I like Oil

[imoldernu]

It was probably a good thing for the market, when the BOA was allowed to insert the Dodd Frank water-down into the Budget Bill. Guesses are that the 5 TBTF banks are holding the long end of Oil derivatives contracts totalling between $3Trillion and $4Trillion. Some analysts estimate that 6 months of $50 oil, could trigger another Bank bailout.
Something to watch...

[NW-Bound]

Quote:

Originally Posted by MichaelB The data I recall is US gasoline consumption has been flat since '08 but recently began to increase once again. Here's the US DOE data U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day)

I just read that sales of SUV, trucks, and vans have climbed back up to 55% of new vehicle sales. I have not been able to find a historical chart in order to see how the above number contracted in the 2008 when gas price hit $5/gal, then expanded again when supply grew.

When gasoline is cheaper than some bottled water, something tells me that it will not last. It's currently $1.93/gal near my home.

[Lakewood90712]

Quote:

Originally Posted by imoldernu It was probably a good thing for the market, when the BOA was allowed to insert the Dodd Frank water-down into the Budget Bill. Guesses are that the 5 TBTF banks are holding the long end of Oil derivatives contracts totalling between $3Trillion and $4Trillion. Some analysts estimate that 6 months of $50 oil, could trigger another Bank bailout. Something to watch...

Now that is a quite comforting thing to think about. Hey, how bout them Buckeyes

[Running_Man]

Quote:

Originally Posted by Running_Man I have been contemplating this recent development quite a bit lately and have come to the conclusion this is the first significant economic event that has been created by central banks zero interest rate policies which is now not controllable by central banks. A consequence of desire for yield has seen a level of junk bond issuance that is simply a bubble with over a trillion dollars of junk bonds issued in the last 4 years which is about 2-3 times higher than even in prior junk bond bull markets. This is the unintended consequence of giving governments the ability to borrow at no cost and rescuing oil drilling and service companies is not something governments are going to be able to do. The cheap interest rates made possible the financing of many wells which cost on average around 5 million dollars each and record low junk interest rates made the breakeven point on these wells about $70 per barrell. This drilling has been accomplished primarily through financing via junk bonds, of which the oil sector now accounts for 15% of the total junk bond market which is a record for the oil sector. The payment of this debt is made possible through the selling of oil the first few years of the operation of these wells so the Saudi decision to bankrupt the oil speculators is understandable.

Now today another unintended QE consequence domino falling has occurred is a removal of the peg of the Swiss Franc to the Euro @120, as the fall in oil is putting further deflation fears in Europe and Draghi's upcoming measures are being reflected in costs the Swiss central bank could no longer afford. As the first quarter continues to unfold with impacts from low oil the domino's are beginning to fall and the interesting thing will be to see what the dominos falling knock over. I am sure there are hedge funds that right now are dreading the open tomorrow as the Swiss move probably bankrupted several, tomorrow's market action might be quite unusual and I think you saw a partial impact on the US bond market today, which are crashing up in price.

Today's interview on CNBC with the head of the International Monetary Fund being totally unaware of the Swiss move shows countries are now starting to move in their own self interest. Swiss 7 year notes are actually negative short term rates in Switzerland are almost a negative 1 percent and US rates are reaching all time lows falling below the panic in the midst of 2008. In short it appears all the market misallocations caused by the Federal Reserves QE is beginning to hit major markets and dislocations are coming to the surface.

[Lakewood90712]

The snakes are out of the cage. Starting to hear radio advertising offering direct oil well investment if you have $40k or more to invest. I think I will pass on the offers.

[hotwired]

I bought RSXJ (small cap vs. large cap) and it's gone down 50%. I bought it after it went down 75%! I've been burned by my own refusal to adhere to the "no falling knives" rule. But I didn't put a huge position in. Since my buying any stock makes it go down almost an immediate 20% -- I will add more once everyone stops talking about it. That seems to be the key ... if it's in the news, it will go down no matter how much it's gone down already ... it's when everyone stops caring that the turnarounds seem to happen. I have no scientific data to back this up ... but ...

