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

[Uccmal]

What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.  The question is how much is economical at $45 to drill....

 

 

 

 

Thats funny.  In around 2007 on this message boards predecessor I said the exact same thing about much of the planet being underlaid with fossil fuels.  And the peak oil dudes were lambasting me for my obvious stupidity.  My logic then, as now, is that the whole planet was covered with swamp for a few hundred million years, it rotted, got compressed, and become oil, coal, amd nat. gas.  Go figure.  As the Saudi dude said: The stone age didn't end for lack of stones... and so on. 

[rkbabang]

What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.  The question is how much is economical at $45 to drill....

 

 

 

 

Thats funny.  In around 2007 on this message boards predecessor I said the exact same thing about much of the planet being underlaid with fossil fuels.  And the peak oil dudes were lambasting me for my obvious stupidity.  My logic then, as now, is that the whole planet was covered with swamp for a few hundred million years, it rotted, got compressed, and become oil, coal, amd nat. gas.  Go figure.  As the Saudi dude said: The stone age didn't end for lack of stones... and so on. 

 

"common knowledge" on the subject has certainly shifted.  I'm certain if you could go back to 1975 and interview people everyone would "know" that the world would run out of oil long before 2016.  Not too mention that the population bomb was going to starve a billion people to death and global cooling was going to start to send us into the next ice age.

 

[Cardboard]

"According to the statement, continuous oil and gas means the resource is dispersed throughout the area, unlike conventional accumulations that exist in one place. Because of the location of the oil and gas, officials will have to use special recovery methods like hydraulic fracturing to recover the resources, according to the USGS."

 

And other techniques maybe not found or too expensive since private companies motivated to make a profit (vs the government USGS LOL!) already operating into this area, for some reasons, are not exploiting this massive resource.  ::)

 

"What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.  The question is how much is economical at $45 to drill...."

 

Looking at the behaviour of many operators out there, your first question is the right one to ask vs the second one. I see big bucks being paid for already into production and very little for needed to be drilled to be into production.

 

And whatever is being drilled now is the cream of the crop and we are still seeing U.S. production stagnant and I think that a return to a decline is imminent with a drop in Drilled but Uncompleted Wells.

 

http://www.eia.gov/petroleum/drilling/pdf/duc_supplement.pdf

 

Unfortunately, this was last updated in early September but, I see no indication based on number of rigs in the field that this number is heading back up. More importantly, there has been quite a resurgence in pumpers/frackers activity which would indicate that a lot of them have or are being completed. So that pent-up supply is likely reduced IMO.

 

Cardboard

 

[Joe689]

Volatility should be intense for the next week and a half.    Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details. 

 

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

[Uccmal]

Volatility should be intense for the next week and a half.    Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details. 

 

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

 

Stocks or the commodity itself?

 

 

[Uccmal]

Volatility should be intense for the next week and a half.    Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details. 

 

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

 

Yeah, alot if racket and BS.  IMO, there are only a couple of reasons they would be willing to cut or freeze.  They cannot afford to keep pumping at todays prices for whatever reason: too costly to drill; or too unprofitable to keep up with their hush money payments.  And maybe, the OPECs and Russia simply cannot keep up todays level of pumping without huge investment anyway. 

[Joe689]

Volatility should be intense for the next week and a half.    Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details. 

 

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

 

Stocks or the commodity itself?

 

Just in my oil equities.    Just trimming the ones that have the best increase on the day, and hoping to get that slice back later, for cheaper.  Been working for a few weeks.... Surprisingly, many of my names, are not quite tracking these oil moves in their magnitudes, and instead are sort of smoothing the volatility.  I suspect for a lot of funds, they want to see the dust settle before they become more constructive.  They have a reasonable attention span unlike the commodity traders who seem to have 12 hour attention span. 

[Uccmal]

Volatility should be intense for the next week and a half.    Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details. 

 

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

 

Stocks or the commodity itself?

 

Just in my oil equities.    Just trimming the ones that have the best increase on the day, and hoping to get that slice back later, for cheaper.  Been working for a few weeks.... Surprisingly, many of my names, are not quite tracking these oil moves in their magnitudes, and instead are sort of smoothing the volatility.  I suspect for a lot of funds, they want to see the dust settle before they become more constructive.  They have a reasonable attention span unlike the commodity traders who seem to have 12 hour attention span.

