The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: DrF on November 04, 2014, 08:42:08 AM
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I was going to post this in the day trader's thread, but thought it might get lost there.
Anyone here trade commodities, oil specifically, that could provide some good rationale on when to get in on the price of oil?
I know oil is not very Mustachian, but getting FI is. Also, taking a long position in oil (driving up the price so that it is more expensive for everyone to use), seems pretty Mustachian to me. If I can make a profit while doing so, well I am very comfortable with that.
1. Will oil go lower first?
2. DCA into an oil ETF?
3. Should I hedge (how would I do that)?
4. Stop loss at a % (what %)?
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LOL, can you just write me a check instead of wasting your money on this trade?
Let me share with you a trader's secret: nobody knows what's going to happen in the future. Nobody.
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Only the King of Saudi Arabia knows that answer. Currently he seems intent on putting the squeeze on the rest of OPEC and anyone else who thinks they want to be in the oil business.
If you read the glut of stories on oil today, the break-even price for the US producing its own oil is between $70-$80, which is pretty much where we are at now. I'm guessing this is the motivation for the question in the first place.
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Right now the US and Saudi Arabia have decided to put the squeeze on Iran/Russia.
Even though there is only limited oil coming from Libya/Iraq, there is an excess of oil in the market and it is causing the drop in prices.
Iran needs oil to be $120/barrel to run the country.
My feeling is that the US/Saudi squeeze will not stop till $60/barrel.
Again, this is what I think, who knows what will happen.
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I would avoid trying to catch a falling knife.
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Right now the US and Saudi Arabia have decided to put the squeeze on Iran/Russia.
Even though there is only limited oil coming from Libya/Iraq, there is an excess of oil in the market and it is causing the drop in prices.
Iran needs oil to be $120/barrel to run the country.
My feeling is that the US/Saudi squeeze will not stop till $60/barrel.
Again, this is what I think, who knows what will happen.
This is the way I see it as well. This whole thing is a Saudi / US collusion that I believe specifically targets Russia, Venezuela, and Iran. These countries all need oil over $100 to run profitably and continue expansion on social programs, military spending, and political corruption. If oil stays at the $80 mark for even a couple years it might be painful for US & Canadian producers and the Saudi budget, but it almost guarantees a regime change in Russia and social unrest "Arab spring style" in Venezuela and Iran. Its an easy way to kill three enemies with one stone and come out strong at the end of the day.
I would never invest in a commodity because they are too volatile. I'm sworn to indexing, but if you like to gamble invest in an oil company...maybe? I believe the chances for success are better as some oil companies can produce profitably at $50 a barrel, others need $75-$80 a barrel, but all will get clobbered based on the price of oil.
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The only trading I do on oil prices is delay filling up if it looks like they're going down. It's my little 50 cent gamble and I wouldn't want to spend more than that.
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LOL, can you just write me a check instead of wasting your money on this trade?
Let me share with you a trader's secret: nobody knows what's going to happen in the future. Nobody.
Wait, aren't you the stock picking proponent on this board? Or are you just saying nobody knows 100%?
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I am a trader but I don't predict the future. There are ways to make money in the market without knowing what going to happen. I may have an edge but the win rate may be 50% or less. I wouldn't exactly say that gives me any certainty as to what is going to happen in the future. Some systems may have win rates up to 70-80%, but even then, on an individual trade basis, it's totally random as to whether it could be a winner or a loser.
Therefore it's foolish for someone to say 'oil is going to bottom at $75.' Nobody can know that, as it's just 1 individual trade. Your methodology might say that there's a good chance that oil bottoms at that price, but you can't be for certain. What this poster wants is for someone to tell him that oil will bottom at a certain price and then he's gonna put a big chunk of money on that bet. But no matter how certain you think you are, anything can happen on this individual trade. How much are you willing to lose if you're wrong?
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I don't really care what the price ends up being at the bottom, what I'm really after are people's opinions on whether or not oil will go back up. Obviously oil is an important commodity for everyday modern life. So, if this is just an over correction, then oil will go back up. If oil goes back up to even $85 in the next 6 months, I've made a >10% profit. So, if I DCA into a position then I can assure that I'm not going to get snagged with too many losses right up front.
It is intellectually interesting to speculate on what is happening with a commodity that has geopolitical and financial implications. If I can make a buck doing it, then I'm all in.
MMM likes to pontificate on the impact of oil (http://www.mrmoneymustache.com/2012/11/05/mmm-interviews-ere-on-peak-oil/)!
The stock market fluctuates, commodity prices fluctuate, and sometimes we can take advantage when prices over correct. I think this may be one of those times.
Ooops, did I just accidentally call the bottom yesterday?
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My crystal ball says around 40 a barrel. I read a piece by a respected oil forecaster today. He wrote it in December 2013. He basically predicted $110 a barrel at this point. I certainly couldn't be more wrong than him.
Here is why I say 40. Although we use more oil now than in 2008 we (us) no longer use much for power plants or heating. Car driving drops worldwide during the late winter months Jan - Feb.
Production keeps increasing in the US while most of the world remains in the great recession mode.
The Saudis have to keep pumping in order to pay their debts. The statement that it costs $50 to pump a barrel of oil is complete BS. The cost of the infrastructure stays the same no matter what the price is, so one needs to keep pumping. What costs the 50-60-70-80 a barrel is new drilling. That will most definitely slow.
As always, I could be completely wrong on this but it was just a few years ago that they said it could never go above 40 and 100 was just too incredible to imagine.
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I'm of the camp that I don't invest in commodities because I don't want to invest in the time and energy to figure out what's going on in that industry. And one of the best ways to figure out what's going on in that particular industry is to work for that industry, but then you've already got a high exposure to that industry because it's your employer...
Your best "hedge" is to invest in the ETFs that are broad spectrum. i.e. VTSAX or what have you.
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I don't really care what the price ends up being at the bottom, what I'm really after are people's opinions on whether or not oil will go back up. Obviously oil is an important commodity for everyday modern life. So, if this is just an over correction, then oil will go back up. If oil goes back up to even $85 in the next 6 months, I've made a >10% profit. So, if I DCA into a position then I can assure that I'm not going to get snagged with too many losses right up front.
It is intellectually interesting to speculate on what is happening with a commodity that has geopolitical and financial implications. If I can make a buck doing it, then I'm all in.
MMM likes to pontificate on the impact of oil (http://www.mrmoneymustache.com/2012/11/05/mmm-interviews-ere-on-peak-oil/)!
The stock market fluctuates, commodity prices fluctuate, and sometimes we can take advantage when prices over correct. I think this may be one of those times.
Ooops, did I just accidentally call the bottom yesterday?
It may very well be that oil bottoms soon, but how you structure the trade will determine if it will ultimately be profitable. The thing about a lot of commodities, and oil specifically, is that it's not like you can buy the spot price today, watch the spot price go up 10%, and expect that to be your return. Commodities are bought and sold as futures contracts, with beginning and expiring dates. There's a contract that expires every month. And, because it cost a lot of money to store oil, the future month is probably going to be a little more expensive than the current month. Since you can't just buy and hold a commodity contract forever (since it expires), you'll constantly have to sell the current contract and buy the future one. If the market is in contango http://www.investopedia.com/terms/c/contango.asp then you'll constantly be buying the future month contract at a higher price, and losing money each month as the price falls to the spot price. (I think I've got this right. I've never bought a futures contract for more than a few hours, but I've read a lot about it)
So you say, well who cares about futures contracts, I'll just buy the ETFs. Well what do you think the ETFs are buying? Futures contracts. And losing a bunch of investors' money in the process. Read more here: http://www.followingthetrend.com/2012/08/how-to-rob-commodity-investors/ and http://www.followingthetrend.com/2014/01/etfs-are-not-what-you-think-they-are/ and http://www.followingthetrend.com/2014/02/term-structure-the-forgotten-piece-of-the-puzzle/
There's really no great way that I know of off the top of my head to structure the trade to where you won't lose your butt if oil continues to fall or just hangs out, going nowhere for a while in contango (maybe some sort of option on the spot price?). Look at the longer term charts on UNG, the natural gas ETF. Say at the end of 2008 you thought natgas was a smoking deal. It was down over 30% from the highs I think. You go out and buy UNG as a "long term hold." The spot price has fallen another 45% since then but the ETF is DOWN 88%. During that time you also plan to DCA? Just throwing money down the drain.
Trust me, I was one of the idiots that didn't understand commodity ETFs and bought some in '09. After losing enough money I said forget it, then I educated myself on how they work. About the only physical commodity ETF I'd consider as an investment is one where they take physical possession of it (like GLD or SLV) or one where they invest in actual companies in the commodity space (like XLE).
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It's interesting and amusing watching people jump from one hot investment to another.
Today it's apparently shorting oil. That reminds me, it's been awhile before we had a good bitcoin thread.
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It's interesting and amusing watching people jump from one hot investment to another.
Today it's apparently shorting oil. That reminds me, it's been awhile before we had a good bitcoin thread.
All aboard the real estate train! Choo choo!
;)
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I think most people shouldn't invest in RE.
But if you do, definitely don't hop in and out! (A business - like rehabbing - aside, I'm talking strictly as an investment.) :)
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it's been awhile before we had a good bitcoin thread.
There's a good reason for that! The speculative fever is gone along with a trail of tears... http://bitcoincharts.com/charts/bitstampUSD#rg730ztgCzm1g10zm2g25zv
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Buy an integrated oil company stock. If prices fall, they clean up on refining. If prices rise, they mint money in the upstream. Brilliant.
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Buy an integrated oil company stock. If prices fall, they clean up on refining. If prices rise, they mint money in the upstream. Brilliant.
What if demand falls? Lol just joking!
I think most people shouldn't invest in RE.
But if you do, definitely don't hop in and out! (A business - like rehabbing - aside, I'm talking strictly as an investment.) :)
I bet you enter and leave your real estate almost everyday. Hippo crite
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Tough to say where it will bottom out but I would think we are getting close. At 60$ a barrel many of the small guys will just stop production as their cost is that close. The squeeze is really affecting Canada's economy so hopefully it will rebound soon enough.
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Before I even posted this query I read a bit on what the pundits thought was going on.
This paragraph struck me as *possibly* being correct, and as to why we would see a rebound shortly. Pulled from this article (http://seekingalpha.com/article/2566465-5-reasons-the-oil-sector-is-due-for-a-big-rebound).
"Here are a few other points to consider which also make the recent oil sector crash appear to be overdone: The oil price may have overshot to the downside because of traders in the futures market. With oil futures it is possible to control about $85,000 with only around $2,000. That is a huge amount of leverage, which can really accelerate losses when markets plunge. If there has been a significant amount of forced or fear based selling in the oil market, the current price may not last long and rebound soon. Many small oil companies have hedges in place, which means that unless the decline in oil is sustained for many months, the impact from the recent drop could be fairly immaterial. Also, some smaller oil companies are growing so fast that production is increasing at levels that offset any price reductions. Major oil companies can also choose to increase production in order to offset any profit margin loss. Also, consumers are likely to quickly increase oil usage when prices drop and this could end up taking a significant amount of supply off of the market."
I attached a screen-shot of one major oil ETF over the past year and also 3 months. Pretty accelerated drop there, maybe caused by traders covering their position? When that happens, once it gets cleared out we should see a nice bump (IMO).
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Let us know how that crystal ball of yours works out.
-W
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Ok, so how are you gonna play the 'bounce?' Look at these 2 charts:
http://www.barchart.com/chart.php?sym=CLZ14&t=BAR&size=M&v=2&g=1&p=MN&d=X&qb=1&style=technical&template=
http://www.barchart.com/chart.php?sym=USO&t=BAR&size=M&v=2&g=1&p=MN&d=X&qb=1&style=technical&template=
The most popular ETF for oil is USO. It's really not much higher than the lows in 2009. It's just a horrible investment unless the term structure for oil futures is in your favor.
You gonna buy some barrels and put them in your garage?
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As recently as January 2009 it was as low as 36.51. Inflation hasn't added up to more than 20% since then and most of that inflation is directly attributed to oil prices themselves.
Add that to the fact that US production and Russian energy production has increased dramatically since 09. Add again that the rest of the world is in recession. Add again that Russia and Saudi "need" the cash flow to remain solvent and to keep their people happy, and you can see that there is really no reason that prices cannot plummet from here.
What is amazing is that oil prices have stayed as high as they have with the US pumping it like crazy now and adding natural gas at a massive pace. (can you say price fix?)
Don't feed into those "cost of production" bs lines. No one is every going to fully be honest about their cost of production. It is a poker game and their all liars. You'll know their true cost of production when they actually quit pumping. Which should be right around $40. Then they'll deal another hand and start the game over.
Hope I'm right! would love to see $1.50 on a gas pump. Probably wrong as usual.
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Ok, so how are you gonna play the 'bounce?' Look at these 2 charts:
http://www.barchart.com/chart.php?sym=CLZ14&t=BAR&size=M&v=2&g=1&p=MN&d=X&qb=1&style=technical&template=
http://www.barchart.com/chart.php?sym=USO&t=BAR&size=M&v=2&g=1&p=MN&d=X&qb=1&style=technical&template=
The most popular ETF for oil is USO. It's really not much higher than the lows in 2009. It's just a horrible investment unless the term structure for oil futures is in your favor.
