Author Topic: Oil at $23  (Read 7391 times)

BTDretire

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Oil at $23
« on: March 23, 2020, 07:37:29 AM »
With oil at $23, a price that would have seemed impossible 2 months ago, it has had a 62% drop! A year from now are we going to look back and say, I should have invested in oil in one form or another?
  Several years ago, I dabbled in a 3x leveraged fund, and lost my butt! Lucky I only gambled $1,080.
   Just trying to start a little discussion.

vand

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Re: Oil at $23
« Reply #1 on: March 23, 2020, 07:52:07 AM »
Yes, it's almost unbelieveable. As someone who looks at ratios a lot, it puts the gold/oil ratio at an amazing 66, whereas the typical range is 10-25 with the 25 usually considered expensive. This is not a 3 StdDev move, more like a 5 StdDev move!

I've personally stated accumulating the WisdomTree commodities fund in a very small way and also hold a fair few commodity stocks (which unsurprisingly have been smashed!), but I'm confident that they will recover as the world goes into QE-infinity and there is a rush for real assets.

WranglerBowman

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Re: Oil at $23
« Reply #2 on: March 23, 2020, 07:54:08 AM »
I also gambled 4-5 years ago on a 3x leveraged fund, and "lost my butt".  I dollar cost averaged into that fund when oil was $60, $50, $40/barrel and bought stock in oil companies thinking it was going to be a short blimp initially, most of those companies went broke.  I think cheap oil is here to stay now with so many alternatives looking more promising everyday, which I also support, and I severely underestimated fracking and cheap natural gas prices.  I do hope that these cheap oil prices don't discourage alternative energy innovation...

alcon835

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Re: Oil at $23
« Reply #3 on: March 23, 2020, 04:08:51 PM »
Agreed. Who knows what the Saudi's can actually do or how the post-coronavirus recovery will play out, but I'm betting pretty big on oil having at least a pretty sizable return to form in the next 12-18 months.

ice_beard

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Re: Oil at $23
« Reply #4 on: March 23, 2020, 04:23:32 PM »
I used to work in O/G in Alaska over ten years ago and so I've always kind of followed the industry a little bit.  There is a nice app called OilPrice and I've been reading is regularly for the past month or so.  Right now are fascinating times in O/G... 

Right now is like a global drama playing out in real time....  Russia and Saudi Arabia are trying to kill off the US shale industry for good (they've tried a couple times already) but at significant costs to themselves.  SA reportedly needs oil close to $100/barrel to meet their governments budget.  So $25 oil is going to kill them.  But they want to harm Russia now who refused to reduce production, so they are selling their oil to some countries in the middle east at 6-7$ a barrel cheaper than market rate!  Russia has apparently been building a slush fund to whether a low price storm.  US companies are slashing capex, capping wells and pulling out of the Permian Basin and other shale plays as fast as they can.  Everyone is waiting for the other to blink.  Many US oil companies are highly leveraged in debt, with some companies having their credit downgraded rated to junk.  However, some are in better shape. 

I've taken some nibbles already and am watching many companies...
XOM (they have to decrease their dividend, right?  Which will cost them their dividend aristocrat status!)   
EOG and CVX are supposedly some of the bigger players in better financial shape right now.  Not sure when to get in but it will happen.
BP, HES, COP, GPRK, MGY and CPE (my favorite penny stock to watch!) HAL are all on my watch list...  XLE is an ETF but the expense ratio is 0.13 which isn't terrible, but seems like a lot for a Vanguarder....  That might be the smartest/easiest play. 

I'm of the opinion there is still a lot of room for bloodshed even with prices as depressed as they already are, but global demand is currently falling off a cliff, so the short term outlook for oil is not good.  But this could change quickly if any sort of agreement on price controls were met and/or life gets back to semi-normalness at some point in time (maybe this summer?)  OPEC+ plans on meeting in June and some US representatives have been invited (sorry no link but just read that yesterday).  That seems like a lifetime away right now.   

I am a tree hugger at heart and I fear 99 cent gas (exists in Kentucky now) will not bode well for the future of electric cars.  But no one will be able to afford new big ass trucks either, so who knows how it will play out. 

Telecaster

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Re: Oil at $23
« Reply #5 on: March 23, 2020, 04:27:17 PM »
When oil crashes it can crash hard.  The producers see their incomes fall, so they produce more because they need the money, which pushes prices lower, so they produce more...the blood letting can go on for a surprisingly long time. 

