Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 260853 times)

John Hjorth

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Equities anyone?  anyone?  Bueller.     This will be like this all summer.  This should be the tip of rush into energy.   been saying that for a year lol

Nah, let's endlessly debate whether Brk is 12% of 17% undervalued as there clearly are no undervalued stocks around. :X

People claiming beating the market is impossible lately but if they have to jump in some ugly ponds for once (after being spoiled for years), they steer clear. Same with EM equities two years back.Then last year these stocks jumped 30%. Bank stocks couple years back too. At least with those many did well. Greece, .... . Ah well...

There is a distinct lack of humility creeping into this thread.....  :-)

No, I'm still humble and know this market could crash down any moment, erasing all gains. Just frustrated at people claiming there are no bargains and then turning around and thinking BRK offers them the best value. Aside from a few regulars, oil stocks get zero love on this board, big surprise! I bought BRK.B under $70 years ago and it was cheap for years. But now people fall over each other arguing over little price moves and valuation differences. And I'm up 120% over last 18 months with 10+ names up over 50%. Very very lucky but also calling bs on people claiming outperforming is nearly impossible or that value is dead for now.

tom, this is for you - almost 3 months has passed since this exchange of opinions -, and I hope sincerely, that you read this post by my intention.

I don't think that you can conclude in general, that the CoBF members are of the opinion, that are there no opportunities in this market. The CoBF investment Ideas forum goes ahead at a steady clip - day by day.

You're not rewarded as some other actor - popularity [i.e. here on CoBF] as an oil bug doesen't matter. [ : - ) ] So you don't need a blockbuster audience, your degree of success is measured on your monitor. [ : - ) ]

I would argue, that you're underestimating your audience, actually. If everybody else here on CoBF, [who can be considered non-oil bugs] acts like me, we just read this topic with great interest, and keep our mouth shut here, because we have nothing to add [<- non-Mungerish, with high degree of certainty, because we don't have a clue about what's going on here].

Yesterday, I took the time to go back in your posts here on CoBF, and found this post from your "early days". Quite amazing personal development for your part, I must say - meant as a compliment here.

- - - o 0 o - - -

Now I have caught interest in looking at GBL & Pargesa! ... [ : - ) ] - We all evolve differently ...

- - - o 0 o - - -

Congrats on your results, & peace.

- Back again to topic.
« Last Edit: September 25, 2018, 04:10:29 PM by John Hjorth »
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai


tombgrt

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Haha, I cringe whenever I see old posts of myself. In a way I hope I can react the same to this years posts in 5 years time. I'm sure I will. In 2010 I was 20, so keep that in mind. ;D Still clueless and winging it like a total idiot though. Most here are far more intelligent and capable and I often prefer coat tailing from others. Often I have little of value to add. I didn't want to give the impression that people here are "less" than me or bad investors, far from it. I've made plenty of mistakes and still am.

I'll be shifting a big chunck of my savings to etf's soon, by the way. Numbers getting to big for me to invest actively with my level of expertise. But when you hold multiple stocks that can be multi-baggers in a few years time, it is hard to go passive. I must also say it does distract from your regular job when you make far more money with your investments. It does for me at least. Daily or weekly swings are sometimes more than a few months of salary.  ::)

Thanks for the post!
« Last Edit: September 26, 2018, 01:12:02 AM by tombgrt »

DTEJD1997

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Hey all:

I really, really, really have a hard time seeing how oil is not higher 6 months, 12 months from now.

A good chunk of Iranian oil is going to be going off market.  I am sure they will try evade & run sanctions...but there is NO DOUBT that they will selling LESS oil than they are now.

Venezuela is almost certainly going to collapse, taking it's oil with it.

Russia is at odds with the West (USA) and not in an accommodative mood.  It i sin Russia's interest to see oil & gas prices go higher.

I am also shocked that more stuff in the O&G sector mor highly priced.

I guess we'll just have to wait and see. 

sculpin

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Hey all:

I really, really, really have a hard time seeing how oil is not higher 6 months, 12 months from now.

A good chunk of Iranian oil is going to be going off market.  I am sure they will try evade & run sanctions...but there is NO DOUBT that they will selling LESS oil than they are now.

Venezuela is almost certainly going to collapse, taking it's oil with it.

Russia is at odds with the West (USA) and not in an accommodative mood.  It i sin Russia's interest to see oil & gas prices go higher.

I am also shocked that more stuff in the O&G sector mor highly priced.

I guess we'll just have to wait and see.

A good commentary from IV touching on some of your points...