You gonna buy some barrels and put them in your garage?
I think this chart illustrates the point I am trying to make a bit better. If we see a bump up to ~35, then that's a pretty sweet profit in little time/effort.
http://www.barchart.com/chart.php?sym=USO&t=BAR&size=M&v=2&g=1&p=WO&d=X&qb=1&style=technical&template=
Oil seems to be near it's cyclical bottom. Link to a bunch of mumbo jumbo technical indicators supporting this (http://etfdailynews.com/2014/11/06/are-commodities-at-a-major-turning-point/)
Plus supply doesn't seem to be all that more than usual per http://seekingalpha.com/article/2576505-3-reason-to-buy-the-bottom-in-crude
-inventory image attached
So...all I'm saying is that I think** that maybe** oil is going to correct soon** and if you bought an ETF with a little bit of cash dedicated for riskier type investment stuff... well you probably could do a lot worse.
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Well if you're just dead set on this, and even though you are choosing a poor method (USO), at least size it and risk/reward it like a real trader would.
A real trader would look at where it is now ($30), look at the potential profit (you say $35), and determine that you need at least a 1:3 risk/reward ratio to make it worth it. That means your reward is $5, divide that by 3 and you get $1.67 as your risk. So subtract $1.67 from $30 and $28.33 would be your stop loss if you are wrong. If USO trades below $28.33, you sell. Once it hits $35, you sell. Never let it turn into an investment as USO is a piss poor investment vehicle.
As for position sizing, a real trader would never risk more than 1-2% of his account on any 1 trade. So if you have a $10k account, that means you'd risk no more than $200. Divide $200 by your $1.67 risk and you get 119 shares of USO that you'll buy.
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Finally!!!
Some actual advice. Thank you hodedofome for that reluctant tidbit. Very succinct explanation on how to structure the trade, I appreciate it.
Is there a better vehicle (pun intended) other than USO to take advantage of spot oil/oil futures?
Just curious if I have swayed anyone?
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ROFL. "I don't even know how to execute this trade. Who's gonna jump in with me?"
-W
Is there a better vehicle (pun intended) other than USO to take advantage of spot oil/oil futures?
Just curious if I have swayed anyone?
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I don't really care what the price ends up being at the bottom, what I'm really after are people's opinions on whether or not oil will go back up. Obviously oil is an important commodity for everyday modern life. So, if this is just an over correction, then oil will go back up. If oil goes back up to even $85 in the next 6 months, I've made a >10% profit. So, if I DCA into a position then I can assure that I'm not going to get snagged with too many losses right up front.
It is intellectually interesting to speculate on what is happening with a commodity that has geopolitical and financial implications. If I can make a buck doing it, then I'm all in.
MMM likes to pontificate on the impact of oil (http://www.mrmoneymustache.com/2012/11/05/mmm-interviews-ere-on-peak-oil/)!
The stock market fluctuates, commodity prices fluctuate, and sometimes we can take advantage when prices over correct. I think this may be one of those times.
Ooops, did I just accidentally call the bottom yesterday?
Whether it will go up? Almost definitely yes (my opinion, anyway).
When it will go up? Anyone's guess.
Personally, I think 70-80 is a likely low range. It may dip below that, but on a 5-10 year horizon, I see demand being higher than that.
Regardless of my "guess" (which is exactly what it is), the real question is whether oil/energy stocks are a good value. In that area, it's a definite yes. A 20% dip since summer is undoubtedly a better value. The only reason that I can predictably see it wouldn't work is if oil stays depressed for an extended period of time (as in constantly low for next several years)... my bet is it will not.
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ROFL. "I don't even know how to execute this trade. Who's gonna jump in with me?"
-W
Is there a better vehicle (pun intended) other than USO to take advantage of spot oil/oil futures?
Just curious if I have swayed anyone?
I believe this ^^ is referred to as a false analogy.
You are completely evading the underlying argument.
Here I thought I was posting an investment idea/question in a forum that supports out of the box thinking. I guess I was wrong. Everyone!!, back to your boxes.
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How is speculating on something that is inherently unpredictable "out of the box thinking"? I can do that by playing the lotto. Lots of out-of-the-box thinkers out there, I guess.
TANSTAAFL. You might make a fortune. But you're taking a big risk and the odds aren't in your favor.
-W
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(http://img.pandawhale.com/post-36877-agree-to-disagree-gif-Anchorma-kFLi.gif)
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I had this same thought process back in the fall of 2008 as oil had fallen off its peak by about 50% and I didn't think it had anywhere to go but up. I was new to investing and was eager to pick winners. Boy was I wrong. I kick myself every day for not taking the thousands I gambled in OIL and USO and just put it in VTI.
Even as oil did finally start to go up, I still got hammered by a futures phenomenon known as contango. Look it up. It's brutal when future demand is greater than current demand. Traders were renting out oil tankers, filling them with oil at current prices, parking them off the coast, and then selling the oil for a huge profit xx months later. Seeing as I couldn't afford to buy thousands of barrels of oil and rent a tanker, I couldn't profit from the contango and watched USO continue to slip or go sideways as the price of oil rose.
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Commodity trading is pure speculation. If you want to hold a portion of your portfolio in commodities (5%-15%) for diversification purposes, that's a different matter. But what you're talking about is pretty much a recipe for losing money. However, if you're dying to gamble on oil I'd put my money in the Vanguard Energy ETF (VDE) which holds 150+ oil and gas stocks and will see fluctuations according to the price of oil but will also produce dividends and (hopefully) larger capital increase than a fund which holds only commodity futures.
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What Saudi Arabia and OPEC are trying to do is akin to what the Japanese and Chinese did to the steel industry back in the 70s and late 80s.
They're "dumping" crude into the markets at a loss to artificially lower prices in order drive the U.S. fracking industry out of business.
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I bought some shares of VDE. Have we bottomed -> who knows. If it goes even lower with OPEC meeting this week - I'll buy more. Be it as it may - A LOT of the oil companies stock are "for sale" and the majority pay nice steady dividends. So, at the end of the day - pretty safe bet. Definitely much safer than that BABA stuff...
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Bought gas for $2.45 today in Missouri. I don't really track oil barrel prices but I assume they continue to drop.
NPR had a story on the price of gas in the 30s (I think) this morning. Oil was selling for 10 cents a barrel, so I assume gas was like 2 cents. Gas stations were giving away chickens with fill ups! The crony capitalist were able to end this by having the feds assign the Texas Railroad commission to restrict supply of oil.
The point of the story was that this is where OPEC learned the concept of restricted production. It appears that with the US now the worlds leading energy producer that OPECs influence is fading. Could be a pipe dream of mine but I was looking into my crystal ball and saw $2.25 gas by Xmas and sub $2 for 2015 in the US.
I also saw a Ram truck commercial touting 29 MPG for their pick up (hwy). I'm thinking that US demand is on a flat or downward arrow at this point, in that every 12 mpg truck replaced by a 25 mpg truck has an incremental effect. Not just with trucks but with cars in general, but I understand that SUV and pick up sales are going up.
My crystal ball also saw a US stock market above 20K in 2015. The reason being is that energy is such a large component of business costs and that consumers will have an additional 150B to spend on things other than gas prices. Deflation in the food market, inflation in the stock and housing market, deflation in energy, deflation in electronics, bad times for Huston and Dallas, inflation in wages as unemployment continues to slide.
Could be that 2015 is the year the great recession heads for another expansion period?
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Bought gas for $2.45 today in Missouri. I don't really track oil barrel prices but I assume they continue to drop.
NPR had a story on the price of gas in the 30s (I think) this morning. Oil was selling for 10 cents a barrel, so I assume gas was like 2 cents. Gas stations were giving away chickens with fill ups! The crony capitalist were able to end this by having the feds assign the Texas Railroad commission to restrict supply of oil.
The point of the story was that this is where OPEC learned the concept of restricted production. It appears that with the US now the worlds leading energy producer that OPECs influence is fading. Could be a pipe dream of mine but I was looking into my crystal ball and saw $2.25 gas by Xmas and sub $2 for 2015 in the US.
I also saw a Ram truck commercial touting 29 MPG for their pick up (hwy). I'm thinking that US demand is on a flat or downward arrow at this point, in that every 12 mpg truck replaced by a 25 mpg truck has an incremental effect. Not just with trucks but with cars in general, but I understand that SUV and pick up sales are going up.
My crystal ball also saw a US stock market above 20K in 2015. The reason being is that energy is such a large component of business costs and that consumers will have an additional 150B to spend on things other than gas prices. Deflation in the food market, inflation in the stock and housing market, deflation in energy, deflation in electronics, bad times for Huston and Dallas, inflation in wages as unemployment continues to slide.
Could be that 2015 is the year the great recession heads for another expansion period?
Mixed feelings on this. I agree with everything you said, but I hope cheap oil doesn't stall the ramp up in alternative energy sources -- carbon emissions are still bad for the world.
I can't remember if there's a consensus here (as much as there can be on an internet website) on global warming (yes I'm an 80's kid so I'm going to call it that and not climate change or whatever). So hopefully I didn't open a can of worms there.
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Is there a better vehicle (pun intended) other than USO to take advantage of spot oil/oil futures?
Buy a long-term futures call. You can get some serious leverage and your loss is reasonably capped. The Dec 2023 90 call is selling for $10.70 (=$10700).
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Bought gas for $2.45 today in Missouri. I don't really track oil barrel prices but I assume they continue to drop.
NPR had a story on the price of gas in the 30s (I think) this morning. Oil was selling for 10 cents a barrel, so I assume gas was like 2 cents. Gas stations were giving away chickens with fill ups! The crony capitalist were able to end this by having the feds assign the Texas Railroad commission to restrict supply of oil.
The point of the story was that this is where OPEC learned the concept of restricted production. It appears that with the US now the worlds leading energy producer that OPECs influence is fading. Could be a pipe dream of mine but I was looking into my crystal ball and saw $2.25 gas by Xmas and sub $2 for 2015 in the US.
I also saw a Ram truck commercial touting 29 MPG for their pick up (hwy). I'm thinking that US demand is on a flat or downward arrow at this point, in that every 12 mpg truck replaced by a 25 mpg truck has an incremental effect. Not just with trucks but with cars in general, but I understand that SUV and pick up sales are going up.
My crystal ball also saw a US stock market above 20K in 2015. The reason being is that energy is such a large component of business costs and that consumers will have an additional 150B to spend on things other than gas prices. Deflation in the food market, inflation in the stock and housing market, deflation in energy, deflation in electronics, bad times for Huston and Dallas, inflation in wages as unemployment continues to slide.
Could be that 2015 is the year the great recession heads for another expansion period?
My crystal ball says S&P 500 at $1400 by May 2015. What brand of crystal ball do you have?
Or maybe its just me hoping to buy a load of ETF units at 14x earnings...
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At this point the trend of oil prices is down at all timeframes. I wouldn't personally try to catch this falling knife unless you have traded counter-trend before and know what to look for. It's broken the support levels from 2011 and 2012 as well as gone through the highs of 2006. There's some positive RSI and MACD divergence on the daily chart but the weekly and monthly show no signs up letting up. I haven't looked at any fibonacci levels but I'd never trade on those alone anyways. (If the past 3 sentences are gobbly gook to you, I probably would stay away from trading this!)
If you don't know what to look for, at least wait until there's some sort of bottoming process/bounce. It may not be THE bottom but it'll at least save you from buying something that's just going down every week.
http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&b=5&g=0&id=p82108072352
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I bought some shares of VDE. Have we bottomed -> who knows. If it goes even lower with OPEC meeting this week - I'll buy more. Be it as it may - A LOT of the oil companies stock are "for sale" and the majority pay nice steady dividends. So, at the end of the day - pretty safe bet. Definitely much safer than that BABA stuff...
Was going to suggest this, if OP really wanted to gamble.
edit: alternatively QAT, which gives you exposure cheaply via the richest nation in the world (http://nomadcapitalist.com/2014/11/26/richest-country-world-looks-like/).
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Bought gas for 2.41 in Missouri last night. Let the knife keep falling!
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I bought some shares of VDE. Have we bottomed -> who knows. If it goes even lower with OPEC meeting this week - I'll buy more. Be it as it may - A LOT of the oil companies stock are "for sale" and the majority pay nice steady dividends. So, at the end of the day - pretty safe bet. Definitely much safer than that BABA stuff...
Was going to suggest this, if OP really wanted to gamble.
edit: alternatively QAT, which gives you exposure cheaply via the richest nation in the world (http://nomadcapitalist.com/2014/11/26/richest-country-world-looks-like/).
Surely you could have picked a better written article on the virtues of the Qatari economy. There are fifth graders who write better than the "Nomad Capitalist"
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You think the article is bad, you should have seen the clickbait.
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I bought some shares of VDE. Have we bottomed -> who knows. If it goes even lower with OPEC meeting this week - I'll buy more. Be it as it may - A LOT of the oil companies stock are "for sale" and the majority pay nice steady dividends. So, at the end of the day - pretty safe bet. Definitely much safer than that BABA stuff...
