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Sorry Licker but I must disagree. Oil is hyped up / talked down continually so traders can make a fortune. Just look how much BP makes from it.
The narrative the last 3 weeks has been very bullish, but the narrative around the supply/demand balance can change very quickly.
Some OPEC members were a bit slow off the mark ramping up production, but they were just just temporary glitches that will quickly get sorted. Other OPEC members like UAE are gagging to pump more and have the capacity to do it, as does Saudi who could quickly open the taps if it suited them.
Yes Ida did stop a fair bit of production in GOM, but it’s coming back on line, and US shale oil could flood the market. The US rig count has steadily been rising but that’s been ignored the last few weeks.
Inventories have been falling for a reason. With Crude in the US it’s because of the temporary effects of Ida. That will (has) passed. That’s why you keep stockpiles! They’ll get restocked over the next few weeks when supply comes back on.
The spike in gas prices is mainly due to Russia flexing its muscles and restricting supply. Once they’ve made their political point and the price is high enough, they will resume pumping and the price will fall. This whole talk of oil being used instead of gas is complete nonsense as the vast majority of power stations and end users won’t be able to do it as it requires completely different systems!
All this talk about demand is also being hyped up. Asia imported less oil this September than they did in Sep 2020 and Sep 2019 - but that doesn’t make the headline news as it doesn’t fit this weeks narrative!
Oil traders are also going to ‘remember’ the link between the strength of the dollar and the oil price soon. It’s already spiked up today, and could go even higher with the markets so jittery and when the Fed announces the start of tapering. Oil doesn’t usually do well when the USD does.
The whole move up to $80 was hyped up so traders and institutions could line their pockets, and they are all probably reversing their positions now to profit as it quickly tumbles down again. It’ll probably settle around the $70 mark as that seems to be the sweet spot for the underlying fundamentals, but we’ll get plenty of spikes above and below that so the speculators can keep coining it in.
As for BP, it’s had a great run the last week, and I’m a bit gutted for getting my timing wrong by a couple of days and selling out at 319p, but the SP is overbought in the short term on a technical basis, and if the poo does drop then it will follow it down. You’ve got a shooting star candle on the daily chart at the top of a big rise with the RSI in overbought territory, and a gap to fill at 331p. If today’s low is taken out then there’s a very good chance this will drop a fair bit.
If it does then I will buy back in, as BP will have strong cash flows in the short/medium term even with Brent at $65-$70
Spot price didn’t quite get to $80 although I’m sure it will give it another go later today. Will be interesting to see what happens next. Poo for the last few years has always been bumpy over $60, and bounced off $80 the last time. Short term the market couldn’t be more bullish, but one bit of news could send it the other way quickly.
The rotational trade from growth to value caused by higher yields has also been relatively orderly with indexes overall fairly flat. Will be interesting to see if that continues in the same way as well or whether the sell off in tech spreads
Yeah I posted similar stats about how the BP SP had failed to regain June highs despite the higher spikes in poo in July and at the moment. Of course that could also mean it’s long overdue a bounce up and I could be wrong, but I’d rather be wrong with profit in the bank! I didn’t trade BP enough this year and missed out on a lot of profits. Interestingly I traded RDSB a lot more and have already hit the profit target I set earlier this year for a buy and hold recovery price a fair bit higher than Fridays close. Nowhere near it with BP though !!
Miners scare me at current prices. Yes the valuations / PE ratios / fcf etc all stack up at the moment but only at commodity prices which were at multi year highs. As I’m sure you are aware Ríos lack of pre div rise was down to those prices retracing.
That’s what I like about BATS - profits and SP aren’t so directly linked to a commodity who’s prices are out of the companies control and can be very volatile. Yes there is the political risk as we’ve seen play out in recent weeks and isn’t over yet. An announcement from the FDA on Monday that Vuse hasn’t been approved could see this tank before Thursday and the ex div drop could be nasty.
At least that would only be one product in one country though and BATS could recover. I still think there will end up being positive news on that front though. BATS has done and provided all the research and trials the FDA were asking for, and as the panaroma program showed, BATS know how to play the game :)
Yes I’m all out of BP and actually short on RDSB and oil at the moment. Not convinced I’ve picked the top, but a correction is due on those soon.
Kept all of my BATS though. I’m quite surprised there hasn’t been a run up yet in the SP towards ex div as now only 3 trading days left. The delay in the FDA decision seems to be weighing on the SP. With no timescale / deadline I expect it will stay like that until they make an announcement, and then the SP will move - one way or the other. I think even if it is bad news and the SP tanks, it will recover as Vuse makes up a tiny % of BATS revenue.
