Commodity Trade Mantra

Posts Tagged ‘Energy Sector’

Fundamental & Technical Views in The Commodity Markets

Let’s take a look at some key commodity components to see what’s going on right now & how it might be helpful. Historically, we tend to see strong moves in commodities with converse movements in the US Dollar. If you have a good scent on where Commodities are headed & that is confirmed with US Dollar moving in opposite directions, you have found a good theme that could trade & ride for a while.

Gold to Steam Ahead on Uncertainty, Despite a Strong Dollar

Despite the strength of the dollar, gold is on an upward trajectory as investors look for a safe haven in an increasingly uncertain world. We think that the gold market is targeting $1,250/oz to the upside so long as we stay above $1,220/oz support. One of the factors driving investors towards gold – uncertainty over the outcome of the upcoming French presidential elections.

Default Wave Looms As Energy Sector Credit Risk Surges To Record High

At 1076bps, credit risk for the energy sector has never been higher. As UBS recently warned, more defaults are looming and private equity is waiting to pick up the heavily discounted pieces. However, what is potentially more worrying is a broader-based default cycle… driven by credit contagion, as UBS explains why commodity defaults could spread.

Will the Oil Patch Bust Trigger US / Global Recession?

Since early 2010, energy producers have raised $550 billion of new bonds & loans as the Federal Reserve held borrowing costs near zero. This seemingly inexhaustible credit line is now drying up, with severely negative consequences for oil producers with debt that’s coming due. Could the oil patch bust triggered by oil plummeting to $50/barrel kick the U.S. into recession?

Ponzi Finance and $50 Oil - James Rickards

Oil below $50 is more than low enough to do an enormous amount of damage in financial markets. There are about $5.4 trillion dollars of costs incurred in the last five years for exploration drilling and infrastructure in the alternative (fracking) energy sector. It’s been largely financed with corporate and bank debt.

Maybe Oil Goes to $70 on its Way to $40

Crowded trades unwind in precisely this sort of freefall. When the conventional media ordains oil inevitably dropping to $40/barrel, I start looking for something else to happen–like oil going to $70/barrel. There are number of reasons this isn’t as farfetched as it might seem at the moment. Buying begets buying, shorts start covering, and voila…

Oil - The Black Gold Loses Glitter

If oil stays low, it may turn out that entire U.S. oil boom was just one of many Federal Reserve inflated bubbles. If it pops, the job losses & debt defaults that would ensue could have a far greater impact on the economy & the credit markets than ever before. Ultimately then, QE 4 may need to be much larger than QE1, 2 & 3 combined!

Falling Oil Prices and the Fallout

Will Western American states continue to boom without $90/barrel oil prices? What will American GDP look like without this latest bubble industry to fuel job creation, tax revenue, and investment? It’s impossible to say right now, although the price of oil in relation to the last four recessions does provide some fuel for speculation.

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