Tag Archives: Missing

'Smart Money' Buying Oil After Missing Entire Rally
May 20, 2018 6:04 pm|Comments (0)

We had previously looked at the positioning of large commercial traders in the oil futures market. While the consensus view had been that this meant that oil prices were due to fall significantly, we basically took the stance that the data implied no such thing.

Since then crude oil prices have risen, with Brent oil futures threatening to break the $ 80 barrier and by our count, at least 4 grades of oil trading above the critical $ 80 mark. With prices firmly entrenched in a long-term upswing, we were surprised to see that the commercial traders had started to actually go long crude oil futures.

Source: CFTC.GOV

This was the second consecutive week where commercials expanded their net long position after shorting this market for what seemed like an eternity.

So what do we make of this change in behavior?

Where is this coming from and what it means

The one group that has been notoriously absent from trading crude oil positions in the last few years has been the airline group. Having been burnt a few times by hedging oil prices too high, they have stayed on the sidelines since 2016.

While carriers saved hundreds of millions of dollars from oil prices halving since June, they forfeited a large chunk of that gain because of the fuel hedges they bought as protection against oil rising.

The bulk of those hedges – which effectively lock in fuel costs in advance – are set at levels that force airlines to pay more for fuel than current market prices, turning them into a hindrance rather than a help.

As a result, three of the four biggest carriers – Delta, Southwest and United – said this week they were rethinking their hedging tactics. Meanwhile, American, which does not hedge fuel costs at all, is reaping the biggest savings.

Southwest Airlines Co. said on Thursday its outstanding hedges represented a loss of $ 1.8 billion through 2018, at Jan. 15 prices. However, it still expects a fuel bill that is more than 30 cents per gallon lower this year compared to 2015, or a roughly half-billion dollar net benefit.

It was this group’s absence that distorted the futures positioning in the crude oil market and gave the appearance that collectively “the hedgers” were bearish on oil. That logic proved very costly as anyone who went by the commitment of traders report, stayed away from long positions and missed the entire rally.

However, with prices breaching past levels that no analyst thought possible last year, the airlines may be getting religion. Fuel represents the single biggest cost factor for airlines and it is hard to pass on unless capacity utilization is extremely high. While for most part airlines have denied that they will hedge, we believe some in the group are now breaking ranks. There are two likely reasons for this. The first being the certainty of cash flow is likely to assuage investor concerns, even if it is at a much higher price than they should have hedged. The second is this.

Source: Data.tradingcharts.com

While the front end of the curve is flirting with much higher prices, airlines still have the opportunity to lock in sub-$ 60/barrel prices further out. So in a sense, oil prices have to fall more than $ 15/barrel from today’s prices for them to actually lose money on further out hedges. We think that they will embrace this opportunity as world oil fundamentals continue to tighten and supply surprises will continue to be on the downside.

As they do so, we think the incredible backwardation currently visible will begin to ease and the curve will become flatter. To some extent, this will be counterbalanced by increased producer hedging as they see an opportunity to lock in good prices, but on the whole, the curve will flatten in our view. The biggest impact of this though will be on oil producers. Oil producers continued to be priced for a $ 50/barrel market, and as the futures curve reflects the correct longer term supply demand situation, oil producers should embark on a spectacular rally.

Conclusion

Oil producers have outperformed the broader indices recently, but we believe this is a long-term trend that can still be bought. Our favorite oil producers are trading at a fraction of their fair value and offer gains not available anywhere else in the market. Oil itself has had a sensational run and is due for a pullback. But the longer-term story is still intact and we continue to ignore silly stories about EVs denting demand.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are long several energy related plays.

Tech

Posted in: Cloud Computing|Tags: , , , , , ,
With 1 Tweet, Kylie Jenner Cut $1.3 Billion From Snapchat. Here's the Explanation Everyone's Missing
February 23, 2018 6:00 am|Comments (0)

With a single tweet yesterday, Kylie Jenner sucked $ 1.3 billion out of the market capitalization of Snap, Inc.  

Her whole message ran just 18 words, and that includes “sooo” and “ugh.” It all ads up to more than $ 72 million lost, for each word she wrote.

So, was it simply a tweet? Is Jenner just throwing in with the 1.2 million people who signed a petition objecting to Snapchat’s recent redesign?

Or is there something else going on?

I don’t have any inside information, but the timing of the tweet–the exact timing–makes me raise an eyebrow.

Here’s the background. Jenner is a social media influencer of the first order, making between $ 250,000 and $ 500,000 per post, according to one estimate.

That’s more money for a single post that almost everyone who reads this article makes in a year. Big-time influencer money. 

Pretty impressive performance for a woman who won’t even be able to drink legally in the United States until August 10 of this year. But Jenner is a Kardashian (half-sister of Kourtney, Kim and Khloé Kardashian).

Whatever else anyone may say, the Kardashians are brilliant marketers. I’m not exactly their demo, but I have to respect something about what they’ve managed to build.

And, whatever else they do, they don’t do things like this without thinking it through.

So, three things.

First, the change in Snap’s design potentially impacts the degree to which Jenner–heck, any of the Kardashians–can make money on the platform. Those 1.2 million Snapchat users who signed the petition? They’re her audience.

If there’s a change, of course she’d make noise. Double irony points for doing so on Twitter.

Second, the timing of the tweet: 4:50 p.m. Eastern time–less than an hour after the U.S. markets closed.

Recently, I wrote about how Mark Zuckerberg’s post in January about changing how Facebook’s news feed works sent his company’s stock into a tumble, and devaluing his own stake by $ 3 billion. Next time he posted, he did it outside trading hours.

So, by posting just outside trading hours, it’s almost as if Jenner knew she could impact Snap’s share price–but didn’t want to overwhelm it.

I don’t have any inside information. It’s just a hunch, but it feels like a a warning shot: Hey Snap, pay attention to what I can do if I want to!

But, it also feels like it’s not intended as a fatal blow. In fact, KJ did tweet again, reminding Snap that it was her “first love.” 

Awwww.

Sure enough, the stock price rebounded later Thursday, too. All’s well that ends well, right? 

At least until the next tweet.

Tech

Posted in: Cloud Computing|Tags: , , , , , , , , , ,