Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[tombgrt]

I agree Cardboard. We have to remember we are in backwardation. This is bullish and indicates a thighter market but could also mean many simply don't believe it will remain that way. Some producers also won't make a decent coin with a $60-62 brent price in 2020 or they are hedged at shittier prices. So we have to look further than spot price and assume at some point we will reach an inflection point where sentiment will shift as futures prices turned out to be too conservative. Reflexivity should make sure the renewed bullish sentiment then feeds on itself. Currently no one wants to be seen going overweight in energy after the disaster of 2014-2016. That is until a certain point where returns are simply too juicy or when a shock makes clear just how thight the market really is.

 

Permian oil is also already affected by infrastructure and labor shortages as it is trading at a small discount to WTI. Will be interesting to see whether this discount grows.

 

It is also incredible how so called experts still believe the OPEC cut is 1.8M barrels and that the agreement could be cancelled this year. Even if they could ramp up 1.8M quickly, why do many assume they would? A few members are actually producing flat out and most of those that aren't can be expected to respect the agreement. There is a real need for continued spare capacity considering the geopolitical risks and yet analysts stumble over the fact that a few OPEC members are producing at only 90-95%... Weren't Russia and SA calling for a 20 year "partnership"? Can we really call it a cut if they never really quit it?

 

Time and time again we have see the market can be irrational even for entire asset classes. As SD mentions, the longer this illusion is held, the better our odds. Time is at our side with continued demand growth, ever increasing declines and cancellation of long lead projects that were otherwise started by 2019 and beyond. I think the ball is being kept under water by irrational hate for the sector after the last debacle, the entire renewables playbook, virtue-signaling by funds ("oil is BAD!!! (but give me my truck)"), recency bias, general macro complexity, ... One good sideways poke and this ball could pop up sooner than many expect. But that is just my reading. ;)

[tombgrt]

Permian oil is also already affected by infrastructure and labor shortages as it is trading at a small discount to WTI. Will be interesting to see whether this discount grows.

 

 

Forget "small". It's now at nearly $10!

[SafetyinNumbers]

WCS lifted above C$58 yesterday. That’s a big change from last month. Extremely positive for heavy oil producers like GXE.TO.

 

 

http://www.psac.ca/business/GMPFirstEnergy/

 

[jeffmori7]

I agree Cardboard. We have to remember we are in backwardation. This is bullish and indicates a thighter market but could also mean many simply don't believe it will remain that way. Some producers also won't make a decent coin with a $60-62 brent price in 2020 or they are hedged at shittier prices. So we have to look further than spot price and assume at some point we will reach an inflection point where sentiment will shift as futures prices turned out to be too conservative. Reflexivity should make sure the renewed bullish sentiment then feeds on itself. Currently no one wants to be seen going overweight in energy after the disaster of 2014-2016. That is until a certain point where returns are simply too juicy or when a shock makes clear just how thight the market really is.

 

Permian oil is also already affected by infrastructure and labor shortages as it is trading at a small discount to WTI. Will be interesting to see whether this discount grows.

 

It is also incredible how so called experts still believe the OPEC cut is 1.8M barrels and that the agreement could be cancelled this year. Even if they could ramp up 1.8M quickly, why do many assume they would? A few members are actually producing flat out and most of those that aren't can be expected to respect the agreement. There is a real need for continued spare capacity considering the geopolitical risks and yet analysts stumble over the fact that a few OPEC members are producing at only 90-95%... Weren't Russia and SA calling for a 20 year "partnership"? Can we really call it a cut if they never really quit it?

 

Time and time again we have see the market can be irrational even for entire asset classes. As SD mentions, the longer this illusion is held, the better our odds. Time is at our side with continued demand growth, ever increasing declines and cancellation of long lead projects that were otherwise started by 2019 and beyond. I think the ball is being kept under water by irrational hate for the sector after the last debacle, the entire renewables playbook, virtue-signaling by funds ("oil is BAD!!! (but give me my truck)"), recency bias, general macro complexity, ... One good sideways poke and this ball could pop up sooner than many expect. But that is just my reading. ;)

 

What do you think about this paper: http://www.ogfj.com/articles/print/volume-14/issue-12/features/peak-oil-demand.html?

[sculpin]

https://seekingalpha.com/article/4160838-buy-canadian-heavy-oil-producers-wcs-wti-discount-narrows

 

[Joe689]

So much for that shoulder season.  Where were the big builds?    Now back to big draws.  Nothing to see here as world oil storage is draining with rapid speed.  Rotate maybe?  No, we will keep buying the dips on the techs.

[Zorrofan]

Does anyone know off hand when was the last time there was no build in the first quarter? 

[SharperDingaan]

Peak oil demand paper

 

The forecasts all assume steady state continuation, wheras in the real world - change is both continuous and chaotic. As 'story' trumps methodology, nobody has incentive to question the mechanics. The same 'words/terms' also have different meaning; 'near future to an environmentalist is a decade or less' (p1) - to most investors that is 'long term'.

 

Most people can't really predict what their own lives will be like 2-3 years out; as they could have caught diseases, become divorced, lost family members to sudden accidents/strokes/heart-attacks, etc. Yet suddenly we can predict much more complicated events (peak demand), over LONGER horizons, and with MORE certainty?

 

Hence is peak demand any more relevant that peak supply was?

Or is it really just 'marketing' with the intent of drumming up new trading/business oportunities.

 

SD

 

[tombgrt]

 

It is also incredible how so called experts still believe the OPEC cut is 1.8M barrels and that the agreement could be cancelled this year. Even if they could ramp up 1.8M quickly, why do many assume they would? A few members are actually producing flat out and most of those that aren't can be expected to respect the agreement. There is a real need for continued spare capacity considering the geopolitical risks and yet analysts stumble over the fact that a few OPEC members are producing at only 90-95%... Weren't Russia and SA calling for a 20 year "partnership"? Can we really call it a cut if they never really quit it?

 

 

https://www.reuters.com/article/us-oil-opec-survey/opec-march-oil-output-sinks-to-11-month-low-reuters-survey-idUSKCN1HB1VM

 

These guys are so friendly! All voluntary I'm sure!

[jmp8822]

I get the feeling that no one (outside of a few on this board) cares, but crude inventories are setting up for breathtaking draws for the rest of the year.  We are generally finished with low demand season, and crude only built by about one million barrels in the entire 1Q, which historically has large builds.  I'm no genius, but if we are going into high demand season with the economy humming, oil inventory will start to draw at an unbelievable rate (because remember we had no inventory builds in LOW demand season, what's going to happen to inventory in HIGH demand season). The craziest thing about all of this to me is most of the big Wall Street firms seem to think there is no way oil will go up.  We might have a race to energy in the next few months in a strong/reflexive way. The oil exploration/production trade over the next 6-12 months is extremely high conviction for me.

 

Some nuts and bolts:

We are at 425 million in crude inventory today.

If nothing in the supply/demand equation changes much, with the exception of seasonality, we might draw at 20+ million a month for the summer/late spring months. Inventory at 325-345 million barrels should almost certainly move oil to $80-$100+ per barrel. Something has to give.

[whiterose]

https://oilprice.com/Energy/Crude-Oil/Bahrain-Says-Giant-Discovery-Holds-80-Billion-Barrels-Of-Oil.html

 

Bahrain announced on Wednesday the size of the oil reserves in the giant discovery that it had made, and figures dwarf the proved reserves that the island kingdom in the Persian Gulf had prior to the latest oil find.

[Cardboard]

https://www.cnbc.com/amp/2018/04/05/attack-on-saudi-tanker-could-mean-higher-oil-prices.html

 

Cardboard

[tombgrt]

Of course, there is always Trump to fuck things up!

[Cardboard]

What is the election campaign promise that Trump has not followed up on yet while he has on the majority of them?

 

Answer: Breaking up the Iranian deal.

 

Who sold the weapons to the Houthis trying to attack this Saudi tanker and launching multiple missiles towards their cities? Who is in the U.S. right now for a period of 3 weeks?

 

There is a deadline in May for the Europeans to adapt the deal so that Iran's agressive posture (ballistic missiles, Yemen, Syria, etc.) is dealt within. Based on progress so far and Iran complete unwillingness to look at that, I believe that chances are quasi nil of a deal by that timing.

 

If the U.S. reimposes sanctions, then banks will not be able to deal in Iran and funding to develop their oil fields will halt again. And who is going to insure their oil tankers? If Iran reacts negatively and restarts its centrifuges, this time around, Israel will likely strike along with the Saudis.

 

If you look at global oil inventories today, supply, demand, it is not that different from 2014. One really big factor missing from the equation IMO between $65 and $100 oil is the absence of any premium for geopolitical risk. The other is a false sense of security that any disruption will be met instantly by a gushing amount of oil from the Permian.

 

Cardboard

[LR1400]

In 2014 oil supply was 95.34 and demand was 94.02 in 2018 oil supply is roughly 97.8 and demand is roughly 98.2, so we are in an even better situation for oil prices to increase.

 

IEA is saying demand should continue to exceed supply through 2018 and deficits in inventories.......

[Cigarbutt]

"IEA is saying demand should continue to exceed supply through 2018 and deficits in inventories......."

 

Thought the following was relevant:

http://blog.knowledgeleaderscapital.com/?p=14069

 

In the industry, capital allocation shows more discipline and the focus seems to have shifted to free cash flow.

 

Curves about sales and EPS estimates seem to be an exercise in curve fitting but otherwise the rest of the graphs tend to show that, from the supply side, the environment is looking hunky dory.

 

For the demand side, there is a range of outcomes.

 

Price expectations are quite low but maybe the Market knows better?

 

[tombgrt]

Yeah, like the market knew better in 2014 and totally wasn't surprised.

 

Read a Reuters, Bloomberg, ... article and you are often dumbfounded by the simlistic reasoning of the journalists. They too set the sentiment of the market. According to many of them, we are still in a fierce oversupply scenario as Q1 showed us that we are building inventories again!  ::)

 

As always, nothing is certain... But the odds sure look attractive.

