Oil price discussion and analysis

[luutzu]

So according to latest figures from the IEAE, world oil supply was 96.91 million b/day; demand 96.71 million b/day.

The chart also show similar trend past few quarters. There's maybe an average of 1m b per day oversupply... and the US alone consumes about 19M a day in 2014.

So according to my calculation, haha, the total excess in past two years couldn't even supply the US demand for one day.

I'm guessing the analysts and those in the know includes forecast drop in demand and forecast supply growth by OPEC and the rest.

Strange... I'd imagine that if I were to drink water and I overfill the cup to the brim instead of slightly under it I'd just sip it too. I wouldn't call that slight excess a glut. Two cups would be a glut.


https://www.iea.org/oilmarketreport/omrpublic/

 

[Smurf1976]

If it rains then someone will say we've got too much water. Didn't need desal. Built too many dams. Etc.

As soon as the next drought comes along the same people start screaming about shortages.

Just my observation. Been there, seen that one play out (water / power) and I expect it's much the same with oil. Humans tend to be pretty short sighted when it comes to this stuff.

A 0.2 mmbpd supply surplus. That'll turn into a shortage real quick as soon as some country has a revolution or natural disaster. For that matter, it won't take too long for US shale production to drop sufficiently as it's already down 0.5 mmbpd and falling.

 

[shouldaindex]

So is everyone wanting to supply that 0.2% to the extent they're willing to get paid 80% less?

That doesn't make much sense?

 

[syllable]

Crude oil prices to remain relatively low through 2016 and 2017
https://www.eia.gov/todayinenergy/detail.cfm?id=24532

 

[shouldaindex]

That's probably more optimistic that I thought.

It suggests a 50 / 50 chance of being above / below $60 in 2018 (Oil Futures indicate more like $45)

And also not a deterioration of supply to increase prices, but an increase in demand.

Interesting.

 

[CanOz]

That's probably more optimistic that I thought.

It suggests a 50 / 50 chance of being above / below $60 in 2018 (Oil Futures indicate more like $45)

And also not a deterioration of supply to increase prices, but an increase in demand.

Interesting.

Forward futures do not indicate the future price, only cost plus current price to hold....

 

[notting]

If we can just get Iran on line and get the sell the news buy the fact done.

Then see.

http://www.cnbc.com/2016/01/14/warren-buffett-digs-deeper-into-his-big-oil-bet.html

Crude currently 29.44!

You know when you look back at the GFC and think, why didn't I buy? Well why?

 

[skc]

You know when you look back at the GFC and think, why didn't I buy? Well why?

We hear a lot 3 years after the GFC that someone has bought the bottom...

Well.... I have built a small exposure (~5% of portfolio) in STO and ORG about a month ago... so while I am down the overall risk level remains small. I don't mind increasing overall energy exposure to 10%, but I will build the remainder on the way up I think.

STO and ORG have raised capital at such a low point they'd never really recover their former glory. Much like the REITs that were forced to raise capital at the bottom of the GFC. The REITs remain 'cheap' for some time thereafter, some yielding 10%, until the great chase for yield began in 2013. May be oil stocks will mirror that path?

 

[luutzu]

If we can just get Iran on line and get the sell the news buy the fact done.

Then see.

http://www.cnbc.com/2016/01/14/warren-buffett-digs-deeper-into-his-big-oil-bet.html

Crude currently 29.44!

You know when you look back at the GFC and think, why didn't I buy? Well why?

Because this time it's different

 

[shouldaindex]

Problem is most Oil & Gas stocks are still priced for above Oil above $50.

Also keep in mind the impact of time:

EG. If Oil rebounds to $50 in 2018, STO is still unprofitable and will have been for 3 years.

There will be a big initial rebound whenever Oil bounces, but if it doesn't double to and sustain @ $60+ these companies won't be making enough to earn a PE under 20.

 

[luutzu]

Problem is most Oil & Gas stocks are still priced for above Oil above $50.

Also keep in mind the impact of time:

EG. If Oil rebounds to $50 in 2018, STO is still unprofitable and will have been for 3 years.

There will be a big initial rebound whenever Oil bounces, but if it doesn't double to and sustain @ $60+ these companies won't be making enough to earn a PE under 20.

I read that UBS has estimates of STO and other oil companies under various oil price scenarios. According to that broker's mail-out from UBS, they value STO at -$1.67 per share when oil is $US30/b.

