"God of Stocks" Warren Buffett mentioned that US economy, at least in the coming months, will still be in decline. However, from an investing point of view, current US difficult economy actually created a window of opportunity for investment. US stocks are 'more attractive' as compared to a year ago. But during the first half of this year, Buffett stock purchase has reduced by quite a lot as compared to the same time period last year. Looks like he is waiting for a better opportunity.
Waiting For A Better Investment Opportunity
Buffett recently in his interview with CNBC says that although he believes that the US economy can perform better in the next 5 years, but in the coming 5 months the economic situation may get worse. The sub-prime crisis repercussions will continue to bring difficulty to the financial industry and the economy. His housing development businesses are also facing problems getting credits and the progress is slow.
Talking about sub-prime crisis, Buffett believes that Fannie and Freddy will not go broke easily, but this does not mean that its shareholders can escape. He predicts that if the problems get bigger for Fannie and Freddy, the government will eventually has to step in and help.
Also, Buffett thinks that more banks will go broke, especially those which have a lot of involvement in the housing market. But the FDIC will provide the necessary deposit insurance to prevent the bank from facing mass cash withdrawal.
When talking about investing, Buffett says that from another angle, current bad economic situation in the US economy presents investing opportunities. Stock prices are 'more attractive' compared to a year ago.
Reduction In Stock Purchase
Berkshire's recently announced second quarter financial report shows that currently the company have in cash and assets worth 35.456 billion US dollars, about 315 million less compared to December 2007.
From data provided by Bloomberg, in the first of this year, Buffett sold of 1.76 billion US dollars worth of stocks and bought in 5.51 billion US dollars worth of stocks. In the same time last year, Buffett bought in 11.5 billion US dollars worth of stocks and sold 20.9 billion worth of stocks.
The amount bought by Buffett this year has reduced by about 52%, which may hint that Buffett expects there is possibility of further decline in the US stock market.
On 14 August Buffett showed his latest portfolio. Ending 30 June, Berkshire has about 3.2 million shares of NRG Energy Inc. At the same time, Buffett reduced his stake in Anheuser- Busch Cos. from 35.6 million share in March to 13.8 million shares in June, slashed by 61% before the brewer agreed to be purchased by InBev NV.
On the day the news of Buffett increasing his stake in NRG Energy Inc is released, the share price went up by 4%. Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares says that NRG Energy Inc is US Texas state second largest electrical enterprise. Energy price has risen 24% comparing to same time last year. Demand for electricity is still high. To Buffett, increasing stakes in electrical stocks or public utilities stocks is quite reasonable and NRG Energy Inc quite matches his investing principles.
Buffett, also added to stakes in refrigeration-equipment maker Ingersoll-Rand Co. and Sanofi-Aventis SA, France's largest drugmaker.
On 21 August Buffett says that in the second quarter this year, he finally spent $3.98 billion on equities. The purchases disclosed may have cost Buffett about $260 million all told if he bought the shares at their highest second quarter prices. Berkshire also increased its holding of American depositary receipts in Sanofi-Aventis by 8.8 percent to 3.9 million. So what did he buy with the rest of the 3.6 billion US dollars?
Said Gerald Martin, a finance professor at American University in Washington that considering in May where Buffett made a trip to Europe (Germany, Switzerland, Spain and Italy) to source potential buyouts, he could have invested outside of US.
No Interest In Alberta, Yet
Buffett also clarified that last week he and Bill Gates trip on 18 August into northeastern Canada Alberta on Monday to take a look at the oilsands does not mean that he or Berkshire is interested.
The trip aroused a lot of guessing by investors. The Horizon oilsands development project visited was owned by Canadian Natural. Amount invested was about $9.3 billion Canadian dollars. The project is expected to go into commercial operation before the end of the year.
Analysts says that the Canadian oilsands offers a secure supply of oil for the United States. A source said that Buffett and Gates recently have been understanding about the Canadian oilsands situation. The visit is to satisfy "their own curiosity" but also "with investment in mind."
Because of the high cost involved in the development of oilsands, it still cannot compare to the mainstream crude oil supply. But with the recent rise of the crude oil price, it makes the development of oilsands economically viable. Analyst estimate that to extract oil from oilsands in Canada, each barrel would be about 35 to 45 US dollars. Comparing to current crude oil price, extracting oil from oilsands can be profitable. Some big oil companies have already started to work on the oilsands in Canada. This makes Canada becoming one of the few countries who can increase oil supply at times of tight oil supply situation.