 

I am sitting here sucking my thumb.  I am contemplating selling a bit into the rally, but kind of dont know what to do, so I guess nothing is probaby better than something. 

[Joe689]

Should be a drama filled week.  Will continue to play the volatility with a small portion of my oil shares, otherwise holding the brunt of all my shares through this week of chaos. 

 

Any other strategies people are going to conduct with their oil names?

[Uccmal]

Should be a drama filled week.  Will continue to play the volatility with a small portion of my oil shares, otherwise holding the brunt of all my shares through this week of chaos. 

 

Any other strategies people are going to conduct with their oil names?

 

Still sucking my thumb and hoping for big motion either way.  If it drops precipitously I will buy.  If it rises alot I will sit with my existing positions in PWT, BTE, Wcp, and mtl.  I have built up lots of dry powder the past couple of months. 

 

Will buy WCP below $10, pwt below 2.05, and BTE below 5.00, all in CDN $.  Otherwise nothing.

 

My suspicion is that OPEC and Russia are full of enough sh*t to fill a room.  The markets will eventually balance themselves.  Everyone has an opinion but no one really has any idea how this unfolds.  If they (the IEA, the Opecs etc.) cant figure it out I sure cant. 

 

[Cardboard]

I can guarantee you that they will strike a deal: "We will reconvene in June 2017."  ::)

 

I can't imagine a bigger bunch of morons. Include Russia into this. Too stupid to realize that if they cut their production by a few percentage points that oil will be selling for 15-25% more, generate a lot more revenues and not attract a barrel more of oil from elsewhere in the world.

 

The proof is in the pudding, U.S. production has remained flat even with oil rebounding to the lower $50's. China is way down. Non-OPEC production excluding Russia is simply not responding to $50-$55 oil. And with higher spot oil price and not higher on the futures curve, hedging becomes unprofitable and will scare away a lot of capital spending.

 

And why would the futures curve be into backwardation vs contango? Because the market knows that OPEC/Russia could increase production again or above a self imposed limit.

 

Cardboard

[Joe689]

Yes, you pretty much sum it up. 

 

I lean toward there being a significant deal reached.  I would think if things were that bad, ministers would have started pulling out of the meeting.  Instead they are there early, chatting, setting up pre-pre-meetings etc....  Hard to imagine deal crashing on tit for tat 100K quotas.  But then again, it is OPEC, a family more dysfunctional than yours ;-)

 

I increased some oil names on the drop this morning.  I enjoy playing market turns, you can make a lot, a loose a lot.  Just make sure you get it right more than half the time ;-)

 

 

[valcont]

I just don't get why the Saudis are pushing for a deal? Granted they have entitlements and 70% of oil based national revenue but they are also the low cost producer. They can just flood the market and push the oil prices down to $15-20/barrel. Venezuela would be bankrupt in a year, Russia would be hurting bad losing money extracting oil out of Arctic, Iran Iraq wouldn't be able to increase supplies due to capex requirements. And the Frackers , despite their posturing, would fold in few years. The only region I see that can compete is Permian basin but not at $25/barrel. I don't buy them getting so efficient that they can compete with Saudis at any price. Harold Hamm ate the crow when he proclaimed in 2014 that OPEC is toothless. Now he wouldn't utter a word against them. Not to mention all that oil sand and junior miners in Canada.Sitting ducks.

 

The only wild card here is the Saudi population. They haven't done any productive work in generations and I don't know how they can survive without the dole. But how hard it is to suppress the populace whose only physical activity is running to the harems?

 

I'll stop ranting now.

[Cardboard]

Why?

 

Because they have tried your strategy for 2 years now and have burned through $200 billion of their reserves/surplus. A few more years like that and that is the end of their Kingdom. There is a reason why they are trying to IPO their national oil company or Saudi Aramco.

 

Their strategy actually failed because Obama threw a huge wrench into their plan by lifting sanctions on Iran. I don't think that was part of the equation when they decided to flood the market at the November 2014 meeting. This extra 1.5 million barrels/day that came on the market really changed the supply/demand dynamics.