Good people, my crystal ball from Amazon just arrived. This is what it shows me:
1)OPEC cuts production: Price per barrel steadies a bit +-5. Then per usual, some other skirmish is manufactured somewhere in the world and prices go back up come Summer 2015 despite the increase in production of oil domestically. Saying that oil prices stay in this rough range, more people will make stupid lifestyle choices and buy SUV's with the shiny RIMS and the monster nutz in the back - and this will give me much laughter - and thus better health.
2) OPEC does NOT cut production Prices continue to go way down - and supply beats demand. Then more people will spend money on more stupid crap they already have and don't need and hopefully buy moar monster nuts for their SUVs. People will spend like crazy and once Oil prices start to come back up because the demand starts to go up again, these 'smart spenders' (a smart spender - go figure... lol) will realize "crap, I can't afford to continue to drive my truck for errands that can be done walking or on a bike." Then, just like magic - people start using credit more to pay some of their crazy consumer bills. And Visa, AXP, stocks will climb.
Good people, this crystal ball is really good - it was on amazon prime!
On a more serious note, I allocate about 5% of portfolio to 'fun money'. Being that a few companies are at 4 year lows or so, they are 'for sale'- and I'm in. Is the current price of ~122 per share of VDE a a bottom? I don't know and no one does, but if prices are lower come December, January, February.. I'll probably buy a little bit more. Truth is, you shouldn't put the non-funny money part of your portfolio into investments like these - way to risky. If its the funny money part of the portfolio, then by all means. And yes, I still think investing in energy (Oil) is a much much safer bet than some holding company in the cayman islands.
Disclaimer: I didn't buy a crystal ball, but I do hope you got a good chuckle or two. Happy Thanksgiving :)
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Bought gas for 2.41 in Missouri last night. Let the knife keep falling!
Bought gas at € 1.71 in Europe today. Per liter. When do we get some benefits off these falling oil prices? ;)
On this topic, no idea where the bottom is of the oil prices. I have no idea about all of these lines, except if you squint your eyes, they tend to go up in general.
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I bought some shares of VDE. Have we bottomed -> who knows. If it goes even lower with OPEC meeting this week - I'll buy more. Be it as it may - A LOT of the oil companies stock are "for sale" and the majority pay nice steady dividends. So, at the end of the day - pretty safe bet. Definitely much safer than that BABA stuff...
Good people, my crystal ball from Amazon just arrived. This is what it shows me:
1)OPEC cuts production: Price per barrel steadies a bit +-5. Then per usual, some other skirmish is manufactured somewhere in the world and prices go back up come Summer 2015 despite the increase in production of oil domestically. Saying that oil prices stay in this rough range, more people will make stupid lifestyle choices and buy SUV's with the shiny RIMS and the monster nutz in the back - and this will give me much laughter - and thus better health.
2) OPEC does NOT cut production Prices continue to go way down - and supply beats demand. Then more people will spend money on more stupid crap they already have and don't need and hopefully buy moar monster nuts for their SUVs. People will spend like crazy and once Oil prices start to come back up because the demand starts to go up again, these 'smart spenders' (a smart spender - go figure... lol) will realize "crap, I can't afford to continue to drive my truck for errands that can be done walking or on a bike." Then, just like magic - people start using credit more to pay some of their crazy consumer bills. And Visa, AXP, stocks will climb.
Good people, this crystal ball is really good - it was on amazon prime!
On a more serious note, I allocate about 5% of portfolio to 'fun money'. Being that a few companies are at 4 year lows or so, they are 'for sale'- and I'm in. Is the current price of ~122 per share of VDE a a bottom? I don't know and no one does, but if prices are lower come December, January, February.. I'll probably buy a little bit more. Truth is, you shouldn't put the non-funny money part of your portfolio into investments like these - way to risky. If its the funny money part of the portfolio, then by all means. And yes, I still think investing in energy (Oil) is a much much safer bet than some holding company in the cayman islands.
Disclaimer: I didn't buy a crystal ball, but I do hope you got a good chuckle or two. Happy Thanksgiving :)
. Well it seems your ball was correct on at least part of 2! Bought gas for 2.35 today and expect a post OPEC drop 2.15 buy new years. My ball now says 40 per barrel around march 20th with pump prices less than 1.75. It appears the gig is up and OPEC no longer drives this train. Look forward to the biggest boom year in the stock market in you lifetime. With cheap gas and cheap money this economy is set to burn records. Dow could go up 40%.
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I have VDE as one of my 10 index funds.... it fell a shitload on friday.... time to rebalance i guess.
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If I were to do the crystal ball thing I'd say that supply will remain high for a long time yet. The reason is two-fold:
1) Russia and Saudi Arabia want to keep the US out of fracking. At $70 a barrel it's barely profitable for the US energy companies to get in, despite the benefits on a national security front from being diversified/self-sufficient in terms of energy.
2) Many oil nations have enough wealth invested in their sovereign wealth funds that they could theoretically draw down 4% per year and their population would never have to work again and would have a higher standard living than anywhere else in the world. They've "won" essentially, and anything they make going forward is just cream (of course, these nations also tend to have high levels of corruption, but the point is they've nothing to lose by selling at a lower price).
Anyone else who'd like to play CNBC please be my guest.
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Trying to predict commodity prices is a fool's errand, particularly one as politically intertwined as oil, which has roller coastered for a century. It appears that the middle eastern component of OPEC, particularly Saudi Arabia and probably with some encouragement from the West, wants to squeeze economically Russia for Ukraine crimes. This formula (economic squeeze) worked well in the Reagan years to break up the USSR. Russia and Venezuela are absolutely dying at these prices because their economies are a mess (not because their oil is expensive to extract, although the heavy Venezuelan crude is more costly to produce).
All the shale oil suppression talk is nonsense because 1) shale oil operations have a wide range of costs from low to high and quite a bit will remain in operation even at lower prices, and 2) short term low prices will choke off some shale oil but it bounces back immediately when prices rise. Shale oil production is strictly a drilling exercise (no facilities costs) and rigs are cheap land-based units with relatively short rental terms. If economics are poor, one stops drilling. As prices rise, the spigot can be turned right back on again pretty quickly.
The companies getting hurt by low prices are those with large, long-term capital projects (huge facilities investments like deepwater platforms or LNG) which were developed based on higher price assumptions. Those same giant companies can weather a 3-5 year downturn, and if they are integrated, offset upstream profit reductions with refining windfalls. If they are clever, those large companies will snap up any weakened shale oil producers on this dip and gain long-term control of more acreage.
Where are prices going? Well, they will certainly hit $60/bbl which feels to me like a reasonable floor. The absolute floor is probably closer to $45/bbl but that would take something like an OPEC production increase. How long will this last? I'm betting not more than a year as there is no sound economic reason for the crash (e.g. no global collapse in demand and no gush of supply). This feels like the big dip of 1999. Watch for some interesting mergers!
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If I were to do the crystal ball thing I'd say that supply will remain high for a long time yet. The reason is two-fold:
1) Russia and Saudi Arabia want to keep the US out of fracking. At $70 a barrel it's barely profitable for the US energy companies to get in, despite the benefits on a national security front from being diversified/self-sufficient in terms of energy.
2) Many oil nations have enough wealth invested in their sovereign wealth funds that they could theoretically draw down 4% per year and their population would never have to work again and would have a higher standard living than anywhere else in the world. They've "won" essentially, and anything they make going forward is just cream (of course, these nations also tend to have high levels of corruption, but the point is they've nothing to lose by selling at a lower price).
Anyone else who'd like to play CNBC please be my guest.
Before I join you on CNBC, I just want to point out that point numer 2 is very dangerous to do, to extrapolate a mechanic that works on an individual level such as saving and drawing down 4%, will also work on a national/global scale. The individual withdrawing won't influence the system it is working within, whereas a nation does influence the system. If the oil countries stop producing wealth (oil, and other products & services) for the world and start drawing down, it changes the dynamic in the economic system hugely.
That said, I like your reasoning. The current oil countries can and will influence global politics (which is exactly why extrapolating won't work well) and will use their resources to shift political power in their favor when they can. Russia is being hammered hard by the economic consequences of their behavior in Ukraine. I would expect oil prices to continue to decline, which in turn will provide an economic boost.
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If I were to do the crystal ball thing I'd say that supply will remain high for a long time yet. The reason is two-fold:
1) Russia and Saudi Arabia want to keep the US out of fracking. At $70 a barrel it's barely profitable for the US energy companies to get in, despite the benefits on a national security front from being diversified/self-sufficient in terms of energy.
2) Many oil nations have enough wealth invested in their sovereign wealth funds that they could theoretically draw down 4% per year and their population would never have to work again and would have a higher standard living than anywhere else in the world. They've "won" essentially, and anything they make going forward is just cream (of course, these nations also tend to have high levels of corruption, but the point is they've nothing to lose by selling at a lower price).
Anyone else who'd like to play CNBC please be my guest.
Before I join you on CNBC, I just want to point out that point numer 2 is very dangerous to do, to extrapolate a mechanic that works on an individual level such as saving and drawing down 4%, will also work on a national/global scale. The individual withdrawing won't influence the system it is working within, whereas a nation does influence the system. If the oil countries stop producing wealth (oil, and other products & services) for the world and start drawing down, it changes the dynamic in the economic system hugely.
That said, I like your reasoning. The current oil countries can and will influence global politics (which is exactly why extrapolating won't work well) and will use their resources to shift political power in their favor when they can. Russia is being hammered hard by the economic consequences of their behavior in Ukraine. I would expect oil prices to continue to decline, which in turn will provide an economic boost.
Sovereign wealth funds? You mean there are countries that have actually invested their money instead of going into debt? That is crazy shit! lol
By the way, bought gas at $2.35 this morning in Missouri. I assume the reduction in barrel pricing hasn't made it to the pump yet, so I look forward to a xmas day price of $2.10.
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It seems to me people have the same idea about oil that they had about real estate, it can't go down, its a commodity. I must buy it. Yeah right. I wouldn't even think about trading oil unless it hit $50, then it would be a short term counter trend bounce using derivatives to keep my risk very small. To answer your question, the bottom in oil prices is when there are more buyers than sellers ;-)
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Saw where gas was selling for $1.99 in Oklahoma now. Still heading down I believe.
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So...upon further investigation, I have bought an inverse position in an oil ETF. For the foreseeable future, it appears as though oil will tumble. How low will it go? Who can say. I'm doing a trailing stop at 20%. If the oil environment shows signs of reversal, then I will buy a long oil ETF. As of now, I am up ~4%. I'll update bi-weekly with the overall change.
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Riyadh no longer hides the fact that it is targeting the American shale industry, Bank of America Merrill Lynch said in a report at the end of last month. It aims to slam the brakes on U.S. shale production by leaving crude prices low, the investment bank explained, predicting that the Saudis will wait until prices tumble below the break-even point for shale development.
http://asia.nikkei.com/print/article/64715
Just gonna put that there.
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Sorry to break everyone's hearts here, but most of you are very wrong indeed.
The money making points for the major oil monsters are as follows;
US: shale industry mostly, 80/barrel minimum
Russia: 4/barrel minimum (thats right, FOUR)
Saudi Arabia: 10/barrel minimum (would be much lower with the royal family)
Venezuela: Needs roughly 110/barrel (due to excessively bad political economics, and no other real economy, and excessively expensive social programs)
So roughly, even with oil at all time lows, costs arent really russia and saudi arabia.
The ruble has suffered currency lows due to propaganda, and a decrease in its STANDARD income levels (which decreased roughly 15% due to oil). mostly though, the issues with the ruble come from issues with the EU, which russia will hve fixed by midterm according to russian sources and trade partners.
Additionally, due to syria selling oil at 30/barrel, it is hurting market prices, driving them further down.
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So where's the floor?
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Fallenfour....where do you get your stats on shale oil? Do you reference averages on the US as a whole or are you speaking to a specific region. The ND region can weather much lower prices than $80 for Bakken. Do you work in the oil industry?
The key thing on oil prices is to speak towards production costs or exploration/drilling costs.
Dumb it down into MMM terms, I can easily afford to make less money and happily live my life maintaining my house. But if funds are tight I need to save up my stash to put on a brand new roof. Now if I had some extra side hustles and was still working then my FU money would be nice and could do what I want.
SO think of that how the oil industry will roll along, we will watch our pennies and make sure things are looked after. Just no FU money to drill new wells and do massive expansions. Consistent low cost operation is the tune of the day.
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Sorry to break everyone's hearts here, but most of you are very wrong indeed.
The money making points for the major oil monsters are as follows;
US: shale industry mostly, 80/barrel minimum
Russia: 4/barrel minimum (thats right, FOUR)
Saudi Arabia: 10/barrel minimum (would be much lower with the royal family)
Venezuela: Needs roughly 110/barrel (due to excessively bad political economics, and no other real economy, and excessively expensive social programs)
So roughly, even with oil at all time lows, costs arent really russia and saudi arabia.
The ruble has suffered currency lows due to propaganda, and a decrease in its STANDARD income levels (which decreased roughly 15% due to oil). mostly though, the issues with the ruble come from issues with the EU, which russia will hve fixed by midterm according to russian sources and trade partners.
