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

[Cardboard]

With the oil price coming down almost daily and the incessant barrage of glut news from the mainstream media, you really need to have a strong stomach to invest in that field.

 

However, I do believe that those who are resisting to invest now will regret it as much as those who have stayed in cash in early 2009. And if oil continues heading down, then everything will come down this time around; FANG overvalued marchandise included.

 

There is no confirmation bias into natural decline rates, capex cuts in the $100's of billions, continued increasing demand and a Middle East as unstable as ever which has an impact on cargo insurance rates.

 

Regarding Saudi Arabia, the regime is as maniacal as the Iranian religious regime. They feel like they have lost their defender or the United States and they will do everything to stay in power. I think that some here need to realize that one of their ally is Pakistan which is also an enemy of Iran. All it would take to give Saudi Arabia once again the upper hand over Iran and Russia without the help of the United States is for one cargo to arrive from Pakistan.

 

The West and Chinese would not be able to do anything like imposing sanctions since they need the cheap oil. The Russians would be pissed but, would not engage in a conflict with a nuclear Saudi Arabia. Then Iran would have no choice but, to break the nuclear deal and likely seek help from Russia. Would sanctions be re-imposed or not? Would Israel let all that happen doing nothing?

 

People have long speculated that Saudi Arabia would become nuclear following Iran but, now that tables have turned and that the Saudis are the ones in the corner with no tangible strong ally, surrounded by enemies, fighting two wars (Yemen and ISIS) and a budget deficit that will approach $100 billion again this year, what is to say that they are not the desperate ones now?

 

Cardboard

 

 

[Hawks]

goldfinger

Re "Yemeni attack on Saudi oil depots", do you have the article or reference for that? never saw that in the mainstream media.

[Uccmal]

 

 

We put it to you that within the next 12-18 months the existing House of Saud is gone; the current leadership either assasinated, or replaced by elder statesmen – to ensure that the house survives. Beheading a cleric was an incredibly stupid and incendiary action. Everywhere else, there would have been a simple - but permanent slip and fall.

 

US support will expire within the next 12 months as Obama exits. The region will also be a lot safer for all with the war over, and materially higher crude prices. Record global inventory awash with low cost crude, will minimize supply disruption.  It is pretty hard to find a better time.

 

SD

 

Huh?

 

The cleric was of a small minority in the country, backed by a country (Iran) that is already in proxy war with Saudi for awhile now. There's nothing new here, from both sides.

 

"The House of Saud", as you call it, is extremely rich and powerful; they for sure will not be replaced from within nor would they be shot down from the outside.  They have the full support of other nearby countries which share the same interest (resisting Iran's proxy wars) and of course local religious leaders with a very specific religious view of the world.

 

And what war will be over exactly? Please. Egypt and Iran will also suddenly become happy friends? Iran will stop supporting proxy war in Yemen and various other locations?

 

The centuries old war between Sunni and Shia will continue, in one form or another. And considering global economy's path, it might only get worse.

 

This was not 0.02 cents on where oil will be a year from now, just on the content which is some sort of a twisted confirmation bias to support a thesis.

 

 

 

I freely admit that I am inadvertently looking for comfirmation bias.  I dont think we see a Saudi Regime change any time soon but we may very well see the civil war spilling over into SA.  It is a situation they have tried to avoid by pre-emptively trying to contain the civil war in Yemen.  The Yemeni rebels seem pretty effective and well armed.  They are now targeting strategic targets in SA.  This all leads to a massive increase in operating, and defense costs, for the Saudis, further eroding their ability to contain a civil war with a few million Shias via bribery. 

 

Bashir Assad has already shown us what happens when you launch an all out civil war against your own citizens.  You end up broke, and fighting over an ever shrinking piece of the pie. 

 

The Saudi's, Iran, and Iraq, may realize that cutting oil production and pushing prices up is the only way to go, to contain the situation.  However, Iran is not likely in any hurry to make nice.  They have had 3 decades of various sanctions to diversify their economy. 

 

I suspect that none of this ends well for most of the middle eastern players. 

[Uccmal]

goldfinger

Re "Yemeni attack on Saudi oil depots", do you have the article or reference for that? never saw that in the mainstream media.

 

I just googled it.  A missile was launched on Jan. 2nd from Yemen and hit a Saudi storage depot within Saudi Arabia. 

[Uccmal]

Following Cardboards lead.  The entire oil field in Western Iran, Eastern Saudi will eventually be turned to glass, and oil prices will be hundreds of dollars per barrel. Its certainly in Putins interest.

