What is the extent of the 'opportunity' in the oil market?

[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

[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

[netnet]

 

 

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

 

You digress.  Stick to finance lest we get into a spitting match on geopolitics.

[Hawks]

Having seen the media headlines of the last few days, and crude oil market pricing yesterday, my gut tells me we may be close to or at the point of "maximum pessimism".  Anyone else thinking the same?

[Jurgis]

Having seen the media headlines of the last few days, and crude oil market pricing yesterday, my gut tells me we may be close to or at the point of "maximum pessimism".  Anyone else thinking the same?

 

I sold some o&g holdings yesterday/today, so probably we are.

 

Unfortunately, I also bought some, so...  possibly not. 8)

 

Overall, my current holdings are down 50% on the prices paid. That includes all gains/losses/divvies/interest/etc since I started buying ~Jan 2015 (one position is way older, but that's immaterial). I don't count losses on somewhat-oil-related stocks (e.g. CFX, etc.).

[shhughes1116]

Having seen the media headlines of the last few days, and crude oil market pricing yesterday, my gut tells me we may be close to or at the point of "maximum pessimism".  Anyone else thinking the same?

 

I've been waiting for another leg down into the mid or low 30's and/or a major bankruptcy to signal the bottom...hard to tell whether or not that will happen. 

[TheAiGuy]

Y'all know that in the 80s, the inflation adjusted price of oil fell below $40/a barrel and stayed there for 15 years, right?

 

To get on my soapbox here: I can construct convincing arguments that oil prices should go higher from here but there is a very real chance that a large number of firms have to restructure their debt. I'm wonder how many are making decisions about what they think should happen -- largely, for moral or ideological reasons. Just thinking out loud, I've not touched an energy stock for moral and ideological reasons.

[Uccmal]

Having seen the media headlines of the last few days, and crude oil market pricing yesterday, my gut tells me we may be close to or at the point of "maximum pessimism".  Anyone else thinking the same?

 

I sold some o&g holdings yesterday/today, so probably we are.

 

Unfortunately, I also bought some, so...  possibly not. 8)

 

Overall, my current holdings are down 50% on the prices paid. That includes all gains/losses/divvies/interest/etc since I started buying ~Jan 2015 (one position is way older, but that's immaterial). I don't count losses on somewhat-oil-related stocks (e.g. CFX, etc.).

 

The stock specific downdrafts are probably due to tax loss harvesting right now, at least in part. 

 

I hold Arc and Wcp and they are down somewhat from what I paid but way down from their highs.  Both are well hedged into late 2016, and aren't in any mortal danger.  Simultaneously PWt held up fine the last couple of days.  So I think its tax loss selling. 

 

Same boat with my partially exposed Russell and Mullen. 

 

Edit: big fingers, little keyboard

[rpadebet]

Y'all know that in the 80s, the inflation adjusted price of oil fell below $40/a barrel and stayed there for 15 years, right?

 

To get on my soapbox here: I can construct convincing arguments that oil prices should go higher from here but there is a very real chance that a large number of firms have to restructure their debt. I'm wonder how many are making decisions about what they think should happen -- largely, for moral or ideological reasons. Just thinking out loud, I've not touched an energy stock for moral and ideological reasons.

 

I am just reading "the frackers", seems like this happened in 1980s and 1990s too after the gulf war. How are people so confident that this will turn so quickly this time around? If history is any guide, this can go much lower from here. Geopolitics seems to suggest supply is going to keep going up.

 

I am not really sure if we are going to see firms in america default on their debt. IMO when push comes to shove, most banks and creditors are going to extend and pretend. Everyone knows this is cyclical, so why eat your losses now, when you can extend the maturities/lower coupons and wait for payments in future.

 

Most shareholders though, might get severely hurt..

[Uccmal]

Y'all know that in the 80s, the inflation adjusted price of oil fell below $40/a barrel and stayed there for 15 years, right?

