opihiman2 Posted August 12, 2015 Posted August 12, 2015 I hate to rub it in, but why were people plying into oil companies on here when oil was priced at ALL TIME adjusted highs??? I have to ask again, because what happened to the critical thinking on this board?? And now, when companies are priced to perfection amongst excess liquidity, why are you guys still buying equities? Where are people finding true value nowadays? Because, besides the USD, I can't find anything worth buying.
jawn619 Posted August 12, 2015 Posted August 12, 2015 I read nothing in your post about buying business in relation to what they earn, just in relation to their past prices. Show me the value
StubbleJumper Posted August 12, 2015 Posted August 12, 2015 Interesting. I never perceived this board as being particularly "pro-petroleum". If there were a few threads on petroleum producers and service companies, it might have been because there are so many Canadians participating on this board and oil has been a very big part of the Canadian equity market. But that hardly makes oil a fixation for most of us.
sculpin Posted August 12, 2015 Posted August 12, 2015 ---Critical thinking?? --- Please provide a detailed cash flow valuation for your suggestion that the US $ is a good buy? https://en.wikipedia.org/wiki/Schadenfreude --- Self explanatory In summary --- http://www.urbandictionary.com/define.php?term=douche I hate to rub it in, but why were people plying into oil companies on here when oil was priced at ALL TIME adjusted highs??? I have to ask again, because what happened to the critical thinking on this board?? And now, when companies are priced to perfection amongst excess liquidity, why are you guys still buying equities? Where are people finding true value nowadays? Because, besides the USD, I can't find anything worth buying.
tede02 Posted August 12, 2015 Posted August 12, 2015 I don't know anything about "all the oil bugs on this site," but I've found it interesting that Buffett has been pretty horrendous with his own timing of oil investments. As I recall, he bought Conoco Phillips in 2008 around the time oil was peaking. More recently he bought a big chunk of Exxon when oil was over $100 per barrel. Figuring out the direction of commodities in the short run seems to be an impossible task. But it is interesting looking out decades. Population estimates are generally very accurate as I understand it. The world is projected to have an additional 2 billion people by mid century. Its hard to imagine that not putting significant upward pressure on commodity prices over time. But year to year seems impossible to predict.
thepupil Posted August 12, 2015 Posted August 12, 2015 Thanks for the responses, guys. It has been interesting times these past 2-3 years. It will be even more interesting to see how things turn out in another 10. I am in the overvalued camp and have trimmed all of my holdings. I believe we will face a stagflationary environment in the coming years with high commodity/material prices and rising interest rates. Although, we'll see, gentlemen. We will see. macro is hard, right? as for oil, we will see. I'm on this board a lot. On every oily thread there seem to be at least a couple bears or naysayers, even back in the initial $100-$80 move, it seemed like there were a few guys warning of more pain. I don't think there is a very strong pro-oil bias here.
fareastwarriors Posted August 12, 2015 Posted August 12, 2015 Well my fellow Americans doing their role to help prices by driving move and buying bigger cars like SUVs and trucks in droves.
Guest wellmont Posted August 12, 2015 Posted August 12, 2015 post from the future --- WTF were you doing speculating in currencies?!!?! :)
EliG Posted August 12, 2015 Posted August 12, 2015 Thanks for the responses, guys. It has been interesting times these past 2-3 years. It will be even more interesting to see how things turn out in another 10. I am in the overvalued camp and have trimmed all of my holdings. I believe we will face a stagflationary environment in the coming years with high commodity/material prices and rising interest rates. Although, we'll see, gentlemen. We will see. thepupil, thanks for the laugh. :)
TwoCitiesCapital Posted August 12, 2015 Posted August 12, 2015 Thanks for the responses, guys. It has been interesting times these past 2-3 years. It will be even more interesting to see how things turn out in another 10. I am in the overvalued camp and have trimmed all of my holdings. I believe we will face a stagflationary environment in the coming years with high commodity/material prices and rising interest rates. Although, we'll see, gentlemen. We will see. macro is hard, right? as for oil, we will see. I'm on this board a lot. On every oily thread there seem to be at least a couple bears or naysayers, even back in the initial $100-$80 move, it seemed like there were a few guys warning of more pain. I don't think there is a very strong pro-oil bias here. +1 x 10000 Also, my entire income and the majority of my savings are in USD. I don't mind diversifying some of my exposure into commodity companies that have fallen 60-90% in currencies that have fallen 30-50%.... A strong USD may be the near to mid-term play, but many emerging markets have better demographics and better balance sheets than the rest of the globe and it certainly doesn't seem like a bad idea to be buying them at decade lows for the long-term.
