Oil price discussion and analysis

[rederob]

Although we all know that POO under $20/bbl is lala land, what we do not know is how long it will take to once and for all put it to bed!


As this chart for the past fortnight shows, oil is in very poor shape.
Producers got excited about an earlier bounce that has now totally fizzled out.
As the US LTO drilling rig count continues to decline sharply, I expect earlier forecasts of how much oil was likely to be shut in will now be revised upwards. While this will be a bonus to the industry recovering in the short term, in the medium term there will be a massive overhang of oil storage feeding back into the pool and preventing the types of spike that occurred in the past when demand was, for all intents and purposes, not materially affected.

 

[InsvestoBoy]

Did anyone listen to the most recent Macrovoices Hot Topic with Jim Bianco?

I would suggest any OOO or USO investors take a listen.

 

[Dona Ferentes]

https://www.macrovoices.com/podcast...14-crude-oil-black-swan-alert-with-jim-bianco

Good one

oh for a bit of disruption. Actions and consequences

 

[ducati916]

Meanwhile the (major) producers inch higher in anticipation of higher (profitable) prices.

jog on
duc

 

[rederob]

Meanwhile the (major) producers inch higher in anticipation of higher (profitable) prices.

jog on
duc

Not a single large Oz oil producer is in profit today.
They have lost from 1% to over 4%.

 

[ducati916]

Not a single large Oz oil producer is in profit today.
They have lost from 1% to over 4%.

Well when I say majors, are there any major Australian oil producers? If there are, then if their share prices are depressed and their Balance Sheets strong, they would be a buy (for me).

The second point being I did say in 'anticipation', the market is after all forward looking. So while there are (probably) few if any profitable oil producers currently, ARAMCO (possibly) being the exception to the rule, that is not the point. The point is you buy them today (the majors, not some rinky dink outfit) when prices are low. Suck it up for a year and then see where you are.

jog on
duc

 

[rederob]

Well when I say majors, are there any major Australian oil producers? If there are, then if their share prices are depressed and their Balance Sheets strong, they would be a buy (for me).

The second point being I did say in 'anticipation', the market is after all forward looking. So while there are (probably) few if any profitable oil producers currently, ARAMCO (possibly) being the exception to the rule, that is not the point. The point is you buy them today (the majors, not some rinky dink outfit) when prices are low. Suck it up for a year and then see where you are.

jog on
duc

This is called Aussie Stock Forums.
Yes, we anticipate many things, and no doubt oil price increases are likely. But that's not today, and it's not happening to US equities at the moment as it's nearing midnight.

 

[ducati916]

1. This is called Aussie Stock Forums.

2. Yes, we anticipate many things, and no doubt oil price increases are likely.

3. But that's not today, and it's not happening to US equities at the moment as it's nearing midnight.

1. If I'm not mistaken, oil is hardly uniquely Australian, yet we discuss a oil and a variety of commodities on this forum. You wish to take issue with my discussing non-Australian major oil companies, then I suggest you make a formal complaint to Mr Blow.

2. Therefore, if prices are currently low and we seem to be agreed that they could rise going forward, then a trade in the majors would seem to be a reasonable position to take. I accept that it may not be everyone's cup of tea, or they may feel the timing is still too soon, but those are for the individuals to assess for themselves.

jog on
duc

 

[aus_trader]

1. If I'm not mistaken, oil is hardly uniquely Australian, yet we discuss a oil and a variety of commodities on this forum. You wish to take issue with my discussing non-Australian major oil companies, then I suggest you make a formal complaint to Mr Blow.

2. Therefore, if prices are currently low and we seem to be agreed that they could rise going forward, then a trade in the majors would seem to be a reasonable position to take. I accept that it may not be everyone's cup of tea, or they may feel the timing is still too soon, but those are for the individuals to assess for themselves.

jog on
duc

Go on Duc, discuss US Oil, Saudi Oil (ARAMCO) and Aussie Oil and any other oil to your heart's content. I am sure no one minds here on ASF. I certainly don't, in fact I am learning a lot from it.

You are not wrong in assessing Aussie Oil producers on a global scale: there is very few. Woodside Petroleum Limited (WPL) is probably the only major who is up there with international oil producers. My favourite mid-tier Oil/Gas producer is Beach Energy Ltd (BPT) on the asx, debt free to withstand these crippling times and has low cost of production with added benefit of gas credits. Also have traded asx: OOO and always keep an eye out on "USO" ETF in the US to see what the hell is going on, especially in these WTF? times in Oil price history.

 

[qldfrog]

Did anyone listen to the most recent Macrovoices Hot Topic with Jim Bianco?

