Oil, wow, WTF happened to all of the oil bugs on this site?

[rkbabang]

If oil finds itself in the mid-20s, I'd strongly consider buying straight up oil. Anybody have suggestions on how best to do this? ETF?

 

50 gallon drums and some self storage space?

 

If that proves impractical I found this: http://etfdb.com/type/commodity/energy/crude-oil/

[Pelagic]

Anyone else see this?

 

http://www.economist.com/news/middle-east-and-africa/21685529-biggest-oil-all-saudi-arabia-considering-ipo-aramco-probably

 

Could be an interesting investment opportunity depending on how much negative sentiment still exists when/if they decide to IPO.

[Uccmal]

Anyone else see this?

 

http://www.economist.com/news/middle-east-and-africa/21685529-biggest-oil-all-saudi-arabia-considering-ipo-aramco-probably

 

Could be an interesting investment opportunity depending on how much negative sentiment still exists when/if they decide to IPO.

 

I laughed when I saw it today.  A dictatorship that routinely executes people for no reason, and is near the front lines of at least 2 wars wants me to trust them.  Next on the news:  Kim Un steps down and holds open elections in North Korea; Robert Mugabe gives his stolen fortune back to the people; Pres. Assad steps down and says "ooops, Sorry I caused all that inconvenience and death".

[goldfinger]

Anyone else see this?

 

http://www.economist.com/news/middle-east-and-africa/21685529-biggest-oil-all-saudi-arabia-considering-ipo-aramco-probably

 

Could be an interesting investment opportunity depending on how much negative sentiment still exists when/if they decide to IPO.

 

I laughed when I saw it today.  A dictatorship that routinely executes people for no reason, and is near the front lines of at least 2 wars wants me to trust them.  Next on the news:  Kim Un steps down and holds open elections in North Korea; Robert Mugabe gives his stolen fortune back to the people; Pres. Assad steps down and says "ooops, Sorry I caused all that inconvenience and death".

I wouldn't mind buying tobacco stocks but not Saudi companies...

[investor-man]

If oil finds itself in the mid-20s, I'd strongly consider buying straight up oil. Anybody have suggestions on how best to do this? ETF?

 

50 gallon drums and some self storage space?

 

If that proves impractical I found this: http://etfdb.com/type/commodity/energy/crude-oil/

 

USO looks interesting. Morningstar has their expense ratio listed higher than what's reported on that website.

[goldfinger]

IMO, the most dangerous opportunities, and likely the most profitable, are Canadian E&P's: PWT, GXE, BXE come to mind. SGY and RMP would be safer but, less upside. The CDN$ is a wonderful hedge for all of them vs their U.S. counterparts although, you have to look at their debt too since some have U.S. $ debt.

 

Cardboard

 

What do you think of Baytex? They have no maturity coming until 2020 I believe and have significant assets to divest in case. Also their valuation has finally crashed to levels comparable to other levered, depressed and comparable oil names.

[Uccmal]

http://www.bloomberg.com/news/articles/2016-01-11/morgan-stanley-sees-20-a-barrel-oil-on-u-s-dollar-appreciation

 

I am not grasping something here.  Why would the oil price drop on US dollar appreciation?

 

Comments...

[petec]

http://www.bloomberg.com/news/articles/2016-01-11/morgan-stanley-sees-20-a-barrel-oil-on-u-s-dollar-appreciation

 

I am not grasping something here.  Why would the oil price drop on US dollar appreciation?

 

Comments...

 

I'm not sure the argument is based on why so much as on past correlation.

[Uccmal]

http://www.bloomberg.com/news/articles/2016-01-11/morgan-stanley-sees-20-a-barrel-oil-on-u-s-dollar-appreciation

 

I am not grasping something here.  Why would the oil price drop on US dollar appreciation?

 

Comments...

 

I'm not sure the argument is based on why so much as on past correlation.

 

Yeah, Thats kind of what I thought.  Flight to safety in an uncertain commodity environment.  Otherwise, I see no discernible logic behind the thesis. 

[Uccmal]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

[rkbabang]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

 

Interesting chart.  Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52.  If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually.  If you were waiting for a reversion to the mean in 1986 you would have waited a long time.

 

http://inflationdata.com/articles/wp-content/uploads/2014/05/Inflation_Adj_Oil_Prices_Chart2.jpg

[investor-man]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

 

Interesting chart.  Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52.  If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually.  If you were waiting for a reversion to the mean in 1986 you would have waited a long time.

 

 

Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above?

[ni-co]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

 

Interesting chart.  Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52.  If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually.  If you were waiting for a reversion to the mean in 1986 you would have waited a long time.

 

 

Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above?

 

Howard Marks: "You have no idea about future price of oil"

 

http://www.bloomberg.com/news/videos/2015-10-06/howard-marks-you-have-no-idea-about-future-price-of-oil

[investor-man]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

 

Interesting chart.  Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52.  If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually.  If you were waiting for a reversion to the mean in 1986 you would have waited a long time.

 

 

Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above?

 

Howard Marks: "You have no idea about future price of oil"

 

http://www.bloomberg.com/news/videos/2015-10-06/howard-marks-you-have-no-idea-about-future-price-of-oil

 

meh, you've got no idea what the future price of anything is. At $20 not even Saudi Arabia is getting good economics from oil. I don't see it going much below that for an extended period of time.

