I like Oil

[petershk]

Ha,
I guess investors are in a similar boat as the companies. The ones who don't need the money can last long enough to take advantage of the eventual price increase .

Seriously though. I think what's tough is it's "longer than expected" but then that happens all the time because we shouldn't really be confident in our expectations but are.

I think many investors have your sentiment and thus will sell their energy holding low and buy the tech holding high .

This thread can easily last 2-3 more years

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[turbo89]

I guess I'm bucking the trend here. I had a small position in SDRL which I just doubled this morning. I'm in at a cost averaged share price of just under 8 bucks.

Oil had been low or dropping for over a year now (now longer than most historical droops). I'm also noting heavy short interest In a few oil stocks , with long days to cover. I think we're going to see a short squeeze soon with some rebound...

Hold on for the ride!


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[Ed_The_Gypsy]

Energy market seems like water torture. If it has to do with hydrocarbons it is going down, and going down hard. Once here, I guess there is nothing to do but tough it out, but I surely wish I had never delivered myself to this trap.

Bruddah, you said it.

 

[explanade]

Crude inventories rose by 4.2 million as reported by the EIA this morning.

Yet supposedly more miles were driven in the first half of this year, leading to more accidents.

Lower gas prices has led to more driving and car sales are projected to reach 17 million this year. Yet the demand doesn't seem to have risen enough to meet all the increased supply.

Then there are supposedly traders who are stockpiling oil on tankers until the price goes up more?

 

[Ed_The_Gypsy]

Then there are supposedly traders who are stockpiling oil on tankers until the price goes up more?

Just over the horizon? Haven't we heard this before?

 

[explanade]

https://www.rt.com/business/221147-traders-tankers-oil-stockpiling/

 

[petershk]

Yeah. I'm personally not a fan of commodity trading. I prefer investing in companies but each to his own.

I'm fairly confident when the supply starts to drop it'll drop well below the demand... Mainly because suddenly a bunch of producers will pack it in. Then when the demand continues those stockpiles will get eaten up faster than expected (still slow). I feel like the last few months have shown how the market over reacts to even minor "good news" even though the fundamental supply/demand situation hasn't changed.

I think you could see fairly large moves once those fundamentals become more normal again.

Personally my oil holdings aren't anything I need so I'm ok riding it out. Yeah... It's stressful but I also figured it would be... But I didn't anticipate HOW stressful so I think when I'm actually retired I might have to stop playing the game

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[audreyh1]

Then there are supposedly traders who are stockpiling oil on tankers until the price goes up more?

Sure - and then as soon as they try to sell any of it prices plummet again.

 

[ESRwannabe]

"Energy market seems like water torture. If it has to do with hydrocarbons it is going down, and going down hard. Once here, I guess there is nothing to do but tough it out, but I surely wish I had never delivered myself to this trap."

I have been surprised at the correlation of the midstream MLP index to the price of oil recently. I saw a graph the other day and in the past the two were not correlated but during the oil panic they have been in lockstep. This is different than how this sector has behaved historically. My conspiracy theory is that its because we have ETFs for the sector now and the robots are running wild with it.

Anyway, I have been going through the ETF that I own (AMLP) and listening to the quarterly conference calls of the companies that make up the index. This has been very helpful to get an understanding of what the actual companies are seeing. What they are seeing is lower margins but higher volume. All in all they are not suffering, they are still making profits and investing for growth. I see no indications of dividend reductions. There probably will be a halt to dividend growth because the of mergers. There are a lot of acquisitions going on within the sector.

This isn't like 2008 where there was demand destruction in the US. The demand is up in the US, and I'm only targeting the midstream MLP sector which is for the most part a domestic business. There is transportation to sea ports for export, but most of the transportation is for internal use.

I'm looking at this as a buying opportunity. It may go on for several years. If so good!

Now I'm going to come to my tinfoil hat comment...

From what I can gather, this oil panic is a supply problem, not a demand problem. The supply issue appears to have been originated by OPEC, in particular Saudi Arabia. I have done some reading up on SA and from what I understand they just had a new monarch take over. Well the authority to set the SA oil policy was given to the new kings favorite son... not only that he is also, in US terms, the head of the dept of defense and the head of state... This favorite son is 29 years old and his education background is in Islamic law. He doesn't have a western education like many SA princes. Anyway, he has gotten SA engaged directly in two wars (Yemen and Egypt), he has also cost OPEC roughly $500 billion the last year through over supply of oil... Just FYI, its estimated that SA really needs oil up around $100 to cover all the hand outs they pay for to discourage their people from rioting.

Long story short I think this oil panic has been caused by a 29 year old religious studies major in SA (who by the way has gotten them into two wars already). He is the favorite son of the new king. From what I understand he is the favorite because he looks handsome and has lots of confidence in himself...

This is from what I have gathered reading articles on the web (from "legitimate" non-conspiracy websites I might add)...