Analysts estimates that Alberta's oilsand contains about 1.8 trillion barrels of oil. And the Horizon project contains about 175 billion barrels of oil. Canada's northern region will add about 100 billion Canadian dollars in investment to work on the oilsands development planning in 2015 to produce about 2.8 million barrels of oil per day.
Another energy analyst says that although the rise in oil price has caused people to drive less, but in the stock market, it has no impact to the oil related stocks superb performance.
Reseachers have said that if investors were to follow Buffett's portfolio, especially those companies that he is interested in, in the past 30 years, the yearly returns can be around 25% which is two times the rise in S&P 500 index.
Showing posts with label crude oil. Show all posts
Showing posts with label crude oil. Show all posts
Saturday, August 30, 2008
Friday, August 29, 2008
US dollar up - oil down?
Crude oil price since the beginning of July has dropped from USD$145 per barrel to below USD$120, dropping about 20%. At the same time, US dollar has been making new highs.
A report from Morgan Stanley thinks that although it cannot be proven from figures, but there is a certain 'inverse relationship' between the US dollar and crude oil price. Although before this the US government has been saying that the high crude oil price is because OPEC refuses to increase production capacity, but Morgan Stanley's report says that the high crude oil price rise has relationship to the poor performance of the US dollar.
At the same time, Morgan Stanley also pointed out that the recent drop in crude oil price and the strong US dollar is good for the global economy, stating that the drop in crude oil price has given the various countries central banks more flexibility to tackle the inflation problem.
See-Saw Action Between US Dollar and Oil Price
Because the US dollar is the main currency used for global crude oil trading, under the condition that supply does not change, strong or weak US dollar movements have a negative correlation with oil price fluctuations. However, a Chinese analyst says that the main reason for the drop in crude oil price was that the economic outlook for US, Europe and Japan is not good and the expected demand will thus decrease.
Of course, other then the slow down of the economy causing a slide in demand, oil's price decline has other reasons.
Credit Suisse in its report says that the recent big drop in oil price is due to 4 reasons. 1) Drop in demand. 2) Weakening of the Euro. 3) Increase in supply. 4) Decreased speculation activity.
Credit Suisse oil and gas analyst Prashant Gokhale says that the non-OPEC countries increase in oil output cannot be ignored. According to his estimates, non-OPEC countries oil supply amount will continue to increase between September this year to August 2009. Especially so will be in 1Q 2009, the non-OPEC countries daily oil output is expected to increase about 1 million barrels.
That expectation has strong support from IEA's figures. IEA's related department also estimated that beginning 4Q this year, non-OPEC countries daily out output volume is expected to increase and will continue to 3Q 2009. In between Januuary and March 2009, daily output volume is expected to be over 1.5 million barrels.
Less Speculation of Crude Oil Futures
The backing off of speculators from the crude oil futures trading is also one of the reasons for the decline in crude oil prices.
Prashant Gokhale, quoting figures from NYMEX, believes that non-commercial related speculation has greatly reduced from that in 2007.
In addition, Morgan Stanley's report believes that there is a 'reverse relationship' between the US dollar and oil price from 6 points. 1) Preference for US dollars of countries producing crude oil and denominated by US dollar drops. 2) Various countries central banks reactions for the high crude oil price crisis are different. 3) High oil price damages the various US projects. 4) US dollar based countries increases its export competiveness because of the drop in US dollar. 5) Big investments in bulk commodities. 6) Although the US dollar weakens but the demand for oil does not.
Credit Suisse report shows that in the first 7 months this year, the correlation between global oil price and the exchange rate between Euro and US dollar reached 77%. The most surprising coincidence is that in mid of July this year, when the exchange rate between Euro and US dollar was at the lowest, crude oil price have also fallen to the lowest at the same time.
Low Oil Price Benefit Fight Against Inflation
Another Chinese analyst says that the coming down of oil price is good in easing of China's domestic inflationary pressure. Imported inflation will decline following the drop in oil price. Production costs will also decrease and is good for the country's economic development. Also, if oil price were to maintain at current relatively lower price range level, it will provide more room for manoeuvre for China's macro economic controls.
According to his analysis, there is a break in relationship between oil price in China and outside of China. But if global oil price were to be cheaper, oil related inustries in China losses will also decrease and will resolve the oil and power shortage problem in China. Although China's oil price control has made oil price effect towards the CPI to be relatively small, but considering the changes in supply and demand, the possibility of adjustment to the oil price in China in the later half of the year will be greater.