[Running_Man]

With today's drop to a new low on oil prices and 30 year treasuries the major oil companies are close to their lows of October it will be interesting to see if the lows of October hold, which would be a good sign for those stocks or if they fall through the lows of October signaling another major leg down. The inventory number for oil today was much worse than feared. Tomorrow one of the bigs frequently mentioned on this thread COP - Conoco reports earnings I am very interested in seeing what they have to say.

[soupcxan]

I heard today that BP rescinded job offers to students who are graduating in May. Tough break for the students.

[explanade]

Is there a market index, ETF or fund that covers the whole equities market except for oil companies?

It's incredible that the market is at the mercy of the oil companies, even though cheaper oil is suppose to be better for the economy overall.

[soupcxan]

Quote:

Originally Posted by explanade Is there a market index, ETF or fund that covers the whole equities market except for oil companies? It's incredible that the market is at the mercy of the oil companies, even though cheaper oil is suppose to be better for the economy overall.

Uh, this is exactly the time you SHOULD be buying oil companies because they're cheap. All part of the gains from rebalancing. Buying them when oil is at $120 isn't going to get you anywhere.

[Running_Man]

Quote:

Originally Posted by soupcxan Uh, this is exactly the time you SHOULD be buying oil companies because they're cheap. All part of the gains from rebalancing. Buying them when oil is at $120 isn't going to get you anywhere.

Actually Oil was last at $120 in Feb 2012
XOM closed today at $87 in Feb 2012 it was at $83
Chevron closed today at 104 it was at 105 in Feb 2012
COP closed today at $62 in Feb 2012 it was $55

There has been actually little pain in the major oil company stocks to speak of, the idea that these stocks could fall 50 percent from here easily if the price of oil were to stay in it's present range for a longer than expected period of time is not registering with most investors who at this point have been conditioned that a small drop is by far the best time to buy major stocks, despite and maybe because of the 2007-2009 experience.

The dollar, the price of oil and future economic activity all seem to be a negative for their earning power moving forward for the intermediate term and the realization that the hedges will no longer protect earnings is just now begging to be realized.

However if the price of oil were to recover very soon then these companies will be ok again, but there is substantial risk to their price at this point in my opinion

[explanade]

If it's not the big oil companies, then what is selling off whenever oil drops?

All these exploration/development companies?

[freebird5825]

Go BHP
Go BHP

I'm down a bit (about 7k) but boy was it fun buying low in the last 3 months. I'm a small fish in much larger frying pan.

We shall see what we shall see.

[aja8888]

Quote:

Originally Posted by explanade If it's not the big oil companies, then what is selling off whenever oil drops? All these exploration/development companies?

The big oil companies are the exploration and development companies. What's going to sell off (and already has) will be the oil service companies; Halliburton, Schlumberger, National Oilwell Varco, etc and smaller, less capitalized, oil (and gas) companies.

[target2019]

Quote:

Originally Posted by explanade If it's not the big oil companies, then what is selling off whenever oil drops? All these exploration/development companies?

Here's a short list of companies I'm following. All are energy-related, but each has a different profile. Today is a selloff that continues for how long, can't say. If you look at the last column, it gives you a sense of how far from the top each stock has fallen from its 52-week high. Big companies are selling off, but to a lesser extent.

[Running_Man]

Quote:

Originally Posted by freebird5825 Go BHP Go BHP I'm down a bit (about 7k) but boy was it fun buying low in the last 3 months. I'm a small fish in much larger frying pan. We shall see what we shall see.

Well BHP is the poster child and a small study of what has occurred worldwide.

It is heavily in the commodities that have been in oversupply, and one of the major players in creating the oversupply. In 2008 it had 8 billion in debt and has borrowed another 22 billion to get to 30 million in long term debt at advantageous rate of 4 percent due to worldwide interest policies.
in 2011 on 72 billion in sales it had 5 billion in annual depreciation costs now with 71 billion in sales and falling it has 9 billion in depreciation.

It has another 12 billion in commitments for another 8 projects it has undertook, main attraction appears to be proposed split of their minerals division from the commodity oil and gas properties. Which will increase total debt to about 40-45 billion dollars, (currently with short term debt BHP's total debt is 35 billion dollars. While it is not costly in low interest rate environments to only pay 1.5 billion in interest on such a large sum of debt, this company has positioned itself for long term bull market in commodities in a time when commodity prices are in a major bear market, yet this stock is only off from 100 when the strategy appeared to be a very smart move.