Additionally, due to syria selling oil at 30/barrel, it is hurting market prices, driving them further down.
Russia and Saudi Arabia may be able to pump oil if it reaches that low, but from what I understand the governments have already spent the oil revenue at a per barrel dollar amount much higher than that.
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Currently looking to max my Roth in 3 weeks and putting around $3000 into VDE the Vanguard ETF and the other $2500 in VTSAX.
This means my portfolio would be 17% VDE and the rest VTSAX. Does this seem like a viable plan?
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Currently looking to max my Roth in 3 weeks and putting around $3000 into VDE the Vanguard ETF and the other $2500 in VTSAX.
This means my portfolio would be 17% VDE and the rest VTSAX. Does this seem like a viable plan?
17% seems like a lot for "play money."
Keep buying the entire market until your portfolio is about 100K, then "reward" yourself with a $5000 speculative investment.
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Interesting idea, CowboyandIndian and Tuxedo, that the falling oil price is meant by the Gulf states and USA to squeeze Russia, Iran and Venezuela. Dungoofed suggested that many Gulf states can live off their sovereign wealth funds for a while, and there is a list of sovereign wealth funds in Wikipedia. UAE, Saudi Arabia, Kuwait and Qatar could live off their fund earnings, Saudi with some difficulty because of their relatively high population. I had heard of OPEC pushing down the price of oil in the past to discourage oil exploration, but I had not thought of pushing down the price of oil as a means of regime change.
Islamic State has seized oil production facilities, so a fall in the price of oil will hurt them too.How effective would Islamic State be if oil went to $20 a barrel? It would be easier to bomb the oil production facilities.
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Noted that Sweet crude has gone from 104 to 59 since July 4. And 65 to 59 since Monday.
That appears to be a "crash" by definition. My take is that it is the new normal. Lower prices means that the Saudis and Russians need to pump more thus lowering prices more. Some of the higher priced folks will be screwed but I don't think they will stop pumping either. You don't just stop your business because your losing money. You might eventually but that is very long term.
So yeah, the question is -- "Where is the Bottom?" The answer is who the hell knows, but I bet that $40 per barrel won't be the bottom. It was around that in 08ish. There is a lot more supply than 08 and less demand worldwide. More supply coming on daily.
On a related note -- Volkswagon has a car that gets 300 mpg at decent acceleration, safety and speeds. It won't be coming anywhere but it is far more than a concept car. It is actually being produced. That holds promise for the future as VW already sells some pretty high efficiency cars in the US.
That and the electric batteries will give cars 200 mile ranges in just 1.5 years. The battery storage capability has essentially just doubled or better this year.
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Bottom?
$49.09 +/- $2.44 around Jan. 25th +/- 12 days. ;)
last I heard the cost per barrel for Aramco is about $18 dollars. Personal opinion is that the price of oil is currently lower than it "should" be.
/fortunetellingmodeoff
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Historical gas pump pricing over the last 5 years. Pretty cyclical. Is there really enough overabundance in supply to prevent prices from reversing?
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Historical gas pump pricing over the last 5 years. Pretty cyclical. Is there really enough overabundance in supply to prevent prices from reversing?
That's the million dollar question!
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Thanks for that chart. It appears they need to add a whole other section of sub $2 levels.
That and the past is not necessarily indicative of the future. The present is more closely aligned with the future, so if I guess $2 a gallon by June 1st I'm likely closer than looking at something from 4 years ago.
"The past isn't over. It isn't even past." William Faulkner, courtesy wikiqoutes
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That chart is specific to Chicago.
Go to gasbuddy.com and you can enter your own city/multiple cities. Click on gas price charts, enter your city.
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If I were to do the crystal ball thing I'd say that supply will remain high for a long time yet. The reason is two-fold:
1) Russia and Saudi Arabia want to keep the US out of fracking. At $70 a barrel it's barely profitable for the US energy companies to get in, despite the benefits on a national security front from being diversified/self-sufficient in terms of energy.
2) Many oil nations have enough wealth invested in their sovereign wealth funds that they could theoretically draw down 4% per year and their population would never have to work again and would have a higher standard living than anywhere else in the world. They've "won" essentially, and anything they make going forward is just cream (of course, these nations also tend to have high levels of corruption, but the point is they've nothing to lose by selling at a lower price).
Anyone else who'd like to play CNBC please be my guest.
More specifically, Iran, Iraq, and saudi arabia.
Saudi arabia makes oil at 4-6/barrel USD, and russia t roughly 10-15 depending on the process.
Oil wont go much lower than 50/barrel, as the US doesnt generate healthy profit at 80, and starts to eat losses at 70/barrel from shale.
Canada is in the same boat as the US, and needs 80/barrel with their Tar sands.
venezuela constantly operating in severe negatives need oil at some ludacris 200/barrel, so they are definitely out LOL. But anywho, thats the bigger picture on oil.
The only piece not listed is syria, who due to ISIS, is losing oil on the blackmarket at 30/barrel. Not enough to sustain anyone, but its cheap, and makes them a few million.
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couldn't part of the drop in oil prices also be from drop in domestic demand? cars are now more fuel efficient than before, dropping the number of times we refill at the station.
personally i'd still get a fuel efficient car anyways as i support a cleaner environment since i'm young and will suffer the climate change wrought by older and current generation. hopefully this forces tesla and other cleaner car companies to lower prices to stay competitive? maybe that 3 wheel car mentioned on MMM will drop their price
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I read a great article on this recently.
Basically the underlying problem in oil is that the US can just about make enough oil to take care of itself.... now add in Canada, and 'North America' can take care of itself. This has taken the biggest buyer of oil out of the international markets in a big way. So now OPEC, and all the other oil rich countries are fighting over just China and Europe. Europe isn't doing so hot, and it looks like China is slowing down. So they are all fighting over a smaller pie, and the pie isn't growing as fast as they thought it was. OPEC can't 'stop' producing oil, its their only form of income. Russia is in a similar boat. If any major supplier slows production they risk losing market share with China/Europe.
As for the price different countries can produce oil at... yes Saudi can produce very cheap, but this leaves something out...
Saudi uses oil to fund their country. They need oil at about $100/barrel to balance their budget. Russia is also around $100/barrell.
And its not about choking the US. The shale drillers in the US aren't a couple of tiny companies that could go under and never come back. If the price drops too much "Exxon" will drill less holes, yes.... but then once the price comes back they will drill again. Supply = Demand. In this new world supply just happens to match demand at a much lower price than before.
I don't think OPEC has a lot of control on price right now. If they raise prices they lose market share in the only markets they have. Oil probably isn't coming back up in price until demand matches supply at a higher price..... the world economy outside of the US&Canada actually has to grow.
Source: http://www.wsj.com/articles/crude-oil-prices-continue-to-fall-on-tepid-demand-ample-supply-1418209538?KEYWORDS=oil
On the topic of buying oil futures. The closest I would even consider coming to doing that would be to buy an energy company sector stock index fund, but I would go in with the expectation that it would be a long hold time before seeing profits. I wouldn't buy oil right now as a short term bet. That trade might takes years to pay off.
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If any major supplier slows production they risk losing market share with China/Europe.
I've seen this comment a few times. My question is: why do they care if they lose market share, above and beyond the lower revenues from reduced production? It's not like Apple losing market share to Microsoft, since oil is theoretically a fungible good, right?
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1) Russia and Saudi Arabia want to keep the US out of fracking. At $70 a barrel it's barely profitable for the US energy companies to get in, despite the benefits on a national security front from being diversified/self-sufficient in terms of energy.
I believe your number (and others posted above) is wrong in two ways. First, US energy companies are already in. Technology, equipment and and a host of other costs have been spent and can't be considered going forward. The only cost per barrel that counts going forward is actual cost going forward, sunk costs don't count.So the cost per barrel going forward is going to be a whole lot less than the cost per barrel including the up front costs. No one knows that number, but it is certainly less than $70, my thought is around $40 on average, but it varies for every well.
Second, even considering up front costs, the $70 is too high. It is either an old number or a high number, there are changes in technology, equipment and scale that have brought the profitable number per barrel down in the past couple years, even considering up front costs. So US oil production is profitable at much lower number than anyone thought in the past and I don't see production going down any time soon. Low prices are here to stay for the next few years at least, but that is just my best guess.
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Very informative slideshow.
http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/
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If I were to do the crystal ball thing I'd say that supply will remain high for a long time yet. The reason is two-fold:
1) Russia and Saudi Arabia want to keep the US out of fracking. At $70 a barrel it's barely profitable for the US energy companies to get in, despite the benefits on a national security front from being diversified/self-sufficient in terms of energy.
2) Many oil nations have enough wealth invested in their sovereign wealth funds that they could theoretically draw down 4% per year and their population would never have to work again and would have a higher standard living than anywhere else in the world. They've "won" essentially, and anything they make going forward is just cream (of course, these nations also tend to have high levels of corruption, but the point is they've nothing to lose by selling at a lower price).
Anyone else who'd like to play CNBC please be my guest.
More specifically, Iran, Iraq, and saudi arabia.
Saudi arabia makes oil at 4-6/barrel USD, and russia t roughly 10-15 depending on the process.
Oil wont go much lower than 50/barrel, as the US doesnt generate healthy profit at 80, and starts to eat losses at 70/barrel from shale.
Canada is in the same boat as the US, and needs 80/barrel with their Tar sands.
venezuela constantly operating in severe negatives need oil at some ludacris 200/barrel, so they are definitely out LOL. But anywho, thats the bigger picture on oil.
The only piece not listed is syria, who due to ISIS, is losing oil on the blackmarket at 30/barrel. Not enough to sustain anyone, but its cheap, and makes them a few million.
You might be quoting production costs, but that doesn't set the minimum per barrel these countries need.
Many have their social programs are built around their oil production.
Losing billions upon billions of dollars in revenue in a rapid amount of time will sting these countries.
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So if Saudi Arabia et al begin to have budget problems due to low oil prices, what's that gonna do to the US government when they quit buying bonds and such at the rate they currently do, or god forbid, start selling them to keep their heads above water...
Interest rates start to increase, siphoning off demand from stocks and making it pay to keep money in the bank instead of the S&P500?
My crystal ball is a'swirlin
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So if Saudi Arabia et al begin to have budget problems due to low oil prices, what's that gonna do to the US government when they quit buying bonds and such at the rate they currently do, or god forbid, start selling them to keep their heads above water...
Interest rates start to increase, siphoning off demand from stocks and making it pay to keep money in the bank instead of the S&P500?
My crystal ball is a'swirlin
Oil exporters have about 1.5% of treasury debt, so that doesn't sound so catastrophic to me
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American banks will likely buy what little they have to sell.
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If any major supplier slows production they risk losing market share with China/Europe.
I've seen this comment a few times. My question is: why do they care if they lose market share, above and beyond the lower revenues from reduced production? It's not like Apple losing market share to Microsoft, since oil is theoretically a fungible good, right?
On a gas station VS gas station basis this applies. You can easily drive across the street. On a global scale it is a different matter. Deals have to be made, pipelines are built, trade routes are protected. Economies of scale come into play helping smaller players control prices better as they get bigger. OPEC & Russia don't want China & Europe to start doing more trade with smaller players.
Why do you think the US gets most of its imported oil from Canada? Its cheaper to ship a short distance plus its politically & economically beneficial to import from a close ally that we have close economic ties to(Canada) rather than shipping a long distance from countries that are untrustworthy at best(and sponsors of terrorism at worst).
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If any major supplier slows production they risk losing market share with China/Europe.
I've seen this comment a few times. My question is: why do they care if they lose market share, above and beyond the lower revenues from reduced production? It's not like Apple losing market share to Microsoft, since oil is theoretically a fungible good, right?
On a gas station VS gas station basis this applies. You can easily drive across the street. On a global scale it is a different matter. Deals have to be made, pipelines are built, trade routes are protected. Economies of scale come into play helping smaller players control prices better as they get bigger. OPEC & Russia don't want China & Europe to start doing more trade with smaller players.
Why do you think the US gets most of its imported oil from Canada? Its cheaper to ship a short distance plus its politically & economically beneficial to import from a close ally that we have close economic ties to(Canada) rather than shipping a long distance from countries that are untrustworthy at best(and sponsors of terrorism at worst).
Interesting. this guy (http://www.econ.yale.edu/~nordhaus/homepage/documents/iew_052909.pdf) would seem to disagree
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If any major supplier slows production they risk losing market share with China/Europe.
I've seen this comment a few times. My question is: why do they care if they lose market share, above and beyond the lower revenues from reduced production? It's not like Apple losing market share to Microsoft, since oil is theoretically a fungible good, right?
On a gas station VS gas station basis this applies. You can easily drive across the street. On a global scale it is a different matter. Deals have to be made, pipelines are built, trade routes are protected. Economies of scale come into play helping smaller players control prices better as they get bigger. OPEC & Russia don't want China & Europe to start doing more trade with smaller players.
Why do you think the US gets most of its imported oil from Canada? Its cheaper to ship a short distance plus its politically & economically beneficial to import from a close ally that we have close economic ties to(Canada) rather than shipping a long distance from countries that are untrustworthy at best(and sponsors of terrorism at worst).
