Energy Sector

[Blake Hampton]

4 hours ago, yesman182 said:

These experts originally prognosticated that if this went on more than two weeks we would be at $150+ oil. They are always bullish and commonly wrong. I too am surprised by the oil price, I would have expected it to go up.  

It's ridiculous how often I hear forecasts, and just how often those same forecasts are wrong. I've learned to tune them out. But likewise, I also think it's crazy that so many people use the futures curve as justification that everything will be fine in six months.

[Blake Hampton]

Commodities are kind of like the trades. They're not sexy like tech, but they have inherent demand that'll likely keep them moving up alongside the price level.

[Blake Hampton]

Producers can be particularly strong if the price of the commodity sold increases faster than their cost of producing it. This leads to higher margins and, in effect, higher returns on equity.

[ratiman]

This period reminds of that time before March 11 when everybody realized COVID was a big deal but few were willing to go short. I can't really see how there is going to be a deal before the market crashes. Until then there won't be the urgency. 

[Gregmal]

Or, it could be like that time, like basically every two weeks, where people on Twitter keep calling for crashes, based on sensationalized crap, and nothing happens…

 

$90-100 oil ain’t crashing anything. 

[ratiman]

At what price of Brent would you be wrong? 

 

1 hour ago, Gregmal said:

Or, it could be like that time, like basically every two weeks, where people on Twitter keep calling for crashes, based on sensationalized crap, and nothing happens…

 

$90-100 oil ain’t crashing anything. 

 

[Gregmal]

47 minutes ago, ratiman said:

At what price of Brent would you be wrong? 

 

 

What do you mean at what price would I be wrong? All I said is the current ones ain’t doing anything. 
 

6-7% mortgages didn’t kill the economy. Same way 3-4% inflation was a nothing burger and didn’t do it either. Maybe at $130-150 for a sustained period there’s a case, but $90-100? It’s hard to believe there’s so much conviction behind $90-100 oil, for a short period of time, breaking the economy. They charlatans, they’ve really been trying to sell it hard, but it’s not like we haven’t seen it before and from a historical perspective, adjusted for inflation, it isn’t even that high.

[Gregmal]

https://www.cbsnews.com/baltimore/news/memorial-day-weekend-travel-brings-record-breaking-numbers/

 

Who'da thunk it? People bitch. They moan. And still get on with their lives. $5/gallon gas is an inconvenience, not an economy killer. 

Edited May 25 by Gregmal

[ratiman]

I'd say greater than 50% chance of Brent over $150, not that anybody is on the edge of their seat waiting for my predictions but nothing I've seen so far makes me think Iran is ready to blink or Trump is ready for a humiliating climbdown. 

[SharperDingaan]

2 hours ago, Gregmal said:

$90-100 oil ain’t crashing anything. 

 

Quite a few o/g mid/small caps have begun raising their capex budgets; most using a price deck at around $80-90. Folks might bitch more, but are still going to drive, and do their own thing.

 

SD

[Gregmal]

30 minutes ago, SharperDingaan said:

 

Quite a few o/g mid/small caps have begun raising their capex budgets; most using a price deck at around $80-90. Folks might bitch more, but are still going to drive, and do their own thing.

 

SD

Yea I think it would be fun to see where the real point of pain occurs, but I dont think it's likely happening here. We're barely holding the 90/100 range almost purely held up by speculators and the second there is resolution the floodgates start opening. A far cry from previous dilemmas/inflation bursts where the root of the supply/demand imbalance wasnt as obvious or like with covid, while it was obvious(supply chains and free money), but needed time to address. 

[SharperDingaan]

1 hour ago, Gregmal said:

Yea I think it would be fun to see where the real point of pain occurs, but I dont think it's likely happening here. We're barely holding the 90/100 range almost purely held up by speculators and the second there is resolution the floodgates start opening. A far cry from previous dilemmas/inflation bursts where the root of the supply/demand imbalance wasn't as obvious or like with covid, while it was obvious(supply chains and free money), but needed time to address. 

 

A lot of folks are now driving hybrids, or full EV's .... changes the gasoline pain point quite a bit. 

 

We drive a 2026 Toyota Rav-4. Even with today's higher gas prices, it costs the same as it used to cost to drive the prior 2021 Rav-4 .... and maybe 2/3 of the cost of the gas guzzler before it. But also comes with materially lower maintenance, and higher insurance costs (high on the 'steal' list). While lots of people talk the cheap Chinese EV import down; their running cost is often as low/better ... quality is comparable .... and they are a lot cheaper to insure. Lot lower pump price impact.

