I like Oil

[DEC-1982]

I am inclined to agree with everything mentioned in the post by audreyh1.

Do not confuse short-term market ups and downs with the US economy. The US economy is diverse and not dependent on any one sector of the economy. The US economy is still chugging along at a pace that is not exciting but is acceptable, especially when compared to the rest of the world.

The most common reason for recessions is interest rate increases. Although external shocks (1973 oil embargo and 1979 Iran revolution) come to mind as the second reason. I cannot think of one time when the US went into a recession because oil prices dropped (not even 1986) but maybe somebody will correct me.

I expect once the expected interest rate increase is (probably) announced tomorrow, the market will recover after that. Just my 2 cents.

 

[explanade]

Some analyst on CNBC said it takes 4 quarters for the benefits to take effect so first half of next year should see better profits from non oil companies.

 

[ESRwannabe]

In the budget bill passed the other day, it is lifting the ban on oil exports. Should be good for most US oil companies (probably bad for refineries).

The US also negotiated with Russia the other day and the US is no longer going to push for Assad to go away in Syria. The US also told Turkey they need to remove their troops from Iraq. Not sure what's going on, but seems to me that the US is moving away from backing the Sunnis.

 

[Fermion]

Revisiting SDLP (last time we talked it was about $6 a share...a week ago?)

Today it is $3.08

The dividend is $0.57 last quarter. I have read it cannot be dropped below $0.38, which is about a 50% yield still. Technically they have coverage until past 2017 for the dividend (about 2x coverage if they drop it to 0.38)

I am amazed Exxon is still at $79 with $35 oil and not at $65. Trying to figure out the oil stock market is just a dart board.

 

[aaronc879]

Revisiting SDLP (last time we talked it was about $6 a share...a week ago?)

Today it is $3.08

The dividend is $0.57 last quarter. I have read it cannot be dropped below $0.38, which is about a 50% yield still. Technically they have coverage until past 2017 for the dividend (about 2x coverage if they drop it to 0.38)

I am amazed Exxon is still at $79 with $35 oil and not at $65. Trying to figure out the oil stock market is just a dart board.

I sold my entire position in SDLP when it was at $10/sh. Very glad I did. It 'seems' that it's a "can't lose situation" at $3/sh but i'm still not getting back in. I've had enough of the extreme volatility.

 

[Fermion]

I sold my entire position in SDLP when it was at $10/sh. Very glad I did. It 'seems' that it's a "can't lose situation" at $3/sh but i'm still not getting back in. I've had enough of the extreme volatility.

If I understood it I might buy in here. I thought SDLP was essentially a contract holding company, receiving rigs and their contracts from the parent Seadrill. If this is the case, they should not be so volatile since they have all of these signed contracts with big companies like Exxon, BP, etc. Contracts do expire starting in 2017 but I think only three. Renewal will be at a lower rate unless oil makes a drastic recovery. The rig ships are about three years old on average, while other rigs in the industry are much older. I am guessing almost no new rigs will be built for anyone in the next few years.

 

[ERD50]

In the budget bill passed the other day, it is lifting the ban on oil exports. Should be good for most US oil companies (probably bad for refineries). ...

But would we really export oil at current prices? I would think now is the time to be buying cheap foreign oil, and save ours for when prices rise.

I realize there is a cost to not selling oil as well (all that capital just sits there). Considering those competing factors, do you think we will be exporting any oil?

-ERD50

 

[ESRwannabe]

But would we really export oil at current prices? I would think now is the time to be buying cheap foreign oil, and save ours for when prices rise.

I realize there is a cost to not selling oil as well (all that capital just sits there). Considering those competing factors, do you think we will be exporting any oil?

-ERD50

We don't have a domestic oil policy. So saving our oil supply for strategic reasons doesn't factor into it. Besides this budget bill is typical in that it has wasteful pet projects for both parties. They will want to pass it so they can get re-elected after spending tax money on bread and circuses. Also need to pay back ppl for the campaign contribution bribes.

