Cardboard
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http://www.reuters.com/article/2015/08/31/russia-venezuela-oil-idUSL5N11632N20150831
Go Putin! Defend the Mother land from your leftist ennemies!
Cardboard
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A major conflict or maybe even WW3, will happen well before any of this deflation thing plays out.
Then you have the Helicopter Ben theory.
Do you guys really think that world powers will let their economies unravel like Japan did for years without doing anything even if it is dangerous and stupid?
Cardboard
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SD,
I am pretty busy right now, but don`t forget that the UAE has already soldiers on the ground around Aden since early August and the Saudis entered from the North late last week.
MORE IMPORTANT!!!
The lies from the EIA are finally being reported by themselves. They could no longer hide the truth that U.S. production had been declining more than their estimates found in their weekly reports. Rail car loads, inventories and State reports simply did not match. Their May and June production now being re-estimated are quite a bit lower than their latest August weekly figure!
That is why oil shot up just before noon.
Cardboard
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No, you are not missing anything. This bubble has been 5 years in the making. If you look at the 5 years before, you can see what such index can do: gone nowhere.
It has been a huge gold rush but, it is very hard to tell when it will break even if it looks like it has since mid-July. This week`s events could be the trigger for the pop and I have found historically that a low point such as the 180$ touched on Monday tends to act as a magnet for securities for some reason. They very often re-test and break that low point.
Although, shorting a bubble is risky and you may want to buy out of the money calls to protect yourself. This period kind of looks like 1998 when oil and emerging markets collapsed, including the Russian default. Then Greenspan lowered rates and printed money to avoid contagion and also for the Y2K bug. The bubble inflated until March 2000 until it finally popped.
What is different this time is that the Fed is thinking about raising rates. However, they could change their mind and even introduce QE4 if things unravel. So when valuations no longer matter as with this XBI, you need to protect your short IMO.
Cardboard
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On the geopolitical side, there is something really bizarre going on.
http://www.startribune.com/russia-s-putin-hosts-middle-east-leaders-at-air-show/322836261/
These are supposedly American's friends. What are they doing in Russia looking to buy warplanes or regular airplanes? Boeing, Airbus, Lockheed anyone???
Also, why did the Saudis promised to invest over $10 billion in Russia recently following an official visit? They are hurting them like crazy with their over-production and making the Siberian-China pipeline a bad project.
Then we have the U.S. currently sending F22's to Europe to send a message to Russia or in support of NATO and at the same time we have a joint naval exercise between Russia and China.
Finally, if it is not scary enough, this stuff! What is true and what is not?
http://www.israelnationalnews.com/News/News.aspx/191966#.Vd0GKZtRFjo
Cardboard
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Honestly, I don't understand these guys strategy.
Like I said before, they have proven that they are unpredictable and can play a nasty game which nobody thought possible before. The previous thinking or that they would defend $85 at all costs is long gone in people's memory.
Based on real storage data and not the IEA crazy and unverifiable numbers (3 million barrels a day surplus), the current imbalance is around 1 million barrels a day. Maybe a bit higher now, since China had showed an import decline of 4% in July from June. Everywhere around the world except for Iraq and Saudi Arabia, we are seeing production declines.
So it would not take a big cut from Saudi's current production to really move the price up and they would obtain a much higher selling total. Moreover, if they are worried about renewables becoming a threat to them longer term, then I would think that the smart strategy would be to harvest as much dollars as possible now and to diversify their economy with these funds.
So you would think that they would want a very high price and to sell as much as possible now. To get that, you cut by 500,000 barrels per day and agree with your friends to cut another 500,000 among them and tell non-OPEC producer that supply will come back fast and furious if they see any increase.
Who in their right mind would invest in offshore, oil sands and even shale oil under such on-going threat? I think we would end up with an industry trying to rationalize, pay off its debt and having no interest in any project that would show more than $40 all-in costs even if oil would rally to $80. I also think in these conditions that you would see a continued non-OPEC production decline which would allow the Saudis and other OPEC members to slowly increase supply.
Cardboard
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I find it a little disturbing that the vast majority of speakers on CNBC keep on reassuring investors. I would have expected to see more panic, and doom and gloom talk yesterday.