 

[Ed_The_Gypsy]

I have done some reading up on SA and from what I understand they just had a new monarch take over. Well the authority to set the SA oil policy was given to the new kings favorite son... not only that he is also, in US terms, the head of the dept of defense and the head of state... This favorite son is 29 years old and his education background is in Islamic law. He doesn't have a western education like many SA princes. Anyway, he has gotten SA engaged directly in two wars (Yemen and Egypt), he has also cost OPEC roughly $500 billion the last year through over supply of oil... Just FYI, its estimated that SA really needs oil up around $100 to cover all the hand outs they pay for to discourage their people from rioting.

Long story short I think this oil panic has been caused by a 29 year old religious studies major in SA (who by the way has gotten them into two wars already). He is the favorite son of the new king. From what I understand he is the favorite because he looks handsome and has lots of confidence in himself...

I foresee interesting times ahead for the homeland of the Wahabbis.

 

[Nemo2]

The demand is up in the US

We just returned from Europe.....heavy vehicle traffic in every major centre we visited, and every airplane landing from, and departing to, 'everywhere' appeared to be jam packed...it all seems antithetical to current oil prices.

 

[Mulligan]

We just returned from Europe.....heavy vehicle traffic in every major centre we visited, and every airplane landing from, and departing to, 'everywhere' appeared to be jam packed...it all seems antithetical to current oil prices.

Being a commodity it will have its up and downs through the years. But, the one thing I haven't fully figured out because quite frankly I am not smart enough is the integration of technology and oil production. Technology has really driven down the oil production costs in once was considered "fringe producing sites". I noticed recently Suncor a big major oil sands extractor has drastically reduced their production costs. It wasn't too long ago it was over $50 per barrel. Now they can extract it for $27 a barrel. There is boundless supply of this stuff up north.


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[Car-Guy]

With the current dips in big oil I think it's time for me to start buying back in even if I have to hold them for a while longer than I usually like. I've far too much cash sitting on the sidelines earning nothing, thanks to the wisdom of the Washington regulators. Yes, I know there is an oil glut, prices are depressed, Washington hates big oil, etc. One of the smartest (or at least most successful) investors I have ever known often told me to buy stocks when they were out of favor. (YMMV) Sure sounds to me like like big oil companies fill that bill today. I've always been willing to gamble, I have the spare cash that I can afford to lose, so why not roll the dice on oil.

Here I go again.....

 

[Running_Man]

MLP's are for the most part overloaded with debt, and consolidating in order to issue more shares to keep this going while the build out of the area slows. The most worthless statistic is distributable cash flow. Look at ETP's 3rd quarter financials and determination of "Distributable cash flow" They have 308 million dollars of maintenance capital through nine months, meaning that the remainder of of their capital spending according to ETP could be halted if needed for distribution to shareholders. Now actual assets went up by 4 billion to 42 billion, meaning that required maintenance of existing capital assets is one percent of the assets or a useful life of 100 years. THAT is extraordinarily hard for me to believe, but if they said two billion of capital is needed no matter what distributable cash flow drops like a rock, instead the mirage is continued and they either issue shares or borrow money for the difference. The oil problem is bringing this problem to a head as the growth wheel is slowing leaving only ongoing business, only way to avoid truth is to combine with someone else.....

 

[Totoro]

I may be that the Saudis and other low cost producers are afraid of the stranded asset idea.

I think this might be what really is happening. Get it out of the ground now. As long as you make a profit (and you will as lowest cost producer) it is a better alternative than leaving it in the ground where it never will be retrieved.

As much as 2/3rds of proven reserves some project will be left in the ground. Now that may or may not be true, but it may just explain some of the Saudi behavior.

I got lucky buying Total though. Sitting on a 40% profit right now (in Euro). I'll be closing out the position probably in a month or so, don't trust it long term.

 

[explanade]

Maybe the military operations they're doing in Yemen is getting expensive. Heard they were buying a lot of missiles from US.

Or maybe they fear ISIL will overthrow them.

 

[ESRwannabe]

I figured I would add this since it backs up my conspiracy theory on the oil price decline... Just saw this article:

GERMAN INTEL SEES RISK IN SAUDI PRINCE'S THIRST FOR POWER

News from The Associated Press

From the article:

"BERLIN (AP) -- Germany's foreign intelligence agency believes Saudi Arabia's ambitious defense minister could endanger the Gulf kingdom's ties with regional allies by attempting to cement his place in the royal succession, according to a memo released Wednesday."

"It is unusual for the BND spy agency to publicly release such a blunt assessment on a country that is considered an ally of the West. Germany has long-standing political and economic ties with Saudi Arabia."

...

"In addition to his role as deputy crown prince and defense minister, Mohammed bin Salman also oversees the country's top economic council and Saudi oil policy."

...

"Washington-based think tank The Brookings Institution published an essay in September that said the prince's "unbridled ambition has alienated many of his fellow princes," adding that "he has a reputation for arrogance and ruthlessness.""