I would suggest any OOO or USO investors take a listen.

Was indeed very instructive

 

[Smurf1976]

You are not wrong in assessing Aussie Oil producers on a global scale: there is very few.

Using Australian Government official statistics for 2018-19 financial year, Australia produced:

6568 ML of crude oil

11,725 ML of condensate

4058 ML of naturally occurring LPG (that is, LPG which came out of the ground not including LPG produced at oil refineries).

That's all we produce which fits within the broad definition of "oil" as used by most countries and it comes to 385,000 barrels per day all up or less than 0.4% of global oil (including LPG) production.

Note that crude oil and condensate aren't the same thing but they can be considered as such for practical purposes. Condensate goes into oil refineries along with crude and ends up as petrol etc. In contrast naturally occurring LPG is distinctly different, it's useful as LPG not as feedstock for refineries, but it's classified with oil by most governments and others since it's stored and transported as a liquid (whereas in contrast natural gas is never considered to be oil and is classified as "gas").

Given that's our entire national output, we've got no chance of having a "major" oil producing company in Australia unless the majority of its operations are located overseas.

Looking at crude oil and condensate only and where it is produced within Australia:

Browse / Carnarvon / Perth basins (WA) = 235,000 barrels / day
Cooper Basin (SA) = 38,000 barrels / day
Gippsland / Otway / Bass basins (Vic) = 28,000 barrels / day
Bonaparte basin (NT) = 11,000 barrels / day
Amadeus / Canning basin (NT) = 1600 barrels / day
Surat-Bowen basin (Qld) = 140 barrels / day

From Australian Government data. Rounded to the nearest 1000 barrels / day except those under 10,000 (rounded to the nearest hundred barrels) and those under 1000 (rounded to the nearest ten barrels). Note these figures are crude oil and condensate only and do not include naturally occurring LPG hence do not add to the same value as other figures which include LPG.

 

[cutz]

Did anyone listen to the most recent Macrovoices Hot Topic with Jim Bianco?

I would suggest any OOO or USO investors take a listen.

Thanks,

It was a good podcast, good but alarming !

 

[qldfrog]

Using Australian Government official statistics for 2018-19 financial year, Australia produced:

6568 ML of crude oil

11,725 ML of condensate

4058 ML of naturally occurring LPG (that is, LPG which came out of the ground not including LPG produced at oil refineries).

That's all we produce which fits within the broad definition of "oil" as used by most countries and it comes to 385,000 barrels per day all up or less than 0.4% of global oil (including LPG) production.

Note that crude oil and condensate aren't the same thing but they can be considered as such for practical purposes. Condensate goes into oil refineries along with crude and ends up as petrol etc. In contrast naturally occurring LPG is distinctly different, it's useful as LPG not as feedstock for refineries, but it's classified with oil by most governments and others since it's stored and transported as a liquid (whereas in contrast natural gas is never considered to be oil and is classified as "gas").

Given that's our entire national output, we've got no chance of having a "major" oil producing company in Australia unless the majority of its operations are located overseas.

Looking at crude oil and condensate only and where it is produced within Australia:

Browse / Carnarvon / Perth basins (WA) = 235,000 barrels / day
Cooper Basin (SA) = 38,000 barrels / day
Gippsland / Otway / Bass basins (Vic) = 28,000 barrels / day
Bonaparte basin (NT) = 11,000 barrels / day
Amadeus / Canning basin (NT) = 1600 barrels / day
Surat-Bowen basin (Qld) = 140 barrels / day

From Australian Government data. Rounded to the nearest 1000 barrels / day except those under 10,000 (rounded to the nearest hundred barrels) and those under 1000 (rounded to the nearest ten barrels). Note these figures are crude oil and condensate only and do not include naturally occurring LPG hence do not add to the same value as other figures which include LPG.

Does this includes all the Timor sea production?
WPL is big because of these...
And in comparison, what is our consumption?
I think we are not self sufficient anymore..in sheer equivalent, as we always imported specific light or heavy crude

 

[Smurf1976]

Does this includes all the Timor sea production?

I'm not sure on the details there but it includes everything that the Australian Government deems to be be Australian production. I'm not sure of the details of how that's worked out up there given the politics and so on. I'll see what I can find out.

Woodside and the WA fields are large in an Australian context but not large in a global context so far as the oil is concerned. Worth a mention yes but not large. The gas they produce is more significant there.

On the consumption side for Australia in 2018-19 it was a 1.044 million barrels per day.