Interesting. this guy (http://www.econ.yale.edu/~nordhaus/homepage/documents/iew_052909.pdf) would seem to disagree
Really? He NEVER once says in the entire article that oil costs the same everywhere. He freely admits that oil is cheaper in some places rather than others and shipping costs play a role. He argues shipping costs aren't a huge premium(tell that to people in Hawaii), and he argues that oil prices all around the world move in tandem. Well obviously. If there is extra oil in the US it will drive down prices everywhere else because of the extra oil on the markets not going to the US. Thats exactly what I said in my first post on this topic.
He does argue that countries trying to control oil supply isn't important because its a big bath tub anyway... but the OPEC embargoes of the past prove that wrong. On this issue I do disagree with him. We should buy our oil from Canada because it encourages Canada to produce more oil specifically for our demand which prevents OPEC from ever screwing us with an embargo again. Sure they could stop shipping oil to the entire world and castrate themselves, but as long as we get the majority of our oil from Canada they can only influence 'world' oil prices and they can't screw the US individually.
Higher prices also encourages developing countries like China and India to go in and drill new wells. As they do this OPEC loses market share, market share it will never get back, and this will drive prices down. So yes, OPEC is worried about losing market share it will never get back, and that is another reason to keep prices low now.
In short SUPPLY and DEMAND are determining current prices, and there is actually not a whole lot OPEC can do about it. They can try in the short term, but they will just hurt themselves in the long term. So until demand rises prices should stay very low.
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If any major supplier slows production they risk losing market share with China/Europe.
I've seen this comment a few times. My question is: why do they care if they lose market share, above and beyond the lower revenues from reduced production? It's not like Apple losing market share to Microsoft, since oil is theoretically a fungible good, right?
On a gas station VS gas station basis this applies. You can easily drive across the street. On a global scale it is a different matter. Deals have to be made, pipelines are built, trade routes are protected. Economies of scale come into play helping smaller players control prices better as they get bigger. OPEC & Russia don't want China & Europe to start doing more trade with smaller players.
Why do you think the US gets most of its imported oil from Canada? Its cheaper to ship a short distance plus its politically & economically beneficial to import from a close ally that we have close economic ties to(Canada) rather than shipping a long distance from countries that are untrustworthy at best(and sponsors of terrorism at worst).
Interesting. this guy (http://www.econ.yale.edu/~nordhaus/homepage/documents/iew_052909.pdf) would seem to disagree
Really? He NEVER once says in the entire article that oil costs the same everywhere. He freely admits that oil is cheaper in some places rather than others and shipping costs play a role. He argues shipping costs aren't a huge premium(tell that to people in Hawaii), and he argues that oil prices all around the world move in tandem. Well obviously. If there is extra oil in the US it will drive down prices everywhere else because of the extra oil on the markets not going to the US. Thats exactly what I said in my first post on this topic.
He does argue that countries trying to control oil supply isn't important because its a big bath tub anyway... but the OPEC embargoes of the past prove that wrong. On this issue I do disagree with him. We should buy our oil from Canada because it encourages Canada to produce more oil specifically for our demand which prevents OPEC from ever screwing us with an embargo again. Sure they could stop shipping oil to the entire world and castrate themselves, but as long as we get the majority of our oil from Canada they can only influence 'world' oil prices and they can't screw the US individually.
Higher prices also encourages developing countries like China and India to go in and drill new wells. As they do this OPEC loses market share, market share it will never get back, and this will drive prices down. So yes, OPEC is worried about losing market share it will never get back, and that is another reason to keep prices low now.
In short SUPPLY and DEMAND are determining current prices, and there is actually not a whole lot OPEC can do about it. They can try in the short term, but they will just hurt themselves in the long term. So until demand rises prices should stay very low.
What. So if you agree that "oil prices all around the world move in tandem" then you haven't explained why anyone cares about "market share." If you have 5% market share, you can still get the same price as if you have 10% market share.
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I believe your number (and others posted above) is wrong in two ways. First, US energy companies are already in. Technology, equipment and and a host of other costs have been spent and can't be considered going forward. The only cost per barrel that counts going forward is actual cost going forward, sunk costs don't count.So the cost per barrel going forward is going to be a whole lot less than the cost per barrel including the up front costs. No one knows that number, but it is certainly less than $70, my thought is around $40 on average, but it varies for every well.
Second, even considering up front costs, the $70 is too high. It is either an old number or a high number, there are changes in technology, equipment and scale that have brought the profitable number per barrel down in the past couple years, even considering up front costs. So US oil production is profitable at much lower number than anyone thought in the past and I don't see production going down any time soon. Low prices are here to stay for the next few years at least, but that is just my best guess.
It depends on the well. Since most of the increase has come from shale plays, capital costs do play a substantial part because many of these wells produce a lot initially, but drop down to next to nothing quickly.
In order to keep production up, new wells need to be drilled, which requires a lot of capital investment in drilling. Citigroup estimates that $50/bbl to stop shale oil growth, which is where we're pretty much at.
http://www.cnbc.com/id/102094881
I doubt prices will recover immediately, but my crystal ball says they'll recover sooner or later, probably in couple years or so. I remember seeing gas at less than a buck a gallon in the 90s and ~$1.50 in 2008, but neither of those stuck around for long. +/-$3/gallon is my guess for long run gas prices.
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What. So if you agree that "oil prices all around the world move in tandem" then you haven't explained why anyone cares about "market share." If you have 5% market share, you can still get the same price as if you have 10% market share.
More market share is better. I don't think that needs explaining. Blackberry phones cost about the same as iPhones. Apple is the most profitable company in the world... is Blackberry even still in business? Market share matters.
If OPEC had kept oil prices a little lower in the past instead of high no one would have bothered fracking in the US, or refining the oil sands in Canada, or building fleets of electric cars. They wouldn't have the problems they have now! Keeping prices high cost them their biggest customer, the USA. They can't afford to let the same thing happen with Europe and China. By keeping prices low they keep new entrants out of the market.
So OPEC has two choices. One, they can cut supply to push up prices, but then the US will keep fracking new wells, Canada will keep refining the sands, every car company will push out new electric cars, and who knows what the next player will do. OPEC will become as insignificant in oil as Blackberry in smart phones. Two, they can keep the supply steady. With no new demand prices tank. Their revenues drop, BUT no new competition. Once demand does return prices can stabilize and they get to keep their customers.
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Commodity cycles are typically at leaast 7 years. That is about where we are since they jumped in the first place. It took a long time to get the capacity online in ND and Alberta. Now the US can do 6M Barrels a day vs less than 1 million in 2007. For reference Saudi does 9M barrels. So if $65-80/barrel is the fully-loaded cost of shale or tar sands, what is the incremental cost i.e. keeping an established "well" running? Secondly factor in that Russia and Venezuela need the money to meet their obligations. Just because their budgets are based on $120 oil doesn't mean that they won't keep pumping. They will pump more to generate more cash and drive the price lower. The incremental cost to the shale supply is the key since they will likely be the first ones to actually stop. I don't think we've seen the bottom or will for a while.
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Since I bought my inverse oil ETF I'm up ~12%.
Once this graph reverses I'll sell and buy a long oil etf. Graph is from gasbuddy.com
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Since I bought my inverse oil ETF I'm up ~12%.
Once this graph reverses I'll sell and buy a long oil etf. Graph is from gasbuddy.com
You the man. When will it reverse?
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I'll let you know.
I'm in on the way down for now.
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Im thinking about doing some math and figure out if I can hedge gas prices by buying USO now. Either I make money from the ETF going up and pay more in gas in the future, or ETF stays low and I dont pay more for gas. Imply gas is tied to oil prices.
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Alternatively you could buy XOM to the tune of "35 times the amount you spend on gas in a year" and have Exxon Mobil pay for your gas for the rest of your life.
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Im thinking about doing some math and figure out if I can hedge gas prices by buying USO now. Either I make money from the ETF going up and pay more in gas in the future, or ETF stays low and I dont pay more for gas. Imply gas is tied to oil prices.
I'm wondering about this too. I've been buying a share or two of UCO here and there as it falls in price (This is why I like Robinhood for small experiments. It's small change, really, and even if it goes belly-up as an ETF, I'll be out a couple hundred dollars.) My bigger question is: if the oil market bounces back in a few years, will ETFs like UCO or USO by definition also rebound, or does it not work like that? If the futures for oil look lousy now, the price of these ETFs should be lousy now; when futures improve, the prices should in principle too, right?
Here's the UCO ETF summary:
The investment seeks to provide daily investment results (before fees and expenses) that correspond to twice the daily performance of the Dow Jones—UBS Crude Oil Sub-IndexSM. The fund invests primarily in any one of or combinations of Financial Instruments, including swap agreements, futures contracts, and options on futures contracts or forward contracts with respect to the applicable benchmark to the extent determined appropriate by the Sponsor. It invests other assets in cash or in cash equivalents and/or U.S. Treasury securities or other high credit quality short-term fixed-income or similar securities that serve as collateral for the financial instruments.
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Alternatively you could buy XOM to the tune of "35 times the amount you spend on gas in a year" and have Exxon Mobil pay for your gas for the rest of your life.
You lost me on this. Was this directed to my comment about Oil ETF?
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Alternatively you could buy XOM to the tune of "35 times the amount you spend on gas in a year" and have Exxon Mobil pay for your gas for the rest of your life.
You lost me on this. Was this directed to my comment about Oil ETF?
The dividend is a little over 3%. If you bought 33 times as much XOM as you spend on gas your dividends would exceed your gas spending so Exxon would be paying for your gas every year in dividends.
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Alternatively you could buy XOM to the tune of "35 times the amount you spend on gas in a year" and have Exxon Mobil pay for your gas for the rest of your life.
You lost me on this. Was this directed to my comment about Oil ETF?
The dividend is a little over 3%. If you bought 33 times as much XOM as you spend on gas your dividends would exceed your gas spending so Exxon would be paying for your gas every year in dividends.
Oh, not really was I was talking about but ok.
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Im thinking about doing some math and figure out if I can hedge gas prices by buying USO now. Either I make money from the ETF going up and pay more in gas in the future, or ETF stays low and I dont pay more for gas. Imply gas is tied to oil prices.
In the past I've read in several places that because of their structure, commodity ETF's do a horrible job of accurately tracking the value of the commodity. This seems to happen because they don't hold the commodity itself, but instead they actively trade spot contracts and forward contracts using leverage. So really your return can be influenced more by the changes in spot and forward contracts, including the spreads between the two, than by the commodity itself. I personally know some people that experienced some financial pain this way playing gold ETF's.
As an alternative, why not invest in VDE or a similar ETF? Profitability of oil companies is generally tied to oil prices, oil product prices, and refining margins so when crude goes up, they go up, when crude goes down, they go down, but its a smoother ride. Right now it's paying a nice 2.5% dividend.
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Read this last night, good for everyone on this thread
http://managed-futures-blog.attaincapital.com/2015/01/06/how-to-play-a-bounce-in-oil-hint-not-uso/
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thanks for the link hodedofome.
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Alternatively you could buy XOM to the tune of "35 times the amount you spend on gas in a year" and have Exxon Mobil pay for your gas for the rest of your life.
You lost me on this. Was this directed to my comment about Oil ETF?
The dividend is a little over 3%. If you bought 33 times as much XOM as you spend on gas your dividends would exceed your gas spending so Exxon would be paying for your gas every year in dividends.
Love that thinking! I think I'll wait until the trend end is evident before dumping into XOM.
Here is a quote from the OP when they started the thread on Nov 30.
"Where are prices going? Well, they will certainly hit $60/bbl which feels to me like a reasonable floor. The absolute floor is probably closer to $45/bbl but that would take something like an OPEC production increase. How long will this last? I'm betting not more than a year as there is no sound economic reason for the crash (e.g. no global collapse in demand and no gush of supply)."
We have far surpassed the $60 reasonable floor and closing in on the $45. Although, some may differ on if there is an over supply and collapse in demand. From what I am hearing there is indeed both and it is much more than the Saudis' trying capture market share by messing with the US and Russia.
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The bottom might be pretty low. I remember <$15/bbl oil and <$1/gallon gas 15 years ago.
Course, that didn't last long, with oil prices "soaring" to $30/bbl on their way to $100+/bbl ~8 years later.
http://news.bbc.co.uk/2/hi/business/644028.stm
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http://ftalphaville.ft.com/2015/01/12/2084942/a-capital-contango-and-why-oil-storage-economics-may-be-dead/
(you need to log in to view.... or just load it on Google Cache)
This was an interesting article on why "this time it's different"
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http://ftalphaville.ft.com/2015/01/12/2084942/a-capital-contango-and-why-oil-storage-economics-may-be-dead/ (http://ftalphaville.ft.com/2015/01/12/2084942/a-capital-contango-and-why-oil-storage-economics-may-be-dead/)
(you need to log in to view.... or just load it on Google Cache)
This was an interesting article on why "this time it's different"
I read this article yesterday also, worth a read. I don't buy the "this time is different" story line any more than I buy the "this time is the same" story. Every time is different, which is why it isn't worth trying to time markets without some sort of special knowledge or study. But I still love reading about it and trying to figure it out... :D
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Perhaps lets wait for some real pain to set in (small/leveraged/unhedged E&P and oil service companies going bankrupt), energy hedge funds shutting down, wells getting capped, before we start making educating guesses that the bottom is in. If we see some of that, and then you see a headline in a major magazine or newspaper that oil is going back to $10/barrel, I would think the real bottom should be close.