Many try to give you the impression that the U.S. is insulated from everything that is going on around the world but, does that make any sense? Where is the growth coming from at most multinationals? We also keep hearing that the U.S. doesn't export much to China except agricultural commodities and some planes. So what are GE, GM, AAPL, PG and others doing over there?
I have also been watching since late last year the large surge in the USD and its potential impact on S&P earnings. It has been a headwind but, so far earnings are slowing but, not declining. Now, we have emerging markets and commodity exporting countries in what looks like major retreat which one would think will impact consumption.
So I guess, I am a bit cautious at this time and I have a hard time understanding why the world was so interconnected since 2008 and now all of a sudden, the U.S. is becoming the only place in the world totally insulated from the outside. Anyone else?
Cardboard
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Honestly, Shilling and Kotok sound as intelligent as the bears who were predicting the S&P to drop to 250 points in early 2009.
Think about this. If I am saying currently that the S&P is now poised to drop 50%, then most people would consider me a fool. However, if I was to predict a 50% drop after it had already dropped 50%, then people would listen to me!!!
"Even bankruptcies, such as KKR's planned filing for Samson Resources Corp., won't reduce output. In bankruptcy, highly leveraged companies shed their debt service, which lowers operating costs. KKR's 2011 buyout of Samson left it with $3.6 billion in debt."
This is totally wrong. In terms of capital structure, it is true that shareholders are wiped out and the business continues. However, to keep output constant in the oil business, you need continued reinvestment. This means re-injecting capital and that is not how bankers and debt holders react facing a bankruptcy. What they will do instead is selling assets and exactly what we are seeing now or extracting at the lowest cost possible from the best assets to repay debts.
The main difference with bankers and current executives is that they will conduct fire sales. All they care about is recuperating as much of the capital that is due to them and as fast as possible. They don`t want to be stuck operating an oil business and facing an uncertain future due to the oil price. And a good portion of these assets will be mothballed by the buyers until higher prices return. They will be able to afford that since they will have been bought very cheaply.
While my last post was pessimistic on oil, there is no doubt in my mind that the current decline in non-OPEC supply will continue and likely will accelerate. Regarding the Saudis and Gulf partners which is by the way the only portion of OPEC supply growth, they cannot possibly supply the world even under a global recession scenario. Reading Shilling comments, an uninformed person comes with the impression that they will simply supply every barrel until all others surrender. So the question that remains unanswered is how much market share do they really want to get to? Right now, they are depleting their cash reserves and oil reserves. This is not sustainable long term. Nobody likes losing money.
I say it is the last remaining question because we know now that rigs are being laid down globally by the more expensive producers and that production is heading down. We also know that bankers and investors are scared to death and will not fund projects going forward unless they are very low costs and that includes all costs. Once that line in the sand is drawn, then the market will be able to forecast what is needed from non-OPEC to rebalance global supply and that should tell us about the cost of the last marginal barrel needed.
Cardboard
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No Uccmal, I am not ready to call a bottom yet.
The fundamentals are not improving fast enough IMO. By now, I would have hoped to see a much larger decline in U.S. production.
We all know that shale is declining fast but, by drilling their best assets and using EOR, it has held quite well unless the EIA estimates are completely wrong. There are also 700,000 barrels per day or so being produced by stripper wells in the U.S. (2-3 barrels per day). It costs as much in maintenance and electricity than they earn in revenues at these prices. They are ran by small operators and for many of these wells, a shutdown means game over since they get filled with water or sand. When will they give up?
Iraq and Saudi Arabia remain big issues in terms of production. They are not respecting at all their OPEC quotas. Then we have Iran that could be coming in soon.
Now, demand is also in question depending on what happens with China. This year demand is strong and will be the largest consumption year ever but, what is 2016 going to bring? Analysts are all forecasting growth in demand for 2016 but, how often have they been right? The global economy is worrisome to me.
Then technically, I think that oil needs to disappear from the front page to see a turnaround. The drumbeat is continually negative and powerful. Something needs to change to switch the attention to something else. A bear market in U.S. stocks would do it.
So I think that I will step back here a bit to wait for fundamentals to get better. And one has to realize that even if oil was to move to a perfect balance or for supply matching demand, it would not prevent bears to point out mountains of oil being exploitable as soon as prices rise a little and bringing back a glut.