 Bull markets are a grind in commodities.  As long as the economic backdrop hangs in we are going to see an ongoing climb in prices,  perhaps higher at the top than last time.  Nobody believes, to be expected. Last cycle circa 2003 oil had more than quadrupled off the 1999 bottom and MF mgrs were wondering why isn't oil still $10,  the Economist magazine featured a cover in 2003  "The End of the Oil Age".  Sound familiar.  No way is going to stay over $50 or $60 was the mindset. Heard a lot of that last year.
 
  Stocks never really started to run until oil was 4-5 yrs into a bull last cycle, only a small crowd that follows it closely were pushing them up, most of the profits in stocks were made in the last 4-5 yrs of that run.  Were about 2.5 yrs off the bottom now.  Cycles occur over a decade or more.  Investors especially in this day and age have the attention span of an 8 yr old it seems.They believe in bitcoin, Tesla and pot today, block chain is going to rule the world, some of that already rolling over.  It's always different but cycles tend to follow very similiar patterns.  Slowly but surely financial minds are changing their tune,  last year absolutely nothing could convince them oil would rise above $50 and stay there,  now we hear discussions that $100 is possible.  Creeps into the market psyche over time, most don't pay any attention to commodities until it is time.
 
 It's coming,  oil is the lifeblood of a modern economy, under appreciated, taken for granted by most, many in denial  hating fossil fuels despite all the benefits,  none of that changes the facts, all that actually suppresses production, infrastructure build out and creates a bigger issue on the supply side.  Oil is finite in the end, demand is still climbing despite the naysayers, faster in the last 5 yrs than the previous five. EV's are not taking over passenger transportation,  the forecasts have been dead wrong, without huge gov't subsidies their sales drop like a rock.  Tesla looks like it is on the edge.
 
 Would not surprise me over the next few years were talking about shortages again. The 40k foot view of oil is actually very bullish, lots of days it doesn't feel that way. Reality is 73m IC vehicles sold every year,  the fleet continues to expand at a faster rate than in the past,  more planes , trains and ships every year, the population is still growing,  more energy is needed,  green energy hasn't been the panacea we were told it would be, the middle class around the world is still  expanding.  We hit a 100m bpd of demand this year,  another record, 

sculpin

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Both China And India May Be Giving In And Reducing Iran Oil Imports, A Big Plus To Oil Prices

Posted on September 28, 2018

http://www.streamasset.ca/blog/2018/09/28/both-china-and-india-may-be-giving-in-and-reducing-iran-oil-imports-a-big-plus-to-oil-prices/

There was significant news this week that are pointing to oil going higher, especially with this morning’s reports that Sinopec has cut its Iran oil loadings by half for Nov and Tues that India’s two biggest refiners haven’t asked for any loadings from Iran for Nov deliveries.  Iran deliveries by mid Nov could still be achieved if Iran loadings are done within the two weeks for China or four weeks for India.  But the clock is ticking quickly, especially for China.  This week’s news is significant as it points to both China and India(Iran’s two biggest oil markets) giving in and cutting Iran oil imports to a significant degree.  If so, it points to US sanctions cutting Iran oil exports to ~1.7 mmb/d and certainly above our expected range of 1.0 to 1.5 mmb/d.  A cut of ~1.7 mmb/d would also be well above market expectations. This is why WTI and Brent oil prices are strong this week and expected to be stronger unless we see an abrupt change.  Especially since the expectation has been that China wouldn’t be cutting Iran oil imports, rather they would maintain but also agree to not increase Iran oil imports.  We should note that the impact of increased oil sanctions should ease a bit around year end as oil demand is seasonally lower every winter than in the fall and summer.  The IEA forecasts Q1/19 oil demand will be 1 mmb/d lower than Q4/18.  The other warning is that we still see the setup for an oil price spike in Q2/19 or Q3/19 once oil demand seasonally increases as long as Iran and Venezuela sanctions remain in place.


Iran exports pre US sanctions were 2.4 mmb/d of crude oil and 0.3 mmb/d of condensate.  Oil data varies each month, but pre US sanctions, the monthly Iran oil exports were (all figures are approximate) China 0.7 mmb/d, India 0.7 mmb/d, Europe 0.6 mmb/d, South Korea 0.25 mmb/d and Japan 0.15 mmb/d.  A good example of the monthly variances is Japan, we used an average of ~150,000 b/d but there have been months ~50,000 b/d and over 200, 000 b/d.

Europe has always been assumed to cut to zero.  Our June 10, 2018 Energy Tidbits noted the reports that week that European refiners were early to start to wind down Iranian oil imports.  We have not seen any reports to the contrary.

