Oil Prices

No one can tell the future or is there such a thing call oracle. Market is base on supply and demand. Now the demand is weak. We should use that weakness to our advantage. It is true someday oil will eventually go up. But that will be long time away. When demand go up or oil output are reduce because of low price, then oil px will go up. But i think the latter will be the reason for quite sometimes.

(30-12-2014, 10:28 AM)CityFarmer Wrote: From the perspective of supply, the over-supply situation will not be improved by merely 7% reduction in number of rig, and likely the reduction in actual production will be lower than the 7%.

CityFarmer San

Patience my dear sir. Huge changes are underfoot in the oil patch. Based on capex announcements by the major shale oil players, I would be very surprised if the drop is a mere 7%. My personal take is that we might possibly see a 50% drop in rig count within the next 3 months => a bloodbath is coming.

2 other points that I would like to make are:

1. To me, the point of the US exporting its crude is merely a red herring. The last time I checked, oil and petroleum net imports of US is running at close to 5 million barrels of oil per day.

2. Almost all the increase in oil production by US since 2008 is due to tight oil (shale) production. Tight oil production suffer from huge decline rates, e.g. 90 day average production from such a well is approximately only 60% of the 30 day average. Therefore, a decline in tight oil production is inevitable once capex is reduced drastically in response to low oil prices. It's a matter of time.

Buffett wrote in 1985:

Ben Graham told a story 40 years ago that illustrates why investment professionals behave as they do:

An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. “You’re qualified for residence”, said St. Peter, “but, as you can see, the compound reserved for oil men is packed.

There’s no way to squeeze you in.” After thinking a moment, the prospector asked if he might say just four words to the present
occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, “Oil discovered in hell.”

Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St.
Peter invited the prospector to move in and make himself comfortable. The prospector paused. “No,” he said, “I think
I’ll go along with the rest of the boys. There might be some truth to that rumor after all.”

http://www.berkshirehathaway.com/letters/1985.html

(01-01-2015, 07:14 AM)HitandRun Wrote:

(30-12-2014, 10:28 AM)CityFarmer Wrote: From the perspective of supply, the over-supply situation will not be improved by merely 7% reduction in number of rig, and likely the reduction in actual production will be lower than the 7%.

CityFarmer San

Patience my dear sir. Huge changes are underfoot in the oil patch. Based on capex announcements by the major shale oil players, I would be very surprised if the drop is a mere 7%. My personal take is that we might possibly see a 50% drop in rig count within the next 3 months => a bloodbath is coming.

2 other points that I would like to make are:

1. To me, the point of the US exporting its crude is merely a red herring. The last time I checked, oil and petroleum net imports of US is running at close to 5 million barrels of oil per day.

2. Almost all the increase in oil production by US since 2008 is due to tight oil (shale) production. Tight oil production suffer from huge decline rates, e.g. 90 day average production from such a well is approximately only 60% of the 30 day average. Therefore, a decline in tight oil production is inevitable once capex is reduced drastically in response to low oil prices. It's a matter of time.

It is much better to read an expert opinion, than a news article.

Yes, I agree with you, base on my limited understanding of oil stuffs.

(31-12-2014, 11:02 PM)yewkim Wrote: No one can tell the future or is there such a thing call oracle. Market is base on supply and demand. Now the demand is weak. We should use that weakness to our advantage. It is true someday oil will eventually go up. But that will be long time away. When demand go up or oil output are reduce because of low price, then oil px will go up. But i think the latter will be the reason for quite sometimes.

I can't tell the future either. A veteran of oil market, the formal CEO of CAO, had done badly speculating on oil price trend. I reckon there is no chance for a amateur like me to get it right, even amid a "very clear" case of supply-demand.

The oil price went down 40% in a few months. It should be also possible to shot up in a few months with similar scale. A few months isn't a long time to me.

http://www.wsj.com/articles/SB110229154620691553

(sharing a thought, and staying humble to be corrected)

If you read the book : Titan - The life of John D rockerfella mentioned that during those days there was a time something similar on such level also happen a lot of small private oil operators in America were drilling and flooding the market and eventually prices crashed and a lot went bust. Rockerfella came in bought out these small operations and eventually controlled the market and stabalized prices.

We see today in shale, oil prices are again crashing to such lows. Consolidation or what you want to call it - I see big oil grab operation is going happen again. History may not repeat itself in the same way - but something quite similar I'm sure.

(02-01-2015, 11:04 AM)CityFarmer Wrote:

(31-12-2014, 11:02 PM)yewkim Wrote: No one can tell the future or is there such a thing call oracle. Market is base on supply and demand. Now the demand is weak. We should use that weakness to our advantage. It is true someday oil will eventually go up. But that will be long time away. When demand go up or oil output are reduce because of low price, then oil px will go up. But i think the latter will be the reason for quite sometimes.

I can't tell the future either. A veteran of oil market, the formal CEO of CAO, had done badly speculating on oil price trend. I reckon there is no chance for a amateur like me to get it right, even amid a "very clear" case of supply-demand.

The oil price went down 40% in a few months. It should be also possible to shot up in a few months with similar scale. A few months isn't a long time to me.

http://www.wsj.com/articles/SB110229154620691553

(sharing a thought, and staying humble to be corrected)

But that is just one odd case. If history is of any significant, oil will take at least slightly more than a year to play out. And a px of 30/40$ seen ridiculously low, But market are always stretch to the extreme bullishness and extreme bearishness. So 30$ oil is still a possibility. I suggest don't long oil and gas counter but rather wait a while and see.


http://seekingalpha.com/article/2757505-...last?ifp=0



http://blogs.reuters.com/anatole-kaletsk...e=Facebook

Good day Value Buddies,

Sorry, those off-topic posts, which were deviated too much, have been deleted. Please stay on topic. Thanks.

Let say and imagine we are the oil producer, what should we do to stay in business in the face of low oil price? Cut production? reduce cost? What else?


I think I will increase output to offset for the low revenue, that is the clearest choice for me. If I cut production , my revenue will be hit, and this will benefit my competitor too. This is a fact to most oil producing countries, especially those who face economic head wind at the moment. Most oil producers we hear so far are facing challenges at home, politically and socially, they needed revenue even more. In business, it is not in my interest to see my competitor win. We compete on a level ground. If everyone does the same thing, what will happen to oil price? They are going to go lower, unless demand pickup fast enough to take the excess supply off the market.


Now even Iraq has do this too. They needed revenue even more than OPEC to rebuild their country. So increase output to offset for the low oil price is the only way out for the right here and right now. No other better choice.


From this point, i think oil will continue to head south till most of weak players are knock out of business, so the output is reduce as rigs shut down. Hopefully by then the world economy would has improve to absorb the excess from the market and with reduce supply the price of oil will start to soar.


https://sg.finance.yahoo.com/news/iraq-o...07138.html


I still suggest hold our gun on oil and gas counters if we want to go long. Patience is the key. Wait till we hear some bankruptcy of oil producer, I believe we are going to hear them soon, a few month down the road, and hopefully hear good economic data announce from China , Europe and Japan at the same time. That will be the time we should get ready to invest in those oil n gas counter and that will also when oil has finally going to bottom. May all be well n happy. Good luck.


I would like to add that above is purely my opinion and not taken from any other sources, so you can just take it easy.

China first, than the OPEC. It shows the importance of China for Venezuela...

Venezuela's Maduro to visit China, OPEC nations amid cash crunch

CARACAS - Venezuelan President Nicolas Maduro said on Sunday he will visit China and several unspecified OPEC countries during a week-long tour meant to improve the South American nation's finances, which have been weakened by tumbling crude prices.

"I'm leaving today for an international tour ... a very important tour to take on new projects, given the circumstances of falling income that our country faces," Maduro said during a televised broadcast.

His first stop will be China, which has become Venezuela's principal financier through oil-for-loan agreements in which Venezuela receives cash up front in exchange for future deliveries of crude and fuel.

"Also, I'm going to visit other OPEC countries to continue high-level efforts (to create) a strategy for a recovery of oil prices, a strengthening of OPEC," Maduro said. He provided no other details.
...
http://www.todayonline.com/world/venezue...ash-crunch