BicycleB

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Re: Oil at $23
« Reply #6 on: March 23, 2020, 06:24:11 PM »
Posting because curious. @ice_beard, interesting post.

markbike528CBX

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Re: Oil at $23
« Reply #7 on: March 23, 2020, 07:30:37 PM »
Mostly PTF.    I bought PWE (now OBE) at 28. it is now less than 0.2.  What is worse, there have been reverse splts, so I can't even sell covered puts, as I'm less than 100 shares. So - 99.91%.
 
Me: It is an oil company, we are near PEAK OIL*, what could go wrong?


*March 2007.
I never believed in PEAK OIL, but I was willing to let people think so.
I remember reading a Mechanic's Illustrated from the early 1920's, where the PEAK OIL concept was floated.
Crap, I'm having to distinguish between 1920s and 2020, when I say the " '20s".   Maybe flappers as a style will come back.  The living room is already Art Deco.

markbike528CBX

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Re: Oil at $23
« Reply #8 on: March 23, 2020, 07:51:07 PM »
I used to work in O/G in Alaska over ten years ago and so I've always kind of followed the industry a little bit.  There is a nice app called OilPrice and I've been reading is regularly for the past month or so.  Right now are fascinating times in O/G... 

Right now is like a global drama playing out in real time....  Russia and Saudi Arabia are trying to kill off the US shale industry for good (they've tried a couple times already) but at significant costs to themselves.  SA reportedly needs oil close to $100/barrel to meet their governments budget.  So $25 oil is going to kill them.  But they want to harm Russia now who refused to reduce production, so they are selling their oil to some countries in the middle east at 6-7$ a barrel cheaper than market rate!  Russia has apparently been building a slush fund to whether a low price storm.  US companies are slashing capex, capping wells and pulling out of the Permian Basin and other shale plays as fast as they can.  Everyone is waiting for the other to blink.  Many US oil companies are highly leveraged in debt, with some companies having their credit downgraded rated to junk.  However, some are in better shape. 

I've taken some nibbles already and am watching many companies...
XOM (they have to decrease their dividend, right?  Which will cost them their dividend aristocrat status!)   
EOG and CVX are supposedly some of the bigger players in better financial shape right now.  Not sure when to get in but it will happen.
BP, HES, COP, GPRK, MGY and CPE (my favorite penny stock to watch!) HAL are all on my watch list...  XLE is an ETF but the expense ratio is 0.13 which isn't terrible, but seems like a lot for a Vanguarder....  That might be the smartest/easiest play. 

I'm of the opinion there is still a lot of room for bloodshed even with prices as depressed as they already are, but global demand is currently falling off a cliff, so the short term outlook for oil is not good.  But this could change quickly if any sort of agreement on price controls were met and/or life gets back to semi-normalness at some point in time (maybe this summer?)  OPEC+ plans on meeting in June and some US representatives have been invited (sorry no link but just read that yesterday).  That seems like a lifetime away right now.   

I am a tree hugger at heart and I fear 99 cent gas (exists in Kentucky now) will not bode well for the future of electric cars.  But no one will be able to afford new big ass trucks either, so who knows how it will play out.

I've heard (somewhere on this forum) that producers are sort of insulated by 1 to 2 year futures previously sold?       ------ Your ( @ice_beard  )thoughts?

Unfortunately for some of us (even forumites) June _may_ be a lifetime away.

Well, gas stations haven closed down yet, so road trip at 0.99USD/gallon?   
---- totally off topic, my keyboard 4,USD sign and cent sign are non functional (MPP, yes, I know).


ice_beard

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Re: Oil at $23
« Reply #9 on: March 23, 2020, 09:55:51 PM »
Let me preface this by saying I am no expert at this, but I'll give this a whirl.

First, I read this article about hedging a few weeks ago...
https://www.mercatusenergy.com/blog/bid/86597/the-fundamentals-of-oil-gas-hedging-futures

Basically, oil companies sell contracts to buyers at specific prices at specific times in the future.  Lots of companies know if the price of oil were to drop to $23, they would be in trouble fast.  So they take a risk and promise to sell x amount of oil at certain time in the future at a certain price.  It's not a bad deal for either side because each knows what they are going to get at what price. 