From it's most recent presentation on 6 month performance review of July - Dec 2015:

Quote:

Group production increased by 9% during the December 2014 half year with records achieved for eight operations and five commodities. Production guidance remains unchanged and we are on track to deliver Group production growth of 16% over the two years to the end of the 2015 financial year.  Metallurgical coal production increased by 21% to 26 Mt in the December 2014 half year as Queensland Coal and Illawarra Coal both achieved record half year volumes.  Western Australia Iron Ore production increased by 15% to a record of 124 Mt (100% basis) in the December 2014 half year as the ramp-up of Jimblebar continued and we improved the availability, utilisation and rate of our integrated supply chain.  Petroleum production increased by 9% to a record 131 MMboe in the December 2014 half year supported by a 71% increase in Onshore US liquids volumes to 24.4 MMboe.  Copper production(1) decreased by 2% to 813 kt as strong underlying operating performance across the business was offset by lower grades at Antamina.  Record manganese ore and alumina production was underpinned by strong performances at both Hotazel and the Alumar refinery.

From it's review you can see the 131 million barrels of oil realized an average sale price of 85 dollars per barrel, meaning the price decline of oil has not yet hit BHP. However taking that 131 million of production doubled for yearly production, if it sells for $45 per barrel you have a decrease of 11 billion dollars of sales forthcoming in 2015 just from oil (15 per cent of sales), with all of these dollars falling from the bottom line, meaning at 45 dollar oil BHP as a company is not profitable. I do not think this is reflected in the current stock price as investors instead are focused on the 85 realized and the dividends paid from that as opposed to the future with 45 dollar oil.

If you then layer in copper average of $3.00 per lb realized in 4th qtr now at $2.45 I do not see how this company can withstand current prices and maintain it's current stock price. Already they are announcing they are taking 200 million in provisional pricing for copper in the 4th qtr, a 350 million charge for failure of planned asset sale to go through of their Nickel West business and a write down of those assets, a 850 million tax charge for loss of a deferred tax asset in Australia, a 250 million charge for petroleum producing assets in Louisiana and announced while it plans to go forward with it's tar sand oil project it will review to optimize cash flow.

And this is before even discussing their plan to increase Iron Ore production by 30 percent in 2015 even while iron ore prices have dropped even more than oil.

I think this company is a very good proxy for the overall world process in oil and commodities and will be a leading indicator in 2015 of effects of large amounts of low interest debt tied to high production of natural resources.

[Running_Man]

As to a continued theme of mine which is that I hate companies that buy their stock back, Chevron after wasting billions buying stock back at 115 dollars a share announced today with the stock hitting a new yearly low they are suspending share buybacks in an effort to preserve cash and further cutting capital spending. Chevron has fallen back below it's October/December lows down 4 dollars today COP and XOM are similarly making new yearly lows as well, indication that another leg lower is possibly starting unless they can reverse the market quickly here, however the news as we get into the quarter does not appear possible to get favorable to these stocks.

[aja8888]

Quote:

Originally Posted by Running_Man As to a continued theme of mine which is that I hate companies that buy their stock back, Chevron after wasting billions buying stock back at 115 dollars a share announced today with the stock hitting a new yearly low they are suspending share buybacks in an effort to preserve cash and further cutting capital spending. Chevron has fallen back below it's October/December lows down 4 dollars today COP and XOM are similarly making new yearly lows as well, indication that another leg lower is possibly starting unless they can reverse the market quickly here, however the news as we get into the quarter does not appear possible to get favorable to these stocks.

Someone ought to tell Chevron and Exxon that they should be buying their stock back at the lows, not the highs.

[Running_Man]

Well actually maybe this is the bottom within minutes of Chevron making a new low in the stock market oil reversed course and is now up 8% today with Chevron recovering to even on the day, a very big reversal and a good sign for those long these oil stocks.

[Lakewood90712]

The Chevron Q4 earnings conference call today , for playback Chevron (CVX) Q4 2014 Results - Earnings Call Webcast | Seeking Alpha

Something mentioned near the end , if I understood correctly was a price point of about $50 bl for future projects to be profitable.