 

To get on my soapbox here: I can construct convincing arguments that oil prices should go higher from here but there is a very real chance that a large number of firms have to restructure their debt. I'm wonder how many are making decisions about what they think should happen -- largely, for moral or ideological reasons. Just thinking out loud, I've not touched an energy stock for moral and ideological reasons.

 

I am just reading "the frackers", seems like this happened in 1980s and 1990s too after the gulf war. How are people so confident that this will turn so quickly this time around? If history is any guide, this can go much lower from here. Geopolitics seems to suggest supply is going to keep going up.

 

I am not really sure if we are going to see firms in america default on their debt. IMO when push comes to shove, most banks and creditors are going to extend and pretend. Everyone knows this is cyclical, so why eat your losses now, when you can extend the maturities/lower coupons and wait for payments in future.

 

Most shareholders though, might get severely hurt..

 

Maybe so, or maybe not.  A good portion of the oil we get now is vastly tougher to get at then 25 years ago.  In the last 25 years we have had to go deeper, further, and more dramatic (fracking) to get at oil.  The worldwide rig count has dropped way off its peaks.  All oil wells deplete over time.  Therefore supply should come off.  I dont believe every rig has suddenly become 80% more efficient in less than a year. 

 

As to your second point.  The problem isn't what was borrowed before.  It is what they need to borrow now to keep the lights on.  To frack you need to spend money at a pretty good rate continually.  Will any lender willingly put more capital at risk?  I dont know the details, but I would think that deep water, and arctic drilling also require constant capital injection to operate.  As opposed to the good ole days where you put a straw in the ground and had a gusher. 

 

Thats the premise anyways. 

[Uccmal]

Y'all know that in the 80s, the inflation adjusted price of oil fell below $40/a barrel and stayed there for 15 years, right?

 

To get on my soapbox here: I can construct convincing arguments that oil prices should go higher from here but there is a very real chance that a large number of firms have to restructure their debt. I'm wonder how many are making decisions about what they think should happen -- largely, for moral or ideological reasons. Just thinking out loud, I've not touched an energy stock for moral and ideological reasons.

 

what do you mean "moral and ideological ressons"?  Just curious. 

[goldfinger]

Y'all know that in the 80s, the inflation adjusted price of oil fell below $40/a barrel and stayed there for 15 years, right?

 

To get on my soapbox here: I can construct convincing arguments that oil prices should go higher from here but there is a very real chance that a large number of firms have to restructure their debt. I'm wonder how many are making decisions about what they think should happen -- largely, for moral or ideological reasons. Just thinking out loud, I've not touched an energy stock for moral and ideological reasons.

 

I am just reading "the frackers", seems like this happened in 1980s and 1990s too after the gulf war. How are people so confident that this will turn so quickly this time around? If history is any guide, this can go much lower from here. Geopolitics seems to suggest supply is going to keep going up.

 

I am not really sure if we are going to see firms in america default on their debt. IMO when push comes to shove, most banks and creditors are going to extend and pretend. Everyone knows this is cyclical, so why eat your losses now, when you can extend the maturities/lower coupons and wait for payments in future.

 

Most shareholders though, might get severely hurt..

 

There is a huge huge difference in between a world with 25% oversupply and massive spare low cost capacity in OPEC (SA, middle east) - the 80s - and today with not even 2% over capacity (if the market is not already balanced as we speak - refer to Hall and others), little spare capacity and 70% of new resources from expensive production... I think the danger down the road is actually the inability to cope with new demand as early as 2017, end 2016 (may be earlier).

 

About bankruptcies let's just see what happens when 2015 hedges expire... given debt levels in shale companies for example...

 

Finally most of the market participants actually see no end is sight to the downturn and prices going potentially to 20$ (and not a reversal of the current situation). It can reach 20$ maybe, because of high inventories, but it will probably clear the excess much much faster than otherwise...