If the oil price in China maintans unchanged, he predicts that CPI for 3Q in China to be about 6%, CPI for 4Q in China to be about 5%. So adequate adjustments to the oil price in China is feasible.
If bulk commodities prices, with crude oil as the main representative, can stabalize down, China's economic growth pressure could be lessen next year.
A report by BOC International Securities estimates that with the decline in price of agricultural products, CPI for August will go down to about 5.4%. And PPI will see a peak in the coming 2 months.
Latest Updates
5 September 2008
A report from Morgan Stanley thinks that although it cannot be proven from figures, but there is a certain 'inverse relationship' between the US dollar and crude oil price. Although before this the US government has been saying that the high crude oil price is because OPEC refuses to increase production capacity, but Morgan Stanley's report says that the high crude oil price rise has relationship to the poor performance of the US dollar.
At the same time, Morgan Stanley also pointed out that the recent drop in crude oil price and the strong US dollar is good for the global economy, stating that the drop in crude oil price has given the various countries central banks more flexibility to tackle the inflation problem.
See-Saw Action Between US Dollar and Oil Price
Because the US dollar is the main currency used for global crude oil trading, under the condition that supply does not change, strong or weak US dollar movements have a negative correlation with oil price fluctuations. However, a Chinese analyst says that the main reason for the drop in crude oil price was that the economic outlook for US, Europe and Japan is not good and the expected demand will thus decrease.
Of course, other then the slow down of the economy causing a slide in demand, oil's price decline has other reasons.
Credit Suisse in its report says that the recent big drop in oil price is due to 4 reasons. 1) Drop in demand. 2) Weakening of the Euro. 3) Increase in supply. 4) Decreased speculation activity.
Credit Suisse oil and gas analyst Prashant Gokhale says that the non-OPEC countries increase in oil output cannot be ignored. According to his estimates, non-OPEC countries oil supply amount will continue to increase between September this year to August 2009. Especially so will be in 1Q 2009, the non-OPEC countries daily oil output is expected to increase about 1 million barrels.
That expectation has strong support from IEA's figures. IEA's related department also estimated that beginning 4Q this year, non-OPEC countries daily out output volume is expected to increase and will continue to 3Q 2009. In between Januuary and March 2009, daily output volume is expected to be over 1.5 million barrels.
Less Speculation of Crude Oil Futures
The backing off of speculators from the crude oil futures trading is also one of the reasons for the decline in crude oil prices.
Prashant Gokhale, quoting figures from NYMEX, believes that non-commercial related speculation has greatly reduced from that in 2007.
In addition, Morgan Stanley's report believes that there is a 'reverse relationship' between the US dollar and oil price from 6 points. 1) Preference for US dollars of countries producing crude oil and denominated by US dollar drops. 2) Various countries central banks reactions for the high crude oil price crisis are different. 3) High oil price damages the various US projects. 4) US dollar based countries increases its export competiveness because of the drop in US dollar. 5) Big investments in bulk commodities. 6) Although the US dollar weakens but the demand for oil does not.
Credit Suisse report shows that in the first 7 months this year, the correlation between global oil price and the exchange rate between Euro and US dollar reached 77%. The most surprising coincidence is that in mid of July this year, when the exchange rate between Euro and US dollar was at the lowest, crude oil price have also fallen to the lowest at the same time.
Low Oil Price Benefit Fight Against Inflation
Another Chinese analyst says that the coming down of oil price is good in easing of China's domestic inflationary pressure. Imported inflation will decline following the drop in oil price. Production costs will also decrease and is good for the country's economic development. Also, if oil price were to maintain at current relatively lower price range level, it will provide more room for manoeuvre for China's macro economic controls.
According to his analysis, there is a break in relationship between oil price in China and outside of China. But if global oil price were to be cheaper, oil related inustries in China losses will also decrease and will resolve the oil and power shortage problem in China. Although China's oil price control has made oil price effect towards the CPI to be relatively small, but considering the changes in supply and demand, the possibility of adjustment to the oil price in China in the later half of the year will be greater.
If the oil price in China maintans unchanged, he predicts that CPI for 3Q in China to be about 6%, CPI for 4Q in China to be about 5%. So adequate adjustments to the oil price in China is feasible.
If bulk commodities prices, with crude oil as the main representative, can stabalize down, China's economic growth pressure could be lessen next year.
A report by BOC International Securities estimates that with the decline in price of agricultural products, CPI for August will go down to about 5.4%. And PPI will see a peak in the coming 2 months.
