foreign sources brought net oil imports to a 26-year low. Read more at <a href="http://www.aei-ideas.org/2013/05/enengy-milestone-net-petroleum-imports-during-january-to-april-period-fell-to-only-36-2-the-lowest-level-in-26-years/#mbl" target="_blank">aei.org</a></p>
<p></p></div>