Oil Price - Nov 25

[dan_s]

Compared to stock prices in general, commodities are grossly oversold. MY TAKE is that the signing of Phase One of a trade deal between the U.S. & China will begin a strong rally in oil and commodities in general. Stock prices and the commodities index don't stay this far apart for long. - Dan.

Bloomberg: Oil Steady Near $58 on Glimmer of Progress in Trade War Talks
2 hours before the U.S. markets opened.

(Bloomberg) -- WTI Oil steadied near $58 a barrel as China made a concession that could help resolve trade tensions with the U.S. that have weighed on the global economy and fuel demand.

Futures were little changed in New York, holding about $1 below the two-month intraday high reached on Friday. China said over the weekend it will raise penalties on violations of intellectual property rights in an attempt to address one of the key sticking points in talks with Washington. The ongoing impasse has eroded economic sentiment in the world’s two biggest oil users.

Crude has rebounded since early October on signs the U.S. and China are moving toward a limited trade deal, but prices have swung back and forth on frequent shifts in sentiment. Oil investors are growing restless as the negotiations drag on, with money managers cutting their net bets on a West Texas Intermediate rally by 13% in the week ended Nov. 19.

“The upswing being enjoyed by prices is due on the one hand to renewed optimism about an initial partial trade deal,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “Pinning all one’s hopes on this could prove a mistake. There is still no certainty whatsoever that any deal will actually be reached in the new few weeks.”

WTI for January delivery was little changed at $57.77 a barrel on the New York Mercantile Exchange as of 11:07 a.m. in London. It reached $58.74 a barrel on Friday, the highest since Sept. 23, before settling 1.4% lower.

Brent for January settlement rose 2 cents to $63.41 a barrel on the London-based ICE (NYSE:ICE) Futures Europe Exchange. The contract dropped 0.9% Friday. The global benchmark traded at a $5.65 premium to WTI.

See also: OPEC+ May Fool Itself Into Thinking Inaction is Best: Julian Lee

China’s concession on intellectual property comes as trade negotiators have been trying to bridge the remaining differences including Beijing’s pledges to buy American farm products, protect IP rights and open its economy further to foreign companies. However, the two countries have struggled to agree on what tariffs each side would roll back as part of the agreement’s initial step.

[dan_s]

Goehring and Rozencwajg Commentary from their Q3 Report: http://info.gorozen.com/2019-3q-goehrin ... commentary

Oil: A Market Divorced From Reality

In the thirty years we have been investing in global natural resource markets, we cannot remember seeing greater value than we do today in the global oil markets. With both crude and oil-related securities, the price action appears to have completely divorced itself from underlying fundamentals.

By any measure, oil and oil-related securities are radically undervalued. Over the last 120 years, we estimate it took 17 barrels of oil on average to buy one unit of the S&P 500. Today it requires over 53 barrels. The only time it has taken more was during the parabolic dotcom blow off–incidentally an excellent time to become an oil investor. At the same time, energy-related equities now make up a mere 4% of the S&P 500 by weight. Not only does this represent the lowest level in at least 20 years (when our records begin), it is 75% below the peak levels reached in 2008 at which point energy stocks made up 16% of the S&P 500.

In particular, the bear market in oil exploration and production companies has created value that can hardly be believed. We analyzed the universe of all US-listed E&P companies with market capitalizations over $100million and proved reserves that are at least 50% oil. We then compared the current stock price to the net-debt adjusted SEC PV-10 measure from their 2018 10Ks. As you may recall, a company’s PV-10 measures the discounted cash flow of all proved reserves at the prevailing oil and gas prices. Under normal market conditions, E&P stocks trade at a premium to their SEC PV-10, reflecting the expected value of any future reserves not yet “booked” in the reserve statement. However, due to the overwhelming bearishness among energy investors, the average company now trades at a 12% discount to its net-debt adjusted SEC PV-10 per share value.