Right now, it's good for the oil companies, because their $23 oil is selling for whatever their contracts stated, probably $45 or higher, but the buyers (refiners?, airlines?) are overpaying.  Eventually those contracts will expire and new contracts will have to be re-negotiated.  This is where the pain gets really bad because oil is now selling for $23 and there is not a whole lot of oil that can be produced and be profitable at that price point.  It gets a lot more confusing with swaps and puts, but that's the general idea (I think).

Most oil companies have protected themselves against low prices by having contracts at profitable prices through a portion of 2020.  At some point though they will need new future contracts.  They know what price they need per barrel to be profitable but if Saudi Arabia and Russia still have their production taps flowing free, the global supply of oil is going to make for a very low price because supply is great and demand is projected to be low. 

It's interesting to see how much information analysts seem to have about oil companies, their holdings and their prospects for say the next six months.  They know how much each well produces, how much each barrel costs to produce and how much debt publicly traded companies have.  So it seems like it's not that difficult to know which ones will be profitable at specific prices.  The short version.... lots of American oil companies simply cannot be profitable with oil prices in the $20s, hence the collapsing share prices. 
« Last Edit: March 23, 2020, 10:15:56 PM by ice_beard »

MustacheAndaHalf

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Re: Oil at $23
« Reply #10 on: March 24, 2020, 12:39:46 AM »
I used to work in O/G in Alaska over ten years ago and so I've always kind of followed the industry a little bit.  There is a nice app called OilPrice and I've been reading is regularly for the past month or so.  Right now are fascinating times in O/G... 
Does that app graph when oil contracts are ending?  Or would that mean looking at the options market?

XOM (they have to decrease their dividend, right?  Which will cost them their dividend aristocrat status!)   
EOG and CVX are supposedly some of the bigger players in better financial shape right now.  Not sure when to get in but it will happen.
BP, HES, COP, GPRK, MGY and CPE (my favorite penny stock to watch!) HAL are all on my watch list...  XLE is an ETF but the expense ratio is 0.13 which isn't terrible, but seems like a lot for a Vanguarder....  That might be the smartest/easiest play. 
Looking at Energy Select ETF (XLE), it's 25% XOM (Exxon) and 25% CVX (Chevron).  Last year Vanguard started a $0 commission price war, and most companies followed suit.  At discount brokerages people can buy XOM or CVX for $0/share, and that's half of XLE.  I see other ETFs with 25% SLB (Schlumberger), which is similar.  To me, I want an ETF that buys lots of different companies to diversify against the risk of default.

I'm normally an index investor, but these times seem extraordinary to me.  I understand people want a greener world, but the reality is almost all cars on the road burn gas.  I don't expect oil producing countries to hold out forever at these low prices, although more drops are quite possible (didn't oil briefly drop below $20/barrel last week?).

I'm wary of predicting the oil industry - I thought after the U.S. killed Soleimani, chaos and shipping problems would push up oil prices.  Iran mistakenly shot down a civilian plane landing at it's own airport, and Soleimani was gone from the news.  My prediction was wrong - world events of greater significance can always unfold.  Well... maybe not when it's a worldwide pandemic.

If major consumers of oil get back to normal, I imagine oil demand will spike upwards.  I wonder if Saudi Arabia and Russia will continue their price war... but at a higher price point?

bigblock440

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Re: Oil at $23
« Reply #11 on: March 24, 2020, 06:50:50 AM »
snip
I'm wary of predicting the oil industry - I thought after the U.S. killed Soleimani, chaos and shipping problems would push up oil prices.  Iran mistakenly shot down a civilian plane landing at it's own airport, and Soleimani was gone from the news. 

It was worse than that, it was taking off from it's own airport.

familyandfarming

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Re: Oil at $23
« Reply #12 on: March 25, 2020, 08:07:31 AM »
PTF.

frugalnacho

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Re: Oil at $23
« Reply #13 on: March 25, 2020, 08:15:51 AM »
gas is $1.27/gal by me in metro detroit.  Insane.  I don't ever remember gas prices this cheap in my entire life. 

tedman

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Re: Oil at $23
« Reply #14 on: March 25, 2020, 08:44:48 AM »
I do accounting for an Energy company, we do electricity, fuel oil and natural gas. The issue right now is that, as far as I understand it, for a lot of companies who are using these contracts and futures to secure their supply for customers is that the market for say oil and natG are Complementary?? Someone check my Econ 101, and so when oil took a dump they started hedging NatGas and then the market goes bonkers which disrupts everyone.