 

I have read a few posters on other boards who follow worldwide storage (not only NA) and came to the conclusion that they are actually globally receding already - USA flat in the last few months at 1.3B barrels with 4-6m propane deficit, Europe - flat, China down by almost 20m barrels. Which seems to indicate that analysts have not yet caught with a potential current reversal of the excess supply situation... Coincidentally Andrew Hall came to similar conclusions...

This is a completely different world from the 80s.

[goldfinger]

Some national companies seem to be struggling with debt and costs like here:

 

"State oil companies Pemex and Petrobras are also feeling the pressure. Pemex is reportedly nine months in arrears in paying its service providers, and Petrobras, reeling under a mountain of debt, is trying to sell assets — a strategy workers are opposing. Striking workers cost the company as much as 200,000 bpd of lost production in November."

 

200k boe/day production loss in Petrobras only and in November this year! EIA was expecting Brazil's production to actually increase decently this year and the next... We haven't even started looking at Venezuela that's getting into a cash crunch as we speak.

EIA is also expecting shale to grow again 2H 2016, after 500+k boe/day lost. At these prices the decline will only accelerate... not counting GOM and offshore...

[goldfinger]

Some national companies seem to be struggling with debt and costs like here:

 

"State oil companies Pemex and Petrobras are also feeling the pressure. Pemex is reportedly nine months in arrears in paying its service providers, and Petrobras, reeling under a mountain of debt, is trying to sell assets — a strategy workers are opposing. Striking workers cost the company as much as 200,000 bpd of lost production in November."

 

200k boe/day production loss in Petrobras only and in November this year! EIA was expecting Brazil's production to actually increase decently this year and the next... We haven't even started looking at Venezuela that's getting into a cash crunch as we speak.

EIA is also expecting shale to grow again 2H 2016, after 500+k boe/day lost. At these prices the decline will only accelerate... not counting GOM and offshore...

 

""Petrobras' financial strength has weakened and refinancing risk has increased," said Nymia Almeida, a senior credit officer with Moody's in a statement announcing the downgrade. "Free cash flow will remain negative in the foreseeable future as international oil prices remain weak."

 

Petrobras' plan to raise $15.1 billion from asset sales by the end of 2016 made little progress. Only about three percent of target has been sold and the largest sale faces a court challenge.

 

As a result, it is unlikely Petrobras will substantially reduce its debt, Moody's said. At nearly $130 billion, it is the largest of any oil company. This, Moody's added, also reduces the chance of significant increases in oil output.

 

The review for a possible further downgrade will focus on the company's ability to close its funding gap, Moody's said. Petrobras has been cut off from capital markets since a corruption scandal erupted a year ago.

 

With only about $25 billion of cash on hand $24 billion coming due in 2016 and 2017, Petrobras will need new capital from either asset sales or investors to make capital investments needed for new areas and to maintain existing ones.

 

Petrobras plans to spend about $19 billion on capital investments in 2016, about half the level of previous years."

[TheAiGuy]

Y'all know that in the 80s, the inflation adjusted price of oil fell below $40/a barrel and stayed there for 15 years, right?

 

To get on my soapbox here: I can construct convincing arguments that oil prices should go higher from here but there is a very real chance that a large number of firms have to restructure their debt. I'm wonder how many are making decisions about what they think should happen -- largely, for moral or ideological reasons. Just thinking out loud, I've not touched an energy stock for moral and ideological reasons.

 

what do you mean "moral and ideological ressons"?  Just curious.

 

I don't know, really. I can tell you that I don't like oil because I don't like pollution. But I want to say that there are people on the other side of that, who really like oil and not for its magical, poverty reducing effects. My best guess is there is a romanticism, sort of like cattle ranching. You know, a sort of manly, individualistic quality about  the people find appealing. Also, when I read through various things on oil, I get the sense of fear over the malevolent puppet masters that screw over the little guy.