ni-co Posted August 12, 2015 Posted August 12, 2015 I think discussion on this site was very reasonable. People here are looking for cheap assets – so why not looking into the oil sector? Personally, I think it's still to early because we really haven't seen large companies coming into financial difficulties and the forward curve is still predicting higher oil prices. In the short to mid term lower oil prices seem to have a tendency to self-reinforce because of producer countries fighting for market share. In the long term however, to quote Zach Schreiber and Stan Druckenmiller, "low oil prices are the cure for low oil prices". But timing this decline is a risky endeavor. I've never quite understood why Buffett thinks that commodity producers are in his circle of competence while denying the predictability of global macro environments. The two are so closely linked. Yes, the company with the lowest cost of production wins in the end, but there can be several years with negative cash flows bringing even low-cost producers into very dangerous situations. And I don't think that he'd accept those risks in other sectors.
SharperDingaan Posted August 12, 2015 Posted August 12, 2015 We find the angst somewhat amusing. Oil prices are cyclical. And because they ARE cyclical we know, with certainty, that tomorrows price will not be the same as todays. To invest is to simply be comfortable with the idea of arbitraging uncertainty over time. Today’s dog (Gold @ $350) is just tomorrows star (Gold @ $3500). All those OPEC nations need higher prices to fund their various social programs and wars. We have great confidence in the self-interest, and ability, of those regimes to remain in power. We also have great confidence in the laws of supply and demand, and reservoir engineering. Everywhere in the world, the CAPEX cost of maintaining production goes up as reservoirs progressively move through their various stages of production. Even in Saudi Arabia, and Iran. Petro dollar recycling was a wonderful invention; most recognize that petro yuan recycling would be a similar invention. Traditionally you exchange weapons for oil, & let the resultant tension add to the commodity price - in a virtuous circle. If all you did was simply trim (if even necessary) & hold, it is pretty hard to see how you would not do well. Nothing to do with being bullish or bearish. Corruption and self-interest work far better! SD
Parsad Posted August 14, 2015 Posted August 14, 2015 We find the angst somewhat amusing. Oil prices are cyclical. And because they ARE cyclical we know, with certainty, that tomorrows price will not be the same as todays. To invest is to simply be comfortable with the idea of arbitraging uncertainty over time. Today’s dog (Gold @ $350) is just tomorrows star (Gold @ $3500). All those OPEC nations need higher prices to fund their various social programs and wars. We have great confidence in the self-interest, and ability, of those regimes to remain in power. We also have great confidence in the laws of supply and demand, and reservoir engineering. Everywhere in the world, the CAPEX cost of maintaining production goes up as reservoirs progressively move through their various stages of production. Even in Saudi Arabia, and Iran. Petro dollar recycling was a wonderful invention; most recognize that petro yuan recycling would be a similar invention. Traditionally you exchange weapons for oil, & let the resultant tension add to the commodity price - in a virtuous circle. If all you did was simply trim (if even necessary) & hold, it is pretty hard to see how you would not do well. Nothing to do with being bullish or bearish. Corruption and self-interest work far better! SD +1! I was a bear when Jeff Rubin was predicting and writing about $200/barrel oil. People told me I was wrong then. Today, I'm watching people pour out of oil, and it has done nothing except to get me titillated and excited. If you think oil will be permanently at $40 or less per barrel, you are out of your mind. Cheers!
KinAlberta Posted August 14, 2015 Posted August 14, 2015 Wasn't Berkshire among those buying oil companies? Additionally, the oil price drop may have been due to fundamentals, however it sure seemed like a change in Saudi policy drove the price down. Lastly, who's to say that oil companies weren't on sale at last year's prices and now represent deep value.
wachtwoord Posted August 14, 2015 Posted August 14, 2015 Wasn't Berkshire among those buying oil companies? Additionally, the oil price drop may have been due to fundamentals, however it sure seemed like a change in Saudi policy drove the price down. Lastly, who's to say that oil companies weren't on sale at last year's prices and now represent deep value. No matter what the truth is BRK made a mistake (either the purchase or subsequent sale) as long as they are dealing with similar information as us. If they have inside information from the Saudis or OPEC for instance their weird move can be explained. My portfolio heavy on oil now, although I mostly focus on pipeline companies such as SE, limited partnerships such as SEP and WPZ and service companies such as NOV because these are less exposed to oil pricing than most companies in the sector and seem to be similarly discounted.
