crude
Crude Oil Vs. Junk Bonds
As you can see, the trend is there, but not too pronounced. But lately, after 2008, the energy junk bond market (lead by the oil price) is leading the total junk bond market lower. So plunging oil prices have negative consequences on junk bonds. And lower junk bond prices will eventually lead to a stock market crash.
Conclusion: declining oil prices and higher stock markets are impossible.
For more info, go here.
Palm Oil: The Investment Thesis
Read the entire analysis here.
The Declining Trade Deficit: Not As Rosy As You Would Think
As you can see on Chart 1, the decrease in deficit was due to an increase in exports (red chart) and a decrease in imports (blue chart). This looks very promising, but I want to show that not all is well if you look into the details.
Chart 1: Import Vs. Export |
Let’s look deeper into these import and export numbers. Chart 2 gives the breakdown of the export numbers. The largest segments are “machinery and transport equipment”, “chemicals and related products” “mineral fuels and lubricants” and “re-exports”.
Chart 2: Exports January 2013 |
Chart 3 gives the breakdown of the import numbers. The largest segments are ‘machinery and transport equipment”, “mineral fuels and lubricants”, “miscellaneous manufactured articles”.
Chart 3: Imports January 2013 |
From these numbers we can deduct that the oil industry is indeed a very important segment that will influence the import and export numbers.
If we then further look at how these numbers evolve in time from January 2013 till June 2013 we have charts 4 and 5.
Chart 4: Exports (billion USD) |
Chart 5: Imports (billion USD) |
When analyzing the trends on charts 4 and 5, there is one segment that is worth noting. We see that exports of petroleum products (which are incorporated in the segment “mineral fuels and lubricants”) have been going up, while imports of the same have been going down. The reason for this can be found in the divergence of West Texas Intermediate (WTI) crude oil and Brent crude oil.
To continue reading this analysis: go here.
Brent Vs. Crude Divergence
If you hadn’t noticed, Brent and WTI crude oil were pretty correlated historically, but since 2011 something weird happened.
Chart 1: Brent VS. Crude |
To read more, go here.
Baltic Dry Index Reacting to Iran Oil Embargo
Since Europe banned crude oil imports from Iran on 1 July 2012, the Baltic Dry Index has shot up 10% already from 1000 to 1103 (Chart 1). The reason for this spike isn’t because Europe is banning crude oil imports from Iran, but rather the consequence of it. Due to this ban, Iran has renewed its threat to close the Strait of Hormuz. Approximately 20% of the world’s oil, which is about 35% of seaborne traded oil, passes through this strait. As this strait is closed down, commodity transport vessels need to make a detour, which will increase the price of oil and increase the tanker rates. The availability of tankers will go down due to this forced rechartering of routes, which will decrease oil supply. As a consequence oil tankers will store oil in anticipation of rising oil prices and this will be beneficiary to the tanker industry. On 4 July 2012, the situation even got worse, with Iran threatening to strike 35 U.S. military bases within minutes. We will see that these events will be beneficial to the Baltic Dry Index and oil prices in general.
To read the full analysis go to my article here: Frontline: How to Profit from the Iranian Oil Embargo.