The owner of my company has been doing this as an owner for 25 years, in total 35 years, lived through so much and they seem in full blown panic over this.

My 2C since I donít know what would be construed insider info is be very, very careful with BP. I probably donít know enough about gas/oil companies but then again, if you canít explain it to me in a way I can understand doesnít that portend bad things? My parents would say the same sort of things about how derivatives started getting used in the financial markets and look where that got us. Iím not saying Iím predicting the end of the world but something smells off about all these companies in Shale and when I look at their financials Iím going, how are you in business???
« Last Edit: March 25, 2020, 08:50:01 AM by tedman »

FreddieWinter

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Re: Oil at $23
« Reply #15 on: March 25, 2020, 09:14:23 AM »
I think oil will be 20$

MustacheAndaHalf

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Re: Oil at $23
« Reply #16 on: March 26, 2020, 03:43:28 AM »
The owner of my company has been doing this as an owner for 25 years, in total 35 years, lived through so much and they seem in full blown panic over this.

My 2C since I donít know what would be construed insider info is be very, very careful with BP. I probably donít know enough about gas/oil companies but then again, if you canít explain it to me in a way I can understand doesnít that portend bad things? My parents would say the same sort of things about how derivatives started getting used in the financial markets and look where that got us. Iím not saying Iím predicting the end of the world but something smells off about all these companies in Shale and when I look at their financials Iím going, how are you in business???
According to the Securities and Exchange Commission:
"Insider trading" refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.
https://www.sec.gov/Archives/edgar/data/25743/000138713113000737/ex14_02.htm

Sounds like you just avoid material, non-public information.  Better yet, discuss a different company that's common in a lot of oil ETFs (which I don't own).  Could you show me where I'm wrong about Schlumberger Ltd
(SLB)?
https://www.morningstar.com/stocks/xnys/slb/quote

On the "quote" page, SLB has a 0.85 price/book ratio
On the "financials" page, SLB shows a 0.64 debt/equity ratio

What I see is a company that could sell assets to cover debts, if needed.  But the oil market is quite bad at the moment, and assets would fetch far lower prices if sold, owing to a lack of demand.  So the "equity" and "book" values might be misleadingly low.  Lower equity means a higher debt/equity ratio.  But hopefully I can filter out bad companies using just morningstar data.

How would you improve this very basic thought process on evaluating SLB using only morningstar data?
(I don't care about SLB in particular - I'm open to better examples of companies in trouble, and showing it through their morningstar data)
« Last Edit: March 26, 2020, 03:46:09 AM by MustacheAndaHalf »

ChpBstrd

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Re: Oil at $23
« Reply #17 on: March 31, 2020, 09:23:36 PM »
If anyone is betting on reversion to some mean, please explain why the mean has anything to do with the price of oil in Saudi Arabia.

Telecaster

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Re: Oil at $23
« Reply #18 on: March 31, 2020, 09:39:30 PM »
I'm not betting, but oil ultimately has to be priced above the cost of production.  So eventually it will get there, otherwise there won't be any oil.  The problem is that states and companies need the money, so they continue to pump oil when it otherwise would make no business sense.  Eventually the weak actors will get killed and prices will return to normal.  Might be one year, more likely ten years before things return to normal. 

From a contrarian investing standpoint, it is best to invest when things are darkest.  Which might be right now.  But recognize things can stay in the crap pile for a very long time. 

MustacheAndaHalf

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Re: Oil at $23
« Reply #19 on: April 01, 2020, 12:46:57 AM »
If anyone is betting on reversion to some mean, please explain why the mean has anything to do with the price of oil in Saudi Arabia.
Taking Schlumberger Ltd (stock "SLB", which I don't own) as an example, the stock started 2020 near $40/sh and fell to $13/sh now.  COVID-19 means less travel, and an oil price war makes oil an unprofitable business - so the price drop makes sense.  But for the future, the world still depends on oil... COVID-19 will eventually be less severe... and the price war can't go on indefinitely.

I invested (elsewhere) owing to the COVID-19 drop.  But the price war changes the mean, so I'm not sure where things will revert to, ultimately.


bthewalls

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Re: Oil at $23
« Reply #20 on: April 01, 2020, 04:11:06 AM »
can anyone suggest a good oil based stock to buy?  is there an EFT in that?

bwall

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Re: Oil at $23
« Reply #21 on: April 01, 2020, 04:48:48 AM »
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

bthewalls

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Re: Oil at $23
« Reply #22 on: April 01, 2020, 04:54:49 AM »
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

frugalnacho

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Re: Oil at $23
« Reply #23 on: April 01, 2020, 06:49:18 AM »
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.   