muscleman Posted August 14, 2015 Posted August 14, 2015 We find the angst somewhat amusing. Oil prices are cyclical. And because they ARE cyclical we know, with certainty, that tomorrows price will not be the same as todays. To invest is to simply be comfortable with the idea of arbitraging uncertainty over time. Today’s dog (Gold @ $350) is just tomorrows star (Gold @ $3500). All those OPEC nations need higher prices to fund their various social programs and wars. We have great confidence in the self-interest, and ability, of those regimes to remain in power. We also have great confidence in the laws of supply and demand, and reservoir engineering. Everywhere in the world, the CAPEX cost of maintaining production goes up as reservoirs progressively move through their various stages of production. Even in Saudi Arabia, and Iran. Petro dollar recycling was a wonderful invention; most recognize that petro yuan recycling would be a similar invention. Traditionally you exchange weapons for oil, & let the resultant tension add to the commodity price - in a virtuous circle. If all you did was simply trim (if even necessary) & hold, it is pretty hard to see how you would not do well. Nothing to do with being bullish or bearish. Corruption and self-interest work far better! SD Which oil stocks do you long right now? :) I have some concerns with "the laws of supply and demand", because that assumes that supply and demand tend to go toward equilibrium. However, when oil prices drop, the companies have no choice but to increase production, to keep the Debt/EBITDA not to breach the debt covenant. If you check the recent few months' US Oil output, it is actually increasing instead of decreasing. When oil prices drop, the companies increase production before they are forced to reduce production by bankruptcy. This makes the bottom of oil prices a bit further away than the "the laws of supply and demand" believers expected. Eventually it will form a bottom. I am sure about that. But I am in no rush to bottom fish right now. :) Another note: Oil was less than $20 back in 2002. China had huge economic growth and a lot of the oil price increases likely come from there. Right now China is having problems and all the factory output decreased by over 20% this year. The other countries like India and Brazil will likely rise and replace the oil demand, but that takes years.
TwoCitiesCapital Posted August 14, 2015 Posted August 14, 2015 We find the angst somewhat amusing. Oil prices are cyclical. And because they ARE cyclical we know, with certainty, that tomorrows price will not be the same as todays. To invest is to simply be comfortable with the idea of arbitraging uncertainty over time. Today’s dog (Gold @ $350) is just tomorrows star (Gold @ $3500). All those OPEC nations need higher prices to fund their various social programs and wars. We have great confidence in the self-interest, and ability, of those regimes to remain in power. We also have great confidence in the laws of supply and demand, and reservoir engineering. Everywhere in the world, the CAPEX cost of maintaining production goes up as reservoirs progressively move through their various stages of production. Even in Saudi Arabia, and Iran. Petro dollar recycling was a wonderful invention; most recognize that petro yuan recycling would be a similar invention. Traditionally you exchange weapons for oil, & let the resultant tension add to the commodity price - in a virtuous circle. If all you did was simply trim (if even necessary) & hold, it is pretty hard to see how you would not do well. Nothing to do with being bullish or bearish. Corruption and self-interest work far better! SD Which oil stocks do you long right now? :) I have some concerns with "the laws of supply and demand", because that assumes that supply and demand tend to go toward equilibrium. However, when oil prices drop, the companies have no choice but to increase production, to keep the Debt/EBITDA not to breach the debt covenant. If you check the recent few months' US Oil output, it is actually increasing instead of decreasing. When oil prices drop, the companies increase production before they are forced to reduce production by bankruptcy. This makes the bottom of oil prices a bit further away than the "the laws of supply and demand" believers expected. Eventually it will form a bottom. I am sure about that. But I am in no rush to bottom fish right now. :) Another note: Oil was less than $20 back in 2002. China had huge economic growth and a lot of the oil price increases likely come from there. Right now China is having problems and all the factory output decreased by over 20% this year. The other countries like India and Brazil will likely rise and replace the oil demand, but that takes years. The cost to produce oil back in 2002 was also likely lower (though I haven't checked). I think you're right to a certain extent that some producers will increase production to maintain debt service levels even if it isn't economic to do so. Those players will likely go bankrupt, but that certainly doesn't describe the sector as a whole. It was my understanding the increase in production was from wells that were already in progress in 2014 when the oil prices started to drop - they're not going to shut down and fire a ton of people on a nearly completed project because oil prices are volatile. What they will do is severely limit spending on new projects until the price catches back up - it could be a year or two before the reductions in CapEx, drilling, and exploration flow through to lower supply.
