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Petrobras, Politicians, Pathetic analysis, PT Barnum

Ever wanted to know what a shortable chart looks like? Here's your chance:

click to enlarge

It's nice when a story like this comes up, cos it reminds you how normally sane, rational, even intelligent people can be just plain STUPID when you dangle a wad of dollars in front of their noses.

It all started when the top dude in Brazil's oil watchdog industry, a certain Haroldo Lima, said that a new offshore oil field could contain the equivalent of 33 billion barrels of oil. The exploration/ concession work is 75% Petrobras (PBR) and 25% Repsol (REP), and both stocks rocketed on reports of Mr. Lima's comments. Rather than tell you exactly when this all started, have a look at this 10 day chart of PBR and take a guess at which day the news hit:

So then the thing just went totally viral, especially when a couple of naive fools who get 6 figure salaries at Merrill Lynch pumped it to death (I these dudes even speak Portuguese???). The next day, another New York analyst at Citibank (who should bother to cross the Rio Grande every once in a while) jumped on the bandwagon. That day, a website I enjoy did a quick collation of news stories about the "discovery" and put them together on one article, and although in Spanish it gives you an idea of the feeding frenzy that was created. It all sounded like Petrobras/Repsol would be extracting 5 squillion barrels of oil a day from this starting next Friday....around teatime.

All this time, I was scratching my chin and wonderin'....and waitin'. I got mails from people saying "You're not informed!!! Why aren't you on this story????"* Well, the reason was that this story a) wasn't new and b) was being blown up out of all proportion. Haroldo Lima was quoting from a previous initial study that was published in February (which I'd read already, cos I'm a real wonk like that). Post Merrill Lynch/Citibank hype, Petrobras was consulted and it rightly said that their own info was preliminary and they weren't making any moves on such flimsy evidence, let alone public comments. But even then, the scuttlebutt from the less informed and more hyperbolic quarters was still saying " smoke without fire...Lima wouldn't have said anything without a prompt" etc etc.

A quick rundown:

1) The field was mentioned in Feb '08
2) Drilling has been very limited so far
3) The field is certainly promising, but that doesn't mean there's oil everywhere they stick a tube. But the big one is........
4) It's in a deepwater area, and technically difficult to extract from. The oil lies under sea, then under a thick wodge of salt-laden rock. It will take a long time (meaning years, dude....years) and will cost serious money to begin commercial production there.

Here's a note from The Economist, out today, that does ok-ish justice to the current situation. Which is all well and good and might bring a little sanity back to the situation, but in the meantime:

You wanna make money in the market tomorrow? Short PBR. Easiest ten bucks a share you'll ever make.

*evidence available with lawyer's subpoena...just trust me, yeah?