 

This time around it will not be gas/diesel prices that tip the cart; it'll be the cost impacts on the secondary uses ... fertiliser, jet fuel, cooking oil, helium, plastics, power generation, winter heating, etc. Slow burners that are hard to substitute around .... keeping the forward curve up 

 

SD

Edited May 26 by SharperDingaan

[ratiman]

This is Iran military on X: 

 

 

I have no way to evaluate that, maybe it's posturing etc but I don't know, Say hello to $200 oil doesn't sound like somebody about to compromise. 

[SharperDingaan]

The SOH will be opened, we just don't know the when; but as soon as supply resumes flowing ... price comes down. Until then, price is whatever someone can manipulate it to.

 

SD

 

 

 

[EgonKuhn]

2 hours ago, SharperDingaan said:

The SOH will be opened, we just don't know the when; but as soon as supply resumes flowing ... price comes down. Until then, price is whatever someone can manipulate it to.

That’s an interesting thought. For a few weeks now, I’ve been wondering why the most significant *actual* supply shock we’ve seen in a long time is barely reflected in the price. In stark contrast to smaller, often merely *potential* threats that have frequently triggered panic-driven price reactions in the past.

 

Have storage capacities now reached a scale where entire oil-producing regions could go offline for months without causing major disruptions in the real world?

 

If so, wouldn't the era of high oil-price volatility (even in the face of minor disruptions) essentially be a thing of the past?

[kab60]

1 hour ago, EgonKuhn said:

That’s an interesting thought. For a few weeks now, I’ve been wondering why the most significant *actual* supply shock we’ve seen in a long time is barely reflected in the price. In stark contrast to smaller, often merely *potential* threats that have frequently triggered panic-driven price reactions in the past.

 

Have storage capacities now reached a scale where entire oil-producing regions could go offline for months without causing major disruptions in the real world?

 

If so, wouldn't the era of high oil-price volatility (even in the face of minor disruptions) essentially be a thing of the past?

Storage levels were very high going into the conflict. 

 

Storage capacity, combined with a surge in shale/short cycle oil, as well as better and faster offshore development, should all else equal mean less boom and busts than in the past. I think that's a good thing for both the global economy, as well as oil companies, as it lessens the risk of overinvestment.

 

I agree with a lot of different views in this thread and think it's possible that a number of them can be true at the same time. 

 

Inflation-adjusted $90 USD isn't terrible. The US is much less dependent on oil than in the past. Energy is 3% of the S&P500. But perhaps most importantly, as a net exporter (let's forget for a minute that the US imports a lot of refined product), the US is RELATIVELY - to the rest of the world - much better off.

 

Anyway, my working assumption is Iran should have little incentive to do a deal before it hurts the US economy some. And given the lack of damage to the US economy from 90-100 USD oil so far, Trump doesn't seem to be in a rush either. In that regard, it does feel a bit like early 2020, watching things unfold in slow-motion. Back then, it didn't really matter, until stock markets crashed, and it was suddenly the only thing that mattered.

 

Now it could be that China and others will try to force Irans' hand, or perhaps the strait just keeps staying closed in which case, eventually, oil prices will move higher. It's a massive daily drawdown of global inventories at the current rate, and no matter if it resolves today or in a month, I'd assume oil prices will stay higher for longer - perhaps in that 65-85 USD range - given inventories will have to be rebuilt (at least some), and perhaps an increased risk premium.

 

65-85 USD oil isn't high from an inflation adjusted-perspective, but in such a scenario, (some select) E&P companies look (very) cheap. And if things turn to shit and oil prices go much higher, they'll do very, very well. Personally I have 15% of my portfolio in one E&P co. If the SoH opens tomorrow, I'll get wacked, but the rest of my portfolio should carry me through just fine anyway. And over the midterm, I still expect to make plenty of money on that position, given that it doesn't need 100 USD oil to 'work'.

 

 

[Gregmal]

2 hours ago, EgonKuhn said:

For a few weeks now, I’ve been wondering why the most significant *actual* supply shock we’ve seen in a long time is barely reflected in the price.

You realize even at $95, that is a $35, or nearly 60% increase from pre war prices? That’s a little more than “barely reflected”. 

[EgonKuhn]

15 minutes ago, Gregmal said:

You realize even at $95, that is a $35, or nearly 60% increase from pre war prices? That’s a little more than “barely reflected”. 

I see that. From my impression $60 oil was more on the low side of the pendulum with $70-80 the mid point. So sub $100 feels more on the high side of the pendulum but not panic level at all. Especially inflation adjusted. But I'm just a tourist here being curious about what I see.