Japan is now reportedly “temporarily” cutting Iranian oil loadings to zero.  Japan is reportedly still trying to get waivers from the US sanctions.  However, it has not done so to date and is therefore seeking oil from other suppliers.  On Sept 20, Reuters reported [LINK] “Japanese oil refiners have temporarily halted Iranian oil loadings ahead of U.S. sanctions and are buying alternatives as it remains unclear whether Japan will receive an exemption, the head of the country’s refinery association said on Thursday.”  Japan has even committed to import oil from Yemen for the first time in 3 years to help replace the Iranian oil.

South Korea has cut Iranian crude oil imports to zero.  On Sept 23, Shana (news agency for Iran’s oil ministry) reported [LINK] “An official with the Iranian Ministry of Petroleum says South Korea had completely stopped purchasing oil from Iran over the course of the past three months.  Kasra Nouri, director of the Iranian Ministry of Petroleum’s Public Relations, said, “It is nearly three months that South Korea has stopped buying oil from Iran.” According to Mr. Nouri, South Korea was the first country to completely halt its oil purchases from Iran following Washington’s pullout of the nuclear deal Tehran stuck with 6 world powers back in 2015”.

India, expectations are now moving to see significant reduction in imports.  India has reportedly been trying hard to get exemptions from the US sanctions so it can avoid cutting Iran oil imports especially with its strengthening commercial relationship with Iran.  On Wed, Bloomberg [LINK] wrote  “India Is Cutting Imports of Iranian Oil to Zero in November.  Biggest Indian refiners haven’t asked for November oil”.   We should keep in mind that it is a short voyage time for Iranian oil tankers to get to India.   Its only about 12 days for oil tankers to get to India’s west coast.  So there is still is time India to get Iran oil delivered in Nov.   It was also interesting to see Reuters Wed story [LINK] “India’s government has not told refiners to halt Iranian oil imports: source”, which only really says the refiners may be cutting but it wasn’t because the govt told them.

China may now be giving in and cutting Iran oil imports. The big oil story this morning was Reuters “China’s Sinopec halves Iran oil loadings under U.S. pressure: sources” [LINK].   Reuters is reporting that Sinopec has cut its Nov loadings down to 130,000 b/d and that this was a cut of approx. half.  The China position has been that they wouldn’t cut nor would they increase Iran oil imports ie. stay the same.  Our Aug 5, 2018 Energy Tidbits memo [LINK] noted Bloomberg’s story that week [LINK] “China Rejects U.S. Request to Cut Iran Oil Imports” that reported “The U.S. has been unable to persuade China to cut Iranian oil imports, according to two officials familiar with the negotiations, dealing a blow to President Donald Trump’s efforts to isolate the Islamic Republic after his withdrawal from the 2015 nuclear accord.  Beijing has, however, agreed not to ramp up purchases of Iranian crude, according to the officials, who asked not to be identified because discussions with China and other countries continue. That would ease concerns that China would work to undermine U.S. efforts to isolate the Islamic Republic by purchasing excess oil.”  In theory, China still has time for China to put orders in and get Iran oil delivered to China, but its only at most a couple weeks for oil to get to China by mid Nov.  An oil tanker time would be approx. 25 days to a port like Shanghai.

If BOTH China and India are giving in, it points to Iran cut barrels being way more than expected.    This morning’s report is significant as it is pointing to China giving into the US sanctions.  If we assume China and India changes means that they cut in half, this would put the cut in Iran oil exports at 1.7 mmb/d and above the range we have been assuming 1 to 1.5 mmb/d.  And we expect a cut like this would be well above market expectations.  And why we expect oil prices will continue to strengthen unless we see reports in the next week or so that Saudi Arabia has increased tanker loadings and we have not seen any such reports as of today,

We do see this impact of Iran  cut barrels easing around year end.  In our Sept 18, 2018 SAF 2019 Energy Market Outlook webcast [The webcast is found at:[LINK]], we reminded of the key reason why the impact of Iran cut barrels would ease modestly around year-end – oil demand is seasonally lower in the winter than the fall and summer and this is true every year.  And why the Iran cut barrels will easier to accommodate in Q1/19.  In our outlook webcast, we said “When I was speaking on Saudi Arabia maybe only have limited spare capacity I said “And If Saudi Arabia only has another 300,000 to 400,000 b/d of real short term surplus capacity, it may be okay for this winter when oil demand is always seasonally lower, but this will clearly be factor next summer.”  And then on the next slide speaking on Iran and Venezuela, I said “The combination of Iran and Venezuela should take another 800,000 to 900,000 b/d out of the global oil supply chain in the next few months. And we don’t see how it can be replaced in this short time period.  Fortunately, we are moving into winter, when global oil demand is always seasonally lower.  And this lower demand will help mask the shortfall. “  Our slide for this text showed the IEA”s estimate for Q1/19 oil demand being 1 mmb/d lower than Q4/18.