Latest Updates
5 September 2008
- Oil prices fall as dollar surges
NEW YORK - OIL prices fell on Thursday as the dollar strengthened against the euro on eurozone economic woes and the market shrugged off a larger-than-expected decline in US energy stockpiles.New York's main contract, light sweet crude for delivery in October, slid US$1.46 (S$2.10) to close at US$107.89 a barrel.
In London, Brent North Sea crude for October dropped US$1.76 dollars to settle at US$106.30.
New York crude oil prices rose early in the session but lost momentum as the euro sank against the dollar after the European Central Bank cut its eurozone growth forecasts for 2008 and 2009.
The European single currency fell briefly to its lowest level against the dollar since December 21, 2007 at US$1.4326 dollars.
The dollar also found support in an Institute for Supply Management survey showing US service sector activity rebounded unexpectedly in August.
A stronger dollar makes dollar-priced commodities more expensive for buyers using weaker currencies.
Many analysts expect crude oil prices to continue to fall due to declining demand in the slowing global economy.
Crude oil, which had hit a record-high US$147.27 on July 11 in New York, has lost nearly US$40 in less than two months.
In this context, the market dismissed an unexpected decline in US oil stockpiles last week.
The US Department of Energy (DoE) said crude stockpiles had dropped by 1.9 million barrels in the week ended August 29 instead of the consensus forecast of 300,000 barrels.
Distillates, which include heating fuel, fell by 400,000 barrels last week, less than the expected drop of 600,000.
Distillates are being watched closely by the market ahead of the northern hemisphere winter.
The latest DoE weekly report on energy stockpiles was published a day later than normal because of Monday's Labour Day holiday.
The oil market was looking ahead to Tuesday's meeting of the Organisation of the Petroleum Exporting Countries (Opec) amid speculation the cartel could cut output if prices hit US$100 or below.
'The rapidity of the price slide should provoke an aggressive reaction from Opec. Actually, there now appears to be a consensus building within the group for a production cut. The debate at next week's meeting in Vienna will be the size of a cutback,' said Mr John Kilduff at Alaron Trading.
Opec member Nigeria said on Thursday that it was keeping its options open on output quotas in the wake of falling oil prices.
'I'm keeping an open mind,' the junior minister for petroleum Odein Ajumogobia told sources ahead of Tuesday's gathering in Vienna, where Opec headquarters are located.
'We haven't seen the end of the volatility and I think we should wait and see how things settle down ... before we take a step to intervene.'
The Opec cartel of 13 countries produces 40 per cent of the world's oil. -- AFP
Thursday, August 28, 2008
Controversy in US bio-fuel policy
With the rising crude oil price, US bio-fuel development entered the hyper-growth 'golden period'. However this energy replacement policy has been drawing controversy with the Texas state government who showed strong unhappiness recently.
According to Bush administration government's plan, bio-fuel usage this year must reach 34 billion liters and should increase yearly. But Texas state government strongly points out that the strong push for bio-fuel development is a big mistake because one third of America's bio-fuel comes from the transformation of cereal products. Vigorous development of bio-fuel will led to a big increment in grain prices directly impacting the Texas state livestock and poultry industry. US largest chicken meat producer Pilgrim's Pride says that poultry feed expenditure has increased by 900 million US dollars this year.
In response to the Texas government statement, United States Environmental Protection Agency says that developing bio-fuel will not cause economic harm to other industries manufacturing, the US government energy plan will not change. But Texas state governor Rick Perry says that the argument is not acceptable and some of the Texas state livestock and poultry industry people will continue with their petition with the congress and the next government to urge the correction of the irresponsible policy.
According to Bush administration government's plan, bio-fuel usage this year must reach 34 billion liters and should increase yearly. But Texas state government strongly points out that the strong push for bio-fuel development is a big mistake because one third of America's bio-fuel comes from the transformation of cereal products. Vigorous development of bio-fuel will led to a big increment in grain prices directly impacting the Texas state livestock and poultry industry. US largest chicken meat producer Pilgrim's Pride says that poultry feed expenditure has increased by 900 million US dollars this year.
In response to the Texas government statement, United States Environmental Protection Agency says that developing bio-fuel will not cause economic harm to other industries manufacturing, the US government energy plan will not change. But Texas state governor Rick Perry says that the argument is not acceptable and some of the Texas state livestock and poultry industry people will continue with their petition with the congress and the next government to urge the correction of the irresponsible policy.
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