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


bmichaud
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Hi guys,

 

She is a wannabe diva but, she had still noticed like most that the oil price had declined. It is just that when non-financial types notice something on TV, like that jaw dropping 65% decline, and find it horrible and would never touch it that we are normally close to a bottom.

 

It would happen often when an old friend would call me to see how I was doing with my investments. They would never ask such thing when things were going well. They would only call to ask about that stuff when mainstream media was talking about a crash or with the general market already down 10%, 20% or more.

 

The inverse works good too. Back at a Christmas party in 1999, one of my friends approached me with an IPO idea. He had never bought a stock in his life (other than employer's plan) but, was convinced that it would double or maybe triple on the open. Most IPO's were at the time. He could not understand that I was not excited at the idea knowing that I was an active investor. Free money he said...

 

I should have also paid more attention to something that I was worried about back in January this year. Two friends of mine, also non-financial types, were asking me how they could invest in oil? They were absolutely convinced that it would rebound. How is it that two uniformed people are so easily willing to put their hard earned money at risk? In fact, it did rebound for a short while but, see how that turned out? I should ask them if they have any interest now?

 

Cardboard

 

Just to offer the inverse to that, I had a non-financial high school friend that I have talked to in 8+ years call me about investing in the Facebook IPO. I told him I wasn't touching it with a 10 ft pole and he seemed unconvinced. Only one of us made money on that even if it was out of ignorance...

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"Goldman sees oil at $43 in 3 months, $50 in 6 months, $54 in a year" These are Brent and came out last night.

 

Citigroup's Ed Morse is forecasting $55 WTI and $60 Brent by Q4 2016. Same guy that, I suppose, correctly predicted oil trading in the $30's.

 

Now people, these are the two biggest oil bears that I know of. They are now telling their vast clientele with these forecasts that Brent oil will see 50% and 67% appreciation respectively in 12 months. What other asset class offers such potential?

 

With them on board defending their forecast, who is going to be pounding oil daily with negative drumbeat? 

 

Cardboard

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U.S. oil inventories are down 5.9 million barrels this week against expectations of a build of 600,000 barrels. API reported down 3.6 million last night. That information you can rely on.

 

On the production side, I still don't know what game EIA is playing. They showed Lower 48 States production up by 1,000 barrels a day... Such a minuscule change on 8.653 million barrels a day. I truly believe that they move this up or down every week to just look like they are doing their job.

 

However, there is a significant balancing item called: Adjustment (Unaccounted-for Crude Oil). This week it is down 377,000 barrels a day. Last week it was up 254,000. That is 2.639 million barrels for the week that are unaccounted for. A swing of 631,000 barrels a day or 4.417 million barrels on inventories that are down 5.9 million barrels week over week.

 

I guess that they absolutely want to show that U.S. production at year end is 9.175 million barrels a day. Then they will come out in January with some big one time adjustment, like they did in August if I recall, to take it down to its true amount.

 

Cardboard

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"Goldman sees oil at $43 in 3 months, $50 in 6 months, $54 in a year" These are Brent and came out last night.

 

Citigroup's Ed Morse is forecasting $55 WTI and $60 Brent by Q4 2016. Same guy that, I suppose, correctly predicted oil trading in the $30's.

 

Now people, these are the two biggest oil bears that I know of. They are now telling their vast clientele with these forecasts that Brent oil will see 50% and 67% appreciation respectively in 12 months. What other asset class offers such potential?

 

With them on board defending their forecast, who is going to be pounding oil daily with negative drumbeat? 

 

Cardboard

 

I don't know about the drumbeat but perhaps Saudis will keep on pumping like crazy even if they see a slowdown in US, in order to protect market share against their friends, Iran. Anyways, I am not trying to make a oil price prediction here by any means. I don't believe in those predictions at all but just wanted to remind that since we have States as big players in this market, we might not get economically justified answers all the time. Who knows what the price would be but you can still make arguments for $20 or $60 in 2016...

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U.S. oil inventories are down 5.9 million barrels this week against expectations of a build of 600,000 barrels. API reported down 3.6 million last night. That information you can rely on.

 

On the production side, I still don't know what game EIA is playing. They showed Lower 48 States production up by 1,000 barrels a day... Such a minuscule change on 8.653 million barrels a day. I truly believe that they move this up or down every week to just look like they are doing their job.