 

Regarding Venezuela, it is already bankrupt by the way and it is not $55 oil that will save them. And destroying the industry as you are suggesting is not the smart way to go for the Saudis as they will not be able to supply the market on the other side. Prices will skyrocket and we will be back to producing a ton of oil from marginal places and developing alternative energy.

 

As I said before, if the Saudis were acting like a rational capitalist with their low cost production, they would expand during good times and stay flat during bears. Their market share would have grown significantly overtime and would likely produce 15 to 20 million barrels/day by now. They would have helped reduce or eliminate price peaks such as in 2008 and 2014 which lead to the rise of a ton of competitors and alternative sources of energy. None of these will go back in the bottle.

 

So now, they need to stabilize oil development worldwide to avoid a future supply crunch and reduce their cash bleed since diversifying their economy will take years.

 

Cardboard

[Joe689]

Kudos.  Looking forward to the details.

[Cardboard]

It is official now: 32.5 million barrels/day vs current 33.8.

 

Amazed that OPEC signed that deal with the original target as was stipulated in Algiers with all the noise that we have heard over the last few weeks.

 

It will be interesting to see if anything happens with Russia and other non-OPEC producers now that they have reached a deal within their group. There might have been a IF with Russia. I also expect a wait and see attitude from the market on implementation and enforcement.

 

Regarding current supply, there was a small 0.7 million barrels oil draw per API last night which was confirmed by EIA at 0.9 million this morning. Although, inventories of gasoline and distillates were a fair bit higher.

 

U.S. production remains essentially flat.

 

Worldwide inventories should now decline slowly overtime which should stabilize the market. Oil should trend slowly higher above $50 but, I don't expect any rush to drill since profitability will remain low for most plays. Just offsetting natural decline rates needs some drilling which will occur in the best areas. Moreover, the futures curve is very flat which prevents profitable hedging and the investment into long term projects.

 

Cardboard

[Joe689]

Buying, trimming anything today?

 

Trimmed oil names 1/5 just now as I was way overweight. 

[petec]

Why?

 

Because they have tried your strategy for 2 years now and have burned through $200 billion of their reserves/surplus. A few more years like that and that is the end of their Kingdom. There is a reason why they are trying to IPO their national oil company or Saudi Aramco.

 

Their strategy actually failed because Obama threw a huge wrench into their plan by lifting sanctions on Iran. I don't think that was part of the equation when they decided to flood the market at the November 2014 meeting. This extra 1.5 million barrels/day that came on the market really changed the supply/demand dynamics.

 

Regarding Venezuela, it is already bankrupt by the way and it is not $55 oil that will save them. And destroying the industry as you are suggesting is not the smart way to go for the Saudis as they will not be able to supply the market on the other side. Prices will skyrocket and we will be back to producing a ton of oil from marginal places and developing alternative energy.

 

As I said before, if the Saudis were acting like a rational capitalist with their low cost production, they would expand during good times and stay flat during bears. Their market share would have grown significantly overtime and would likely produce 15 to 20 million barrels/day by now. They would have helped reduce or eliminate price peaks such as in 2008 and 2014 which lead to the rise of a ton of competitors and alternative sources of energy. None of these will go back in the bottle.

 

So now, they need to stabilize oil development worldwide to avoid a future supply crunch and reduce their cash bleed since diversifying their economy will take years.

 

Cardboard

 

If they'd had sense they'd have produced flat out since forever and kept domestic spending in check, putting the money into a SWF.

 

As it stands, they will end up leaving much of their precious resource in the ground untapped when the world moves on to solar, and plenty of people with higher cost oil will have extracted at a profit when they shouldn't have been able to.  The more the Saudis cut today, the more will end up staying in the ground.

[Cardboard]

That is exactly what I said Petec. They made a significant mistake in the past by keeping prices artificially high, living beyond their means and now are living with the consequences.

 

And one of the consequences, is that they now need to cut a bit production in order to raise prices to avoid bankruptcy but, not too much, which would entice production from others and most of the increase needs to be on the spot price to prevent hedging.

 

Cardboard

[SharperDingaan]

Very good call - we expect there are a few other cuts from other players to come as well.

We would also expect that with higher prices, we're about to see a number of delayed sales suddenly conclude.

 

SD

 

[Uccmal]

Why?