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The bottom might be pretty low. I remember <$15/bbl oil and <$1/gallon gas 15 years ago.
Course, that didn't last long, with oil prices "soaring" to $30/bbl on their way to $100+/bbl ~8 years later.
http://news.bbc.co.uk/2/hi/business/644028.stm
Shit yeah! Remember the Clinton Administration? Sub $1 gas rocked. If you look at the long term chart the period we have been in is really an anomaly in pricing. $15-20 a barrel I more realistic and I think that the Saudis are inclined to let it rest there at some point.
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My 2 cents...I don't agree that the Saudi's/OPEC will be inclined to let oil sit at 10-20 per barrel, because there is not an economic benefit for them to do so. There may be a small 'screw US producers' benefit, which while satisfying I don't think overcomes the need to maximize income. The economic viability of the bulk of the US shale boom I think hinges on oil being in the 50-70 range depending on the field/method/etc. Saudi's don't need oil to be at $20 per barrel, at that price they are just burning through their only really important natural resource to sell it at a huge discount. Their oil is cheap to get out of the ground so they want as good a margin as possible, I would imagine ideally they want oil to be at the point where they maximize their price but are still low enough to keep the bulk of alternative extraction methods economically non-viable....maybe 40-ish barrel? Let them burn through their reserves selling it cheap, shale oil will still be there when we need it.
My personal opinion is that oil under 50 is fine with me. For the small portion of the companies in our economy that are negatively affected, the potential stimulus effect to the bulk of other companies and consumers having lower expenses/saving money is an overall boon to the economy. Companies like Fedex and Delta Airlines etc are more profitable when fuel is cheap. I hear that auto sales of monstrous SUV/Truck clown-mobiles are now in the rise again because of the perception of cheap gas which will help out auto companies and their suppliers all the way down the line. The Macy's and Walmart's and Amazon's are going to sell more consumer goods when people are spending less $$ on gas. Companies that use oil/petroleum as an input to goods production for things like plastics will spend less on raw material. In general especially for a country so levered to consumer spending I'd say it's a positive. I don't know an exact number but I would guess the oil/gas industry make up maybe...10-15% of our economy? And a sizable portion of that is still based on 'traditional' extraction that might not like lower oil prices but it's not going to bankrupt them. Companies like refiners will be relatively fine, lower oil isn't directly a huge blow as long as the crack spreads remain intact. I think what you're left with is a relatively minor portion of the economy that is truly devastated by cheap oil.
My only personal hesitation is that I feel like advances in alternative energy sources, hybrid/electric cars, etc, (things I am generally in favor of) are primarily driven by when oil prices are high because they become more economically necessary.
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My personal opinion is that oil under 50 is just fine with me. For the small portion of the companies in our economy that are negatively affected the potential stimulus effect of the bulk of other companies and consumers saving money is a boon to the economy. Let them burn through their reserves selling it cheap, shale oil will still be there when we need it.
Yeah I pretty much agree. For everyone saying low oil is going to crash our economy, we forget that it helps out a lot of other industries as well as the consumer. Although I haven't read the numbers, I would think we could balance it out. The '90s proved that you could have low oil prices in the middle of an economic boom.
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The bottom might be pretty low. I remember <$15/bbl oil and <$1/gallon gas 15 years ago.
Course, that didn't last long, with oil prices "soaring" to $30/bbl on their way to $100+/bbl ~8 years later.
http://news.bbc.co.uk/2/hi/business/644028.stm
Shit yeah! Remember the Clinton Administration? Sub $1 gas rocked. If you look at the long term chart the period we have been in is really an anomaly in pricing. $15-20 a barrel I more realistic and I think that the Saudis are inclined to let it rest there at some point.
I was looking at an inflation adjusted chart recently and the average price in today's dollars was something like $40/bbl. so we are close to the average
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I almost never buy individual stocks, so whatever you do, don't follow my lead here.
I just allocated 2% of my stock portfolio toward a purchase of BP shares.
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My only personal hesitation is that I feel like advances in alternative energy sources, hybrid/electric cars, etc, (things I am generally in favor of) are primarily driven by when oil prices are high because they become more economically necessary.
This is true, but there is a silver lining in that alternatives will need to become even more efficient to survive. The additional competition will promote benefits that will pay out in the long run. Some will continue to develop alternatives, and for those that do the bar is set even higher. And the market might make that bar of efficiency to keep it slightly competitive given some time, so I don't see this as a total down side for green energy.
We shouldn't underestimate demand and the free market... and the demand for green energy will continue for reasons other than cost.
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The bottom might be pretty low. I remember <$15/bbl oil and <$1/gallon gas 15 years ago.
Course, that didn't last long, with oil prices "soaring" to $30/bbl on their way to $100+/bbl ~8 years later.
http://news.bbc.co.uk/2/hi/business/644028.stm
Shit yeah! Remember the Clinton Administration? Sub $1 gas rocked. If you look at the long term chart the period we have been in is really an anomaly in pricing. $15-20 a barrel I more realistic and I think that the Saudis are inclined to let it rest there at some point.
I was looking at an inflation adjusted chart recently and the average price in today's dollars was something like $40/bbl. so we are close to the average
That may be accurate although incomes for most working people has been stagnant for over a decade now while gas prices have tripled (until recently). So there has been virtually no "inflation" in wages. A more accurate chart would compare income to the price of gas to income. Here is a nice chart of the "suck" factor. http://www.areavibes.com/economic-suck-factor/us/
It appears for a decade up until around 2002 gas consumed 1.75% of median income. From then it has risen to 4%. For low paid workers this really does suck as they are probably closer to 25%.
The price is pretty artificial since the Arabs can produce it for sub $20 per barrel.
I'm voting for sub $1 per gallon gas and think that is a fair pricing given supply/demand etc..
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A comparison of this year's crash to '08 and the '80s (http://2.bp.blogspot.com/-6ckeXKJlqFM/VLcrVNmml8I/AAAAAAAAQC0/Yc-nFGy7hss/s1600/Screen%2Bshot%2B2015-01-14%2Bat%2B8.13.07%2BPM.png)
'08 was a global financial crisis so if I had to make a bet, I would guess we'd be more like the '85 crash.
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A comparison of this year's crash to '08 and the '80s
Nice chart, thanks.
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The bottom might be pretty low. I remember <$15/bbl oil and <$1/gallon gas 15 years ago.
Course, that didn't last long, with oil prices "soaring" to $30/bbl on their way to $100+/bbl ~8 years later.
http://news.bbc.co.uk/2/hi/business/644028.stm
Shit yeah! Remember the Clinton Administration? Sub $1 gas rocked. If you look at the long term chart the period we have been in is really an anomaly in pricing. $15-20 a barrel I more realistic and I think that the Saudis are inclined to let it rest there at some point.
I was looking at an inflation adjusted chart recently and the average price in today's dollars was something like $40/bbl. so we are close to the average
That may be accurate although incomes for most working people has been stagnant for over a decade now while gas prices have tripled (until recently). So there has been virtually no "inflation" in wages. A more accurate chart would compare income to the price of gas to income. Here is a nice chart of the "suck" factor. http://www.areavibes.com/economic-suck-factor/us/
It appears for a decade up until around 2002 gas consumed 1.75% of median income. From then it has risen to 4%. For low paid workers this really does suck as they are probably closer to 25%.
The price is pretty artificial since the Arabs can produce it for sub $20 per barrel.
I'm voting for sub $1 per gallon gas and think that is a fair pricing given supply/demand etc..
Was on mobile before, here's a graph:
(http://i.imgur.com/AM7BaJR.jpg)
But obviously "inflation adjusted" is just a basket of goods, and not (as you mention) necessarily related to income.
Here's one for gas:
(http://i.imgur.com/NBhS2DU.jpg)
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My 2 cents...I don't agree that the Saudi's/OPEC will be inclined to let oil sit at 10-20 per barrel, because there is not an economic benefit for them to do so. There may be a small 'screw US producers' benefit, which while satisfying I don't think overcomes the need to maximize income. The economic viability of the bulk of the US shale boom I think hinges on oil being in the 50-70 range depending on the field/method/etc. Saudi's don't need oil to be at $20 per barrel, at that price they are just burning through their only really important natural resource to sell it at a huge discount. Their oil is cheap to get out of the ground so they want as good a margin as possible, I would imagine ideally they want oil to be at the point where they maximize their price but are still low enough to keep the bulk of alternative extraction methods economically non-viable....maybe 40-ish barrel? Let them burn through their reserves selling it cheap, shale oil will still be there when we need it.
My personal opinion is that oil under 50 is fine with me. For the small portion of the companies in our economy that are negatively affected, the potential stimulus effect to the bulk of other companies and consumers having lower expenses/saving money is an overall boon to the economy. Companies like Fedex and Delta Airlines etc are more profitable when fuel is cheap. I hear that auto sales of monstrous SUV/Truck clown-mobiles are now in the rise again because of the perception of cheap gas which will help out auto companies and their suppliers all the way down the line. The Macy's and Walmart's and Amazon's are going to sell more consumer goods when people are spending less $$ on gas. Companies that use oil/petroleum as an input to goods production for things like plastics will spend less on raw material. In general especially for a country so levered to consumer spending I'd say it's a positive. I don't know an exact number but I would guess the oil/gas industry make up maybe...10-15% of our economy? And a sizable portion of that is still based on 'traditional' extraction that might not like lower oil prices but it's not going to bankrupt them. Companies like refiners will be relatively fine, lower oil isn't directly a huge blow as long as the crack spreads remain intact. I think what you're left with is a relatively minor portion of the economy that is truly devastated by cheap oil.
My only personal hesitation is that I feel like advances in alternative energy sources, hybrid/electric cars, etc, (things I am generally in favor of) are primarily driven by when oil prices are high because they become more economically necessary.
That's not the case as it stands now. The savings that the average American is experiencing from cheaper oil isn't going back into the economy. It's going either a) into savings or b) to pay off debt. Good for the individual, and over the long term that will eventually lead to more money to put back into the economy, but for the short term the economy is going to suffer. Not to mention its only a matter of time before the highly leveraged shale guys start to go under. It's going to be an interesting ride the next few months..
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My 2 cents...I don't agree that the Saudi's/OPEC will be inclined to let oil sit at 10-20 per barrel, because there is not an economic benefit for them to do so. There may be a small 'screw US producers' benefit, which while satisfying I don't think overcomes the need to maximize income. The economic viability of the bulk of the US shale boom I think hinges on oil being in the 50-70 range depending on the field/method/etc. Saudi's don't need oil to be at $20 per barrel, at that price they are just burning through their only really important natural resource to sell it at a huge discount. Their oil is cheap to get out of the ground so they want as good a margin as possible, I would imagine ideally they want oil to be at the point where they maximize their price but are still low enough to keep the bulk of alternative extraction methods economically non-viable....maybe 40-ish barrel? Let them burn through their reserves selling it cheap, shale oil will still be there when we need it.
My personal opinion is that oil under 50 is fine with me. For the small portion of the companies in our economy that are negatively affected, the potential stimulus effect to the bulk of other companies and consumers having lower expenses/saving money is an overall boon to the economy. Companies like Fedex and Delta Airlines etc are more profitable when fuel is cheap. I hear that auto sales of monstrous SUV/Truck clown-mobiles are now in the rise again because of the perception of cheap gas which will help out auto companies and their suppliers all the way down the line. The Macy's and Walmart's and Amazon's are going to sell more consumer goods when people are spending less $$ on gas. Companies that use oil/petroleum as an input to goods production for things like plastics will spend less on raw material. In general especially for a country so levered to consumer spending I'd say it's a positive. I don't know an exact number but I would guess the oil/gas industry make up maybe...10-15% of our economy? And a sizable portion of that is still based on 'traditional' extraction that might not like lower oil prices but it's not going to bankrupt them. Companies like refiners will be relatively fine, lower oil isn't directly a huge blow as long as the crack spreads remain intact. I think what you're left with is a relatively minor portion of the economy that is truly devastated by cheap oil.
My only personal hesitation is that I feel like advances in alternative energy sources, hybrid/electric cars, etc, (things I am generally in favor of) are primarily driven by when oil prices are high because they become more economically necessary.
That's not the case as it stands now. The savings that the average American is experiencing from cheaper oil isn't going back into the economy. It's going either a) into savings or b) to pay off debt. Good for the individual, and over the long term that will eventually lead to more money to put back into the economy, but for the short term the economy is going to suffer. Not to mention its only a matter of time before the highly leveraged shale guys start to go under. It's going to be an interesting ride the next few months..
Source? Savings rate seems to be going down since June
http://www.tradingeconomics.com/united-states/personal-savings
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One more data point, when I asked my American friend what he was going to do with all the money he was saving from lower (gas) prices he replied that he felt it would be absorbed by his increasing health insurance costs.
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Used Prius prices probably move pretty strongly in concert with the oil price. Are used Priuses dirt cheap now, or do they need a few more months?
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That's not the case as it stands now. The savings that the average American is experiencing from cheaper oil isn't going back into the economy. It's going either a) into savings or b) to pay off debt. Good for the individual, and over the long term that will eventually lead to more money to put back into the economy, but for the short term the economy is going to suffer. Not to mention its only a matter of time before the highly leveraged shale guys start to go under. It's going to be an interesting ride the next few months..
[/quote]
Source? Savings rate seems to be going down since June
http://www.tradingeconomics.com/united-states/personal-savings
[/quote]
Data from the US Census Bureau suggesting retail sales down in December - http://bit.ly/1INVb2d
Revolving credit down in November- http://www.federalreserve.gov/releases/g19/current/
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Just bought 1k of Chevron stock and 1k of Vanguard Energy ETF last week. Plan to hold onto them for at least 2-3 years.
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Right now the US and Saudi Arabia have decided to put the squeeze on Iran/Russia.
Even though there is only limited oil coming from Libya/Iraq, there is an excess of oil in the market and it is causing the drop in prices.
Iran needs oil to be $120/barrel to run the country.
My feeling is that the US/Saudi squeeze will not stop till $60/barrel.
Again, this is what I think, who knows what will happen.
Wrong. Saudi is putting the squeeze on everyone. They'll drive a bunch of the US frackers under if oil prices stay where they're at for long.
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Whatever is happening isn't fine by me, it provides some creative destruction in the oil market which is good in the long term. US frackers will become more careful and efficient. Everyone spending money on energy will save some for investment, spending, or just stuffing under the mattress. Economies built on high oil prices will learn how to cope with lower oil prices or dissolve. It is capitalism and I love it, even though it is painful for some. The end result is so much better than the alternative.
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Got this from a pro oil trader today. All it takes is several million bucks to pull it off. Who's with me?
"There's definitely money to be made at these levels in the "oil trading" world... it's called "Floating Storage". You buy & store physical oil at $45/bbl and then sell the Dec 2017 futures (for example) @ $62.75 = $17.75/bbl minus storage costs. in November 2017 you deliver your barrels out of storage against those Dec 2017 futures that you sold today. This is what many players in the oil world are doing with this steep contango. Problem is as Dec 2017 futures rise, you are short from $62.75 and need to come up with the daily margin. Also, to make any real money on the trade you'd need to do at least 500K bbls... that's a lot of potential money in margin calls if oil rises dramatically over the 3 yrs."
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From an environmental perspective, I'm all for crashing oil prices. Because we like to travel to Canada, where the economy is closely tied to the price of oil, I've been following the effects of the oil price on the CAD and Canadian stocks.
Just bought some Canadian bank stocks (RY & BNS). Their prices are down about 20% since the summer, but they are good old companies and the stocks pay a nice dividend. Wondering if I bought at the bottom or if they will fall further. It will be interesting to watch.
Also moving some more US$ to Canada since the CAD has dropped so low. Again, wondering if it's hit bottom, or will drop further.
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From an environmental perspective, I'm all for crashing oil prices. Because we like to travel to Canada, where the economy is closely tied to the price of oil, I've been following the effects of the oil price on the CAD and Canadian stocks.
Just bought some Canadian bank stocks (RY & BNS). Their prices are down about 20% since the summer, but they are good old companies and the stocks pay a nice dividend. Wondering if I bought at the bottom or if they will fall further. It will be interesting to watch.
Also moving some more US$ to Canada since the CAD has dropped so low. Again, wondering if it's hit bottom, or will drop further.
Wait... how is crashing oil good for the environment? I'm guessing you mean less fracking even though it means more Co2?
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Yes, I was thinking less fracking as that becomes less profitable.
But of course you are right: for many, low gas prices mean more driving and less incentive to buy fuel efficient cars. Alas.
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Must have been a blip or something (I don't follow this). Gas prices at the pump were around 1.66 for a week and then on Wednesday everyone went to 1.79. Today it is back to 1.69 and I see barrel prices are 45.
Oh well, I'm still enjoying this immensely.
Missouri is talking about raising gas taxes from 18 cents. It appears the federal highway money has all but dried up and now we only have 350 million per year to maintain something like 10K of roadways. (seems like 35K per mile should cut it?)
I'm proud that Missouri is kinda efficient in our road department. We have one of the largest road systems in the US and one of the lowest budgets. I bet it will become a whole lot more efficient very soon as I doubt Missourians will vote for an increase.
So here are some ideas for Missouri ( who are more typical than MMM in their spending approach) that could be applied in most states -
1. quit mowing along highways and bid out the grass harvest to farmers. Bam a cost now becomes an income. At very least bid out the process instead of hiring highly paid government workers. Just quit mowing already.
2. Sell advertising on overpasses, road side signs (like right on the road), painted on the pavement etc..
3. Establish those toll roads and let private non profits run them.
4. Do away with the gas tax altogether and simply charge every person 100 per year in extra taxes. (sales) This would have the effect of truckers choosing to route through Missouri. Tourist would love us too as we would have the lowest gas price in the US.
5. Oh and if anyone from Missouri is reading this -- How about doing away with all gas taxes and simply tax internet purchases at the same rate as any other retail taxes. That is something like 500M.
6. Start some programs that encourage less driving. Work from home promotions, efficient driving promotions, encourage businesses to stager start and end work hour times, promote internet based and home based employment.
Really if the US government got behind a MMM approach to car usage -- work from home, bike a little, walk, quit all the trips, carpool, live close to work, drive highly efficient cars etc., we could see a 30-50% reduction in US gas usage in just a few years and that would only lead to less demand, less road deterioration and lower prices. What a virtuous cycle that would be.
Sorry about my rant on Missouri gas taxes -- won't try to derail this thread again.
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Bob W - I like your ideas. What about a per mile tax? Those who use the roads more pay more?
I heard on the radio they were thinking of implementing in this California - at the yearly car registration time they will also track mileage and charge for it.
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Bob W - I like your ideas. What about a per mile tax? Those who use the roads more pay more?
I heard on the radio they were thinking of implementing in this California - at the yearly car registration time they will also track mileage and charge for it.
That would just be awesome. Collect it at the state level for the state's discretion, but at a federal mandated level.
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My 2 cents...I don't agree that the Saudi's/OPEC will be inclined to let oil sit at 10-20 per barrel, because there is not an economic benefit for them to do so. There may be a small 'screw US producers' benefit, which while satisfying I don't think overcomes the need to maximize income. The economic viability of the bulk of the US shale boom I think hinges on oil being in the 50-70 range depending on the field/method/etc. Saudi's don't need oil to be at $20 per barrel, at that price they are just burning through their only really important natural resource to sell it at a huge discount. Their oil is cheap to get out of the ground so they want as good a margin as possible, I would imagine ideally they want oil to be at the point where they maximize their price but are still low enough to keep the bulk of alternative extraction methods economically non-viable....maybe 40-ish barrel? Let them burn through their reserves selling it cheap, shale oil will still be there when we need it.
My personal opinion is that oil under 50 is fine with me. For the small portion of the companies in our economy that are negatively affected, the potential stimulus effect to the bulk of other companies and consumers having lower expenses/saving money is an overall boon to the economy. Companies like Fedex and Delta Airlines etc are more profitable when fuel is cheap. I hear that auto sales of monstrous SUV/Truck clown-mobiles are now in the rise again because of the perception of cheap gas which will help out auto companies and their suppliers all the way down the line. The Macy's and Walmart's and Amazon's are going to sell more consumer goods when people are spending less $$ on gas. Companies that use oil/petroleum as an input to goods production for things like plastics will spend less on raw material. In general especially for a country so levered to consumer spending I'd say it's a positive. I don't know an exact number but I would guess the oil/gas industry make up maybe...10-15% of our economy? And a sizable portion of that is still based on 'traditional' extraction that might not like lower oil prices but it's not going to bankrupt them. Companies like refiners will be relatively fine, lower oil isn't directly a huge blow as long as the crack spreads remain intact. I think what you're left with is a relatively minor portion of the economy that is truly devastated by cheap oil.
My only personal hesitation is that I feel like advances in alternative energy sources, hybrid/electric cars, etc, (things I am generally in favor of) are primarily driven by when oil prices are high because they become more economically necessary.
That's not the case as it stands now. The savings that the average American is experiencing from cheaper oil isn't going back into the economy. It's going either a) into savings or b) to pay off debt. Good for the individual, and over the long term that will eventually lead to more money to put back into the economy, but for the short term the economy is going to suffer. Not to mention its only a matter of time before the highly leveraged shale guys start to go under. It's going to be an interesting ride the next few months..
Source? Savings rate seems to be going down since June
http://www.tradingeconomics.com/united-states/personal-savings
Saudis are fine with oil at any price for the next two years. Believe it. What many fail to understand is that a lot of the other oil producing countries are budget based economies. This means the state sets a budget based on projected revenues--when there is a shortfall there is a lot of pain. While it may make sense for the countries on a business level to reduce the number of barrels it sells, they are not a business. So instead, they actually pump MORE oil into the system to hit their budgets. Until their budgets are based on much cheaper oil (probably not 2015) I think you will find that the pain will continue, and we could see some shocking oil prices. They will reverse themselves, but only after we witness some significant bankruptcies and pain in the oil sector. Not until OPEC demonstrates their seriousness on owning 40% of the market. Only once OPEC achieves its goal and the other market players behave will we see oil rise. This is not happening soon.
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I am a big believer in not timing investments, but I do think that it is smart to buy on dips. Yes, I hear that oil could go as low as $20/barrel and how this time "is different". I know the economy is too big to predict, but I feel like I'm getting a deal on energy companies (VDE ETF and RIG as a speculative bet). I plan on DCA'ng the next 6 months into them.
Many said that the housing market would take DECADES to come back, but housing turned around in a flash. I'm not necessarily expecting that, but I remember all the reasons they gave about inventory/millenials not wanting to own/moving to cities. Same reasons bears are giving on oil. Also, I don't believe people have long memories...already people are buying more trucks than cars again.
Of course, I could be cursing myself in a year, but hoping for the best!
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I am a big believer in not timing investments, but I do think that it is smart to buy on dips. Yes, I hear that oil could go as low as $20/barrel and how this time "is different". I know the economy is too big to predict, but I feel like I'm getting a deal on energy companies (VDE ETF and RIG as a speculative bet). I plan on DCA'ng the next 6 months into them.
Many said that the housing market would take DECADES to come back, but housing turned around in a flash. I'm not necessarily expecting that, but I remember all the reasons they gave about inventory/millenials not wanting to own/moving to cities. Same reasons bears are giving on oil. Also, I don't believe people have long memories...already people are buying more trucks than cars again.
Of course, I could be cursing myself in a year, but hoping for the best!
+1
...particularly if you're talking about long investment horizons of a decade or more. Big oil companies are well run, and the fact that they're being pooped on right now (read this morning's WSJ) and aren't sexy like AAPL makes me even happier.
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Many said that the housing market would take DECADES to come back, but housing turned around in a flash. I'm not necessarily expecting that, but I remember all the reasons they gave about inventory/millenials not wanting to own/moving to cities. Same reasons bears are giving on oil. Also, I don't believe people have long memories...already people are buying more trucks than cars again.
The other side of that argument is to look at the markets after the financial crisis that have not come back...like banks (especially foreign ones) and some commodities. IMO real estate bounced back because an organization with unlimited resources (the Fed), decided they wanted housing prices back up. Doubtful they will be willing to prop up the price of oil.
I'm not saying the price of oil is going to stay depressed for a decade, but not everything goes back up in a timeframe we would like.
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Many said that the housing market would take DECADES to come back, but housing turned around in a flash. I'm not necessarily expecting that, but I remember all the reasons they gave about inventory/millenials not wanting to own/moving to cities. Same reasons bears are giving on oil. Also, I don't believe people have long memories...already people are buying more trucks than cars again.
The other side of that argument is to look at the markets after the financial crisis that have not come back...like banks (especially foreign ones) and some commodities. IMO real estate bounced back because an organization with unlimited resources (the Fed), decided they wanted housing prices back up. Doubtful they will be willing to prop up the price of oil.
I'm not saying the price of oil is going to stay depressed for a decade, but not everything goes back up in a timeframe we would like.
OPEC still owns about 40% of global oil output, so there are organizations that have seemingly unlimited resources that could (and at some point will) prop up the price of oil.
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Many said that the housing market would take DECADES to come back, but housing turned around in a flash. I'm not necessarily expecting that, but I remember all the reasons they gave about inventory/millenials not wanting to own/moving to cities. Same reasons bears are giving on oil. Also, I don't believe people have long memories...already people are buying more trucks than cars again.
The other side of that argument is to look at the markets after the financial crisis that have not come back...like banks (especially foreign ones) and some commodities. IMO real estate bounced back because an organization with unlimited resources (the Fed), decided they wanted housing prices back up. Doubtful they will be willing to prop up the price of oil.
I'm not saying the price of oil is going to stay depressed for a decade, but not everything goes back up in a timeframe we would like.
OPEC still owns about 40% of global oil output, so there are organizations that have seemingly unlimited resources that could (and at some point will) prop up the price of oil.
