Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 231776 times)

DTEJD1997

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hey all:

A happy Thanksgiving to all!

I am wondering if the low oil prices have something to do with politics.

Specifically, I wonder if Trump & the Saudis have reached an agreement of sorts.  Something along the lines of the USA will go soft on the murder of the journalist in exchange for the Saudis pumping, selling & flooding the market for the next year or so?

Saudis get a pass, and USA (Trump) gets low oil prices?

Any thoughts?


Cardboard

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Truth of it is that the Saudis got betrayed by Trump when he gave 180 days waivers to about the 8 largest buyers of Iranian crude just around the mid-term election.

They had already opened up the taps along with Russia to avoid any supply disruption as Trump had asked for help and mentioned many times the desire to take Iranian exports to zero starting Nov 4. This was discussed at OPEC June meeting.

This reversal in U.S. policy caused oil price to plunge 30% in recent weeks.

Now ask yourself this question? Are the Saudis going to lose billions of $ and run a big deficit again only to save a prince who is not liked at all by a lot of members of the family who will be deciding if they nominate him or not as king once the old man dies?

Or this question: will the Saudis fear any Trump reprisal if they cut back on excess production to balance the market while he is hell bent on selling weapons to them and keep American jobs while they could turn around anytime and buy Russian?

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Spekulatius

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Yes, I believe that oil prices are influenced  by politics. Trump makes no bones about that he wants to push oil prices down when they are too high.

FWIW, I just added to my CVE position. I am not sure it’s the best bet out there,  it I owned already some, so I don’t have to do any additional work to buy more. It sure seams cheap,  it then again, the discounts for heavy oil to WTI are horrifying, although CVE has a partial hedge via their refinery operations.
« Last Edit: December 05, 2018, 03:11:39 PM by Spekulatius »
To be a realist, one has to believe in miracles.

Cardboard

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Maybe that my memory is poor but, I never recall two heads of state shaking hands like this:

https://www.cnbc.com/2018/11/30/watch-putin-and-saudi-crown-prince-mbs-exuberant-handshake-at-g-20.html

Oil cooperation should be assured. Both countries need higher prices to keep their people happy and quiet.

I have read that Platts indicated the rig count down 25 in the U.S. last week. We will see in less than 5 minutes what Baker Hughes has to say.

It is imperative that U.S. producers slow down their madness. I was thinking that investors would demand more discipline from producers considering the debacle mostly of their own doing in 2014. It seems to have worked for a while and now they got back to their drill no matter what mode.

This is an interesting video. I disagree with some of the conclusions but, it certainly goes to the issue that I mentioned or little regard for return on capital, decline rate, capital efficiencies and free cash flow.

https://www.youtube.com/watch?v=E_He0650klE 

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Cigarbutt

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^Thanks, many parts of the latter video were quite informative.
For instance, I had not realized that, to stay on the treadmill, the frackers have relied more on net rounds of "fresh" equity than junk debt although I think that junk issuance in the Permian moved into high gear during the first half of 2018.

Interesting parallel also to what a certain Wilbur Ross said about shale in 2015 when he described a wall of debt coming due in 2018. The wall has grown higher.

Assumption: this is not a Ponzi scheme and investment in shale has a rational basis but requires the ability (discipline) to survive a poorly defined period of red ink.

Inverting back around 2010, how would one go about annihilating capital discipline? I would lower interest rates and keep them low in a whatever it takes kind of way. In my humble experience, spontaneous discipline is not a given.

Speaking of annihilation, I have a creepy feeling that the two "leaders" shaking hands share similar pleasures when hearing certain sounds coming from certain journalists. In my humble experience, spontaneous cooperation is not a given.

The idea is to encourage the winners and to get rid of the zombies.
The way to get there is open for debate.

nkp007

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At any oil price so far, have we seen shale generate FCF?

Spekulatius

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At any oil price so far, have we seen shale generate FCF?

I havenít. They always spent more than they generate. Itís the American way!
To be a realist, one has to believe in miracles.

TwoCitiesCapital

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At any oil price so far, have we seen shale generate FCF?

I havenít. They always spent more than they generate. Itís the American way!

Shale is just indicative if the rest of the American markets. Too much capital chasing unproductive and unprofitable ends due to assumptioms that are far too rosy now that we're 10-years into the bull market.

For what it's worth, I've started trimming my Russian oil/gas holdings. Ultimately, hard for me to see much better scenario following increased production, increased pricing, and a dramatically reduced currency. They're about the only thing in my portfolio that's performed this year.

I think fundmentals for oil are much higher if we avoid a global recession. And very, very volatile of we don't. I'm taking gains here and awaiting more clarity.

Cardboard

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https://www.reuters.com/article/us-schlumberger-outlook/schlumberger-sees-lower-north-american-fourth-quarter-revenues-on-drop-in-fracking-idUSKBN1O32FW

Q4 North America revenues to be down 15% from Q3. So it should mean that fracking or completion is down a lot more than 15% since they offer all kinds of other services.

So U.S. production has definitely plateaud and should come down quite rapidly with sky high decline rates or as we have seen after the large decline post 2014. Another indication that U.S. shale at $50 is a pipe dream.

Then you have Chinese resuming imports of U.S. oil during the 90 day trade negotiating window which should reduce U.S. based inventories of light oil.

All in all, $60 U.S. WTI seems to be the number to balance the market but, it means OPEC pumping near flat out with little spare capacity with Brent at around $70 U.S. and no negative surprise such as some conflict, civil war.

Tough to say what OPEC will do tomorrow. There has been a lot of rumours around a 1 million to 1.4 million bls/d cut. Trump keeps on pressuring them not to (Tweet again this morning) but, he must be getting calls from Texas, Oklahoma, North Dakota, Colorado that a large number of job cuts are coming. Quite a good chunk of his base. Then you have all kinds of related services, trucking and steel companies in other adjacent States getting hurt.

I don't see what is the complaint from the U.S. on gasoline. One of Trump's hallucination? $2.25/gallon is a heck of a bargain and with the strength of the economy, $3 does not affect squat.

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John Hjorth

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... For what it's worth, I've started trimming my Russian oil/gas holdings. Ultimately, hard for me to see much better scenario following increased production, increased pricing, and a dramatically reduced currency. They're about the only thing in my portfolio that's performed this year. ...

Pardon me for asking a question specifically adressed to TwoCitiesCapital here  [otherwise, my posts in this topic have no merit, frankly]:

Have you been trimming both Lukoil & Gazprom?
ĒIn the race of excellence Ö there is no finish line.Ē
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai