Cardboard

And since we have this efficiency discussion. Why do we have to continually refuel, re-feed that space station? Do you guys sincerely believe that it could mean a life savior if life was ruined on Earth? Does it really bring new discoveries at the moment? Let's fly an old F-15E from Andrew Air Force Base and blow it up with an anti-satellite missile that we used to have in the 80's during the Star Wars program. Cardboard

Just because one big shot (two with Bozo) launches rockets straight up, you think it is the ultimate formulae. I guess that I should move to Kazakshtan and pledge allegiance to the USSR. Indeed, it took geniuses after World War II to actually figure out that ICBM's were feasible. I just have a mechanical engineering background but, I also know that discoveries will surprise you in the future. I also know that lift and decreasing air friction is a very useful and economical force to get you up to a certain altitude. There was also this guy who planned to make an inflatable 10 mile high tower from which he would launch space flights. Sounds like crazy but, awake me in 10 years time. 10 years ago, I thought a flip-phone was the thing! Cardboard

Meant on the Canadian side since we have only one tax rate on capital gains/losses no matter what the duration. Cardboard

Ok. So what about some kind of plane that is able to take-off. You fuel its external booster once it is at 40,000 feet with a larger plane (like those used by the Air Force). Then it turns the booster switch on and gets into orbit. And since it has ceramic plates on it, it can re-enter the atmosphere. Is that impossible? Seems to me like it would be a much safer, cheaper and reliable way to fly people and payloads than the current method. I can understand all the discussion about the private being more efficient and less prone to corruption but, is this vertical take-off the best and ultimate way? Cardboard

What is different now vs a few months ago is that truly the babies have been thrown out with the bathwater. While I can't identify the names since I am still accumulating some of them, there are small service companies with pretty low debt levels, strong asset backing and even some paying dividends that are available at 1/4 to 1/3 of book value. Almost zero risk of default and they are not directly dependant on the oil price. They are dependant on oilfield activity but, some even have meaningful unrelated operations. These companies will at least double on any kind of recovery since they have been sold so aggressively due fear and this insane tax loss selling which is a myth: on average, all you are doing is delaying your taxes by one year. Is that worth dumping names at any price? The preferred's is another great field for research in Canada. Everything has been dumped from Aimia to Enbridge to BCE, etc. Most preferreds are not oil related but, the general decline in interest rate in Canada is related to what has happened to oil. Cardboard

What they are doing seems incredibly complex and I guess cheaper but, wasn't the space shuttle a more novel idea? They were re-using the space shuttle that was landing on almost a regular airport runway. Both rocket boosters were re-used after they landed in the sea. The only thing that got destroyed was the hydrogen tank. And that was done 35 years ago! This rocket stuff with some still blowing up feels like Sputnik and the Apollo program compared to what I was raised looking at on TV. Cardboard

"Goldman sees oil at $43 in 3 months, $50 in 6 months, $54 in a year" These are Brent and came out last night. Citigroup's Ed Morse is forecasting $55 WTI and $60 Brent by Q4 2016. Same guy that, I suppose, correctly predicted oil trading in the $30's. Now people, these are the two biggest oil bears that I know of. They are now telling their vast clientele with these forecasts that Brent oil will see 50% and 67% appreciation respectively in 12 months. What other asset class offers such potential? With them on board defending their forecast, who is going to be pounding oil daily with negative drumbeat? Cardboard

What about Clinton? Cardboard

Hi guys, She is a wannabe diva but, she had still noticed like most that the oil price had declined. It is just that when non-financial types notice something on TV, like that jaw dropping 65% decline, and find it horrible and would never touch it that we are normally close to a bottom. It would happen often when an old friend would call me to see how I was doing with my investments. They would never ask such thing when things were going well. They would only call to ask about that stuff when mainstream media was talking about a crash or with the general market already down 10%, 20% or more. The inverse works good too. Back at a Christmas party in 1999, one of my friends approached me with an IPO idea. He had never bought a stock in his life (other than employer's plan) but, was convinced that it would double or maybe triple on the open. Most IPO's were at the time. He could not understand that I was not excited at the idea knowing that I was an active investor. Free money he said... I should have also paid more attention to something that I was worried about back in January this year. Two friends of mine, also non-financial types, were asking me how they could invest in oil? They were absolutely convinced that it would rebound. How is it that two uniformed people are so easily willing to put their hard earned money at risk? In fact, it did rebound for a short while but, see how that turned out? I should ask them if they have any interest now? Cardboard

ALERT!!! My ex-girlfriend called last night and said that she saw that the oil price had dropped 65%. Bottom has to be in. When an avid watcher of The Kardashian notices such thing then we are normally at a turn. Cardboard

Russia should not accept to suffer for years. They don't have to. Saudi Arabia Achilles heal, other than their finances and supporting a welfare state, is transporting their oil: super tankers. You restrict that in any kind of way and they cannot compete. They are stuck with their oil. There is a war going on just South of Saudi Arabia in Yemen and the Houthis are friends of Iran. Russia is also a friend of Iran currently. How hard would it be for Russia to supply the right equipment or knowledge to the Houthis to sink a tanker or two right around Aden? Do you also believe that the Russians have forgotten about the West helping that revolution in Kiev? What if they were planting the same seeds in Riyadh? Accusations would be made but, like in Kiev who would know if they were truly behind it? Could not declare war to Russia over that. Or helping some agitation with the Shiites of Saudi Arabia or right where they have their giant Ghawar field? Then the Iranians could come to the rescue of their brothers who are being massacred both in Yemen and Saudi Arabia. Cardboard

For people who are worried about Asian demand for crude, I would keep an eye on copper. Although, copper has its own supply and demand factors, I have noticed that it is on the upswing from its recent low despite the market drama of this week. Like for oil, there has been major supply cuts in the industry but, unlike for oil, demand was truly in question with much reduced construction activity in China. The fact that the price seems to be responding to these supply cuts is encouraging in terms of the world not entering for now into some kind of collapse. Cardboard

http://www.bloomberg.com/news/articles/2015-12-10/opec-says-crude-production-rose-to-three-year-high-in-november This report caused a fair bit of anxiety this week in the oil market. However, I would like to point out two key elements not discussed by pundits: 1- Saudi Arabia production has come down. It is not a large amount vs its recent peak but, two things should be mentioned: - If you have 2 million barrels a day of spare capacity and you want to flood the market to destroy your fellow producers, then why are you showing a decline in output? - Before the summer, it was often mentioned that Saudi Arabia was ramping up capacity and drilling to meet its own internal usage during the very hot summer months. Now that this internal demand is gone, where are the extra barrels? 2- OPEC is stating that the world will need 30.8 million barrels/day of their oil in 2016. That is kind of bizarre when you think about it and when your intention is to gather market share. Why stating a demand number lower than you could supply and that you are already supplying or roughly 31.5 million barrels/day? Why is the world needing only 30.8 million barrels/day of their oil when it consumes roughly 95 million barrels/day and they are the low cost producer? With operations in the Middle East and South America it seems logistically like an illogical statement unless you want to tell the market that this is your new quota. Cardboard

"You digress. Stick to finance lest we get into a spitting match on geopolitics." I don't digress at all. Every action by this administration has been intended to hurt oil in one way or another: Keystone XL, blocking the lifting of U.S. oil export ban, Iran deal, major largess toward renewables (subsidies, Solyndra). It may not have been all in one direction or to increase supply, but the negative effect on it is real. Obama has stated publicly that he would destroy coal and he is well on his way. Oil is the next target but, much tougher to kill. If they are not incompetent, as I alluded in that post regarding the Iran deal, then they have a plan and I think it may look like this: Reduce the price of oil with whatever mean possible (media, false or incomplete information from government sources, large financial partners (Goldman), Saudis, UAE and actions as I have mentioned), so that it hurts enemies (Russia) or a secondary benefit and with much lower price at the pump, will allow for the implementation of a significant new gasoline tax in the name of fighting carbon emissions. What I am mentioning may sound crazy and far fetched, but I would be willing to bet big that Obama will push for that very tax right after COP21 and that it will be one the major stories of 2016. By the way, do you know where that tax is being implemented right now of all places? Alberta! It is only 7 cents a liter or so, but that is a significant percentage and a significant amount coming into government coffers. There is not a single leftist government that would not salivate at the idea. As the oil price returns to its equilibrium and with this new tax, gasoline will become once again very expensive. It will force people to look for smaller cars (opposite of what they are doing now), push car companies to seek more efficiency and of course line up the pockets of Buffett, Musk and all friends of this administration pushing to make money off the back of American people on renewables. Cardboard

What Andrew Hall has to say now about oil? http://valuewalkposts.tumblr.com/post/134865634070/oil-godsays-the-commodity-is-headed-higher Some of the same findings can be found in the Nawar`s report. Cardboard

Inventory down 3.6 million barrels: excellent! Analysts were predicting down 1.2. They show Lower 48 production down 34,000 barrels a day but, that is a joke. Last week it was up 36,000, the week before down 36,000, 2 to 3 weeks in a row before that: flat each week. I think that these guys have not done an evaluation of production in the last 5 or 6 weeks. They work for Moniz the Energy Secretary who has to be the most incompetent in history. Who knows what kind of direction they are getting considering that COP21 is still on-going. He is the guy who blessed the Iran deal with Kerry while these guys are continually breaching U.N. resolutions with two long range ballistic missile tests since signing the deal and sending one of their top general to Moscow. They also showed to the world giant caves full of long range missile launchers. They are also fighting or organizing fights everywhere in the Middle East. The Obama administration is naïve beyond comprehension while their enemy keeps defying and laughing at them. Then they think that they will honor that deal... Cardboard

While everybody has focused on the Lower 48 States production decline or shale since that is where most global production growth has come from over the last couple of years, I think that one of the key going forward is offshore and there is little to no discussion on that. Besides late phase projects in the Gulf of Mexico according to Nawar, this has come to a near halt globally: North Sea, Russian Arctic, Brazil, Shell abandoning major Alaskan project, etc. Offshore is a major source of production and with no new project due to their high cost and reduced infill drilling we should see big decline there for many years out. API reported a 1.9 million barrels inventory decline last night which exceeded analyst estimates. Let's see what EIA brings out at 10:30... Cardboard

Hi Goldfinger, Thank you for bringing up that report from Nawar. This is one of the most comprehensive piece of analysis that I have seen on oil in a long time and well supported from various reputable sources. I have been scratching my head for a few months as to why U.S. oil production was so resilient since it was shale that made it go up so much. There was also reports from States and even the EIA indicating that production from the Bakken, Eagle Ford and Permian was coming down and that they were losing/flattening on their so called "efficiency gains". Even propane inventories (related to NGL's production) were flattening to declining indicating some major slowdown in shale production. So the missing link was new production from the Gulf of Mexico as indicated in this report and this should start to flatten out. Once that finally stops and removes the veil over true shale production, we may start to hear the truth from the media (hopefully) about this so called miracle that ain't so. For anyone who reads financial reports from various companies, you realize very quickly that whenever you stop drilling these shale plays that decline rates are truly around 30% a year. Any slowdown in the number of holes that you put into the ground means a major and almost immediate impact on your current level of production. Check Lightstream for fun which has stopped any drilling since the start of the year! I have never read in any of these companies' reports that 1 rig was now worth 3, no matter how much more efficient drilling/fracking or other technique has become in the last 12 months. Cardboard

So much manipulation going on in this market: One thing that I have noticed and that you can easily see as well if you look at a daily chart of USO. Basically, the oil price moves up or down like you would normally expect until right around 2:00 pm. Then it comes down a fair bit to stop its move down about 10 minutes before 2:30 pm (or when the Mercantile Exchange closes) and then the chart goes dead or like the heart of a dead patient until 4:00 pm. I saw that on so many days recently, it is crazy. Again today but, it was even more obvious on many other days. The difference in volatility is striking. Seems to me like the options/futures major player have found a way to bring back the price to where they like and then suck from weaker hands the contracts premium at the close at 2:30 pm. I don't know however, why and how the price stays there for almost 2 hours. Maybe someone has a better explanation but, after seeing the USO chart all year, I had not seen this dead pattern after 2:15 pm until the close until this Fall. Cardboard

The NA producers may face bankruptcy as you mentioned but, this only means a change of ownership, not a direct or immediate reduction in production. On the other hand, lower prices will lower the incentive to drill for oil via funding and investments and to cherry pick what are lowest cost assets. This is and has already happened. In the end, I have to admit that oil investments are risky here since most companies employ leverage. If you stick with low cost producers and having low debt level normally, you should do fine. However, if countries act crazy and maintain that war for a few years, then even these companies may not make it under a $20 scenario. Makes it uninvestable. One thing that is becoming clear is that Saudi Arabia will be bankrupt in a few years looking at the current price and forward curve. Even if oil was to rebound to $60 and stay there, the deficits are so large that their reserves will deplete very quickly. Their ability to access the global credit market will also be shut down very soon if oil remains this low with bond vigilantes seeing what is happening to their finances. The same is true for a few more countries: Algeria, Nigeria, Venezuela and even Iran. Of course, they could reduce their budget spending but, they have relied so much on that to keep control over a large unemployed population that it would create instability. And to create employment away from oil extraction takes years. So they are ill prepared. I truly don't know what they are thinking since simply pulling 500,000 barrels a day from the market as a group would stabilize oil in the $50-60 level even with Iran coming in. Who in this world believes that the U.S. or other non-OPEC countries would rush to produce more oil at that price? It would remain a difficult situation where only top notch/low cost assets are exploited likely leading to still an overall decline in production. Cardboard

At long last, Canada is finally making a first step to stop having its oil hostage to Americans. This should help narrow the discount vs Brent: http://www.bloomberg.com/news/articles/2015-12-02/enbridge-line-9b-said-to-deliver-crude-oil-to-eastern-canada Regarding the oil price reflecting a safer world this is not accurate IMO. Just a few current examples: 1- Venezuela will have its elections this week-end. The country is on the verge of collapse with inflation running above 100% a year! Civil war is not out of the question. 2- Algeria could turn unstable very quickly. Unemployment is very high and the oil price is hurting them big time. Civil war is not out of the question and ISIS will likely move there at some point. 3- A Russian jet shutdown by a NATO country. I will repeat: a Russian jet shutdown by a NATO country. What is going to be the revenge? 4- Terrorism acts against Russia, France, the U.S. and unfortunately likely more to come. Triple suicide bombers in Nigeria 12 hours ago. 5- Turkish troops in Mosul while Bagdad does not want them there. 6- Saudi Arabia and UAE having invaded Yemen or a proxy war with Iran. And the list goes on and on. So no, I don`t think that the world is any safer today, actually the opposite IMO. The oil price is low because at the current price, producers are willing to pump enough of it to meet demand and there is enough in storage to prevent any fear of a shortage. That is why there is likely zero premium for geopolitically induced shortage. Everything I read points in one direction: plenty for now, not enough tomorrow. Supply outside OPEC is coming down and long lead projects are cancelled on an unprecedented scale. This takes time but, the decline rate never stops working. The IAE predicts the 2nd half of 2016 for the market to be on balance or for demand to start chewing into inventories. That is factoring in a lot of growth from OPEC including Iran and not enough decline IMO from non-OPEC which is 67% of the equation. One of the biggest bear or Ed Morse from Citigroup who was calling for $30 oil, is now calling for $55 in Q4 2016. That is a 37% increase from here. Do you really think that the S&P will or can deliver this much return in the coming year? There is only Goldman left here in the bearish camp among large players. I will admit having no idea what oil will do tomorrow and it could even go to $20. However, the situation is clearly unsustainable if you look out a few years which should be the usual for an investor vs a trader. $60 oil does not seem crazy at all and I am near certain that such level would not trigger a "gold rush" to launch new oil sands projects, resume offshore projects and even develop shale oil. Lower for longer will also mean lower capex for longer. Where did you see huge housing development projects after the housing collapse? Same human nature at work here after a crash: fear, less interest, less funding. There are companies such as Surge Energy and RMP that have very sound balance sheets, low production cost and that trade very cheaply. Oil bearishness, tax loss selling, etc. hurt the price big time. Some can also be found in the energy services space. So depending on how much risk you want to stomach or on how long you think oil will stay down, there are opportunities. Cardboard

Quite often, the stock of a company trading at a depressed level will also have its bonds trade well below par. Taken to the extreme, it would indicate that there is no value left in the common shares when the bonds are trading at 50 cents or below on the dollar due to their higher ranking in the capital structure. Sometimes, it is truly the case and the selection is obvious: buy the bonds and forget about the stock. Sometimes, it looks like that the bonds have as much upside as the surviving stock and once again the selection is easy. However, it is not always that clear cut and there are instances where the bonds trade well below par with the stock looking like a promising investment with a higher return potential. How do you select between the two in these instances? What is your thought process? The question also applies to convertibles and preferreds. Cardboard

http://www.bloomberg.com/news/articles/2015-11-26/surging-fuel-consumption-shows-india-s-economy-picking-up-speed

"lets say, OPEC reduces production to prop up price, price goes up, NA and Canadian producers with marginal cost increase production and the price goes down. So the OPEC and other countries lose market share without gaining anything" I think that this whole line of thinking is wrong because people think $40 OR $100 oil. If Saudis were to cut 500,000 barrels a day tomorrow or OPEC together, oil would not pop to $100 because Iran is still likely on the horizon and other supply/demand factors. However, it would likely go between $50 and $60. Under that scenario, you would still see a mid to long term reduction in NA oil production since there are not enough well locations profitable at these prices (all inclusive cost) to offset declines. Moreover, new oil sand projects would not be funded as well as offshore activity. The appetite by bankers and investors to invest in oil projects barely profitable at $50 or $60 would be very muted. The same would likely apply in the North Sea, Mexico and everywhere else except in the Middle East and Russia (that is also a question mark based on their infill drilling and lack of investment). So depending on how they manage this, OPEC should end up with more market share and more dollars in their pockets. Also, if the oil price does not skyrocket, renewables growth will continue slowing and global demand should keep increasing with a larger population and higher wages. Cardboard

IMO, their biggest problem with stock picking is their love for businesses in secular decline: Canwest Global, Torstar, BlackBerry, Resolute, Tembec, etc. I also agree with a previous poster that being successful at a few macro calls makes you an addict. They need to control that temptation. And some of the hedges that they have carried since 2009 were not assymetric payouts (equivalent of straight shorts). Cardboard