Energy Sector

[sleepydragon]

22 minutes ago, Dalal.Holdings said:

 

 

I think that the assumption that China will resume its voracious appetite for oil is probably very wrong. It certainly won't see the growth of the past 20 years. That's bearish for oil...

 

https://www.reuters.com/markets/commodities/after-decades-china-sputters-engine-global-oil-demand-growth-2024-12-03/

 

 

 

 

 

 

Yet Li Lu bought OXY. 

[Dalal.Holdings]

6 minutes ago, sleepydragon said:

 

Yet Li Lu bought OXY. 

 

Yet Charlie bought BABA (probably under the influence of Li Lu).

 

Charlie's (and Li Lu's) biggest win though? BYD. BYD and its peers having significant impact on China's oil demand and they are rapidly growing and exporting cheap EVs to other countries too...

 

https://www.autoblog.com/news/byd-projected-to-surpass-ford-by-year-end

Edited December 4 by Dalal.Holdings

[Spekulatius]

2 hours ago, sleepydragon said:

 

Yet Li Lu bought OXY. 

Oxy is a dud. Bad at capital allocation. I think WEB or his successor will dumb it soon enough. The buys at distressed levels were alright but he made a mistake when he kept buying. He should just have bought Chevron instead, imo.

[Dalal.Holdings]

 

SA isn't losing market share because its wells are running dry...looking more and more like a supply glut with demand flatlining and in some places having already peaked...

 

Oh, and SA's eventual solution might be to flood this market...

 

[Saluki]

3 minutes ago, Dalal.Holdings said:

 

SA isn't losing market share because its wells are running dry...looking more and more like a supply glut with demand flatlining and in some places having already peaked...

 

Oh, and SA's eventual solution might be to flood this market...

 

 

I find it odd that people think that the Saudis have flooded the market in the past to wipe out their competitors.  They are trying to diversify but last time I checked more than 90% of their income was from oil, and the tourists who come to Mecca for the Haj tend to come from oil countries too, so their fate is tied to oil.  Since oil contracts are dollar denominated, when the dollar goes down because we print too much money, they need to pump even more oil to cover their yearly nut, no matter what the price of oil is.  

[Dalal.Holdings]

8 minutes ago, Saluki said:

 

I find it odd that people think that the Saudis have flooded the market in the past to wipe out their competitors.  They are trying to diversify but last time I checked more than 90% of their income was from oil, and the tourists who come to Mecca for the Haj tend to come from oil countries too, so their fate is tied to oil.  Since oil contracts are dollar denominated, when the dollar goes down because we print too much money, they need to pump even more oil to cover their yearly nut, no matter what the price of oil is.  

 

The Riyal has been pegged to USD since 1952. I think that SA's revenues fluctuate much more with the volume of oil they sell and the price they sell it at than any currency fluctuations or inflation of the dollar. Their loss of market share and the flood of oil from U.S. producers has done more damage to their budget than any money printing by the USA. The massive increase in U.S. supply has brought prices down for everyone.

 

It's in each producer's interest to maximize how much oil they produce, but if everyone maximizes their production, everyone loses (at least in the short term). Lots of Game Theory involved.

Edited December 4 by Dalal.Holdings

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2024-12-05/opec-meets-to-discuss-further-delay-to-oil-output-revival

 

OPEC is having a lot of trouble keeping a lid on production even among its own members and is losing market share in the process. Remind me again why this is bullish for oil ?

 

Quote

The group led by Saudi Arabia and Russia has firmed up a deal to once again postpone a sequence of supply increases, which had been due to begin with a hike of 180,000 barrels a day in January. With oil prices currently too low to cover government spending plans, OPEC+ members have been unable to raise output for fear of sending crude even lower.

 

Quote

They have already been forced twice to defer the increases, as faltering demand in China and brimming supply from the Americas weigh on prices. Brent futures have retreated roughly 18% since early July to trade near $73 a barrel.

 

Quote

An official from Iran — one of OPEC’s founding members — wrote last week that the cartel’s strategy has proved self-defeating as the pursuit of higher oil prices finances an endless tide of rival supply.

Quote

Decisions taken by the alliance have boosted US shale producers and reduced the alliance’s share of the global market, Rosneft PJSC Chief Executive Officer Igor Sechinsaid at the Verona Eurasian Economic Forum in the United Arab Emirates.

https://www.bloomberg.com/opinion/articles/2024-12-02/the-wrong-oil-price-is-truthfully-a-problem-for-opec

 

Quote

The group, he argued, faced a “a supply glut” largely of its own making following several years of production cuts. “This strategy in support of prices has effectively encouraged higher supply outside the group, particularly on the part of the US,” he said. “That would leave a limited room for maneuvering by OPEC+ to ease its restrictions.”

Quote

The commentary went on to state a truth that few will even discuss behind closed doors: The current policy prompted Angola to quit OPEC+, and others could soon follow. Javan warned that Gabon, Equatorial Guinea and Republic of Congo “are likely to reconsider their membership.”

Quote

In the meantime, Riyadh is trying to arm-twist Iraq and Kazakhstan into respecting their OPEC+ production limits. Both nations have regularly pumped above their quotas, along with Russia and the United Arab Emirates. Kazakhstan, which has spent billions expanding its largest oilfield, is protesting so that the group recognizes its right to produce more oil next year. That battle has the potential to derail any deal on Dec. 5, delegates tell me.

Quote

The International Energy Agency estimates the US shale industry is so good at drilling, and does it so cheaply, that today just 300 rigs do the job that took 500 rigs five years ago. Travis D. Stice, the chief executive officer of top shale producer Diamondback Energy Inc., recently told investors that he initially planned to use 22 to 24 rigs next year, but thought he could do the job now with just 18 rigs. “This is purely based on continued efficiency gains,” he said.

 

[Dalal.Holdings]

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/metals/101424-chinas-ev-sales-output-hit-fresh-record-in-sep

 

A majority of cars sold in China are now EVs. China has very little of its own oil reserves and this is the smart thing to do. I expect them to continue to barrel ahead on this path (and export a massive amount of EVs to the parts of the world that don't put up trade barriers).

 

Quote

China's EV production reached 1.31 million units in September, up 19.7% month over month and 48.8% year over year.

S&P Global Commodity Insights calculations showed that China's NEV penetration rate reached 45.8% of its total vehicle sales.

EV sales surpassed fuel car sales for the second consecutive month, reaching 51.8% of the Chinese market in September, CAAM data showed.

 

[SharperDingaan]

You might want to do some actual research. https://www.ceicdata.com/en/indicator/china/crude-oil-production

China is currently the 7th larger producer in the world at 4.1M boe/d ...... AHEAD OF Brazil, Iran, Kuwait, Mexico, Norway.

 

SD

[lnofeisone]

1 hour ago, Dalal.Holdings said:

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/metals/101424-chinas-ev-sales-output-hit-fresh-record-in-sep

 

A majority of cars sold in China are now EVs. China has very little of its own oil reserves and this is the smart thing to do. I expect them to continue to barrel ahead on this path (and export a massive amount of EVs to the parts of the world that don't put up trade barriers).

 

 

How is EV defined in this article? Just BEV or BEV + PHEV?

[SharperDingaan]

EV can't charge when the grid goes down... 

https://www.scmp.com/news/china/science/article/3289629/xinjiang-power-swing-threatened-chinas-nationwide-electricity-supply-august

https://www.reuters.com/markets/commodities/chinas-rapid-renewables-rollout-hits-grid-limits-2024-07-04/

 

Sure ... its fixable. But until then EV is going to remain a hard sell, sold on ever deepening price cuts.

There is a reason why EV battery makers are steadily going to the wall.

 

SD

[Dalal.Holdings]

2 hours ago, SharperDingaan said:

You might want to do some actual research. https://www.ceicdata.com/en/indicator/china/crude-oil-production

China is currently the 7th larger producer in the world at 4.1M boe/d ...... AHEAD OF Brazil, Iran, Kuwait, Mexico, Norway.

 

SD

 

You might want to add some context to "7th largest producer". This is a country with a massive population and industrial base that needs energy. Being 7th largest is not enough for them. They are the world's largest importer of oil at over 11 million barrels a day (more than what SA or Russia produce).

 

They are a massive importer of oil and they know what their critical geopolitical weaknesses are: the strait of Malacca, the South China Sea, Strait of Hormuz, etc. The less oil they use, the better off they are strategically.

 

China's auto EV juggernaut is devastating European auto manufacturers and it will structurally reduce China's dependence on oil (it already is)

 

The fact that very few oil bulls look at all this stuff is hilarious to me

 

Edited December 6 by Dalal.Holdings

[SharperDingaan]

Sure China is a 7.2M boe/d consumer (consumes 11.3 and produces 4.1 M boe/d); and same as the US, is both an exporter and importer of different grades.