I think the best the SP will probably do next week is the recent resistance at around 2740. I’ve added 3 extra positions recently. Prices are different as I use spreadbetting futures but was around today’s price so didn’t catch the bottom. I’ll close one position Tues/Wed as I want a bit of free cash, but I’ll probably let the others run, collect the div and close at 2840 in a few weeks time.
This nearly always drops by more than the div on ex div day, but also usually recovers within a few days/weeks to close the gap.
Only short term risk is if there’s no rise next week and the SP is at current levels, then there is a good chance that the ex div drop could break through current support and drop down to around 2500. That would be a fill yer boots level for me!
I'd agree with most of that, apart from the bit about the Brent rally continuing. The recent spikes are mainly due to positive outlooks for next year from OPEC and the temporary set back in production in the GOM.
OPEC can pump a lot more oil, and know that it's a risky business watching oil stay way above $70 as the longer that happens, the more oil rigs come online in the US (rig count is currently rising). Too high a POO will also hold back the economic recovery. Both of those things together could reduce both the demand and the price which is why I don't think they will let it go on for too long. Throw into the mix that oil is looking overbought on the daily chart and the fact that most are expecting an average of around $70 (trading in a range between $65 - $75).
Add into that a few jitters about Evergrande, frothy valuations on US stocks, a traditionally bad time of year for markets, and you can see it isn't going to take much for a short term drop in Poo and BP's SP.
Anyway, I could be completely wrong but just hedging my position rather going long sh*t or bust. I'm still net long in the markets, but can see a short term blip for oil.
As I just sold out at 319p so it's bound to rocket from here!
Been in BP for over 18 months and this is the first time I've been all out. I'm sure Q3 results will be a blow out, but short term I see too many risks. Poo is spiking and has failed twice to drag the SP up with it to June highs, but went the Poo goes down, so does BP. Can't see Brent staying at $77 for too long, and when it comes down so will BP's SP.
On the BP daily chart the RSI just went over 65 and the last time it did that was was on the June highs. I think this will end up retesting 300p again before results, so decided to bank some profits and will look to buy back in a few days/weeks if it gets there.
It was a tough call as Poo could easily go on to test $80 spot price, and with it BP may test the June highs at the same time, but even if it does I can't see it going up in straight line from there.
GLA to all and for all the long term holders I hope I'm wrong!
High - It’s not quite as straightforward as that. BATS can borrow money relatively cheaply as it has an ok credit rating. That credit rating is based upon it slowly deleveraging after the Phillips acquisition as at the moment they have 45bn of debt which is high for the sector. If they didn’t pay off some of their debt, then they would get downgraded by the credit agencies and the cost of revolving credit and refinancing longer term debt would increase. Those increased costs would be over a large amount of debt so would be a lot higher in absolute terms than the difference between the cost of debt vs dividends over a smaller amount of money.
I’m not really that bothered about the SP on this one. Long term plan is to continue to compound the dividends in my main holding and to do that a lower SP with less downside risk and a higher yield is much more attractive.
I have added a few more at these prices for a short to medium term trade and will close out those positions at 2840p having collected at least one 53.9p dividend along the way. That’s around a 225p upside sometime in the next few weeks/months that I don’t really have to worry about.
Downside risk short term is around 200p at these levels, but it never stays there for long.
Yes I agree and Q3 results should reinforce that. Still a bit concerning though that last week Brent got up to $75.73 which was 2.4% off the July high, but BP only managed 313.57 which was 7% off the July high.
Makes you realise that at least in the last couple of months, the SP isn’t all about poo and demand, and I’m beginning to wonder what it’s going to take to push it up higher.
Short term though it looks like the wider markets might pull back a bit more. Like or not we are driven by the yanks and last week the S&P failed to bounce off the trend line around the 50MA like it’s been doing all year, and actually closed below it for the first time in a long time. Will be interesting to see how markets react to that on Monday.
It feels like everything is lining up for a pullback, and the Fed announcement Weds will swing it one way or the other as I can’t see the markets hanging around this level for long
I'm not sure resilient is the word I'd use as It's slowly been drifting down since the high on Weds afternoon. It's certainly building up pressure at the moment though for another move. That could very well be to the downside though. An oil price stable at around $70 would be perfect. Any sustained spikes above that could lead to structural changes in the supply/demand balance that could bring prices down over the longer term.
Lots of near term risks which could push the price down short term. Oil has been struggling the last couple of days to regain the July highs, which could mean it gives up most of the recent gains. Back half of September is historically bad for equity markets, and with everyone getting a bit twitchy about a taper tantrum and the US markets on one of their longest downward trends this year and people expecting a proper 10% correction, plus it's quad witching day today.
