Oil Prices

(14-08-2015, 05:00 PM)lilvestor Wrote: Bad news for the energy sector, oil prices are going to take a huge dump once the sanctions on Iran are lifted, maybe to $30

You reckon Iran's cost of production is like free? Incidentally, the world uses something like 90 million barrels of oil a day...

(14-08-2015, 05:09 PM)Behappyalways Wrote: Solar energy is the one to watch.

Last year if I remember correctly solar energy supply went up by double digits. Unless demand for energy goes up by a lot, with all these alternative energy supply coming up, oil demand will definitely be hit

If I am not wrong, solar energy has been growing like double digits in the past 10 years. Think about it, how much oil did you not use because of solar energy? AFAIK, most countries use natural gas or coal to generate electricity.

(14-08-2015, 06:06 PM)HitandRun Wrote:

(14-08-2015, 05:00 PM)lilvestor Wrote: Bad news for the energy sector, oil prices are going to take a huge dump once the sanctions on Iran are lifted, maybe to $30

You reckon Iran's cost of production is like free? Incidentally, the world uses something like 90 million barrels of oil a day...

Its not free but its definitely far lower than $40, production cost in the middle east is easily lower than that. Besides, a ton of oil has already been produced (50m barrels according to that article), its sunk cost to Iran and they'd sell it even if they are going to lose money, it costs money to store oil ya know?

Consumption is irrelevant as long as supply continues to exceed it, the world was already producing 3m barrels of surplus oil per day before Iran joined the market, that surplus is certainly going to increase when Iran starts producing again.

(14-08-2015, 06:27 PM)lilvestor Wrote: Consumption is irrelevant as long as supply continues to exceed it, the world was already producing 3m barrels of surplus oil per day before Iran joined the market, that surplus is certainly going to increase when Iran starts producing again.

At the current price, I do not see any surplus . I think this so called surplus is a red herring. Do you see any commercial inventories piling up some where? Do you find any E&P player claiming that it is unable to offload their inventory. In fact, I believe that every single player (other than sanctioned hit countries) is buying as much or selling as much as he wants to. One other thing to note is that despite producing almost an additional 1 million barrels of oil on a year on year basis, refineries in the US are importing as much crude as they did last year.

(27-07-2015, 10:15 AM)CityFarmer Wrote:

(27-07-2015, 08:30 AM)HitandRun Wrote: WSJ - Sudden drop in Crude Oil Prices Roil US Rebound

According to the article, US energy firms raised USD21 billion in equity and USD73billion in new debt, no wonder the chickens have not come home to roost yet.

The support of equity and debt market, can U-turn, overnight. Let's see...

After all the agony, are the dominos really going to start falling more seriously?

KKR Samson Resources

Ouch! It's a USD4.1 billion write-off.

But wait, the PE guys are just waiting round the corner:

PE Financing

Given the situation (the liquidity tap doesn't stop), any recovery in oil prices will be very gradual. So downstream suppliers might not see any real recovery in 2016....

U.S. Eases Crude Export Ban by Allowing Mexico Swap
http://www.bloomberg.com/news/articles/2...easing-ban

(14-08-2015, 08:16 PM)HitandRun Wrote:

(14-08-2015, 06:27 PM)lilvestor Wrote: Consumption is irrelevant as long as supply continues to exceed it, the world was already producing 3m barrels of surplus oil per day before Iran joined the market, that surplus is certainly going to increase when Iran starts producing again.

At the current price, I do not see any surplus . I think this so called surplus is a red herring. Do you see any commercial inventories piling up some where? Do you find any E&P player claiming that it is unable to offload their inventory. In fact, I believe that every single player (other than sanctioned hit countries) is buying as much or selling as much as he wants to. One other thing to note is that despite producing almost an additional 1 million barrels of oil on a year on year basis, refineries in the US are importing as much crude as they did last year.

Inventories wouldn't be piling up at cushing if there isn't any surplus, and this is supposed to be peak season with the refineries running at full steam, think about whats going to happen to crude oil prices when most of these refineries go for their maintenance in Sept - Oct.

The irony with falling prices is that upstream players end up having to sell more crude to stay afloat, this will suck all profits out of the industry as more companies start to sell crude at a tiny profit, then breakeven, finally at a loss, its a war of attrition, only the strongest players will stay alive in the end. Imo the overcapacity problem in the oil industry has been made worse by ZIRP, this thing will take a long time to sort itself out, as the money taps are gradually turned off.

The US is importing a lot of crude but most of it is going straight into storage (due to deep contango), the fact that WTI is trading at a $7 discount to brent tells us that the glut is worst in the US.