 

Sorry... just being provocative.  I would absolutely hate to see Nukes used, but wouldn't rule it out.  Desperate people do desperate things. 

[Hawks]

Uccmal

Thanks for the "Yemeni attack on SA oil depot" info. That helped me find the Fars News Agency (Iran). That newspaper definately has more detailed news re the ME than found in North American media. Worth reading their take on events and then compare it with the American.

[Pelagic]

http://en.farsnews.com/newstext.aspx?nn=13941012000529

 

The ballistic missiles that have recently come into service in Yemen's army have claimed a heavy toll from the Saudi side of the war. Only in the last one week, around 550 Saudi-led troops have been killed by these ballistic missiles.

 

I'm not sure how accurate these figures are but it's hard to imagine SA being able to sustain these kind of casualties much longer. Perhaps "Saudi-led" means Yemeni forces friendly to SA in this instance. The conflict does seem larger than I would have guessed though, I don't think I've seen any coverage of it recently in western media.

 

Where are Yemeni forces receiving these missiles from and who's providing the training to operate them? Iran?

[Hawks]

Believe I saw in Fars that they were modern Russian missiles. Whether they came from Iran or Russia directly I have no idea.

[Uccmal]

http://en.farsnews.com/newstext.aspx?nn=13941012000529

 

The ballistic missiles that have recently come into service in Yemen's army have claimed a heavy toll from the Saudi side of the war. Only in the last one week, around 550 Saudi-led troops have been killed by these ballistic missiles.

 

I'm not sure how accurate these figures are but it's hard to imagine SA being able to sustain these kind of casualties much longer. Perhaps "Saudi-led" means Yemeni forces friendly to SA in this instance. The conflict does seem larger than I would have guessed though, I don't think I've seen any coverage of it recently in western media.

 

Where are Yemeni forces receiving these missiles from and who's providing the training to operate them? Iran?

 

Lotchka Missiles - sounds Russian to me.  Of course they will sell to anyone, the same as General Dynamics.  My guess of the direct supplier is Iran. 

 

I cant imagine that Saudi boys coming back in body bags in large numbers will sit well with the proles. 

[orthopa]

This of course is just speculation but how much oil comes offline if SA gets involved in a full out war here?  Will the Persian Gulf get closed? Im not young to remember but when IRAQ invaded Kuwait didnt the US navy keep the Gulf open? A couple sunk tankers and that will decrease supply real quick.

 

With all the middle east news in the media and oil not reacting shows significant complacency.

[SharperDingaan]

http://www.telegraph.co.uk/finance/oilprices/12081550/Saudi-showdown-with-Iran-nears-danger-point-for-world-oil-markets.html

 

Most of Saudi Arabia’s 10.3m barrels a day (b/d) of output passes through the Shia heartland, now seething with fury. While global crude stocks are at record levels, there is no spare capacity outside Saudi Arabia. A disruption lasting more than a few days could cause oil prices to spike violently – possibly to $200 or more – triggering a worldwide economic crisis.

 

Helima Croft, from RBC Capital Markets, said investors have yet to wake up to the full danger. “If we’d had scenes five years ago of the Saudi embassy in flames in Tehran there would have been a big move in the price, but right now there is so much over-supply and people just seem to think this is all noise. They have yet to get their heads around what can go wrong,” she said.

 

 

SD

[asterisk]

http://www.telegraph.co.uk/finance/oilprices/12081550/Saudi-showdown-with-Iran-nears-danger-point-for-world-oil-markets.html

 

Most of Saudi Arabia’s 10.3m barrels a day (b/d) of output passes through the Shia heartland, now seething with fury. While global crude stocks are at record levels, there is no spare capacity outside Saudi Arabia. A disruption lasting more than a few days could cause oil prices to spike violently – possibly to $200 or more – triggering a worldwide economic crisis.

 

Helima Croft, from RBC Capital Markets, said investors have yet to wake up to the full danger. “If we’d had scenes five years ago of the Saudi embassy in flames in Tehran there would have been a big move in the price, but right now there is so much over-supply and people just seem to think this is all noise. They have yet to get their heads around what can go wrong,” she said.

 

 

SD

 

Wouldn't Iran have more to lose than to gain from attacking the Kingdom? It can be certain that the nuclear deal wouldn't be dropped.

[SharperDingaan]

Prove that it was Iran.

 

SD

[Pelagic]

 

Wouldn't Iran have more to lose than to gain from attacking the Kingdom? It can be certain that the nuclear deal wouldn't be dropped.