ChpBstrd

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Re: Oil at $23
« Reply #24 on: April 01, 2020, 07:43:08 AM »
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.

Or oil could go the way of whale oil for lamps or coal for powering steam trains. Electric cars are approaching cost parity with oil, and the COVID 19 pandemic has exposed just how much office space and commuting are unnecessary in the age of Microsoft Teams, Zoom, and Go To Meeting. All things cheap could get cheaper.

bthewalls

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Re: Oil at $23
« Reply #25 on: April 01, 2020, 08:02:06 AM »
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

bwall

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Re: Oil at $23
« Reply #26 on: April 01, 2020, 08:35:16 AM »
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

MustacheAndaHalf

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Re: Oil at $23
« Reply #27 on: April 01, 2020, 08:45:53 AM »
Yes it's April 1, but the chance of oil going negative was mentioned days ago, and won't stop today.
https://www.cnbc.com/2020/04/01/coronavirus-oil-prices-could-turn-negative-as-storage-nears-capacity.html
Within a few weeks, oversupply of oil and COVID-19 driven drops in demand could result in oil storage reaching 100% capacity worldwide.  It's unclear what happens then - oil could go negative, since there's no demand and no place to put it.  So besides oil staying low, it could go lower, or even negative, according to analysts.

I agree with a goal of electric cars, but reality is very few vehicles are plug-in electric.  It will be a long time before electric car sales equal gas powered - let alone replacing them.  During that whole time, cars need oil.  I think the question isn't if oil can go away in the future, it's when.

bthewalls

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Re: Oil at $23
« Reply #28 on: April 01, 2020, 10:13:30 AM »
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

whys that bwall?  you dont think it'll jump up again in the next while?

bwall

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Re: Oil at $23
« Reply #29 on: April 01, 2020, 10:38:53 AM »
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

whys that bwall?  you dont think it'll jump up again in the next while?

Oil stocks and spot oil price is tough for me to gauge. I'm wrong more often than I'm right, I feel. However, right now there is an oversupply on the market and I don't see that going away.

If you don't know the what the phrases 'contango' and 'backwardation' mean and can't explain them to a 5 year old, then I would highly recommend staying away from oil stocks.

bthewalls

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Re: Oil at $23
« Reply #30 on: April 01, 2020, 10:41:16 AM »
no, im happy enough to trade it for short term fun. 

suggestions for decent oil stock anyone?

I can't think of any oil stock that I would buy for any reason whatsoever.

whys that bwall?  you dont think it'll jump up again in the next while?

Oil stocks and spot oil price is tough for me to gauge. I'm wrong more often than I'm right, I feel. However, right now there is an oversupply on the market and I don't see that going away.

If you don't know the what the phrases 'contango' and 'backwardation' mean and can't explain them to a 5 year old, then I would highly recommend staying away from oil stocks.

cool..ta v much...will do

use2betrix

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Re: Oil at $23
« Reply #31 on: April 01, 2020, 06:30:27 PM »
Oil is low and going to stay low for awhile, imo.

Upthread someone mentioned the Saudi-Russian price war with the aim of knocking out US shale. One huge side benefit for the Saudis is that low oil prices also severely hurt their regional competitor, Iran. The Iranians have difficulty selling oil on the international market due to sanctions. Only the Chinese (and Indians?) will buy from them and then only at a significant discount to the world market price. Due to sanctions the Iranians cannot sell oil futures in New York or London. Of course they can enter into a futures contract with a set price with the Chinese government, but.... maybe the Chinese gov't doesn't want that? Not so easy for the Iranians.

With all the COVID induced shut-ins, etc. a lot less oil is being consumed every day, pretty much all across the world. So, the pipelines are going to get backed up and storage facilities filled b/c it's not so easy to stop pumping from one day to the next.

Thus there's lots of $20 oil in storage now that has to drawn down before the price can rise. Not going to happen within the next 6-12 months without a supply disruption.

totally agree.  asked on another thread, but whats a good oil stock to buy (dont know much about)?  it can only go up over time....at some point after our life time oil will become a precious substance due to dwindling reserves...