Of course, calling the exact bottom is impossible. We may get a strong rebound here since it looks really oversold but, this is gambling.
Cardboard
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Losing hope for a quick revival following this pretty bad EIA report.
I didn't expect a build following the API report last night which showed a decline of just over 2 million barrels in inventory. Now it is up 2.6 million according to the EIA. Gasoline inventories were down 2.7 million which is good but, the bear will point out that the end of the driving season is coming soon. Some of these numbers can be explained by a large BP refinery in the Midwest being down for repairs which may skew the numbers, but this can't explain it all.
More importantly, production remains an issue and being down only 14,000 barrels per day in Lower 48 States is a big problem. While I still think that these estimates from the EIA are a little bogus, it is still way too slow in terms of reduction to make a dent into global oversupply.
So in essence, nobody is cutting production in a meaningful manner and we have demand worries mainly from China and I would argue all emerging markets.
There probably will be a better time to enter later once the dust settles.
Cardboard
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With PCC debt being non recourse, why the dramatic plunge the moment it was called? Is PCC having some strategic value to potential acquirers and now this makes it more expensive or complicated?
Cardboard
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"Don't worry, I'm not prying for help...already have my own views/game plan for oil. Just love getting your thoughts."
Would like to hear from Sanjeev too but, why don't you share your plan?
Seems to me that even dear old Devon didn't save you either. You lost less than many other names but, was there not better opportunities in the meantime?
Cardboard
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http://finance.yahoo.com/news/why-oil-could-primed-huge-202117096.html
I feel so sorry that I did not pay attention to an element like this last Summer. While I was not really a bull on oil since I was simply expecting it to stay more or less in the $85 - $110 range which would have allowed my oil "value plays" to work out their issues. This was a major warning sign that the oil surplus that I knew about would soon matter while it had been previously ignored.
I also had that stupid Leon Cooperman voice in my head always saying that SandRidge would get bought for $10!!!
Currently, it looks like we are at the exact opposite or large shorting and no real long interest. I also have voices in my head talking about oil heading into the low $30's, production that will not slow down anywhere and Iran's oil tidal wave about to hit.
My best guess is that the price of oil has to eventually find an equilibrium in between these extremes.
Cardboard
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Forgot to mention that no one is talking about NGL's or natural gas liquids which is a significant by-product of these oil shale wells and currently produced at around 1 million barrels per day in the U.S. or a significant pie of the 9 million produced each day and a much bigger pie of endless and miraculous shale oil.
This is not crude oil but, propane, butane, pentanes and others. The price for NGL's has pretty much collapsed and other than for some blending, it does not replace crude oil necessary to produce gasoline, kerosene, diesel and heating oil.
So when companies talk about the oil price, they conveniently avoid talking about the price that they are getting for roughly 25% of their production or much lower than WTI. It would be interesting to see what pricing assumptions are made for that stuff in their IRR.
Ethylene, plastic and I guess lighter producers are huge beneficiaries of what is going on.
Cardboard
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http://www.stockwatch.com/News/Item.aspx?bid=U-prDA73114-U%3aCLR-20150805&symbol=CLR®ion=U
This is Continental Resources latest earnings (or lack thereof) press release. I think one needs to read that and compare with what Mauldin has written to realize that some of the elements don't match.
Continental has very high EBITDA margins, some of the best among U.S. shale producers. So you would think that they would be strongly encouraged by technology to keep on drilling. At some of the IRR's stated by Mauldin and the Bakken seeing such improvements in production per rig, why not? After all, Continental drilling and completion costs have dropped 20% and are forecasted to drop another 5 to 10%. However, they are forecasting 2015 exit production to drop 6% from Q2. Why?
In Mauldin's article:
1- It makes no mention of U.S. economical reserves having grown with technology but, still being only about 15% of Saudi Arabia's reserves. Despite horizontal drilling which made U.S. shale oil economical, no new oil fields have been discovered. None. It was all known to be in place in these areas. And now the U.S. is producing almost as many barrels as they are. Sustainable level of production?
2- When you read Continental report, you also realize that despite efficiencies, when fewer rigs are utilized we still end up eventually with lower production as the decline curves would suggest. When you read some of these articles, you are left with the understanding that the 1,000 rigs that have been removed were basically all old and not producing any oil or very little while they were operated by people earning each $100,000 a year!
3- It also makes no mention of producers currently extracting their best and cheapest acreage. What is left after a year or two is logically more expensive acreage to develop. So just to keep costs at par, you will need another big help from technology again. Have you heard of any producer currently drilling in their most expensive acreage or where there is essentially less oil per acre?
4- The reason that drilling and completion costs are coming down the most according to Continental are due to lower service costs or rates. This is a one-off. Another 5 to 10% is expected by year end from additional service cost cuts and efficiency gains . The latter or 2-3%? is the technology impact. So if drillers retire unwanted rigs and unemployed crews go find other work, the one-off should disappear overtime as rates will go back up. We will need again a big boost from technology to counter that.
5- What is it with the high level of property impairments on Continental income statement? This is basically money that was invested to generate a certain return and it is no longer the case. Please notice that these impairments were also occurring prior to the oil price drop or in Q1 and Q2 2014. Is there something nefarious going on here to make cash costs look better than they truly are?
But, they are not too bad, Devon Energy wrote off $4 billion in Q2 and $5.5 billion in Q1. I guess a lot of reserves are no longer worth the investment that were made into them. So much for the long term belief in ever improving technology which should have made costs go down dramatically and keep these reserves profitable or looking at their discounted cash flow model!
6- "...it was the result of new technologies that make recovering large quantities of oil and gas less expensive than ever." It is pretty expensive by my count, when the most optimistic he could find stated better than break even at $40. And later in the article he states: "Right now, some US shale operators can break even at $10/barrel." Who are they please and why you stated prior in the article that the most optimistic said breakeven at $40?
7- "The same process that doubles the power of your smartphone every couple of years without raising its price, is also unfolding in the energy business." While I agree that new technologies will help costs, I don't see Moore's law applying to oil & gas extraction. Horizontal drilling allowed to extract oil that could not be extracted prior. It is a one-off improvement. Once that oil is extracted, the game is over no matter what technology you are finding in the future. It is gone.
8- There is also no mention that the Permian has been the most resilient in terms of production and rigs usage while you would think by the chart or production per rig that this is the most inefficient place to operate in the U.S. Why? Why in the world is Continental considering removing more rigs from the Bakken at such high production per rig and lower costs per well?
IMO, U.S. production has already benefited from all the elements mentioned in the article and is now on the decline. All these things have only retarded the decline by roughly 3 months IF we are to believe the estimates from the EIA which do not match railcar loadings and States data which would have roughly match the expected timing from analysts.
Nearly all North American oil & gas extraction companies are unprofitable at these prices. They have cut costs, received concessions from drillers and other suppliers, harvested their best lots and found some new tricks to be more efficient but, despite all that, they cannot earn a profit at these prices. The banks and debt investors are not crazy either with bank lines having been tightened and credit being now expensive which has led to massive capex cuts despite the financial shenanigans being played with IRR, cash costs and EBITDA to reassure nervous stock investors.
Cardboard
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XBI or the Biotech ETF looks like a phenomenal short.
Cardboard
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I am bipolar Al... Lol
Seriously, I believe that commodities were the canary in the coal mine and suffered well ahead of economic news showing up: mainly China. That is something that I suspected last Fall and unfortunately was right. I think that they will rebound well ahead of others since they have already been through a massive bear market and are already adjusting accordingly with capex and cost cuts. Demand is also pretty strong for oil. It is a necessity. However, I will admit that PWT may not survive depending on timing.
For the rest of the market, bargains are really scarce. I look at a ton of names and rare are those with low P/E's, solid balance sheet and a good growing business. I see leverage, bad news and often bad businesses. The market can keep going up but, this high USD with the rest of the world slowing down is not good for multinational earnings and I doubt it is good for the rest of the smaller U.S. names.
I sense lots of headwinds ahead. That is all. And if they want the market to go down (hedge funds, Goldman, etc.), then I guess I need a portion of my portfolio on that side. I am fed up of hoping. I want to become ruthless! LOL.