Anyway the US makes "sweet/light" oil which is premium quality, but the US refineries are mostly setup for low quality oil. So the US will have more buyers. The US could also probably get a premium just because the oil is from the US and not the middle east (filled with nut jobs).

 

[DEC-1982]

We don't have a domestic oil policy. So saving our oil supply for strategic reasons doesn't factor into it. Besides this budget bill is typical in that it has wasteful pet projects for both parties. They will want to pass it so they can get re-elected after spending tax money on bread and circuses. Also need to pay back ppl for the campaign contribution bribes.

Anyway the US makes "sweet/light" oil which is premium quality, but the US refineries are mostly setup for low quality oil. So the US will have more buyers. The US could also probably get a premium just because the oil is from the US and not the middle east (filled with nut jobs).

I am definitely not an oil expert but I thought most refineries (Asia, US) are set up for the heavy oil. I suppose refineries could be retrofitted but I heard it is a costly process. I would be interested to learn (for my knowledge) where the refineries are to process lighter (better) oil.

Last week, Goldman Sachs and Citigroup both reiterated prior calls that $20-a-barrel oil is possible in 2016.

Oil prices have now crashed through their 2008 low, and worse is likely to come - Quartz

Of course "possible" is such a vague term.

 

[fanmail]

I'm almost always skeptical of Goldman public forecasts. I don't think they intentionally try to be wrong, but I'm guessing that they want to buy a ****ton of oil futures/options with a 2 in front of the price.

 

[explanade]

Yeah back in the day GS also predicted $200 oil or higher, that was around 2008, just before the financial crisis when oil topped $100 and there was more talk of peak oil.

They're never going to impose a carbon tax in this country as long as the Republicans control enough of Congress (and the oil industry continues to fund their campaigns) but other countries already impose higher taxes on gas and other oil products.

With the recent Paris accord, what are the prospects for even more stringent measures to reduce global consumption? Right now, economic growth is so paltry in many parts of the world that consumption is low. But will that always be the case?

All these Chinese citizens wanted to become car owners like Americans and they were well on their way but Chinese economic growth has declined so for now, car sales may have slowed down over there.

Then the other thing is every major car company is working on electric cars and within the next 2-3 years will have models with 200 mile range in the $35k price range. Electric cars won't kill oil consumption but it's just another piece that helps chip away at oil demand.

 

[aja8888]

If I am guessing almost no new rigs will be built for anyone in the next few years.

Also consider that no one is planning on drilling offshore in the Gulf in the short term.

 

[Donzo]

Interesting thread - lots of good info. I have enjoyed reading different views on the subject. Frankly, I thought lower prices were good because the average consumer would have more dispensable $ to consume products.

It makes sense that there would be a ripple effect from BIG companies in lock step with oil prices = job loss and less BIG $ purchases.

Let me know when I should be buying oil mutuals.....
I can't imagine oil will stay this low for that long.

 

[haha]

It is possible that we find ourselves in a game-over situation. What if low interest rates, low oil and other commodity prices, recessionary trends in China and bizarre mental processes on campus, like preoccupation with "microagressions", are all coming from the same thing, the twilight of our political-economic paradigm? If so, our ideas about what can be expected will likely be off, since we really haven't been here before.

 

[REWahoo]

It is possible that we find ourselves in a game-over situation. What if low interest rates, low oil and other commodity prices, recessionary trends in China and bizarre mental processes on campus, like preoccupation with "microagressions", are all coming from the same thing, the twilight of our political-economic paradigm? If so, our ideas about what can be expected will likely be off, since we really haven't been here before.

...

 

[Mulligan]

Interesting thread - lots of good info. I have enjoyed reading different views on the subject. Frankly, I thought lower prices were good because the average consumer would have more dispensable $ to consume products.



It makes sense that there would be a ripple effect from BIG companies in lock step with oil prices = job loss and less BIG $ purchases.



Let me know when I should be buying oil mutuals.....