Will it though? I've been hearing the exact same argument since I was in elementary school (37 now) and gas is the cheapest it's ever been in my life time.  It was $1.19/gal this morning on my drive to work.  Maybe 30 years from now it will be even cheaper for a whole variety of reasons and people will still be talking about how "it can only go up" because it's a limited and non-renewable resource.

But in your lifetime (just 12 years ago) oil was a staggering $165/barrel.

I could certainly see oil going lower, however where it sits right now few, if any companies or countries can be profiting off $23/barrel oil. Eventually, a demand will be created and the only companies to meet it will be the select few companies (and countries) who can handle this current downfall.

You also have to remember that there are many major oil and gas companies that do more than just ďdrill for oil.Ē You have the 3 major divisions, Upstream (drilling), Midstream (transporting, i.e. pipelines), and Downstream (Refineries). Many of these companies are diverted in two or even three of those different divisions of the oil and gas sector.

Not only that, is many of these companies do more than just oil. There are ethane crackers going up all over the country that manufacture resins/plastics. These ethane crackers require ethane to operate, which is transported through a pipeline.

My guess is that prices slowly bounce back to around $35-$40/barrel within the next 12 months. The longer it lasts, the more itís going to keep bankrupting the smaller producers, which is going to increase prices in the long run.

Our country really needs to harness nuclear power better, however the regulations are so incredibly severe in new construction of nuclear power plants (Iíve worked on one) that they are becoming nearly impossibly to justify the cost.

FatFI2025

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Re: Oil at $23
« Reply #32 on: April 01, 2020, 08:11:20 PM »
I have a bit of speculation money allocated and I bought DBO around $6. Like a few of the other posters, I've been slammed by oil in the past and wouldn't be surprised if it happened again!

ice_beard

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Re: Oil at $23
« Reply #33 on: April 02, 2020, 08:35:06 AM »
Man, this stuff is volatile!!
I was prepared to place some buys this morning but not now.  Word that China was going to make a big purchase to top off its reserves and most OG companies are up +10%!!



vand

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Re: Oil at $23
« Reply #34 on: April 05, 2020, 09:40:14 AM »
Probably a good chance we have seen the bottom.

You know that when people are talking about a negative price and paying people to take the stuff off your hands that the last bull has turned bear... I mean WHY would you pay someone to take it off your hands? Just stop pulling it out of the ground before then.. duh!

ice_beard

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Re: Oil at $23
« Reply #35 on: April 05, 2020, 12:06:43 PM »
Bottom now??  After a massive two day rally sparked by the Twitterer in Chief throwing out some unrealistic promises?  Prediction: Monday/Tuesday are going to be brutal for oil.  SA and Russia were supposed to meet on Monday but Russia angered SA somehow and the meeting got pushed back until Thursday.  The US will never agree to broad-based production cuts because it somehow goes against freedom or is socialist or some other redneck bullshit, so the number of smaller producers who will likely face bankruptcy will increase.  Whiting was the first last week.  Who is next?   

It's not that easy to just stop pumping oil.  It costs a lot of $$ to shut in a well and a lot more to bring it on-line in the future when prices are higher.  There is a lot of emphasis on keeping currently producing wells/sectors producing at the minimum needed to keep the things open.  Pipelines need a certain amount of volume in them to keep flowing.  You can't just stop pumping and putting oil into a sophisticated system like TAPS (Trans-Alaska Pipeline System) hence they need to keep producing oil even though it costs them ~$55/barrel and it's only selling for $23. 

Maybe prices won't crater, but at some point those hedges for 2020 are going to expire. 
Did anyone see the price spikes for oil tanker companies?  That was interesting. 

markbike528CBX

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Re: Oil at $23
« Reply #36 on: April 05, 2020, 02:01:52 PM »
Me 2007 or so : oil tanker company, what could go wrong?
Me 2020 TK down 95%. 
But back when I could be bothered to read annual reports, I remember that they had a side line of turning old tankers into off-load/storage terminals.