 

Because they have tried your strategy for 2 years now and have burned through $200 billion of their reserves/surplus. A few more years like that and that is the end of their Kingdom. There is a reason why they are trying to IPO their national oil company or Saudi Aramco.

 

Their strategy actually failed because Obama threw a huge wrench into their plan by lifting sanctions on Iran. I don't think that was part of the equation when they decided to flood the market at the November 2014 meeting. This extra 1.5 million barrels/day that came on the market really changed the supply/demand dynamics.

 

Regarding Venezuela, it is already bankrupt by the way and it is not $55 oil that will save them. And destroying the industry as you are suggesting is not the smart way to go for the Saudis as they will not be able to supply the market on the other side. Prices will skyrocket and we will be back to producing a ton of oil from marginal places and developing alternative energy.

 

As I said before, if the Saudis were acting like a rational capitalist with their low cost production, they would expand during good times and stay flat during bears. Their market share would have grown significantly overtime and would likely produce 15 to 20 million barrels/day by now. They would have helped reduce or eliminate price peaks such as in 2008 and 2014 which lead to the rise of a ton of competitors and alternative sources of energy. None of these will go back in the bottle.

 

So now, they need to stabilize oil development worldwide to avoid a future supply crunch and reduce their cash bleed since diversifying their economy will take years.

 

Cardboard

 

If they'd had sense they'd have produced flat out since forever and kept domestic spending in check, putting the money into a SWF.

 

As it stands, they will end up leaving much of their precious resource in the ground untapped when the world moves on to solar, and plenty of people with higher cost oil will have extracted at a profit when they shouldn't have been able to.  The more the Saudis cut today, the more will end up staying in the ground.

 

Well they didn't.  Now they have to pay the piper.  The other large producers with larger populations have more diverse economies.  SA is a one trick pony.  They do have some precient people there who know this will end. 

 

Now, if I were an XOM, BP, or Chevron CEO, I would be watching this very carefully.  Expensive long tail projects in hard to access areas (arctic, deep sea) remain a very risky way to invest.  I expect many of the projects that were mothballed in the last couple of years stay that way.  Everyone is going to go for the low hanging fruit as we head into the end game.  My guess is that the major private companies diverisify, amd buy existing assets, rather than spend alot on long term risky projects. 

 

 

[Uccmal]

Buying, trimming anything today?

 

Trimmed oil names 1/5 just now as I was way overweight.

 

Still sucking my thumb, but I am not overweight by any measure.  I see the price getting higher to some point where the Opecs turn it back up again to keep external Capex frightened.  My holdings will perform exceedingly well in an above fifty environment.  I have waited too long for this rebalacing to sell now. 

[Uccmal]

Buying, trimming anything today?

 

Trimmed oil names 1/5 just now as I was way overweight.

 

Still sucking my thumb, but I am not overweight by any measure.  I see the price getting higher to some point where the Opecs turn it back up again to keep external Capex frightened.  My holdings will perform exceedingly well in an above fifty environment.  I have waited too long for this rebalacing to sell now.

 

I am suspicious as to how long this rally lasts.  The day before the announcement I bought 1000 BTE and 2000 pwt.  I'll probably reverse that today, and take the $2000 profit.  I have realized losses, elsewhere, to shield the gains.  I have one or two stocks that may go on sale shortly during tax loss selling season. 

[Uccmal]

Notice that oil is only back to where it was a couple of weeks ago.  No one believes that OPEC will adhere to this.  To get the price any higher we are going to have to see oil actually go into supply deficit.  This should take some months at least with lots of ups and downs for trading along the way. 

 

Now, my holdings all sell about 20% Nat. Gas and that is way up.  Forecast for a cold winter or something.  Oil is a real case of buy on rumour and sell on news.  Sold exactly what I intended today.  And will buy it back in a few days when someone gets accused of cheating, or something. 

[Joe689]

I'd be careful not to miss a big rally/jump.  Real barrels are leaving the market.  And if you believed that the rebalancing was occurring, this has sped that up.  Oil has been down for years, and this could be the reversal.  Look at history.  This story is not too far off. But I agree, there will likely accusations and other opportunities to trade.  I trimmed my oil positions to take some profit,  and continue to trade a portion intra-week, but will continue to hold a large chunk long for coming 2017 year.