Yes, and Yes! That's the problem with prediction...both points are valid. I wouldn't be surprised if oil stays low...as per the charts provided that oil is now where it should be taking into account inflation. HOWEVER, when oil was at $100, most "experts" believed there were good reasons (not speculators) why oil would NEVER go down below $70-$80...emerging countries, rising middle classes, more auto ownership overseas, even if the US produces there will be demand other places, etc. The "experts" didn't see housing able to turn around so quickly, even though they knew that the FED was trying to prop up prices. Why should I believe that they can now predict where oil will be?
My point in buying shares now is that I will never be sure of anything, but at least my downside vs upside does not seem terrible at these prices. What I do know is that in 5 years, wherever oil prices are, all the "experts" will cherry pick all the "obvious" variables why oil prices are where they are (just like they did with the economy collapsing...hindsight is so easy).
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Only a single data point/anecdotal evidence probably, but one of my employer's clients is shutting down their project with us due to low oil prices. They're saying they expect this downturn to last year or two, so they're trimming most of the projects that aren't producing money at this time. Our project with them was cutting edge technology and wouldn't go commercial for another 2-3 years.
This is a highly reputable O&G company, one of the largest privately own US O&G companies. I can't say which one, but due to this, it's starting to sink in that we may be in for the long-haul. This company is extremely O&G market savvy, so if that's what they're doing, I'm taking notice.
I am no expert on this stuff, but I do work in O&G upstream so I have some working knowledge of the current climate. Anyway, my 2 cents.
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I work in Texas and we have several O&G clients. They are all slowing down. I haven't heard of massive layoffs yet but the effects are starting for sure. International drilling in the Middle East is still good but U.S. Is sucking wind.
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Is this a signal, or just noise?
Also, USO hit a 52 week low of $16.30 on 1-29-15.
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Rig counts are falling. The market is creating a bottom as unprofitable fields stop producing at these prices. It is therefore a one way bet to invest in major producers (one way but timing is unknown). Buy now and hold for the next few years and you will likely gain 40% to 50% in capital appreciation (most majors showing about a 30% to 40% drop from recent highs) while at the same time collecting nice (4.5% to 5.5%) dividends. True, dividends may decline for a short period but the majors are reported to be cutting costs sharply to preserve the dividend.The larger shareholders are doing a nice job holding management's feet to the fire to preserve dividends and we smaller investors can freeload on their efforts.
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Cheapest independent oil and gas companies by price to book value, buy the cheapest 30 and sell in 3 years. What could go wrong? :)
http://finviz.com/screener.ashx?v=121&f=ind_independentoilgas&o=pb
Edit: Made a Google Doc of the cheapest 30 stocks last night. You can track performance here: https://docs.google.com/spreadsheets/d/1qLtQav_NFEq44EpTXnOJZvsmHF4oXMczGchSbca0TkU/edit?usp=sharing
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Cheapest independent oil and gas companies by price to book value, buy the cheapest 30 and sell in 3 years. What could go wrong? :)
http://finviz.com/screener.ashx?v=121&f=ind_independentoilgas&o=pb
Edit: Made a Google Doc of the cheapest 30 stocks last night. You can track performance here: https://docs.google.com/spreadsheets/d/1qLtQav_NFEq44EpTXnOJZvsmHF4oXMczGchSbca0TkU/edit?usp=sharing
Love it! Thanks for doing this!
I think it is interesting to see how just the news of oil companies cutting production is moving oil numbers so much the past 2 days. I won't be surprised if this is just a temporary bump. I was actually hoping prices would stay depressed until the summer so I could dca some more $ into oil.
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Cheapest independent oil and gas companies by price to book value, buy the cheapest 30 and sell in 3 years. What could go wrong? :)
http://finviz.com/screener.ashx?v=121&f=ind_independentoilgas&o=pb
Edit: Made a Google Doc of the cheapest 30 stocks last night. You can track performance here: https://docs.google.com/spreadsheets/d/1qLtQav_NFEq44EpTXnOJZvsmHF4oXMczGchSbca0TkU/edit?usp=sharing
Damn it!! I should have gotten in yesterday. Oh wait, I did.
Nice doc there hodedofome.
Edit: Hodedofome, how are you using the term "cheapest", because from the original link if I sort by price, it give a completely different list than what you are tracking in your google doc.
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Cheapest independent oil and gas companies by price to book value, buy the cheapest 30 and sell in 3 years. What could go wrong? :)
http://finviz.com/screener.ashx?v=121&f=ind_independentoilgas&o=pb
Edit: Made a Google Doc of the cheapest 30 stocks last night. You can track performance here: https://docs.google.com/spreadsheets/d/1qLtQav_NFEq44EpTXnOJZvsmHF4oXMczGchSbca0TkU/edit?usp=sharing
Damn it!! I should have gotten in yesterday. Oh wait, I did.
Nice doc there hodedofome.
Edit: Hodedofome, how are you using the term "cheapest", because from the original link if I sort by price, it give a completely different list than what you are tracking in your google doc.
He says in his post: by price to book (P/B) ratio.
The stock price alone gives very little information if anything at all.
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I sorted by price to book value, one of the classic value measures. It's probably listed as P/B. It's by far not the best value measure, but in a diversified list in a scenario like this (a big crash) it'll probably work good enough...I think.
My bro in law, who is a trader at an energy hedge fund, sent me their top 4 holdings a month ago. It's up 35% on an equal weight basis since then.
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Bottom?
$49.09 +/- $2.44 around Jan. 25th +/- 12 days. ;)
last I heard the cost per barrel for Aramco is about $18 dollars. Personal opinion is that the price of oil is currently lower than it "should" be.
/fortunetellingmodeoff
Do we have a winner?
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Bottom?
$49.09 +/- $2.44 around Jan. 25th +/- 12 days. ;)
last I heard the cost per barrel for Aramco is about $18 dollars. Personal opinion is that the price of oil is currently lower than it "should" be.
/fortunetellingmodeoff
Do we have a winner?
lol I want to win! Please let me win !
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Yet another chart comparing the current crash vs others since the '80s. The yellow bars are the size and duration of the current crash. (http://s18.postimg.org/g532bwwmh/wtic_monthly.png)
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Looks like you measured the current crash, and copy/pasted it to the others. Significance of the stars? Maybe similar type of crash (graphically)?? But not similar circumstantially?
Most of the analysis seems to be saying this thing is near done.
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Looks like you measured the current crash, and copy/pasted it to the others. Significance of the stars? Maybe similar type of crash (graphically)?? But not similar circumstantially?
Most of the analysis seems to be saying this thing is near done.
Tip: Never listen to analysts. In December and January they seemed to be saying $45 oil is the future because the Arabs and Russians will flood the market with low cost oil. Now they seem to say its over because rig counts in Texas temporarily dropped. So which is it?
I'm not getting too excited just yet, because I don't think its over this fast.
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Cheapest independent oil and gas companies by price to book value, buy the cheapest 30 and sell in 3 years. What could go wrong? :)
http://finviz.com/screener.ashx?v=121&f=ind_independentoilgas&o=pb
Edit: Made a Google Doc of the cheapest 30 stocks last night. You can track performance here: https://docs.google.com/spreadsheets/d/1qLtQav_NFEq44EpTXnOJZvsmHF4oXMczGchSbca0TkU/edit?usp=sharing
Looks pretty sweet to me, up nearly 30% in a little under two weeks!
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Are we there yet?
I picked up some cheap oil and gas stocks the past months. Did I catch the bottom? Who knows, but I am happy.
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Bottom?
$49.09 +/- $2.44 around Jan. 25th +/- 12 days. ;)
last I heard the cost per barrel for Aramco is about $18 dollars. Personal opinion is that the price of oil is currently lower than it "should" be.
/fortunetellingmodeoff
Do we have a winner?
lol I want to win! Please let me win !
alright, looks like I won that round. who wants a new round? does anyone think there's going to be a second dip in the next few weeks?
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alright, looks like I won that round. who wants a new round? does anyone think there's going to be a second dip in the next few weeks?
I'm with you on this one. I'm pretty sure this is what the fancy pants technical traders will call a "dead cat bounce". Inventories are skyrocketing, production is still going up, and fundamental demand hasn't changed much from a few months ago. The Saudis and Russians are still pumping it out like crazy and willing to sell for low prices for the time being (Saudis because they want to, Russians because they don't have a choice).
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It's entirely possible that the spot price makes another downturn while energy stock prices hold up.
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All of these are huge unknowns, and anyone who tells you they have answer is lying and/or crazy. A few before oil started to drop, many leading analysts said the absolute lowest they could see oil dropping in the near future was around $90/barrel. I promise you when I say no one saw $45/barrel coming.
No one saw the Depression coming. No one saw the Recession coming. No one sees the next bubble nor do they know when that bubble will burst. So the question you need to be asking yourself is not whether we have hit bottom, but are the investments you're looking at trading with a significant margin of safety? In other words, if things can get even worse, how bad will my investment perform? Can it go belly up? Can it withstand a long decline in oil prices? Some of the fracking guys who took on a lot of debt probably can't operate at a profit with oil so low. But others like Exxon, who have huge barriers to entry, a giant global infrastructure, and a diversified business could even emerge stronger.
But yes, I do own XOM stock, and have bought more over the past month.
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Perhaps lets wait for some real pain to set in (small/leveraged/unhedged E&P and oil service companies going bankrupt), energy hedge funds shutting down, wells getting capped, before we start making educating guesses that the bottom is in. If we see some of that, and then you see a headline in a major magazine or newspaper that oil is going back to $10/barrel, I would think the real bottom should be close.
http://www.bloombergview.com/articles/2015-02-16/oil-prices-likely-to-fall-as-supplies-rise-demand-falls
Here you go! The recovery should be in full swing now, haha!
Excellent first post Value. Welcome to the forums.
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Perhaps lets wait for some real pain to set in (small/leveraged/unhedged E&P and oil service companies going bankrupt), energy hedge funds shutting down, wells getting capped, before we start making educating guesses that the bottom is in. If we see some of that, and then you see a headline in a major magazine or newspaper that oil is going back to $10/barrel, I would think the real bottom should be close.
http://www.bloombergview.com/articles/2015-02-16/oil-prices-likely-to-fall-as-supplies-rise-demand-falls
Here you go! The recovery should be in full swing now, haha!
Excellent first post Value. Welcome to the forums.
Thanks and glad to be here! Long time lurker but figured it was time I started bothering people with my thoughts.
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It's been a bit since this thread had some action. I'll revive it here.
There's been lots of talk recently about inventory buildup. Is it normal for the yearly cycle? Who knows. Though generally as the weather warms, inventory drops and prices increase.
Here's the weekly crude inventory from the U.S. energy information administration going back to 2006. They go all the way back to 1990, but I thought it irrelevant.
http://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_w.htm
I made a chart of the data, added the 4 week moving average, and labeled a couple of the peaks.
Looks like we're about 1.5% above the previous all time inventory high hit back in 2010 around October.
This doesn't seem like a doom and gloom scenario. Anyone else think this is odd?
I also added the latest average US gas pump prices.
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I feel confident in calling it now: it won't go lower than $0.00/bbl.
Seriously, this isn't something you can predict. At the same time, you can say with a great deal of confidence the price has to eventually climb and level off around 60/bbl. That is the marginal cost of the swing barrel producers. And that is just how commodity markets work (with lots of volatility on both sides while you wait for rational behavior.)
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I'm not a bottom picker but gun to my head I'll go ahead and say we've seen a good intermediate low for the spot price. Positive divergence (technical trading term, look it up) off the recent low, and the oil stocks did not retest the lows while the spot price did.
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Stats of big reversals in price after an oil price crash (http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/04/crudeoilgainsafter40decline10wickmar31.jpg)
Taken from here: http://blog.kimblechartingsolutions.com/2015/04/crude-oil-50-average-gain-12-months-after-this-took-place/
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Dr Funk,
Oil has been moving the right direction for you since opening this trade. Has your ETF moved in sympathy?
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Small position, but has the potential to pad my returns. I had another position in my wife's IRA account (basis in that account was 2.6), but sold that a week or so ago. There's been a lot of volatility, but no noticeable decay, probably more of a contango issue.
Go big or go home. Oil will probably settle between 60-70 over the summer (IMO). Which should lead to another 50-60% increase for me.
Plenty of opportunity to buy, lots of 5-10% pullbacks over the last few weeks.
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I trade oil, I will play. I got in at $43 bbl (contract nearby) and rode it up to $54 or so. I am now short until a close above $60 bbl happens. How low will it go? Low I hope ($50 bbl?). More $ for me.
I will say this though. Don't play with commodities unless you know what you're doing.
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I trade oil, I will play. I got in at $43 bbl (contract nearby) and rode it up to $54 or so. I am now short until a close above $60 bbl happens. How low will it go? Low I hope ($50 bbl?). More $ for me.
I will say this though. Don't play with commodities unless you know what you're doing.
It is going to be hard for WTI to climb over 60. In the high 50s, a lot of marginal wells come of the "fracklog" and into production. HAL believes there are over 4,000 semi-complete shale wells sitting idle waiting for the right market conditions to frak/complete and put into production. Probably about 650,000 barrels a day...