Edit, spelling, verb case has, had

4/6/20 Update:  TK only -93.49% now!  Whoohoo!
« Last Edit: April 06, 2020, 01:53:59 PM by markbike528CBX »

effigy98

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Re: Oil at $23
« Reply #37 on: April 05, 2020, 03:42:44 PM »
Been buying some tanker stocks and they have great dividends. That oil has to go somewhere and they are not going to stop pumping it in Russia (too expensive to stop). The Shale in North America is going to go out of business, then the rest of the world is free to jack up oil and we will see price spikes with inflation once that plays out in a year or two.

bwall

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Re: Oil at $23
« Reply #38 on: April 05, 2020, 05:26:05 PM »
Been buying some tanker stocks and they have great dividends. That oil has to go somewhere and they are not going to stop pumping it in Russia (too expensive to stop). The Shale in North America is going to go out of business, then the rest of the world is free to jack up oil and we will see price spikes with inflation once that plays out in a year or two.

I don't see price spikes happening anytime soon. There is huge decrease in demand due to COVID-19. Lots of people stopped driving and this won't be changing anytime soon. The oil still flows in the meantime. Stable supply and decrease demand means the price will be low for a long, long time.

Added side effects; Iran and Venezuela sweat, as do their benefactors; (Hezbollah, militias in Iraq, Cuba). Maybe the world becomes more peaceful?

Alternatepriorities

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Re: Oil at $23
« Reply #39 on: April 05, 2020, 07:05:29 PM »
Man, this stuff is volatile!!
I was prepared to place some buys this morning but not now.  Word that China was going to make a big purchase to top off its reserves and most OG companies are up +10%!!

Gas is volatile? Who knew :)

This thread is of particular interest to me with my state's economy do dependent on oil... And energy is my only experiment in sector investing... Seemed like the price of energy was unreasonably low when i bought in and I figured owning some of the means of production would be a good hedge against rising fuel prices. Now it's even lower and I did't really consider the state's economy when I came up with the hedging idea. Deciding if I should buy more or if I have enough eggs in this basket.

Today I built a spread sheet to calculate the value of the wood 70 year old father is heating his house with. At current prices it's really questionable. Basically he can save about $150 by cutting, splitting, stacking, and then burning a cord of spruce.

Financial.Velociraptor

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Re: Oil at $23
« Reply #40 on: April 06, 2020, 08:53:19 AM »
Oil back down today but Henry Hub price for nat gas finally showing some life at 1.71/MMBtu - https://markets.businessinsider.com/commodities/natural-gas-price

The most efficient gas drillers will soon be putting on their break even hedges again. 

MustacheAndaHalf

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Re: Oil at $23
« Reply #41 on: April 06, 2020, 11:40:41 AM »
COVID-19 has ensured oil demand has plummeted, right as Saudi Arabia began flooding the market as part of a price war with Russia.  Because of the two unusual circumstances coinciding, oil storage on land is filling up fast.  And yet existing producers and just pumping more oil, with no one using it and nowhere to go.

That's why you're seeing tankers and tanker stocks come back to life: the tankers are going to be used to store the oil, not transport it.  They have contracts to fill up with oil, but no destination for it.

I'm not clear if China or U.S. have begun buying oil for their strategic reserves - there were hints of it.  If that happens, it opens up more oil storage and delays the inevitable "all oil storage full" moment.  When that happens... when all oil storage is full of oil, the price of oil could fall again.

As countries leave COVID-19 inspired lock downs (like China), oil demand goes up.  If Saudis and Russians agree on oil supply cuts, oil prices go up.  But if diplomacy doesn't work, and China/U.S. both wait to buy oil for their reserves, it's possible oil could drop below $20.  It all depends which events play out in what order.

ice_beard

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Re: Oil at $23
« Reply #42 on: April 12, 2020, 10:23:36 PM »
What is going to happen this week? 
An agreement was apparently made for future cuts but right now demand remains low and supply is still high. 

Kyle Schuant

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Re: Oil at $23
« Reply #43 on: April 12, 2020, 10:36:12 PM »

bwall

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Re: Oil at $23
« Reply #44 on: April 13, 2020, 04:30:31 AM »
Look for US shale companies to cap their wells and buy oil on the spot market to fulfill their futures contracts. This keeps the oil in the ground to extract another day when prices are higher.

Seen from another point of view, since all US shale is privately held, it will keep a lid on prices ever getting too high again. A price increase simply draws US shale into the market.

alcon835

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Re: Oil at $23
« Reply #45 on: April 13, 2020, 12:52:55 PM »
It's going to be an interesting couple of months for sure....