SharperDingaan Posted August 15, 2015 Posted August 15, 2015 Which oil stocks are you long right now? Full weighting to PWT, & a half weighting to PD that is 100% hedged; with both in tax deferred/tax exempt accounts. We will most likely go back to a full PD weighting over the tax loss selling season. Net of reinvested house money, we are taking very little risk. We see these as being akin to ships bound for the new world. Stand alone investments, big enough to matter if they come in; but where we can afford to lose one or two along the way if the worst happens. Hence our higher risk interest in O/G, Greek/Spanish banks, UK property, commodities, etc. SD
Palantir Posted August 15, 2015 Posted August 15, 2015 Today, I'm watching people pour out of oil, and it has done nothing except to get me titillated and excited. If you think oil will be permanently at $40 or less per barrel, you are out of your mind. Cheers! Oil may not be forever at $40, but some of these companies might not be alive to see oil > $40. Not to mention the companies whose valuations implied >$90 oil for the foreseeable future now have impaired profitability and growth prospects. Just because valuations are low now doesn't mean they are good investments! Just watch and wait as their hedges roll off...
ni-co Posted August 16, 2015 Posted August 16, 2015 Expect oil prices to go much lower for longer before we see any meaningful bankruptcies. John Mauldin wrote an interesting article about the advancements in shale oil production: http://www.mauldineconomics.com/frontlinethoughts/riding-the-energy-wave-to-the-future
kfh227 Posted August 16, 2015 Posted August 16, 2015 I want to start reading up on the petro dollar and if the world is really going to go off it (some argue it already has) and what the impacts on the US dollar would be. People are arguing about he wrong thing. The price of oil has nothing to do with shale extraction techniques or any of that other crap. It is a proxy to the US dollar. PERIOD.
SharperDingaan Posted August 16, 2015 Posted August 16, 2015 Good article. Keep in mind that there are few rigs that can do this, & their higher day rates typically do not get discounted. The drill savings come from fewer days on site, & less downtime (plus associated costs) while drilling. The oft quoted day rate for rigs is also a weighted average rate of varying rig quality; the large quantity of progressively deeper discounted rigs swamps their presence. For OPEC members to get their costs down, they need to go to secondary production; it would lower their production costs to around USD 40-60/bbl – and greatly increase the volume they could supply. The primary issue is that at USD 40-60/bbl, shale production is economic - & the stuff is pretty much everywhere. Without USD100+ oil most ME states will ultimately undergo regime change, as they become progressively less able to fund their social obligations. The required reservoir production know-how is western; and it is in the market interest to break cartel control, by developing more abundant shale - ahead of secondary stimulation of ME oil fields. Ultimately, the best compromise is a return to USD100 oil, reinvestment in both ME oilfields & shale production, and diversification through state investment in the globes various oil patches. Long term oil at USD40-60, as GS has been promoting. Shale economics, as per the article. Russian moron commentary at the recent OPEC conference. Each group correct within their silos, each silo pointing to a similar compromise. SD
berkshire101 Posted August 16, 2015 Posted August 16, 2015 CLB's management said on the recent conference call that Russia and Middle East production increases are unsustainable. This is what's they said: "If we look at just production levels in the Middle East, you have all countries producing at, what we would think, would be maximum amounts of the amount that they can prove, very little spare capacity there. These are carbonate reservoirs. One of the dangers of producing maximum amounts, from carbonate reservoirs, is you start drawing larger amounts of water. And we would think, at the levels at which we see production throughout the Middle East, that they would be in danger if they continue with those levels, for producing larger amounts of water. And, one of the things about producing water from carbonate reservoirs, once you start producing larger amounts of water, you always produce larger amounts of water, even at reduced production levels. We know these guys are pretty sharp there and that, the statement of we do not believe that those are sustainable, are tied to water production levels." Folks at CLB are projecting higher oil prices towards the end of the year. They're saying they see a V-shaped recovery.
orthopa Posted August 16, 2015 Posted August 16, 2015 Im in the camp that oil will eventually will be higher in the future. I of course have no idea when or by how much for how long. I am comfortable though holding a diversified major like BP/CVX/XOM at current prices. They seem committed to the dividend (well aware that may change) and have diversified sources of revenue as well as the ability to cut costs to cover the dividend. Since these companies spend so much a say 10% cut in spending would cover ~30% of the dividend. The lower cap ex not only cushions the dividend but reinforces lower output over time. Im happy with a 6.6%ish dividend from BP with chance of upside.
Vish_ram Posted August 16, 2015 Posted August 16, 2015 Im in the camp that oil will eventually will be higher in the future. I of course have no idea when or by how much for how long. I am comfortable though holding a diversified major like BP/CVX/XOM at current prices. They seem committed to the dividend (well aware that may change) and have diversified sources of revenue as well as the ability to cut costs to cover the dividend. Since these companies spend so much a say 10% cut in spending would cover ~30% of the dividend. The lower cap ex not only cushions the dividend but reinforces lower output over time. Im happy with a 6.6%ish dividend from BP with chance of upside. We've had two WW, industrialization of developed countries, and yet oil prices never budged. https://upload.wikimedia.org/wikipedia/commons/b/b0/Crude_oil_prices_since_1861.png The jump in 70's can be attributed to oil embargo and '07 to supply adjusting to chinese demand. In long run, shouldn't oil mean revert?
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