That's a negative -$1.67 per share. So according to UBS, when oil is $30, the seller would be paying the buyer $1.67 per share to take it off them. Good one



Looking to top up on STO Monday. Yea it'll probably go down further but you can't be too careful

You got to feel bad for long term investors though. If a takeover is coming within a year, they're stuffed.

 

[shouldaindex]

How much does contango affect an Oil ETF?

EG if Oil goes from $20 to $40 in 3 years, how close to 100% gain would you actually make?

 

[luutzu]

If it rains then someone will say we've got too much water. Didn't need desal. Built too many dams. Etc.

As soon as the next drought comes along the same people start screaming about shortages.

Just my observation. Been there, seen that one play out (water / power) and I expect it's much the same with oil. Humans tend to be pretty short sighted when it comes to this stuff.

A 0.2 mmbpd supply surplus. That'll turn into a shortage real quick as soon as some country has a revolution or natural disaster. For that matter, it won't take too long for US shale production to drop sufficiently as it's already down 0.5 mmbpd and falling.

I haven't been looking at it hard, maybe don't know where to look... but couldn't figure out where the glut of oil is based on news report and those figures from IEA.

There's the strategic reserves each country tend to have. Wiki sources estimate these reserves last a couple of months at most - for Australia and most countries there's only 3 weeks reserves before the generals will be called in and some small countries will be taken over [guess that's not funny]

Then there's the excess being stored on tankers and they're almost to the brim with estimate of some 100M barrel floating around.

So let say these two major storage are filled; the refiners and landbased tanks also filled... can't really use the strategic reserves so these glut over past two years may last a week of oil consumption around the world.

With established wells being pumped to the max and others depleted; small high costs rivals losing cash and about to close shop; then the need to shut down for maintenance now and then... 1 to 2 million barrel in excess per day is merely 2 percent of daily consumption.

Anyway, maybe my maths is too simple and missing a bunch of stuff.

 

[Smurf1976]

for Australia and most countries there's only 3 weeks reserves

So far as I'm aware, Australia is the only OECD country that adopts the "leave it to the market" approach and fails to keep the Internaional Energy Agency's (IEA) recommended 90 days of imports in stock at all times.

Many lesser developed countries also do it or at least come as close as they can afford.

Should there be a supply disruption, Australia is the least prepared developed country in the world and even many Third World nations are better prepared than we are.

 

[Junior]

So far as I'm aware, Australia is the only OECD country that adopts the "leave it to the market" approach and fails to keep the Internaional Energy Agency's (IEA) recommended 90 days of imports in stock at all times.

Many lesser developed countries also do it or at least come as close as they can afford.

Should there be a supply disruption, Australia is the least prepared developed country in the world and even many Third World nations are better prepared than we are.

Is this true? Why??

Surely we can afford to stockpile at $29/barrel.... what's the 'use by' date on a barrel of oil?

 

[skc]

I read that UBS has estimates of STO and other oil companies under various oil price scenarios. According to that broker's mail-out from UBS, they value STO at -$1.67 per share when oil is $US30/b.

That's a negative -$1.67 per share. So according to UBS, when oil is $30, the seller would be paying the buyer $1.67 per share to take it off them. Good one

They are saying the equity value of STO is negative... given that STO has lots of debt, the enterprise value is still positive (I think).

 

[luutzu]

They are saying the equity value of STO is negative... given that STO has lots of debt, the enterprise value is still positive (I think).

Equity value is Book value right? Wait, investopedia define it with a share price factoring in.

Based on its 2014AR, book value (net asset) was $9.72/share. If we add the $2.5B new cash, and the new shares issued... based on net assets in that 2014 it's around $7.27/share. Since then oil has halved further (almost) so that leaves $3.65/share book.

So based on my thinking, and it could be wrong, is that this $3.65 book assumes all the reserves and assets of STO are being sold on market right now at current prices.

Assuming that scenario, it's still a bargain at $2.65... but we know what accounting standards may not, is that these reserves are meant to be extracted and sold off over next few decades - at presumably higher prices.

Anyway... out of flowers to cut for this weed.

btw, scanning through IEA's reports on worlds' proven oil reserves and pretty much all countries, except the US, have shown incrase in reserves past decade. All other countries pretty much somehow keep discovering more and more oil each year.

Not sure if that's improved technologies or good consultants at work

 

[Smurf1976]

All other countries pretty much somehow keep discovering more and more oil each year.

Not sure if that's improved technologies or good consultants at work

There are many who have looked at the OPEC reserve claims over the years and are extremely suspicious as to accuracy.

In short, many of them report exactly the same reserve figures for many consecutive years and then have a sudden rise, which then remains constant again for many years to come.

The basic conclusion drawn is that they may be reporting "total oil discovered to date" rather than what actually remains. If that's the case then the world's known oil reserves are substantially lower than the official claims.

Due to the workings of the OPEC quota system, member countries gain economically simply by reporting larger reserves. So there's a definite incentive to come up with the highest number possible.

There's also political influence. Eg if the Saudi's dropped their reserve numbers by 90% then all of a sudden they'd be a lot less influential in global politics. Same with the others so there's another incentive to come up with high numbers.

That OPEC wasn't able to significantly raise production even when prices stayed over $100 for a considerable period adds to the suspicion. They've supposedly got vast reserves, but chose not to develop them and only offered a bit of very poor quality oil to the market. Hmm...

 

[luutzu]

There are many who have looked at the OPEC reserve claims over the years and are extremely suspicious as to accuracy.

In short, many of them report exactly the same reserve figures for many consecutive years and then have a sudden rise, which then remains constant again for many years to come.

The basic conclusion drawn is that they may be reporting "total oil discovered to date" rather than what actually remains. If that's the case then the world's known oil reserves are substantially lower than the official claims.

Due to the workings of the OPEC quota system, member countries gain economically simply by reporting larger reserves. So there's a definite incentive to come up with the highest number possible.

There's also political influence. Eg if the Saudi's dropped their reserve numbers by 90% then all of a sudden they'd be a lot less influential in global politics. Same with the others so there's another incentive to come up with high numbers.

That OPEC wasn't able to significantly raise production even when prices stayed over $100 for a considerable period adds to the suspicion. They've supposedly got vast reserves, but chose not to develop them and only offered a bit of very poor quality oil to the market. Hmm...

Trying hard to see if I'm making a case seeing how I'm eyeball deep in oil but na, I seriously think all these oversupply is a bluff.

Yup, the numbers are all suspect; the real figures are definitely State Secret stuff.

And here's the conspiracy thing:

For all the talk of ramping up production to flood the market, all they have managed to do is increase production by some 1.5M barrel a day above demand, or a mere 1.6%.

I mean we're not expecting God's wrath that left Noah and family alive, but come on, 1.6%?

Such small figure meant two things: One is it does not take much to oversupply (bad for oil price if they pump a bit more); but two, the best they could do is this 2% increase and it's stretching their infrastructure and reserves and economy to do it.

If we take geo-politics into account... why are the sanctions against Iran lifted? So the West can access Iranian oil that's what.

To get friendly with Iran now really upsets Saudi Arabia and Israel. But the US still does it. Why?
Since they can't invade it for oil as they have; since China is cuddling Iran (and setting up airbases and soon oil platforms all over a couple of seas)... If the US and the West are not friendly, others will take Iranian oil in their place.

Why Iranian oil, why now?

Their oil are not the sweet stuff. Poorer quality. That was why the US permitted the UK to stay around a while in Iran after WW2. That is why American oil companies do not want to touch Iranian oil when they can have Saudis and other Gulf states oil back when Eisenhower first decided to liberate it from a parliamentary system towards the glorious Shah and his Persian Imperial system.. .and force the oil companies to get back in their and pump some oil!

Iranian oil was so undesirable that after the Mullah take over, there was no need for US to liberate its people again.

Until now... Why? Running out of oil.

----

So why does the US allow its oilers to export? Why does it tell Saudi Arabia to pump it up? First, to hurt Russia and Venezuela; Second is to make it look convincing.

Why does the big oil corporations not call up their friends in high places to put an end their pain?
Because it will allow them to buy the little fishes with big untapped reserves on the cheap; to write down their assets and claim losses and pay no income tax.

Those who don't or won't sell completely will be glad to sign futures delivery on the cheap; glad to get a partner with bigger balance sheet.

And of course to kick Iron Man and his electric car and solar panels and storage batteries back down a few notch. Keep investors away from alternative sources; keep delaying R&D into new sources and new infrastructures etc.


... and that, my friend, is how you weave a bedtime story to your liking from a few numbers


More seriously, oil is a finite resource. Kingdoms and national security are literally dependent on it for revenue. To pump it up for cheap now but not expect to manipulate the market later for greater gain is just beyond reason.

 

[qldfrog]

http://www.brisbanetimes.com.au/business/banking-and-finance/oil-price-fall-will-be-costly-for-australian-banks-morgan-stanley-says-20160118-gm8s89.html
impact of low oil on australian banks
CBA the worst affected ...