BP SP broke through one resistance at 303, and with all that back drop it was a bit much to ask it to break through another at 313. I closed out all of my trading positions In BP at 312 and all of RDS ones at 1470 as that's a point of resistance now, and isn't too far from another major one at 1515.
Short to medium term fundamentals for BP are still looking very good with oil demand and price and Q3 results should be even better, although that's always got to be balanced against the long term and we still don't know for sure how successful BP will be in replacing the 40% reduction in fossil fuels.
I've retained my core BP holding just to hedge my bets as no one can ever be certain, but certainly nothing wrong with taking profit when there are so many short term risks the moment.
What a complete farce from the FDA! I've just read their press release and from what I understand, Vuse is now technically illegal to market in the US as they have not issued a decision on it, but the FDA have said they will be focusing their enforcement action on flavoured products and those who haven't submitted an application.
That really does leave BATS in limbo. In reality the FDA probably won't go after them whilst they are assessing their application, but markets hate that kind of uncertainty, and I can see the SP drifting downwards whilst this is going on.
I suspect that this will only be a short term blip for a few weeks/months, as it won't effect current income streams, and I'm pretty sure the FDA will end up approving Vuse after they have sifted through all of the scientific research and clinical studies BATS would have submitted in support of their application to prove that it helps people stop smoking fags and doesn't appeal to kids (which is the test the FDA have for approval).
This could even be good news long term in the US, as the FDA have effectively raised the entry requirements for vaping products beyond the means of smaller companies, so there should be more market share up for grabs.
Could still be a bleak few weeks/months though and wouldn't be surprised to see 2400/2500 although I doubt it would stay at those, or even these levels for too long.
Full report here
https://www.fda.gov/tobacco-products/ctp-newsroom/perspective-fdas-progress-tobacco-product-application-review-and-related-enforcement
danielh- chill out a bit. Skid did answer your question on Wednesday.
When VOD issued the convertible bonds there was no instant dilution, but there is dilution when the bonds are converted into shares at maturity date. One tranche matured in March this year and another tranche will mature in March next year.
I can't access the RNS with the exact numbers, but from memory I don't think the amount of the current buybacks is enough to meet the demand of the shares needed in March 22, so the current buybacks are only reducing the amount of dilution, not eliminating it.
The alchemy bit comes in as usually when you issue bonds it appears on your balance sheet as a debt, thus reducing shareholder equity and can adversely effecting your credit rating. These types of bonds though often don't appear as debt on the balance sheet, but don't immediately cause dilution either so it is a bit of smoke and mirrors keeping creditors and shareholders happy as it doesn't appear in the obvious places they look.
As for what effect that has on the SP - as others have said, that's not always black and white. Traditionally If you swap debt for shares at the current SP then the two immediately cancel each other out. Yes there are more shares, but there is less debt, so each share still has the same amount of net assets. Moving forward though, you have sacrificed a % of future growth so that can drive the SP down, unless of course the debt/equity swap enables you to grow more than the dilution.
As for the short term SP effect, I'm starting to think that VOD has been earmarked as a shorters plaything. I couldn't find any VOD specific reason for the big drop yesterday (if there is one please enlighten me!) - it appears that it was targeted as a share that could fall by more than average in times of market weakness. It was in a nice slow up trend from July lows, and looked like it was taking a breather and testing the support at 120p before heading up to close the gap at 130p. That big red candle yesterday smashed through that support and I'm starting to think that it may even retest the 112p July low, and if the SP is anywhere near that on ex div day in Nov, then testing 100p again would be on the cards.
I had previously thought looking at the daily chart that at 120p the SP was at the bottom of a trading range between 120-140p, but looking at the weekly chart I'm starting to get a bit concerned that it may be in the middle of a wider trading range of 100-140p.
I just hope I'm wrong about that last bit!
Gav - don’t take this the wrong way as I’m not trying to start an argument, but reading all of your posts about how much better the dividend policy with RDS is than BP, I’m starting to think I’ve missed something!
Last year RDS cut their div by 2/3 whilst BP cut theirs by 1/2. Last month when RDS announced their results, they did indeed hike up the dividend substantially but only to 51% of pre Covid levels (compared to 53% with BP). They also announced a share buy back of $2bn.
RDS only commitment to shareholders is to increase the current div by 4% a year and to return 20-30% of surplus cashflow to investors by a combination of divs and buy backs.
BPs commitment is to raise the current div by 4% a year and to return 60% of surplus cash to investors via buy backs (twice as much as RDS), and announced a larger but back in relative terms than RDS.
RDS current yield is lower than BP, and it’s also further away from pre Covid levels than BPs.
How can you slam BP saying they are raising their div by less than inflation but say that RDS are better when they have only committed to raising the div by the same amount?