 

Anyway, that's not material -- I wanted to point out the possibility of bias, but it doesn't change the rationality of the investment case. I do have a more tangible concern about the investment case. I more or less believe the supply side arguments, but I am concerned about long-term elasticity of supply and demand. Basically, if prices go up, does that drive future costs of fracking down? If any fracker is cash-flow positive, it creates an incentive to invest further in cost reduction, and that could encourage more participants to market. Likewise, increases in cost could spur an acceleration of the development of electric vehicles.

 

My point is that there is partial substitutability of oil, and the equilibrium price point could be below the supply cost of oil for current output levels. This would be a long term bear case, though, even if what I am proposing were true, you still might see upside spikes in the price in the medium term. My mental model of commodity pricing would be something like, short term = random, medium-term = marginal cost of supply, long-term = down as a consequence of substitutability (btw, this is what happened in the 80s as power plants moved from oil to coal due to high prices).

 

anyway, these are just my thoughts. I'm mostly interested in learning here.

[TheAiGuy]

To give a more concrete example: if the price of oil shot up to $1000, production of EVs would shoot up and wells that were previously unprofitable would be developed, lowering the demand for oil and raising the marginal cost of supply. If you think about that, it suggest that the supply/demand equilibrium price point isn't set by demand alone (though, that is an important factor). It should be important to note this processes isn't sensitive to what the overall volume of oil, and volume can increase or decrease without effecting the equilibrium point.

[Uccmal]

Munger says to invert... 

 

What would cause the oil price to drop lower or stay below $50 US per barrel, for the next ten years.

 

1) Production rises - either Opec related, Iran, Iraq, Libya, Russia.  Whatever source it rises.  It needs to rise above rising demand enough to keep prices down.

 

2) Oil workers worldwide (a high skill lot) agree to work for less, thus cutting costs further.  Now this may not affect profitability potential at all.

 

3) Demand doesn't rise, or even shrinks.  The last I read Nuclear Fusion is still on the drawing board, or at least not putting out as mich energy as goes in.

 

4) Automation and tech. improvement make the cost of gettting oil less.  Its hard to see a negative in this except for workers.  The end game of course is nearly free everything, and guaranteed income supplements from governments for all -  see Finland.  And we all sit around in a fog of dry ice playing harps all day.

 

5) A major discovery of a dirt cheap field that hasn't been found yet.  Okay, Im reaching.

 

6) No war in the ME.  History cant repeat itself. 

 

7) No civil insurrections in the ME when kept populations realize things are getting worse. 

 

8) All things stay static as in the 1990s - That was the period of the peace dividend. 

 

I cant think of anything else at the moment. 

[HJ]

Munger says to invert... 

 

What would cause the oil price to drop lower or stay below $50 US per barrel, for the next ten years.

 

2) Oil workers worldwide (a high skill lot) agree to work for less, thus cutting costs further.  Now this may not affect profitability potential at all.

 

 

Just on this particular point, Ruble is cut in half, CAD is down 30%, AUD is down 30%, all within the last couple of years.  Saudi has the peg, but there's speculation that may change as well at some point.  So oil workers are working for less, just not voluntarily.

 

But otherwise, yeah, what you said.

[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

[TheAiGuy]

 

3) Demand doesn't rise, or even shrinks.  The last I read Nuclear Fusion is still on the drawing board, or at least not putting out as mich energy as goes in.

 

4) Automation and tech. improvement make the cost of gettting oil less.  Its hard to see a negative in this except for workers.  The end game of course is nearly free everything, and guaranteed income supplements from governments for all -  see Finland.  And we all sit around in a fog of dry ice playing harps all day.

 

 

How implausible are these? Demand could slow due to a change in driving patterns, for example, if ecommerce leads to more efficient last mile delivery (UPS trucks delivering to ever house in the neighborhood vs cars all going to a store). Same thing with telecommuting -- marginal increases in telecommuting could have large effects on driving patterns. These don't require new forms of technology, more a behavior change that could come with a generational shift. This argument really only applies to the US, but you could see driving restrictions in China to combat smog, etc.