 

However, there is a significant balancing item called: Adjustment (Unaccounted-for Crude Oil). This week it is down 377,000 barrels a day. Last week it was up 254,000. That is 2.639 million barrels for the week that are unaccounted for. A swing of 631,000 barrels a day or 4.417 million barrels on inventories that are down 5.9 million barrels week over week.

 

I guess that they absolutely want to show that U.S. production at year end is 9.175 million barrels a day. Then they will come out in January with some big one time adjustment, like they did in August if I recall, to take it down to its true amount.

 

Cardboard

 

Cardboard -

 

Thanks for your posts in this thread. I find them informative.

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http://www.reuters.com/article/enterprise-products-exports-idUSL3N14C3MP20151223

 

This is excellent news. Light oil is finally going to get exported to refineries that need it. Although, they have made adjustments to use more, most U.S. refineries were designed to process heavier crude. This will narrow the discount between Brent and WTI and should reduce prices at the pump.

 

The reversal of Line 9B, now finally operational, is also helping move oil out of the middle of the Continent. This WTI discount should now be a thing of the past. 

 

The U.S. with its exports will also go around the Saudi monopoly where they own some U.S. refineries that are forced to import Saudi oil. In effect reducing demand for U.S. produced oil.

 

Cardboard

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Tudor, Pickering Holt & Co: 2H2016 - 80$ oil.

http://www.oilandgasinvestor.com/videos/david-pursell-managing-director-tudor-pickering-holt-co-case-80-oil-2016-830696

 

Instead of looking at EIA, IEA, OPEC forecasts like the market, David Pursell looks at actual inventory numbers to analyze the supply/demand equation. He thinks undersupply is already here.

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Tudor, Pickering Holt & Co: 2H2016 - 80$ oil.

http://www.oilandgasinvestor.com/videos/david-pursell-managing-director-tudor-pickering-holt-co-case-80-oil-2016-830696

 

Instead of looking at EIA, IEA, OPEC forecasts like the market, David Pursell looks at actual inventory numbers to analyze the supply/demand equation. He thinks undersupply is already here.

 

Another one looking at inventories and unable to reconcile market vs reality: http://dailyreckoning.com/the-truth-about-2016-oil-supply-and-demand-its-not-what-youd-expect/

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Thanks for the articles/videos Goldfinger.

 

Predictions for a lower oil price in early 2014 did not come from Goldman Sachs but, from smaller, more specialized outfits such as PIRA Energy Group. The big banks were forecasting instead for oil to go up around 20% from $100 or the usual 20% higher or lower from the current trend.

 

The EIA report today was another total joke with an enormous swing in Other Oils of 5.6 million barrels, another large reversal in Adjustment (Unaccounted-for Crude Oil) of 463,000 barrels/day or 3.24 million barrels for the week and again a small increase in U.S. production to finish the year just above 9.2 million barrels a day. Good job guys! The energy revolution is alive!

 

In other news and when I saw that first I had to double check the source but, this is crazy:

 

http://www.telegraph.co.uk/news/worldnews/middleeast/iran/12073828/Iranian-navy-test-fires-rockets-near-US-aircraft-carrier.html

 

Apparently, the Iranian navy only gave a 23 minute warning and this happened on Saturday. Makes you wonder what happens real time???

 

Clearly if I was Obama, I would cut another sweet deal with these guys. They are definitely on the right track to join the league of peaceful nations. This is a clear indication that they cooperating fully with the nuclear agreement and not hiding anything...

 

Cardboard

 

 

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Thanks for the articles/videos Goldfinger.

 

Predictions for a lower oil price in early 2014 did not come from Goldman Sachs but, from smaller, more specialized outfits such as PIRA Energy Group. The big banks were forecasting instead for oil to go up around 20% from $100 or the usual 20% higher or lower from the current trend.

 

The EIA report today was another total joke with an enormous swing in Other Oils of 5.6 million barrels, another large reversal in Adjustment (Unaccounted-for Crude Oil) of 463,000 barrels/day or 3.24 million barrels for the week and again a small increase in U.S. production to finish the year just above 9.2 million barrels a day. Good job guys! The energy revolution is alive!