[Marco Van Basten]

12 hours ago, ratiman said:

This is Iran military on X: 

 

 

I have no way to evaluate that, maybe it's posturing etc but I don't know, Say hello to $200 oil doesn't sound like somebody about to compromise. 

Sure, but can Iran survive with no oil exports?  If the population begins starving because Iran does not have the money to import food, what happens next?  How long can Iran government survive?

[ratiman]

17 minutes ago, Marco Van Basten said:

Sure, but can Iran survive with no oil exports?  If the population begins starving because Iran does not have the money to import food, what happens next?  How long can Iran government survive?

You're asking the wrong guy, I have no idea. All I know is that Iran has not budged an inch and there is no sign that the two sides are close at all. It's like the Commanders negotiating with Terry McLaurin. 

[rogermunibond]

Oil price + crack spread > $180 over a sustained period leads to recession.

 

So the US is not there at $90 WTI and a $50 3-2-1 crack spread.

 

https://rbnenergy.com/market-data/3-2-1-crack-spread

[rogermunibond]

[SharperDingaan]

6 hours ago, EgonKuhn said:

I see that. From my impression $60 oil was more on the low side of the pendulum with $70-80 the mid point. So sub $100 feels more on the high side of the pendulum but not panic level at all. Especially inflation adjusted. But I'm just a tourist here being curious about what I see.

 

Canadian Jan/Feb 2026 capex budgets were largely done at a USD 60-65 price deck; about the full cost of production in many US reservoirs. USD 70-80 (+20%) is just the current capex price deck, 2 months into feedback from the Iran war .... and the forecast average for the rest of 2026.  Net of spikes up/down, not unreasonable.

 

The USD 100+ stuff ... assumes the SOH remains closed through July 31. Again, not unreasonable, as the global cumulative shortfalls will be materially worse; but how likely? While probability rises each week of delay, 'prominence' is dependant upon the skill of the promoter ... selling 'oil party' options .

 

All that is certain, is that the longer the SOH remains closed; the longer it will take for prices to return to 'normal'. USD 90-100 for the next two years is not going to wreck the economy, but it will do wonders for industry consolidation/profitability 

 

SD

 

[EgonKuhn]

10 minutes ago, SharperDingaan said:

 

Canadian Jan/Feb 2026 capex budgets were largely done at a USD 60-65 price deck; about the full cost of production in many US reservoirs. USD 70-80 (+20%) is just the current capex price deck, 2 months into feedback from the Iran war .... and the forecast average for the rest of 2026.  Net of spikes up/down, not unreasonable.

 

The USD 100+ stuff ... assumes the SOH remains closed through July 31. Again, not unreasonable, as the global cumulative shortfalls will be materially worse; but how likely? While probability rises each week of delay, 'prominence' is dependant upon the skill of the promoter ... selling 'oil party' options .

 

All that is certain, is that the longer the SOH remains closed; the longer it will take for prices to return to 'normal'. USD 90-100 for the next two years is not going to wreck the economy, but it will do wonders for industry consolidation/profitability 

So all of these $200 oil calls over the last two decades were just fiction/fantasy? I mean when the current circumstances doesn't trigger a panic price, what situation should trigger it at all?

[Gregmal]

2 minutes ago, EgonKuhn said:

So all of these $200 oil calls over the last two decades were just fiction/fantasy? I mean when the current circumstances doesn't trigger a panic price, what situation should trigger it at all?

Its end game is supply and demand for a physical product. That really shouldn't be susceptible to the type of volatility that even remotely hints at $200 oil. The difference is all the speculators and charlatans gambling on financial instruments before the contract has to be physically delivered.

 

Oil even today, is not scarce. It's just "relatively more expensive" vs what people are used to, but again, 2007, 2014, 2021 called and want their oil prices back too. Drilling is probably going to ramp, the odds of such greatly increase the longer it's viewed as there being a chance prices stay this high for longer than expected. Im not really sure what reason would justify "panic" over something readily available. 

 

Relatedly, I was hanging out with an older friend this weekend; hes born and raised English. He was lamenting the stupidity of the London regimes energy policy. His gripe was with the economy struggling, and all that oil in the North Sea, why are they refusing to do anything productive? England isnt unique. What happens in the rest of the world if, you know, we actually really ever do need more oil? Cuz it's EVERYWHERE, and most of these chumps just wanna virtue signal and then blame Trump. The answer to higher oil prices, is and always will be, higher oil prices.