[rkbabang]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

 

Interesting chart.  Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52.  If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually.  If you were waiting for a reversion to the mean in 1986 you would have waited a long time.

 

 

Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above?

 

 

No.  I've never invested in oil directly and am afraid it is way out of my circle of competence.  Commodity trading in general is something I've never done, but with oil you also have international politics factored in there as well effecting things in ways that are difficult to predict.  If it continues to drop I might change my mind though, it does seem like it is getting crazy cheap and the ETF route seems to me the best way to invest.

 

[Valuebo]

What's it going to take for people to realize that they were dead wrong? The game changed, move on. :) "If if if..." isn't an investment case, the price is what it is.

[SharperDingaan]

http://www.bloomberg.com/news/articles/2016-01-11/morgan-stanley-sees-20-a-barrel-oil-on-u-s-dollar-appreciation

 

I am not grasping something here.  Why would the oil price drop on US dollar appreciation?

 

Comments...

 

Assume that today the price is USD 100/bbl, CAD/USD FX rate is 1.3700. Today’s price is CAD 137/bbl (USD100/bbl x1.37). Tomorrow it is still CAD 137/bbl, but the CAD/USD FX rate is now 1.4200 – because the USD has appreciated. That CAD 137/bbl now costs USD 96.47/bbl (137/1.42). To foreign eyes - USD appreciation lowers the USD price of a barrel.

 

SD

 

[ni-co]

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means. 

 

Interesting chart.  Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52.  If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually.  If you were waiting for a reversion to the mean in 1986 you would have waited a long time.

 

 

Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above?

 

Howard Marks: "You have no idea about future price of oil"

 

http://www.bloomberg.com/news/videos/2015-10-06/howard-marks-you-have-no-idea-about-future-price-of-oil

 

meh, you've got no idea what the future price of anything is. At $20 not even Saudi Arabia is getting good economics from oil. I don't see it going much below that for an extended period of time.

 

What Marks is saying is that oil doesn't have an intrinsic value. Oil is not generating cash flows. There can't be such a thing like a margin of safety in oil.

[goldfinger]

From one of the countries that surprised on the upside in the last 2 years: http://sputniknews.com/business/20160111/1032954003/iraq-oil-prices.html#ixzz3wxofDxCq

 

[JayGatsby]

At what point does production start coming offline? I thought Venezuela and some of the Canadian producers have marginal costs in the $30 range.

[goldfinger]

At what point does production start coming offline? I thought Venezuela and some of the Canadian producers have marginal costs in the $30 range.

 

For existing barrels yes... that's the cost curve to fight depletion: http://screencast.com/t/XYiIJYjkXcU5

[Jurgis]

What Marks is saying is that oil doesn't have an intrinsic value. Oil is not generating cash flows. There can't be such a thing like a margin of safety in oil.

 

LOL. Of course oil has intrinsic value: without oil nobody goes anywhere. If you believe that businesses have intrinsic value - and I guess you do because you mention "cash flows" - then you should realize that without oil pretty much all your businesses have no intrinsic value either (there are few exceptions perhaps).

 

It's amazing how for people with a single hammer ("cash flows") everything looks like a nail...  ::)

[Uccmal]

What Marks is saying is that oil doesn't have an intrinsic value. Oil is not generating cash flows. There can't be such a thing like a margin of safety in oil.

 

LOL. Of course oil has intrinsic value: without oil nobody goes anywhere. If you believe that businesses have intrinsic value - and I guess you do because you mention "cash flows" - then you should realize that without oil pretty much all your businesses have no intrinsic value either (there are few exceptions perhaps).

 

It's amazing how for people with a single hammer ("cash flows") everything looks like a nail...  ::)

 

Beat me to it Jurgis.  If anything the value of oil is the easiest intrinsic value to find.  It is definitely somewhere above the low prices of the late 1990s.  If we assume some increase in E&P costs and inflation the intrinsic value should be right where we are at today, plus or minus a few bucks. 

 

Or you could take the difficult route and estimate the cost of all oil infrastructure in the world, the barrles produced, with the appropriate depletion rates and end up with 30 plus or minus a few bucks. 

[rkbabang]

I have a different view.  There is no such thing as "intrinsic value".  It isn't like you can take an object, look at it under a microscope and see the value particles.  There is only market value and only one way to determine it: try to sell it.  For a unique item, such as a specific piece of real estate, you can try to estimate the value, but you don't really know what the value is until you find a buyer.  Maybe the value to you is larger than its value to anyone else and thus it won't sell.  For a commodity, such as gold or oil, it is easy to determine a value, because identical items are being traded constantly and you can see what they are trading for.    The theory that oil or gold doesn't have any "intrinsic" value is true, because nothing does.  They certainly have market value though.

[LC]

What Marks is saying is that oil doesn't have an intrinsic value. Oil is not generating cash flows. There can't be such a thing like a margin of safety in oil.

 

LOL. Of course oil has intrinsic value: without oil nobody goes anywhere. If you believe that businesses have intrinsic value - and I guess you do because you mention "cash flows" - then you should realize that without oil pretty much all your businesses have no intrinsic value either (there are few exceptions perhaps).

 

It's amazing how for people with a single hammer ("cash flows") everything looks like a nail...  ::)

 

I agree with Jurgis. Intrinsic value is not a PV calculation.

 

Nike sells sneakers. Do the sneakers themselves have no value the same way oil has no value? Of course not, they make millions (billions?) of people's lives easier by protecting their feet.