 

The reality is that OPEC+ is pushing for higher prices, and has agreed to hold back 3.65M boe/d for 12 months. It doesn't really matter whether one actually believes the number; even 60% of it, is still a big number. At the same time, Exxon is stressing that 'drill baby drill' ain't going to dramatically ramp up US production; as without new inventory, it's primarily just going to reduce the cost base while replacing existing depletion ... at a material increase in gas production.

 

For most wells, during the first 1-2 years of capex recovery, break-even is around US 65/bbl; thereafter the well produces at just the marginal cash cost. OPEC+ floods the market ... price drops, drilling stops, there are layoffs, production blows-down, and capex/margin go into buybacks/M&A/dividends; bring it on! Whereas if OPEC+ maintains price at around US 65-75/bbl, or higher ... everybody lives peaceably.   

https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-opec-delays-oil-output-hike-until-april-extends-cuts-into-2026-sources/

https://oilprice.com/Energy/Energy-General/Exxon-Dont-Expect-Drill-Baby-Drill-Under-Trump.html

 

Tariffs will both reduce Chinese exports and net energy consumption; same again if the Chinese power grid can actually support all the EV charging. Hence, most would argue that with the continuing OPEC+ overhang, and diminishing future Chinese demand; it's far smarter to simply put production into blow-down. Cut maintenance capex and put it into buybacks and dividends; the Exxon argument.

 

If you think producers have found religion, o/g is a promising investment; whereas if you think that isn't the case ...  well, we have a market for that

 

SD

 

Edited December 7 by SharperDingaan

[sleepydragon]

45 minutes ago, SharperDingaan said:

Sure China is a 7.2M boe/d consumer (consumes 11.3 and produces 4.1 M boe/d); and same as the US, is both an exporter and importer of different grades.

 

The reality is that OPEC+ is pushing for higher prices, and has agreed to hold back 3.65M boe/d for 12 months. It doesn't really matter whether one actually believes the number; even 60% of it, is still a big number. At the same time, Exxon is stressing that 'drill baby drill' ain't going to dramatically ramp up US production; as without new inventory, it's primarily just going to reduce the cost base while replacing existing depletion ... at a material increase in gas production.

 

For most wells, during the first 1-2 years of capex recovery, break-even is around US 65/bbl; thereafter the well produces at just the marginal cash cost. OPEC+ floods the market ... price drops, drilling stops, there are layoffs, production blows-down, and capex/margin go into buybacks/M&A/dividends; bring it on! Whereas if OPEC+ maintains price at around US 65-75/bbl, or higher ... everybody lives peaceably.   

https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-opec-delays-oil-output-hike-until-april-extends-cuts-into-2026-sources/

https://oilprice.com/Energy/Energy-General/Exxon-Dont-Expect-Drill-Baby-Drill-Under-Trump.html

 

Tariffs will both reduce Chinese exports and energy production; same again if the Chinese power grid can actually support all the EV charging. Hence, most would argue that with the continuing OPEC+ overhang, and diminishing future Chinese demand; it's far smarter to simply put production into blow-down. Cut maintenance capex and put it into buybacks and dividends; the Exxon argument.

 

If you think producers have found religion, o/g is a promising investment; whereas if you think that isn't the case ...  well, we have a market for that

 

SD

 

SD, any good o/g stock picks for US investors ? thanks!

[SharperDingaan]

8 hours ago, sleepydragon said:

SD, any good o/g stock picks for US investors ? thanks!

 

Pretty hard to beat any of the SU, CVE, MEG, etc. CAD/USD exchange rate is low and going lower, revenue is in USD, costs are in CAD, and there is a major hate on anything 'dirty oil'. Trump does his thing, politicians change, pendulums swing, and all the girls clean up very well. Over a 3-4 yr investment horizon, most should should be 2-3 baggers before dividends, and after buybacks. 

 

If you have the risk tolerance look at the smaller players, as M&A consolidation is inevitable; enjoy the ride, but don't fall in love. The model assumes any one position big enough, so that an eventual takeout proceed (net of tax) and reinvested in a BCE, will throw off a dividend for life > 1/3 of salary. Swing trade as you please, but keep the eye on the prize. To put up with the drama, you need to get paid well!