 

[Mulligan]

If what I am parroting from reading is true, oil could be in trouble from more than Saudi's oil dump long term. Suncor can extract tar oil for under $30 a barrel now and there is over a hundred years supply of that stuff. Plus China has found big shale oil supplies and are starting to use US technology to extract it at economical prices. US producers are also lowering extraction costs quickly in a very short period of time. Who knows, but supply doesn't appear to be a near term problem. And I assume Libya and Iran still aren't getting much out to market like they were back in the day.


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[ESRwannabe]

If what I am parroting from reading is true, oil could be in trouble from more than Saudi's oil dump long term. Suncor can extract tar oil for under $30 a barrel now and there is over a hundred years supply of that stuff. Plus China has found big shale oil supplies and are starting to use US technology to extract it at economical prices. US producers are also lowering extraction costs quickly in a very short period of time. Who knows, but supply doesn't appear to be a near term problem. And I assume Libya and Iran still aren't getting much out to market like they were back in the day.


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Could be. My expectation is that the technology will keep improving, making extracting oil more cost efficient and adding more supply. My only bet so far is on the midstream sector which is used to transport the oil around in the US where its needed.

So far lower oil price has resulted in more demand, which in turn means more demand for midstream. Right now midstream is being correlated to oil price, but I imagine that will fade over time. Historically midstream has not been so 1 to 1 correlated with oil.

I've been thinking about buying into the downstream (marathon petroleum) as low oil price is great for them.

 

[aja8888]

Could be. My expectation is that the technology will keep improving, making extracting oil more cost efficient and adding more supply. My only bet so far is on the midstream sector which is used to transport the oil around in the US where its needed.

So far lower oil price has resulted in more demand, which in turn means more demand for midstream. Right now midstream is being correlated to oil price, but I imagine that will fade over time. Historically midstream has not been so 1 to 1 correlated with oil.

I've been thinking about buying into the downstream (marathon petroleum) as low oil price is great for them.

I think I would wait until crude futures are in the low $30's before I would invest in any energy-related stocks. That would also be at or after the time many mid-tier, highly leveraged producers are bankrupt or have sold off their assets. I am talking U.S. companies here only.

The best bets at that time may be the large integrated companies (ExxonMobil, Chevron. etc).

The top midstream companies will be sufficiently beat up by then and will have been forced to lower fees for pipeline deliveries. The best of the breed are Enterprise, Magellan Midstream, etc.

 

[ESRwannabe]

Read another good article today about the oil crisis.

Oil speculators risk 'short squeeze' if impulsive Saudi Prince throws OPEC surprise - Telegraph

"Hedge funds have taken their bets. The market is convinced that Saudi Arabia will ignore the revolt within OPEC at a potentially explosive meeting on Friday, continuing to flood the global markets with excess oil."

...

"They are at the mercy of opaque palace politics in Riyadh that few understand. Helima Croft, a former analyst for the US Central Intelligence Agency and now at RBC Capital Markets, says the only man who now matters is the deputy crown prince, Mohammed bin Salman."

'The headstrong 30-year-old has amassed all the power as minister of defence, chairman of Aramco and head of the Kingdom's top economic council, much to the annoyance of the old guard. "He is running everything and it comes down to whether he thinks Saudi Arabia can take the pain for another year," she said."

 

[hesperus]

The best of the breed are Enterprise, Magellan Midstream, etc.

Agreed, and I might add Spectra (SEP) to that list for gas. My MLP holdings are almost entirely comprised of these three. I've whittled down/eliminated a couple of other ones in the past couple of years like BWP, and some PAA.

 

[ESRwannabe]

My guess is the OPEC meeting tomorrow doesn't change anything and output levels stay as is another year.

I expect oil to keep going down in 2016. Maybe even getting to $20 like Goldman Sachs predicted.

Maybe in 2017 it will start going back up again. It'll go up eventually as oil reliant countries slip into chaos (your already seeing it with venezuela, brazil, iraq, etc). I believe around $1.5 trillion in oil capex has been canceled already. When the correction comes it could be very violent... I've read predictions that it could get up to $200 if the correction is violent enough.

Maybe that would be the impetus needed by the next president to want energy independence, which we could have, provided we don't let other countries essential engage in "dumping".

Shale was one of the bright spots of the economy providing jobs.

 

[Clone]

Perhaps the guvment needs to increase the depletion allowance? We need to do something to help out the suffering oil companies.

I get the feeling that the technology of oil production (and to a lesser extent, energy production in general) has changed the economic model that OPEC used to manage prices and production. There are enough additional independent (from OPEC) producers that can start producing when oil prices go up. Low oil prices may shut them down and hurt them financially. But when oil prices go back up, with some time lag, they can start producing again. Additional sources of oil and other energy tends to loosen the grip that OPEC has had in the past.

 

[Chuckanut]

Sheesh! If oil gets any lower, I will have to turn off the electric motor system in my hybrid. Otherwise I will never break even.

By the way, what ever happened to those folks screaming that the oil companies can charge us whatever they want because we have to pay it?