Crude Oil Vs. Diesel Oil

Crude oil should be at $180/bbl. 

Diesel and Crude Deficits

USA exports a lot of fuel. Neighbours like Colombia, Brazil and Mexico will be supplied adequately. Kazakhstan is self-sufficient. South Africa and Australia are in trouble. 

Latin American countries have plenty crude oil. But Australia and South Africa are short of crude. Kazakhstan remains self-sufficient.

Refinery Margins

Refineries are making big bucks. This also means that crude oil should go higher as refineries will keep demanding for that crude oil.

Palm Oil is Indicating a Surge in Crude Oil

The palm oil price has made new all time highs and is a leading indicator for the crude oil price. As the palm oil price hits new highs, it is not economic anymore to add it to biodiesel and this will lead to a price increase in crude oil.

Crude oil is going much higher.

USD/CNY Vs. Crude Oil

There is a new peculiar correlation emerging between the USD/CNY exchange rate and Crude Oil. This correlation didn't exist before, we should monitor if this will hold up.

Crude Oil Vs. Junk Bonds

Energy junk bonds comprise 15% of the total junk bond market. So that is a big chunk and naturally we would find some correlation between these two.

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

It is no secret that crude oil has been falling hard lately, but a less known fact is that another commodity has fallen with it. Palm oil has been hit hard together with the decline in crude oil prices (see chart below created by Correlation Economics). The correlation between palm oil and crude oil is not so apparent before 2007. It was only when the biodiesel and ethanol industry became important after 2007 that we began to see the emergence of this correlation. When you look closely, the palm oil price moves first, while the crude oil price moves several months later. This can be an important tool for investors to predict what's going to happen with the crude oil price (OIL). But let's focus on palm oil here.

Read the entire analysis here.

The Declining Trade Deficit: Not As Rosy As You Would Think

The trade deficit numbers are out for June 2013 and have been very positive. Due to an oil boom, the trade deficit shrank 22% from around $44 billion in January 2013 to $34 billion in June 2013.

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.

Brent crude oil started to move up, while WTI crude oil was flat (Chart 1). This is mainly caused by the increased oil supply in North Dakota due to the applied technique called "fracking". This increased oil supply drove down the WTI crude oil price, while Brent crude oil (tied to the Gulf Coast) has increased.

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.

Chart 1: Baltic Dry Index