 

Automation and tech driving down the cost of supply -- yeah, you're right that this shouldn't effect ROC on a prospective basis even if prices go down, but it does devalue the capital already invested (retrospective basis) and reduce margins for anyone using legacy processes (there are a lot of assumptions there but basically --> cheaper supply --> more oil --> lower price)

[Uccmal]

 

3) Demand doesn't rise, or even shrinks.  The last I read Nuclear Fusion is still on the drawing board, or at least not putting out as mich energy as goes in.

 

4) Automation and tech. improvement make the cost of gettting oil less.  Its hard to see a negative in this except for workers.  The end game of course is nearly free everything, and guaranteed income supplements from governments for all -  see Finland.  And we all sit around in a fog of dry ice playing harps all day.

 

 

How implausible are these? Demand could slow due to a change in driving patterns, for example, if ecommerce leads to more efficient last mile delivery (UPS trucks delivering to ever house in the neighborhood vs cars all going to a store). Same thing with telecommuting -- marginal increases in telecommuting could have large effects on driving patterns. These don't require new forms of technology, more a behavior change that could come with a generational shift. This argument really only applies to the US, but you could see driving restrictions in China to combat smog, etc.

 

Automation and tech driving down the cost of supply -- yeah, you're right that this shouldn't effect ROC on a prospective basis even if prices go down, but it does devalue the capital already invested (retrospective basis) and reduce margins for anyone using legacy processes (there are a lot of assumptions there but basically --> cheaper supply --> more oil --> lower price)

 

I was trying to legitimately invert.  I didn't do a very good job.  The last mile you mention is really the only area you see reductions.  Amazon isn't changing the landscape in terms of anything else but the last mile.  I was listening to a funny segment on local radio the other day.  The Dj's young son wanted something from Amazon and was alloted $15 to spend.  He chose to buy kid blindfolds for sleeping.  The other DJ commented that he didn't feel quite so guilty about his big truck, since she was having a useless item that will never get used shipped around the world, likely by air.

 

Generational differences in the US may prove fleeting and more a product of the aftermath of the financial crisis rather than anything else. 

 

I dont see Chinese, Mexican, Indian, or Brazilian middle class forgoing car usage in any meaningful way.  The opposite is more likely.  And for the next few years its going to be gasoline and diesel, since they are the most versatile. 

[TheAiGuy]

I was trying to legitimately invert.  I didn't do a very good job.  The last mile you mention is really the only area you see reductions.  Amazon isn't changing the landscape in terms of anything else but the last mile.  I was listening to a funny segment on local radio the other day.  The Dj's young son wanted something from Amazon and was alloted $15 to spend.  He chose to buy kid blindfolds for sleeping.  The other DJ commented that he didn't feel quite so guilty about his big truck, since she was having a useless item that will never get used shipped around the world, likely by air.

 

Generational differences in the US may prove fleeting and more a product of the aftermath of the financial crisis rather than anything else. 

 

I dont see Chinese, Mexican, Indian, or Brazilian middle class forgoing car usage in any meaningful way.  The opposite is more likely.  And for the next few years its going to be gasoline and diesel, since they are the most versatile.

 

Yeah, I think that's reasonable. Also, you know, prices are on the low side of the historical range and I think its reasonable to expect them to go up at some point. But I think though, if I were to get comfortable investing in one the higher leveraged E&P firms, I'd really want to know when price are going to go, and for how long and to what level. But say prices go up, but the don't do so until all of these oil assets are bought in bankruptcy auctions.

 

(Oh, I forgot to mention, you can also lower fuel consumption by changing the mix of automobiles. Lower oil prices typically encourage larger cars but that can be offset by recessions and other factors)

[SharperDingaan]

Assume

1. All producers are producing flat out. The get everything you can now mentality, or the new regime (political, new owners, etc.) will do it for you. They have to pay for the overthrow.

2. Average maintenance CAPEX at 75% of depletion/depreciation/amortization. Bankers need to reduce their exposure, and want their money back as the assets deplete or get used up.