 

In other news and when I saw that first I had to double check the source but, this is crazy:

 

http://www.telegraph.co.uk/news/worldnews/middleeast/iran/12073828/Iranian-navy-test-fires-rockets-near-US-aircraft-carrier.html

 

Apparently, the Iranian navy only gave a 23 minute warning and this happened on Saturday. Makes you wonder what happens real time???

 

Clearly if I was Obama, I would cut another sweet deal with these guys. They are definitely on the right track to join the league of peaceful nations. This is a clear indication that they cooperating fully with the nuclear agreement and not hiding anything...

 

Cardboard

 

Not to derail the topic, and not that I necessarily agree with a pact with Iran, but this story seems like it's been blown up and exaggerated by the news sources I've read. The missiles were shot in the opposite direction of the U.S. carrier and they were given warning by the Iranian navy that a live-fire exercise would be occurring. Obviously tensions would be high with live fire in that proximity, and I don't know the protocol for distance before testing, but it doesn't appear that the U.S. carrier was ever in danger, or fired upon, as many of the articles seem to insinuate.

 

Anyways, I appreciate your updates and commentary on oil inventories. Thanks for your contribution!

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" it doesn't appear that the U.S. carrier was ever in danger, or fired upon"

 

No the rockets were not fired at the carrier and they have a Phalanx defense systems which would easily intercept such rockets but, do you imagine if the Chinese had sent a similar ship firing rockets that close by when the destroyer approached their man made island?

 

1,500 yards is pretty close for a vessel of that size. And why did the Iranian chose that moment when the carrier crosses the Straight?

 

All I can say is that they are not demonstrating good intentions despite Obama naivety. Since signing the accord, they have broken various U.N. resolutions such as test-firing ballistic missiles and sending one of their general to Moscow.

 

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http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

 

This was a very bullish rig count IMO. Canada was down huge with 32 for oil and 11 for gas. A drop of 34% in the overall rig count in one week!

 

Not sure what this is all about since road bans are in the Spring. Such a drop has to impact production.

 

The U.S. was down only 2 oil rigs but, down 5 horizontal and up 3 vertical. The 3 additional vertical rigs look like conventional drilling in the Permian. These are cheaper to drill. Maybe also to honor drilling commitments to keep leases.

 

The data seems to indicate tightening budgets and much less incentives to drill with these prices. At some point, this will show up in the production reports and inventories unless the law of nature has been repealed.

 

Cardboard

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http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

 

This was a very bullish rig count IMO. Canada was down huge with 32 for oil and 11 for gas. A drop of 34% in the overall rig count in one week!

 

Not sure what this is all about since road bans are in the Spring. Such a drop has to impact production.

 

The U.S. was down only 2 oil rigs but, down 5 horizontal and up 3 vertical. The 3 additional vertical rigs look like conventional drilling in the Permian. These are cheaper to drill. Maybe also to honor drilling commitments to keep leases.

 

The data seems to indicate tightening budgets and much less incentives to drill with these prices. At some point, this will show up in the production reports and inventories unless the law of nature has been repealed.

 

Cardboard

 

That's probably Christmas related, imo. It is very common for Canadian rigs to shut down before Christmas and start back up after New Years. The couple rigs I'm involved with both did, and they'll be back drilling on Monday...

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http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

 

This was a very bullish rig count IMO. Canada was down huge with 32 for oil and 11 for gas. A drop of 34% in the overall rig count in one week!

 

Not sure what this is all about since road bans are in the Spring. Such a drop has to impact production.

 

The U.S. was down only 2 oil rigs but, down 5 horizontal and up 3 vertical. The 3 additional vertical rigs look like conventional drilling in the Permian. These are cheaper to drill. Maybe also to honor drilling commitments to keep leases.

 

The data seems to indicate tightening budgets and much less incentives to drill with these prices. At some point, this will show up in the production reports and inventories unless the law of nature has been repealed.

 

Cardboard

 

This seems seasonal...

To be honest Cardboard, I think that it will take most of 2016 to correct the current "glut" and that Q1/Q2 2016 will probably be super tough for O&G producers. I feel like we are still a bit early... You said that most oil comp are risky when oil resumed its downside weeks ago to the 30s and I think you were right... Especially that consumption growth will be a big part of the equation. It seems wise to continue to observe most E&Ps for a little longer and continue to progressively adjust and pick the winners that will make it on the other side...

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