As a bit of trivia, some of the oil from WA does meet spec for use as bunker fuel "as is" and I'm told that some has in recent times been sold on that basis. That is, the crude oil meets the technical and legal requirements for use as fuel on ships, that is any ship not necessarily an oil tanker, without refining it beyond basic water removal, filtering etc so apparently some has indeed been sold for that purpose by ship owners needing to find fuel which meets the new rules which came into effect at the start of this year. That's not all Australian oil, just the oil from some specific wells and it has attracted a price premium because of that.

That aspect, having crude oil that can be used "as is", is another one of those things which lead to what might seem strange things happening when it comes to oil. Eg export that oil and import other crude oil with different properties rather than refining the Australian produced oil locally. So the tankers sail in both directions carrying oil.

Saudi Arabia has in recent times imported fuel oil for a similar reason - they've been buying it at a price lower than the crude from which it came. Since they're only burning it to fire boilers (for power generation mostly), they really couldn't care less about the technical details of it. So long as it's cheaper than crude it makes sense for them to buy it even though the idea of Saudi importing oil sounds rather strange as a concept.

 

[ducati916]

With POO where it is currently and for the 2 primary reasons (a) COVID-19 and (b) Price war, most on this forum recognise that this is one of those times where it is different this time. If you want to try and capitalise on this rather unique situation then you have 2 options:

The options are (a) invest directly in oil, or (b) the producers. To invest directly in oil: (a) Futures, (b) ETFs, (c) Options.

If going the futures route, then Brent is better than WTI as Brent is cash settlement, whereas (everyone is now aware) WTI is delivery settlement. The ETFs track the futures: with futures we have currently contango issues complicating these instruments to such a degree, I would avoid them. Options are fine, but, this scenario is likely to take 6mths-1yr to play out, so depending on your strategy of course, Options may not be optimal currently (especially if IV is high).

Which leaves the producers.

The majors are cutting (a) dividends, (b) CapEx, (c) Expenses (employees) and (d) selling new debt. They will survive. Their profits currently will be non-existent. Some will take the big bath and dump all their rubbish in write-downs. Going forward, they will have a number of advantages: (a) their Balance Sheets should be in reasonable shape, (b) production worldwide will be reduced and will likely remain so for some time, which will increase POO and boost their profitability.

The Majors have weathered the current storm in oil well (no pun intended).


Its constituents:



For those that don't like the concentration in CVX/XOM, there is RYE which is equi-balanced. Or for the thrill seekers ERX x2 of XLE (was x3 now just x2).

Both options involve (to be successful) that POO rise into the future. The choice is simply how to play that passage of time, the most profitable (or low risk) way, while the oil market sorts itself out.

Therefore, if you want to play oil, for my money the producers are the way forward. (I hold ERX and am still a little underwater on this re. disclosure). The producers could still be choppy, but I think less choppy than physical oil, as direct investment in oil will be leveraged via Futures/Options and drag in direct oil ETFs due to contango issues. With the producers there may still be some dividend going forward and you can choose your leverage, which is far lower.

jog on
duc

 

[ducati916]

If playing the producers sounds a possibility, probably wait until earnings season for the majority is out of the way. They are going to be bad (worse than the Banks). There could well be a pullback providing a better entry price.

Some news:


- Dominion (NYSE: D) says a massive 2.6 GW offshore wind project is on track to begin construction in 2024.

- Diamond Offshore (NYSE: DO) declared bankruptcy on Monday. Transocean (NYSE: RIG) and Valaris (NYSE: VAL) saw their share prices fall by 14 and 15 percent, respectively.

- CNX Resources (NYSE: CNX) reported a $329 million loss, or a loss of $1.76 per share.

Banks rule out Arctic oil. In the face of withering pressure from environmental groups, a growing number of big banks are cutting out Arctic oil from their lending programs. Morgan Stanley became the latest major bank to declare that it would end financing for Arctic oil.

Tanker rates soar. The cost of storing refined products at sea has soared amid the glut. “The VLCC market continues to be strong . . . but we are starting to see demand flow over into the product market,” Lois Zabrocky, CEO International Seaways, told the FT. “Refiners are facing challenges recalibrating supply and demand.”

BP’s profit falls, debt rises. BP (NYSE: BP) saw its profit fall by two-thirds in the first quarter, and its debt soared to the highest level on record. Still, the oil major didn’t touch its dividend. Stuart Joyner, equities analyst at Redburn, told Reuters that BP’s “large rise in net debt overshadows (its) underlying earnings beat.”

