Good afternoon
this morning I called around and asked, how much I would get paid to fill up my heating oil on the farm! Well this is a joke, certainly - but last night we could see, what happens, if speculators dominate commodity market, and not the reality! In this case, hedge funds/oil traders tried to make money out of the future spread, and got completely buried! People desperate to get rid of phsysical delivery exposure from contracts expiring today, were taken to the cleaner! The unthinkable happened: Some investors ended up paying 37 US$barrel for WTI, just to get rid of their oil! The Balck Swan called Corona, hit these guys badly. While I cannot disguise some happines about this, it´s not good for anyone…Let´s hope, that we do not discover over the enxt few days, that a fe whedge funds or oil traders will become insolvent!
This has little to do with fundamentasl - at least only indirectly, as oil demand is obviously very weak in the moment. We just have to look out of the window to see that! But equally obvious is, that the corona crisis will end at some stage - and probably rather sooner than later, bringing demand back on except for a few less airplanes flying around. An the market in oil equities telling us just that: From Australia to London, oil stocks are down just by a little more than markets generally! But they are still relatively weak - WTI a few month out is tradinng at 30 US$/barrel, which is still not sufficient to keep most shale producers alive, and certainly not enough to get anyone enthusiastic to drill and develope new projects! And Friday for future? Well the days of substantially falling oil demand are far away, probably 15-20 years - even with corona probably impacting on businesstravel, some tourism etc going forward. Germans will be driving from Munich to Sylt instead - wheather we like this or not - and I have no doubt, that the market will be a market again . Potentially, the weakness in capital investment in the oil industry, and the potential destruction of large parts of shale production, will push prices back up substantially over the next few years.
I can only reiterate - oil stocks with strong balance sheets are probably a great buy, if you have some time…
Also note, that future prices are way higher - for example Brent, which also got a hammering today, is trading at 22$ for the actual contract, and at nearly 35$ 6 month out.
The oil price chaos, nevertheless, reverberates through financial markets today. Base metals are weak, gold is weak, the A$ is weak, equities are weak…Hedge Funds probably have to adjust positions, as have commodity ETF´s…as I said - a big mess ! But don´t worry too much - markets went up by 20-25% from their recent lows recently - why not fall 7-8-10% again? It´s well possible - but in the medium term, equities will continue to go well, I think!
Teck´s Antamina Mine in Peru ( produces about 400.000t of copper ) declares force majeur…
germany business expectations as reported by ZEW are very strong for the second half 2020.
Horizon Gold - the company has finally got an Executive Director…previously named to the board, Jamie Sullivan has become ED, while Mr.Morrison as representative of the major shareholder, zeta, has become Chairman. Mr. Suullivan is the borther of Panoramic. he gets a very mdest salary of 120.000 A$ - still, I am not overly happy at all with this cozy arrangement. I will have to make a few enquries re him. But overall, the major shareholder is tightening his gripp on the company. Given recent experience, this is not good. I am hoping, that they will now decisive action to raise the necessary funds to convert inferred resources to indicated resources. I think that there is a good chance, that they will losse some of the excellent gold grades on the way, and a few to as well - but as I said before: The udnerlying value of HRN is probably several times it´s current price. Once tehy will allowed to publish the scoping study, the wider market ( and not only board and major shareholder! ) will be able to see this…It´s certainly helping, that Middle Island is making good progress on their asset, as toll treatment through MDI´s plant should be one of options to get production going!
Nothing much happening on the microside today…
And you have a nice evening!
WS