MustacheAndaHalf

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Re: Oil at $23
« Reply #46 on: April 14, 2020, 12:01:05 AM »
Thread title still relevant: WTI Crude  $22.61, according to my search for "oil price".

https://oilprice.com/Energy/Crude-Oil/The-Sad-Truth-About-The-OPEC-Production-Cut.html
"... global supply is to be cut by (sort of) 10 million barrels per day (bpd) whilst global demand has fallen by around 30 million bpd. That is really all anyone needs to know ..."

Kyle Schuant

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Re: Oil at $23
« Reply #47 on: April 14, 2020, 03:43:45 AM »
A price increase simply draws US shale into the market.
Yeah maybe over $100 a barrel. Good luck with that in a multi-year recession.

https://www.reuters.com/article/us-global-oil-twitter/troll-no-more-energy-twitter-groups-big-short-on-shale-comes-good-idUSKCN21W0E7

bwall

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Re: Oil at $23
« Reply #48 on: April 14, 2020, 04:48:25 AM »
A price increase simply draws US shale into the market.
Yeah maybe over $100 a barrel. Good luck with that in a multi-year recession.

https://www.reuters.com/article/us-global-oil-twitter/troll-no-more-energy-twitter-groups-big-short-on-shale-comes-good-idUSKCN21W0E7

I assume you mean a multi-year recession in the oil patch? Since no one is talking about a multi-year general recession.

The US created shale production from nothing. Literally. They invented everything needed to produce shale oil and gas where none was produced before--technology, process, know-how, not to mention built/re-purposed the equipment necessary, built the pipelines, got financing, everything.

So why would a multi-year recession in oil prevent US shale from returning? Why is simply re-assembling the pieces harder than creating them from scratch? What am I overlooking?

Kyle Schuant

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Re: Oil at $23
« Reply #49 on: April 14, 2020, 10:39:16 PM »

I assume you mean a multi-year recession in the oil patch? Since no one is talking about a multi-year general recession.

No, but they should be. You can't have unemployment of 10-15% and expect it to bounce back under 5% in a year. It's typically five years or so. This is particularly so when you're loaded with debts. This leaves you with monetary policy, aka printing money.

Across the West, governments are tossing money at people to try to soften the recession. But this is of limited utility when people are locked inside and not allowed to go out and spend it anyway. They'll have to wait 6 months or more to be able to spend that money, and maybe they lost their job in the meantime, so they'll hold onto that money and spend it in dribs and drabs - recessions cause people to save rather than spend, thus deepening and lengthening the recession.

This is going to be years.

Quote
The US created shale production from nothing. Literally. They invented everything needed to produce shale oil and gas where none was produced before--technology, process, know-how, not to mention built/re-purposed the equipment necessary, built the pipelines, got financing, everything.

Yes. That's one of the reasons it's so unprofitable. The other main one is the shitty EROEI.

Quote
So why would a multi-year recession in oil prevent US shale from returning? Why is simply re-assembling the pieces harder than creating them from scratch? What am I overlooking?

Because,

Firstly, as you mentioned, "know-how" - you take a skilled person and make them unemployed for a couple of years, they go and find work in a different field, making it a LOT harder for you to restart things later, as from the article below,

"They wonít be fracking many wells for the rest of the year," said Davis, who after 16 years in the oilfield would now consider work outside the oil business. "I canít wait around for the industry to come back," he said.

Secondly, with a long recession, the oil price stays low throughout, and

Lastly, in the meantime, these companies still have to pay their debts. But they now have no income. That's called insolvency.

Now, normally when a company can't pay its debts, the creditors seize the assets and liquidate them. But absent $100/bbl demand for oil, shale oil assets don't have much value. So that's bad debt that'll have to be written off. Now, can you recall another instance when the US faced a significant amount of bad debts that had to be written off, and what happened? Oh yes, the GFC. And so we're back to a recession.


Ask yourself why Russia and KSA have now come to an agreement about cutting oil production? Two reasons:

1. the virus lockdowns have killed demand, dropping the prices lower than they'd planned for in a price war, and

2. one of the main aims of the action, killing US oil and thus the US economy (just as the US/KSA did to the USSR in the 1980s), has already been achieved, or will be over the next twelve months.

More:- https://www.reuters.com/article/us-global-oil-shale-bust-insight/oil-in-the-age-of-coronavirus-a-u-s-shale-bust-like-no-other-idUSKCN21X0HC
« Last Edit: April 15, 2020, 12:56:29 AM by Kyle Schuant »