 

SD

 

Edited December 8 by SharperDingaan

[Dalal.Holdings]

5 hours ago, SharperDingaan said:

 

If you think producers have found religion, o/g is a promising investment; whereas if you think that isn't the case ...  well, we have a market for that

 

 

 

Yep, there is a market for that. Obviously anything geopolitically can happen to spike oil, but other than that, I think it grinds lower. I'm avoiding the sector and I would certainly avoid marginal stuff (Canadian oil sands, Drill-ships, etc), but to each his own...

[SharperDingaan]

Just keep in mind that investing in energy, commodities, or a BTC; is very different to investing in a BRK. With energy, you are a price taker, and attempting to forecast the rise and fall of economic tides. If you suck at forecasting (timing &/or price), your results will also suck; whether you invested in an ocean liner, or a row boat.

 

Time horizon and risk management are your friends. Short horizons work against you, as does greed and the sizing of a position beyond your comfort zone. As the expectation is a hold over years ... if the potential reward isn't  life changing, you need to walk away. Not what most want to hear, or are prepared to tolerate; hence it often ends in tears.

 

Ideally, the company does not hedge prices beyond the protection of a committed drilling program. It is left to investors to adjust the size of their position to changing price environments, via swing trades or otherwise. Again, not what most want to hear, or are prepared to tolerate.

 

However, do it right ..... and it can work out very well; as a great many hospital fund raising campaigns can attest to. Different PoV.

 

SD

 

Edited December 8 by SharperDingaan

[petec]

On 12/7/2024 at 10:14 PM, SharperDingaan said:

 

Pretty hard to beat any of the SU, CVE, MEG, etc. CAD/USD exchange rate is low and going lower, revenue is in USD, costs are in CAD, and there is a major hate on anything 'dirty oil'. Trump does his thing, politicians change, pendulums swing, and all the girls clean up very well. Over a 3-4 yr investment horizon, most should should be 2-3 baggers before dividends, and after buybacks. 

 

If you have the risk tolerance look at the smaller players, as M&A consolidation is inevitable; enjoy the ride, but don't fall in love. The model assumes any one position big enough, so that an eventual takeout proceed (net of tax) and reinvested in a BCE, will throw off a dividend for life > 1/3 of salary. Swing trade as you please, but keep the eye on the prize. To put up with the drama, you need to get paid well!

 

SD

 

 

I have a simpler answer: Ensign! Mainly because I am a sucker for free cash yield, but I also like the inside ownership (>50% is in the hands of management and Fairfax) and economics well below the incentive price for new supply.

[SharperDingaan]

8 hours ago, petec said:

 

I have a simpler answer: Ensign! Mainly because I am a sucker for free cash yield, but I also like the inside ownership (>50% is in the hands of management and Fairfax) and economics well below the incentive price for new supply.

 

Quite agree! but if you have the risk tolerance look at ACX.TO (Cathedral Energy Services, pre reverse split)  

Lovely low share count, much better shareholder base, and more presence in the US fields; reduced our PD and ESI to fund a larger position. If Trump does his thing, and she runs as expected .....  

 

SD

[Stuart D]

$XOM producing in the Permian for a cost of <$35/bbl. Surely this is bearish for oil prices.

[Dalal.Holdings]

1 hour ago, Stuart D said:

$XOM producing in the Permian for a cost of <$35/bbl. Surely this is bearish for oil prices.

 

Interesting if you think lower production costs means higher crude prices. To me, it means the exact opposite.

 

https://investor.exxonmobil.com/news-events/press-releases/detail/1178/exxonmobil-announces-plans-to-2030-that-build-on-its-unique

 

Quote

• Increasing Upstream production to 5.4 million oil-equivalent barrels per day with >60% from advantaged assets

 

Quote

“Through 2030, we plan to deploy about $140 billion to major projects and the Permian Basin development program,” added Woods. “We expect this capital to generate returns of more than 30% over the life of the investments.

 

Does anyone read the above to mean less oil supply? Does anyone read the above and think production "restraint" and "discipline" ?

 

[Dalal.Holdings]

Lol...

 

 

 

[Stuart D]

I think lower production costs means lower oil prices.

[Dalal.Holdings]

45 minutes ago, Stuart D said:

I think lower production costs means lower oil prices.

 

I guess I detected sarcasm where there was none. 

 

The thesis folks had was when the majors acquire the small shale players (like Exxon and Pioneer), they would show more restraint and rationalize production so that the U.S. supply boom that has driven prices down would end. Looks like Exxon is not going down that route…

[Pelagic]

Out of pure curiosity does anyone know why Exxon uses Moebd instead of the more common formatting of Mboed or mmboed? I figured it was a typo at first but it seems they use it in everything.