However, going forward:

Shut ins increase. Storage is filling up and forcing larger shut ins. “We are moving into the end-game,” Torbjorn Tornqvist, head of commodity trading giant Gunvor Group Ltd., told Bloomberg. “Early-to-mid May could be the peak. We are weeks, not months, away from it.” According to Goldman Sachs, global oil storage could be completely full within the next three weeks. The investment bank said that upwards of 18 mb/d of supply would need to be shut in by then. Up until now, the shut ins have been relatively minor compared to what is expected.

And

https://oilprice.com/Energy/Energy-General/Three-Scenarios-That-Could-Push-Oil-Back-Above-30.html

jog on
duc

 

[wayneL]

If also go producers. Direct investment in oil is okay for trading, but using "buy right and sit tight", you'll get eaten alive by cost of carry, no matter which avenue you choose.

 

[Smurf1976]

Adding to comments about buying oil producers, make sure that's what you're actually buying.

Energy as an industry covers many things from crude oil through to retailing electricity and at the risk of stating the obvious, not all of those benefit from a rising oil price.

So make sure that the companies you're buying do actually produce oil or at least something directly linked to it (LNG) as their core business. I've seen professional analysts fooled by that one - commenting about energy companies with reference to the oil price, completely missing the point that the company in question produces no oil at all. Not all "energy" companies produce oil so look into the details of what the company actually does.

Also look into whatever hedging arrangements they have in place, especially so if they have LNG as part of their business as that's commonly sold under contract.

 

[InsvestoBoy]

Adding to comments about buying oil producers, make sure that's what you're actually buying.

Energy as an industry covers many things from crude oil through to retailing electricity and at the risk of stating the obvious, not all of those benefit from a rising oil price.

So make sure that the companies you're buying do actually produce oil or at least something directly linked to it (LNG) as their core business. I've seen professional analysts fooled by that one - commenting about energy companies with reference to the oil price, completely missing the point that the company in question produces no oil at all. Not all "energy" companies produce oil so look into the details of what the company actually does.

Also look into whatever hedging arrangements they have in place, especially so if they have LNG as part of their business as that's commonly sold under contract.

I kind of think the other way, if a businesses operational leverage is to the oil price, then I don't care too much whether it's an up/mid/down stream entity. Hedging caveats do apply in all cases though.

If what people are looking for is beta to the oil price without having to pay contango, then look for the tightest fit, ignore the underlying business

 

[aus_trader]

With POO where it is currently and for the 2 primary reasons (a) COVID-19 and (b) Price war, most on this forum recognise that this is one of those times where it is different this time. If you want to try and capitalise on this rather unique situation then you have 2 options:

The options are (a) invest directly in oil, or (b) the producers. To invest directly in oil: (a) Futures, (b) ETFs, (c) Options.

If going the futures route, then Brent is better than WTI as Brent is cash settlement, whereas (everyone is now aware) WTI is delivery settlement. The ETFs track the futures: with futures we have currently contango issues complicating these instruments to such a degree, I would avoid them. Options are fine, but, this scenario is likely to take 6mths-1yr to play out, so depending on your strategy of course, Options may not be optimal currently (especially if IV is high).

Which leaves the producers.

The majors are cutting (a) dividends, (b) CapEx, (c) Expenses (employees) and (d) selling new debt. They will survive. Their profits currently will be non-existent. Some will take the big bath and dump all their rubbish in write-downs. Going forward, they will have a number of advantages: (a) their Balance Sheets should be in reasonable shape, (b) production worldwide will be reduced and will likely remain so for some time, which will increase POO and boost their profitability.

The Majors have weathered the current storm in oil well (no pun intended).
View attachment 103025

Its constituents:

View attachment 103026

For those that don't like the concentration in CVX/XOM, there is RYE which is equi-balanced. Or for the thrill seekers ERX x2 of XLE (was x3 now just x2).

Both options involve (to be successful) that POO rise into the future. The choice is simply how to play that passage of time, the most profitable (or low risk) way, while the oil market sorts itself out.

Therefore, if you want to play oil, for my money the producers are the way forward. (I hold ERX and am still a little underwater on this re. disclosure). The producers could still be choppy, but I think less choppy than physical oil, as direct investment in oil will be leveraged via Futures/Options and drag in direct oil ETFs due to contango issues. With the producers there may still be some dividend going forward and you can choose your leverage, which is far lower.

jog on
duc

Amazing coverage on the Oil subject, thank duc. You've pretty much looked at it from all angles as to how to play it.
I could only add one other way to play it, looking at the situation and that is using Oil tankers.
Um... none in Australia I could find, but there are Tanker stocks like Teekay Tankers Ltd (TNK) in the USA market that is getting a share price boost at the moment.