Are you reading into the fact that RDS have said they will return the 20-30% surplus cash by div and buy back and assuming that in future it will be all div and that they might have a higher yield and be closer to pre Covid level divs than BP?
You seem so utterly convinced I really don’t know what I’m missing
Gavster - I’m struggling to understand your rationale. If the reason you’re selling out of BP is because you think the oil price is going down and the dividend yield of approx 5.3% (a div which is 53% of pre Covid levels) is unacceptable, then why would you invest in another oil company that has a dividend yield of approx 4.8% where the div is at 51% of pre Covid levels?
Mark - if the $500m buybacks did nothing to the SP, then it achieved its goal. The buybacks were simply to offset the dilution of $500m shares issued in the employee share scheme, so the two cancelled each other out and should have had zero effect on SP. Latest round of buybacks are different as they are reducing the share capital of the company. Don’t expect to see material changes in the SP over a few days though as a result. It will take several quarters of results and adjusted eps to see any real difference
Sorry Boyo - hadn't read those posts. I think the gap to fill at 1388 is as close as a sure thing that you can get in the markets, but I think if Brent falls to $65 then the SP could fall further than that. Good support at around the 1300 level though. I was surprised the SP fell back there a few weeks ago when the markets had a hissy fit, although Brent only dropped down to $67.
SP was more resilient on last drop with Brent down to $67.47 although that was post results which were very good.
RDSB would still be raking in the cash at $65 a barrel, but the sentiment / fear that could push poo down that level could spill over into oil companies and give some good buying opportunities.
All good points Boyo. The only thing you’ve left out is the gap at 1388. That’s way too close to the current SP not to get filled. Maybe we’ll test 1515 first then bounce down to fill, or gap could filled before then.
Either way it will get filled. I’ve got buy orders in at that level and also set limits at 1515 on some of my open positions. Hopefully the limit will get hit first so I can double up on the buys.
Can’t grumble either way really. Love the relatively predictable volatility on RDSB and have had some nice returns in recent months.
Big buy backs at BP also creating a nice range to trade as well.
Ha ha! I know what you mean neversell - it is a minefield and nothing is certain.
The only thing I know is that the world is capable of incredible technological leaps / engineering feats in a very short space when it has to. Look at what happened with the COVID vaccines, and at other points in history. It took the US 21 years to build up fleet of 7 aircraft carriers prior to Pearl Harbour, but in the 3.5 years after that they built 122!
If climate change is ever recognised a truly great threat to the developed world then I have no doubt we will all be stunned at the level of innovation and technological advancement that will take place over an incredibly short period of time. I don't know if that will ever happen though.
Poo shooting back up nicely now as well after the Whitehouse clarified that Sleepy Jo wasn't looking for any immediate cuts, but would really like it if in the long term they thought about producing more oil to keep the price down! No doubt the Saudi's told him to do one this morning, so the Whitehouse had to back track very quickly before everyone realised that he has no control over OPEC+. Stupid play on his part as just highlights weakness.
As much as the US might be Saudis protector, Saudi is also the only truly western friendly nation so the US needs them as much as they need the US.
I’m not saying they won’t ramp up production, probably more/earlier than they have said, but that will be in weeks or months, not in the next few days.
OPEC+ won’t want to see sustained prices above $70 as that leaves the door wide open for US shale oil to get back into full swing and steal market share.
Long term I don’t think we’ll see oil at stupid prices. Demand could drop off a lot sooner than we think. Climate change really is picking up the pace now, and we could see a much more rapid transformation than many are predicting. At the current rate of growth in technology / infrastructure then yes we are going to be hooked on fossil fuels for decades to come, but if climate change is given the same priority as Covid then that growth could explode. Just look at how quickly Covid vaccines were developed - 10+ years work done in less than a year …
That’s exactly the reason the poo dropped - it went down $1.40 within 15 mins of the news coming out.
Gasoline prices are far more important politically in the US than over here. We just have a little whinge and get on with it, but in the US there’s uproar as it’s viewed as an attack blue collar workers and the American way of life!!
Can’t see OPEC+ rushing to increase production just because sleepy Jo has snapped his fingers. It’s posturing in his part and an admission that prices are set to continue rising, but hey, at least he tried…
OPEC+ are of course well aware of the US political importance of poo and will no doubt collectively use this as a bargaining chip with Sleepy Jo.
Lots of factors atm pushing and pulling on poo, so could see lots of volatility although ultimately it’s all down to supply and demand. If the delta variant doesn’t seriously slow down the economic recovery then there won’t be enough oil to go round at current global production levels so the price will continue to rise and we might see that $80+ spike. Ultimately though I think we will settle around the late $60s when OPEC+ eventually ramps production back up after having got their pound of flesh from Sleepy Jo in some back room deals.