 

It's all about influence. An Iran - Iraq style conventional war with Saudi Arabia is unlikely IMO. But if Iran can chip away at Saudi Arabia's influence across the Middle East - Yemen, Iraq, Syria etc. Then Iran's is winning. I think Iran recognizes their best shot at Saudi Arabia comes from encouraging internal dissent and exposing the Saudi regime, they'd like for nothing more than another Arab Spring style awakening in Saudi Arabia. If when it happens Saudi forces are engaged in counterinsurgency operations across the ME, so much the better.

[Cardboard]

http://www.wsj.com/articles/isis-assault-endangers-future-of-libyas-oil-industry-1452088994

 

Wall Street is an amazing machine. OPEC does not cut production, as expected, and the price goes down from $40+ to $34. Now Iran and Saudi Arabia are fighting each other "diplomatically" and the price goes down because they won't cooperate on a production cut which was already news...

 

Anyway, this attack is real and some Libyan capacity has just been removed. I really don't understand how there could have been so much Middle East supply risk premium built into the price 2 years ago and now it seems like a negative risk premium is built-in with everything that is happening?

 

Cardboard

[Uccmal]

Smart phone video of tanks burning up.  Anyone guess on the size of these tanks:

 

http://www.zerohedge.com/news/2016-01-06/pray-us-libya-issues-cry-help-isis-advances-oil-fields

 

 

Cardboard, I guess time will tell.  This could turn very quickly. 

[SharperDingaan]

Keep in mind that if these facilities are lost to ISIS, the smart thing is precision bombing of the port loading facilities; to prevent ISIS from selling the oil - as it would no longer be able to load the tankers. There are lots of players with the ability to do it - & everybody would benefit from the supply reduction. When peace returns, the facilities are a relatively straight forward repair.

 

SD

[JayGatsby]

Let's say that oil will rise at some point in the future, where would be the opportunities be today? My problems finding opportunities have been:

1. USO and other ETFs have huge contango/execution costs. Investors in 2009 really didn't do very well.

2. Equity prices at E&Ps generally haven't come down nearly as much as oil prices and seem to generally reflect a rebound in price.

3. Service companies are suffering not only from a decrease in demand but also from oversupply in whatever niche they serve

4. Can't invest in term loans

5. Bonds are generally 144A or in a mezzanine part of the capital structure

[sarganaga]

I think some of the US royalty trusts offer an interesting vehicle for participating in an oil and/or natural gas rebound.

(1) Most of them are down 60%-75% or more.

(2) You have several to choose from that have no debt...CRT, PBT, DMLP (a limited partnership that has the same characteristics), NDRO all of which I own, as well as SJT, HGT, SBR and others.

(3) SBR is 100% top line royalties (it contributes nothing to development or expenses).NDRO, SJT, HGT have only bottom line royalties (they contribute to development & expenses). CRT, PBT, & DMLP are hybrids which own both top line and bottom line royalties.

(4) None of these have executives or employees that can carve out juicy options/ participations for themselves at times of low prices , only a trustee which is compensated  on essentially a flat rate schedule.

(5) You are buying oil in the ground without contango charges and no chance of bankruptcy. If the current operator goes bankrupt, the trust retains the royalties which a new operator has to pay.

(6) As with all investments, there are things that can go wrong. One particular royalty trust negative ... Some of the trusts can be liquidated if their royalties fall below a certain amount for two years or so,  with the receipts distributed to the royalty holders. While this may be unlikely, it could be a potential problem if they were liquidated at very low oil prices

 

These royalties have gone on for much longer than originally projected. The new oilfield technologies may help continue this. Kurt Wulff at http://www.mcdep.com/ offers some interesting and  detailed metrics about these and other oil related companies.

[fjm222]

I agree with the opportunity in royalties as well. Check out PSK in Canada. They are now the largest fee simple land owner in Canada outside of the government. They used expensive paper to consolidate royalty rights and are now trading at an attractive level in my mind. If I had to guess, I would think a div cut is coming but I would welcome that. I would rather they keep the cash and acquire or manufacture more royalties from operators that would never have consider selling in more buoyant times.

[JayGatsby]

Thanks! Will check them out.

[Cardboard]

How long before direct hits occur between Iran and Saudi Arabia?

 

http://www.bbc.com/news/world-middle-east-35251917

 

Cardboard

[Cardboard]

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

[SharperDingaan]

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

 

+1, especially if this is for a shorter term trade by someone outside of Canada.

A higher oil price will raise both the share price and the $CAD

PWT especially, re the pending royalty sale.

 

SD

[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?