I can't imagine oil will stay this low for that long.

I have a partial theory (explanation) why there hasn't been economic uptrend from the "oil dividend". The savings went immediately from my checking account straight to my health insurance carrier, plus some additional loot to boot also. I would assume I am not the only one!


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[youbet]

the twilight of our political-economic paradigm

I like that phrase a lot!

Change in our world's cultures, politics and beliefs is accelerating! We may very well be in the twilight of our political-economic paradigm. FireCalc results based on historical testing may indeed be flawed as historical limits may not contain future results.

Retirees, even our forum members, may not be in complete control of their futures!

Oh my!

 

[dallas27]

I have a partial theory (explanation) why there hasn't been economic uptrend from the "oil dividend". The savings went immediately from my checking account straight to my health insurance carrier, plus some additional loot to boot also. I would assume I am not the only one!


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While i also hate the rising healthcare, apparently cost increases these kasr 3-4 years have been the smallest increases in a very long time. Still increases, nonetheless.


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[Hamlet]

It is possible that we find ourselves in a game-over situation. What if low interest rates, low oil and other commodity prices, recessionary trends in China and bizarre mental processes on campus, like preoccupation with "microagressions", are all coming from the same thing, the twilight of our political-economic paradigm? If so, our ideas about what can be expected will likely be off, since we really haven't been here before.

That is certainly possible. However, it is also possible that the slow improvement in the economy will continue and that low energy prices will spark a boom in retail. I have to think that if gas stays this low, Walmart and Target will start to get traction again. All of their customers have an extra $25/week to spend.

People have been betting that we are in the twilight of our political-economic paradigm in every rough patch for the last 100 years or so. It always feels like the end is near when the economy falters. In the past, something has always come along to make those bets looks extremely silly in retrospect.

 

[ESRwannabe]

AMLP (mlp market-cap index) was up around 5% yesterday and is up 5.60% today. I guess some hedge fund decided the bottom was in for this sector?

Div yield is 10.31% right now, which is better than when I got in. I'd be buying if I had free cash available.

 

[Mulligan]

While i also hate the rising healthcare, apparently cost increases these kasr 3-4 years have been the smallest increases in a very long time. Still increases, nonetheless.


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I wish I could say the same. I am saving maybe $50-$75 a month from gas from a year ago. But my health insurance is up over $200 a month same time.


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[marko]

It is possible that we find ourselves in a game-over situation. What if low interest rates, low oil and other commodity prices, recessionary trends in China and bizarre mental processes on campus, like preoccupation with "microagressions", are all coming from the same thing, the twilight of our political-economic paradigm? If so, our ideas about what can be expected will likely be off, since we really haven't been here before.

+1
My personal view is that the game ended a few decades ago and we're just trundling along on inertia; sort of like Rome that kept staggering on for a few more centuries.

OTOH (and I'm not even an economist!) it seems that the worst never comes to fruition.

I submitted to a thread a few years ago here about how each decade had unrealized fears of: nuclear attack, overpopulation, global freezing, running out of oil, AIDS and global warming (before it became climate change) and other 'end of world' catastrophes that were going to end us.

 

[Nemo2]

My personal view is that the game ended a few decades ago and we're just trundling along on inertia; sort of like Rome that kept staggering on for a few more centuries.

Sad to contemplate...but likely true.

 

[hesperus]

the twilight of our political-economic paradigm?

My personal view is that the game ended a few decades ago and we're just trundling along on inertia; sort of like Rome that kept staggering on for a few more centuries.

With these last few posts, I know where to come now to get depressed...

 

[Mulligan]

With these last few posts, I know where to come now to get depressed...

Im not an optimist by nature, but am not dismally negative. I just think economy will muddle along... Long yields will stay on lower end for extended more period of time, market is priced too high, bonds too low... So I buy preferreds from safe profitable companies that pay higher yields and not worry about finding growth in a low growth economy. Just take the yield and run. Who knows....


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