3. Higher net demand (from low prices) and lower supply (from depletion) will take at least a year to restore total global inventory to ‘normal’ levels

 

Any significant price change has to come from the existing players, & a re-ordering of the market

 

Economics posits that to achieve stability, the price of the good must approximate its long run marginal cost (LRMC) of production. Reduce supply via shut-in of production. Raise demand by holding price lower for longer; or implement global protectionism.

 

There are a number of possibilities

1. Pay the low cost producer to shut-in.  Other participants collectively pay the shut-in producer (desired market price –their LRMC) x their shut-in production. A short-term extortion rent for cornering the market.

2. Tax the low cost producers to collectively raise their LRMC to the desired market price, & use the $ to permanently shut-in market production; via the purchase of stranded fields from those with a LRMC moderately above the desired market price.  Permanently remove the competition, repurpose the assets to sequestation under the name of environmenalism, & create a new business. Alberta Tar Sands. 

3. Remove a good chunk of the lowest LRMC production for a sustained period. The ME is a dangerous place, & it may be as simple as allowing bad things to happen to select facilities.

 

Obviously (1) & (2) are the preferable outcomes. The seven sisters are not known for their gentility, and have proved very adept at re-arranging deck-chairs. There is a limit to how much they are going to tolerate.

 

SD

 

[TheAiGuy]

Assume

1. All producers are producing flat out. The get everything you can now mentality, or the new regime (political, new owners, etc.) will do it for you. They have to pay for the overthrow.

2. Average maintenance CAPEX at 75% of depletion/depreciation/amortization. Bankers need to reduce their exposure, and want their money back as the assets deplete or get used up.

3. Higher net demand (from low prices) and lower supply (from depletion) will take at least a year to restore total global inventory to ‘normal’ levels

 

Any significant price change has to come from the existing players, & a re-ordering of the market

 

Economics posits that to achieve stability, the price of the good must approximate its long run marginal cost (LRMC) of production. Reduce supply via shut-in of production. Raise demand by holding price lower for longer; or implement global protectionism.

 

There are a number of possibilities

1. Pay the low cost producer to shut-in.  Other participants collectively pay the shut-in producer (desired market price –their LRMC) x their shut-in production. A short-term extortion rent for cornering the market.

2. Tax the low cost producers to collectively raise their LRMC to the desired market price, & use the $ to permanently shut-in market production; via the purchase of stranded fields from those with a LRMC moderately above the desired market price.  Permanently remove the competition, repurpose the assets to sequestation under the name of environmenalism, & create a new business. Alberta Tar Sands. 

3. Remove a good chunk of the lowest LRMC production for a sustained period. The ME is a dangerous place, & it may be as simple as allowing bad things to happen to select facilities.

 

Obviously (1) & (2) are the preferable outcomes. The seven sisters are not known for their gentility, and have proved very adept at re-arranging deck-chairs. There is a limit to how much they are going to tolerate.

 

SD

 

Mind unpacking this? I'm not sure I fully follow.

[SharperDingaan]

2016 prices are unlikely to look any better than 2015. The pending 1H-2016 US Shale collapse will not be enough to remove the current inventory glut before the end of 2H-2016. http://www.msn.com/en-ca/money/inside-the-ticker/billions-of-oil-barrels-vanish-in-a-puff-of-accounting-smoke/ar-AAgdMGi?ocid=spartandhp

 

The industry is going to be restructured. We think ultimately a combination of (1) & (2). All players agree to maintain a price in the US 55-60/bbl range, pay a carbon tax, & the funds go to permanent shut-in of Tar Sands. Could be via outright purchase of Tar Sands, or via their repurposing to sequester CO2 & Methane emissions on behalf of the industry. In broad terms, petro $ re-cycling, via the use of carbon credits.

 

Choose not to participate, & you risk the loss of some of your production facility. Your choice, but the ultimately the result will be the same; stabilized prices in the US 55-60/bbl range.

 

SD