Crude Oil price

[samso]

View attachment 89317 Quarterly profiles for CL. Target is 81.12.

How do you read this ?

 

[CanOz]

The market tends to auction toward last agreed value. The high volume nodes or points of control tell where value was most agreed upon. 81.12 is the last untested point.

 

[luutzu]

Just a year or so back and the world was awash in oil. What's changed?

Ran out of gas?

From memory, the "glut" was about 2m or less barrel a day. That sounds like a lot but that's about 2% over supply of demand.

Once you crash the price, put small operators out of business; put a halt to investment in more energy efficient machineries, halt new investment into alternatives... drive more demand of the good stuff by diverting their need for someone else's green energy.

Further at low prices, small oilers need to pump more out to break even or not go broke... that in itself quicken the depletion.

On top of that... the new increased demand and fossil burning also soften up the Arctic, giving easier access the last drop God giveth (hidden from?) to man....

Then once you're ready to make the killing, prices will be so high that those hippy tree hugging greenpeace terrorists will find little moral support or funding to make any noise.

 

[tobeyhw]

What's the point? NYMEX CL price right now is like in between of low(20+) and high(150). Better buy near the low and sell near the high. My 0.02.

 

[tobeyhw]

Plus long crude oil basically equals betting on overheating of global economy. My personal view is the odds of that is not really meaningfully high. my 0.02.

 

[samso]

Plus long crude oil basically equals betting on overheating of global economy. My personal view is the odds of that is not really meaningfully high. my 0.02.

True

But i think there are good arguments that there will be an 8 in front next year

 

[CanOz]

There are many elements that affect the price, current and future supply and demand, the USDX...makes for great intraday volatility. I’m not fussed where it’s going, only that it’s moving.

 

[Trading Athlete]

How do you know when oil is cheap or expensive?

Stocks are so much easier. You could look at Price to Earnings or something like this.

Does anyone have a ratio for oil equivalent to Price to Earnings?

 

[luutzu]

How do you know when oil is cheap or expensive?

Stocks are so much easier. You could look at Price to Earnings or something like this.

Does anyone have a ratio for oil equivalent to Price to Earnings?

Formula is Value = Oil Price / eE

Where eE is earning Expectation. i.e. what much the buyer is expecting to make from the price.

So if oP/eE <1, it's good to buy.




--------

PE doesn't really tell you much about the value/price of the business. It just give you an idea of what the market is thinking/expecting. And even then, it doesn't really tells much more than a wet finger in the wind.

So if PE is "high"... it indicate that the market is expecting the E in the future to be higher, thus bringing the PE ratio down to a more "reasonable" level. i.e. they're buying it for cheap given what they see the future will be.

But then what is cheap and what is reasonable? We all have our different ideas of it... What is that exepcted E and when do we, the market, know it's been reached? Did anyone send a memo about it?

So if you're to rely on PE ratio, you will still need to know for yourself what your E is. And that's assuming that P is the current market price.


Should price it in two ways...

1. Perpetual bond..... Value = Earning Power/rr.... where rr is your required rate of return, say 10 or 15%p.a. from now into eternity.

You work out, under a few scenario and assumptions, what you reckon the company's earning is likely to be for you as the owner taking over the entire company.

Plug in that EP, divvy it over your rr... that's about how much a reasonable price is.

If Mr. Market is offering lower than that... all else being equal... you strike a deal.

2. Ben Graham's estimation.

Value = EP * [8.5 + 2g]

where g is the expected p.a. growth rate over next decade.


So valuation is pretty simple and straight forward. If you find you're doing too much maths to value the business, you're doing it wrong. Modesty, I know.

The difficult and most challenging part is not the valuation... it's in the understanding of the business.

How to judge its financial position; can the business maintain its market share/position; grow without too much risk; shifting tastes, technological changes etc. etc.

All that is to ensure that you can somewhat get the estimate of its earning power within the ball park.

Then there's the little to no debt.

Some leverage is good and expected. Some debt are good... some will kill the business. At a certain leverage ratio, you're just playing with fire... or rather, the management is playing with fire.

How are you going to have any clue where interest might be over the next decade, or into enternity? You can't... so you avoid those with too much debt.

So while it will eventually boils down to a P/E ratio, or any ratio... what lies behind it must be understood else you're going to get hurt and don't know why.



oh, there's also the asset play.

 

[noirua]

Oil Price Hourly - Brent crude: https://twitter.com/OilPriceHourly

OilPrice.com: https://twitter.com/OilandEnergy

OPEC News: https://twitter.com/OPECnews

World Oil Online: https://twitter.com/WorldOil

Russian Oil and Gas: https://twitter.com/search?q=russian oil price&src=typd

Siberian Oil: https://twitter.com/search?q=Siberian oil&src=typd

 

[noirua]

 

[Value Collector]

Am not saying it is easy, but it will cost more to explore and the price will have to follow. That I assume.

There is another line of thinking that says the industry already has a back log of resources that have already been found, but were never exploited due to being "too Hard", but now with fracking and other new tech, these "resources" are being transformed into "reserves" at minimal cost, not to mention well that were considered "depleted are having their lives extended, or are even being brought back to life in some cases.

 

[Trading Athlete]

Formula is Value = Oil Price / eE

Where eE is earning Expectation. i.e. what much the buyer is expecting to make from the price.

So if oP/eE <1, it's good to buy.

Hi luutzu,

Thanks for your comprehensive explanation regarding the PE ratio.

I just have a question about your formula: Value = Oil Price / eE

When it comes to oil how would one work out the eE?

Oil is not a company so how would a person work out earnings expectation?

Thanks

 

[luutzu]

Hi luutzu,

Thanks for your comprehensive explanation regarding the PE ratio.

I just have a question about your formula: Value = Oil Price / eE

When it comes to oil how would one work out the eE?

Oil is not a company so how would a person work out earnings expectation?

Thanks

Sorry man, I was just pulling a bad joke.

 

[Trading Athlete]

Actually I think you are onto something.

If someone has a way of working out eE for oil please share

 

[CanOz]

We actually have an accepted method for establishing what the price of CL should be.

 

[Trading Athlete]

Any chance of sharing this?

 

[fiftyeight]

Any chance of sharing this?

It is a place where all market participants get together and argue about the price all day. The number they come up with changes frequently though

 

[CanOz]

Yup! The auction!

 

[Trading Athlete]

But what if the participants are wrong?