But we also see the potential for oil price spikes in Q2/19 and Q3/19.  This lower Q1/19 oil demand should help mask or ease the impact of the Iran cuts, but we also warned that there is the setup for oil price spikes in Q2/19 and Q3/19.  Here is what we said on this potential.  ““We should get a good test of this lower level of surplus capacity next summer as we see the potential for oil price spikes.  Global oil demand is always lower seasonally every winter, it is expected to be down 1.0 mmb/d in Q1/19 vs Q4/18.  This is a cushion against the near term big declines expected at Venezuela and Iran.   But the challenge is that, after the winter, global oil demand always seasonally increases.  Q2/19 oil demand is expected up 1.2 mmb/d in Q2 vs Q1, and then up another 0.9 mmb/d in Q3 vs Q2.  This means that Q3 oil demand should be up 2.1 mmb/d vs Q1/19.   US oil supply growth can help cover a portion of the increased demand assuming Permian oil takeaway is completed.  The EIA forecasts US oil supply in Q3/19 to be up 400,000 b/d vs Q4/18.   Maybe Saudi Arabia adds another 400,000 b/d to get to ~10.8 mmb/d.  But Russia’s surplus 0.3 mmb/d and Saudi Arabia’s surplus capacity (beyond the next 0.4 mmb/d or so) could both require months and not weeks and more capital to bring on stream, and they would have to get going right now to impact Q2/19.  And this is the math problem, where does an additional 2.1 mmb/d come from to cover the normal increasing seasonal oil demand?  Hence, our concern for the potential for price spikes up in Q3/19 and even Q2/19 looks to be high”

SharperDingaan

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A few things to add.

Most 'investor' focus is very short time-frame. If you're OPM, your marketing demand requires that you always hold the current darlings - hence you're momentum trading against market volatility. For you (the bulk of the market); O/G offers opportunity, but there is no way that you could successfully sell it to your quarter-to-quarter orientated investors.  Hence O/G is terrible, and falling share-prices feed a self-fulfiling prophecy. Sentiment.

While O/G managements are longer term orientated, they are subject to short-term market sentiment. It's hard to do M&A when you can't capital raise, sell assets at reasonable prices, and are restricted to living within FFO. For them, they may have lots of great projects with very high IRR's (some once in a lifetime), but they just can't raise the capital. Add to it declining FFO from high depletion (frac wells) and rising water/gas cuts, that also makes just maintaining existing production levels difficult. Frustration.

But what if you can afford to buy (today), and so long as you buy quality - just dont NEED to sell for years? (ie: value investors building their retirement portfolios). Wouldn't you just buy these things in quantity today, then sell 1/2 as soon as you have a double (to recover your cash outlay asap, for diversifying re-investment elsewhere)? Almost certain to win over time, and no need for any financial adviser.

Hence when you read the 'press' what are you REALLY hearing?
Frustrated salesmen unable to make any money, frustrated senior managements unable to move their companies forward, and frustrated 'gamblers' unable to get a 'fix' from holding 'winners' - 95%+ of the market? The louder voices drowning out the softer voices of the quiet 'other' 5%, talking the mid-term view on the commodity. The how can anybody NOT SEE the train hurtling towards us. 

So why would you not want to exploit this  :D

SD





   

sculpin

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"Oil headed for its longest string of quarterly gains in more than a decade as impending supply disruptions threaten to fracture a global market with little margin for error."
 
https://www.bloomberg.com/news/articles/2018-09-28/oil-poised-for-third-weekly-gain-as-traders-brace-for-100-crude

“The warning signs are there – the industry isn’t finding enough oil.”
 
https://oilprice.com/Energy/Energy-General/The-Inevitable-Oil-Supply-Crunch.html
 
 

SharperDingaan

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Our own view is that we might well not have to wait that long.
If Trump is serious about stopping Iranian shipments come Nov 01; there will have to be a US action against either Iranian collection/loading facilities, or a blockade outside those facilities to stop 'illegal flow' (ie: reduce legal purchases to zero, & buy illegal through third parties at a discount, for zero net change).

What do you think happens if that 'ofsetting' illegal flow is reduced ? And what do you think happens if it emerges that a tanker lane was mined, and there are pics of the US Navy boarding tankers on the high seas (uplinked to the world, via the tanker crew using Chinese satelites).

Business should be brisk if prices suddenly spike in any material way.

SD


tombgrt

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Anyone an opinion on Zargon? Market basically rode it off after poor Q results and widening WTI-WCS spreads. Done for or extreme torque to higher prices combined with smaller spreads?

People can speak of the need of patience but I'm sympathetic for people's frustrations. Three years ago WTI was at $45-50 and even the companies that came out stronger, like GXE, have barely given much upside unless you timed things perfectly. Certainly brutal!

Zorrofan

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