[nkp007]

What is the election campaign promise that Trump has not followed up on yet while he has on the majority of them?

 

Answer: Breaking up the Iranian deal.

 

Who sold the weapons to the Houthis trying to attack this Saudi tanker and launching multiple missiles towards their cities? Who is in the U.S. right now for a period of 3 weeks?

 

There is a deadline in May for the Europeans to adapt the deal so that Iran's agressive posture (ballistic missiles, Yemen, Syria, etc.) is dealt within. Based on progress so far and Iran complete unwillingness to look at that, I believe that chances are quasi nil of a deal by that timing.

 

If the U.S. reimposes sanctions, then banks will not be able to deal in Iran and funding to develop their oil fields will halt again. And who is going to insure their oil tankers? If Iran reacts negatively and restarts its centrifuges, this time around, Israel will likely strike along with the Saudis.

 

If you look at global oil inventories today, supply, demand, it is not that different from 2014. One really big factor missing from the equation IMO between $65 and $100 oil is the absence of any premium for geopolitical risk. The other is a false sense of security that any disruption will be met instantly by a gushing amount of oil from the Permian.

 

Cardboard

 

One geopolitical event away from a potentially massive gap up.

 

Thanks for all your help on this, Cardboard.

[tombgrt]

Well, enough news today! Let's hope we can break through this time and that the market stays awake.

 

[sculpin]

Oil continues the move higher on Saudi comments towards $80/bbl oil and some slight weakness in the USD (DXY index back down to 89.50).  We’ll see if we get continuation today with the DOEs at 10:30am EST (cons is for a counter-seasonal draw of 1.04Mbbls).  Permian pricing spreads have rebounded slightly to a discount of $4.75/bbl vs. lows of $6.10/bbl last week, this remains far off the highs of a +1.90/bbl premium in Jan. In contrast we continue to highlight WCS spreads have narrowed to $15.75/bbl (vs lows of $30.55/bbl in early Feb), largely driven by Gulf Coast refinery demand for Canadian Heavy given uncertainty on Venezuela.

 

 

Following on yesterday’s strong price performance for WTI (up ~3%), we’re seeing strength in the commodity continue this morning with WTI now appearing to be flirting with a breakout past US$66/b. We’re already back to levels for pricing not seen since late 2014, with the recent price performance being underpinned by a strong macro backdrop for oil. Canadian light producers are receiving ~C$75-C$80/b after taking into account the differential. The fundamentals remain strong for energy, while valuations here in Canada for oil stocks are at levels where its tough to imagine them getting any cheaper (buying energy off FCF yields) yet the apathy remains. Perhaps continued strength in the sector, with some greater longevity to this strength (vs. short term trading) may help to attract more investor attention to energy. Some may recall, just this past Tuesday we referred to ourselves as a broken record highlighting the Canadian light oil universe again (growth on the order of 15-20% on avg, w/ valuations of 3-5x on strip, supported by excellent B/S and FCF).

 

Further on the macro front, we see the IEA is now highlighting CONCERN on global supply…..and not the same concern we’ve seen in prior years: "growth in the United States alone is not enough to make me feel comfortable that there will be enough production in the future because of two reasons," - International Energy Agency's Executive Director Fatih Birol

 

1. global oil consumption is still growing strongly, gaining 1.5 million barrels per day (bpd) this year, driven by petrochemical, industrial and aviation demand, he said;

2. some older, maturing fields are in decline

 

The IEA goes on to note on the topic of supply, that the drop Venezuelan oil production is one of the largest in the history of oil. With further declines expected.

 

 

[tombgrt]

EPA wasn't encouraging so we'll see. Bigger picture still counts. Week on week it depends a lot on loadings etc.

 

And yes, this apathy is amazing! GXE for example has 25% to go before it is at the level of January when WCS was under $40 (now at $49).

[Joe689]

Geopolitical premium is back.  Match that up with supply/demand fundamentals and you could have a perfect storm.  All while some companies still pricing for $50 oil.  maybe this will be the wake up call

[SafetyinNumbers]

EPA wasn't encouraging so we'll see. Bigger picture still counts. Week on week it depends a lot on loadings etc.

 

And yes, this apathy is amazing! GXE for example has 25% to go before it is at the level of January when WCS was under $40 (now at $49).

 

Agree on GXE! Was looking back at WCS and the last time we were at C$63 was in December 2014. It has been a while. I own both GXE and ATU and both have big exposure to WCS but ATU hasn’t even traded today.

 

I see them below 2x EV/EBITDA at this WCS price if it can hold.

[tombgrt]

PPR actually down too.

 

I think what happens is that the market first looks at bigger fish and then money "trickles down" to micro and small caps. I'm happy to own names like CRC as well and hope I can realocate profits into the cheaper names at some point.

[sculpin]

IEA report finally turns bullish with expectation of continued inventory drawdowns.

 

IEA must be getting worried that when the supply crisis hits, people will look back at their data manipulation and bearish hype as one of the main causes that delayed longer term cap ex in the energy sector.

Today's HFIR report…

 

https://seekingalpha.com/article/4162843-oil-bull-thesis-just-getting-started