Cardboard
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I think that the lesson from 1999-2000 is that you need to look for the smaller, less used or useful companies to disappear and not the top dogs.
I thought back then that Amazon, Yahoo and EBay where all overvalued but, would still exist in the future. The bubble finally popped and they all went down but, these ones did go back up unlike a myriad of others who disappeared with their bad business model.
So I would not bet against Netflix, Facebook, Twitter or LinkedIn. They may go down a lot in a crash but, are likely to pop back up eventually with their earnings growth or by being acquired. On the other hand, it would be nice to find a list of not so well known wannabe's. That is where the 90% + losses will be.
Biotech is also an interesting short. I remember that you could not give away Pfizer or Merck about a decade ago. The fear was that their pipelines were running empty and that they would face generic competition on all their most profitable drugs due to patent expiration. How that has changed!!!
Cardboard
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We have already: what are you buying and what are you selling, now what about a thread on bearish holdings?
For my part, I am considering buying TZA (or 3X bear Russell 2000) and I am looking for an assymetrical bet on long term U.S. treasuries (yield on 10+ year treasuries heading way down).
The market mood has changed dramatically and even good news and earnings beat is now seen as negative. There are a few momentum names challenging that trend and keeping up the index, but the S&P 500 has been going sideways for around 9 months and the list of 52 week lows is growing while the 52 week highs is shrinking.
I hate macro bets but, it looks nasty going into this Fall. Almost every earnings report that I see is filled with uncertainty and often hidden bad news. And as I mentioned, even the ones that do beat seem to get a yawn reaction from investors.
Cardboard
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The IPhone or other smart phones is a terrible invention in some ways. I tend to wake up early nowadays or around 5 am, not even wanting to, in order to do what? To take a look at the futures, news and commodities! Then I try to fall back asleep and you can imagine how this goes when everything is in the red! Then when I am finally ready to get out of bed, I take another look at the news and quotes which will setup my mood for the morning...
Then I check it multiple times each day and do track my portfolio value at the end of each trading day. Honestly, I think it is very bad. You get stressed and when the portfolio is not at least performing in line with the market, you worry and think about all kinds of solution: not all solutions!
It is a problem that I need to fix. I guess at the beginning it was seen as an improvement or trying to be more informed at all times. However, when you do realize that trades are placed faster than you can digest almost any new information then it becomes useless.
Cardboard
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There is way too much money chasing too few investments. So the inflation is in the investable market. Anything that earns a yield.
The people who have money don`t know where to invest it and already have pretty much all the goods they need. So they chase yield.
The people who don`t have money can`t spend on more goods since they are tapped out and are seeing no real wage increase. They also can`t borrow which reduces the world of investable assets.
IMO, Quantitative Easing other than stabilizing markets has not trickled down to the average Joe. However, it surely helped many keep their jobs. Unless they can find an acceptable way to get money directly in the hands of poorer people or the disappearing middle class, I have a hard time seeing how this cycle can heal itself.
Cardboard
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Jeffrey Gundlach predicted $1,400 gold in 2015 today. He also said that the U.S. market does not like a high US$ (lowers multi-national earnings) and that the Fed while thinking of raising rates may not because of deflation fears.
This guy is more right than wrong IMO. Worth listening to.
Cardboard
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The other problem with the CPI index is that governments have been specialists at including items in that basket of questionable value to reduce readings of inflation over time. This was keeping people quiet in terms of demanding wage and pension increases.
What if they do the opposite going forward to prevent people from thinking that goods will get cheaper in the future and to prevent the economy from tumbling?
Cardboard
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This article is all false. It was not true in February that only 9% of rigs taken out were in Eagle Ford, Bakken and Permian. It was the majority! They are well indicated by area in every Baker Hughes report.
Cardboard
How do you block ads on websites?
in General Discussion
Posted
Maybe it is not the solution but, it seems that my computer is ultra slow to upload some pages. Especially when they have all these video ads. And you can't do anything until it is fully loaded. Yahoo Finance has become unreal recently. Anyone else?
Sometimes my computer, which has Windows 10, gives me a message at the bottom of my screen that the website has a long script being run.
I am supposed to have high speed internet and the ping test with my cable operator is really good according to them. So what is it?
Thanks
Cardboard