(15-08-2015, 09:28 AM)HitandRun Wrote:

(27-07-2015, 10:15 AM)CityFarmer Wrote:

(27-07-2015, 08:30 AM)HitandRun Wrote: WSJ - Sudden drop in Crude Oil Prices Roil US Rebound

According to the article, US energy firms raised USD21 billion in equity and USD73billion in new debt, no wonder the chickens have not come home to roost yet.

The support of equity and debt market, can U-turn, overnight. Let's see...

After all the agony, are the dominos really going to start falling more seriously?

KKR Samson Resources

Ouch! It's a USD4.1 billion write-off.

But wait, the PE guys are just waiting round the corner:

PE Financing

Given the situation (the liquidity tap doesn't stop), any recovery in oil prices will be very gradual. So downstream suppliers might not see any real recovery in 2016....

There isn't going to be any recovery at all if dumb money continues to pile into the energy sector... and I think it will remain that way because investors are still desperate for yield.

Aug 14 2015 at 4:21 PM Updated Aug 14 2015 at 11:57 PM

Saudi bond issues highlight shift in oil market dynamics

Saudi Arabia's King Salman bin Abdulaziz, centre. The Middle East kingdom plans to issue $27 billion in debt by the end of the calendar year. Saudi Press Agency
Philip Baker

Saudi Arabia has been hitting the bond market and tapping money for the first time in eight years but it isn't a crisis. It shows, however, how much the dynamics in the oil market have changed.

The Middle East kingdom, which has foreign exchange reserves of about $650 billion, also said this month that it plans to issue $27 billion in debt by the end of the calendar year and it comes as the price of oil this week slipped to about $US42 a barrel, its lowest level since 2009.

The main problem for oil is that although global demand is rising at a respectable rate, supply is growing at a much more respectable rate.

Indeed, it's growing so fast that the International Energy Agency described it this week as growing at a "breakneck speed".


Supply beats consumption by 3 million barrels a day according to the IEA, and that hasn't happened since 1998.

Oil has now fallen just over 60 per cent since its recent peak in June 2014 but had a decent bounce from early in 2015 when it rose almost 40 per cent.

But since June 2015, it has dropped another 40 per cent.

Still, in the 1980s and 1990s, the price fell more than 70 per cent before the bottom was hit, so maybe there is some more pain to come for oil investors.

During the crisis, oil fell almost 80 per cent but it didn't last long, and in 1998 it was $US10 a barrel before heading to $US145 in 2008.

SHALE REVOLUTION

According to AMP Capital, when the price of oil had significant falls in 1986, 1998 and 2008, shares in US oil companies ended up rising, on average, almost 25 per cent over the next 12 months.

Energy is vital to the modern global economy. But when oil hovered around $US110 a barrel for three years from the middle of 2011 to the middle of 2014, it not only represented the glory days, it led to investments in the oilfield and the shale revolution.

It's not often that Wall Street hedge fund managers stir up talk of a revolution.

But three years ago, Jim Chanos, the famed short seller who has got a reputation as one of Wall Street's smarter investors, said the growing US shale boom was a revolution in the making, one that would transform the US industrial landscape and redistribute wealth and power to those at the vanguard of a new era of cheaper energy.

How right he was, and if a revolution leads to a dramatic change in conditions or operations, that is what has happened in the oil space.

Producers in the US started to use new technologies and that allowed them to produce shale oil on a huge scale, up as much as 30 per cent.

At the same time, the Organisation of the Petroleum Exporting Countries, dominated by Saudi Arabia, was responsible for the glut in crude oil at the same time.

But the primary reason for the oversupply seems to be the boom in US shale production.

And it doesn't really bother Saudi Arabia. It needs only $US5 to $US6 to produce a barrel of oil so it seems to think the oil price will recover when producers struggling to tide over low commodity prices are out of business.

But it does hit Russia, which is in a recession.

The low oil price will also put further downward pressure on inflation and that could mean the US Federal Reserve is slightly hampered in its bid to raise interest rates next month.

The plunge in oil and commodity prices, a strong US dollar and weakness in the world economy are all subduing prices, making it tougher for the Fed to move.

The shale industry has changed the dynamics and it means that what took years in the industry to pan out now happens very quickly.

Higher prices mean more players get involved to increase production, but when they do, it leads to lower prices and then eventually production gets cut again.

That process would have taken years but now it happens much quicker.

Sharemarkets have usually sold off when the oil price falls because it's bad news for the energy producers.

But the risk of oil becoming a left-field event causing carnage is low.

Back in the 1980s, US energy production was a much larger share of the US economy and when oil prices fell, it helped the world's largest economy.

Russian public debt is low at about 9 per cent of gross domestic product compared with more than 50 per cent of GDP in 1998.

Hedges funds are hunting for bargain now...

Hedge Funds Boost Energy Holdings as Oil Rout Brings Opportunity

Hedge fund managers are betting hundreds of millions of dollars that Cheniere Energy Inc., Pioneer Natural Resources Co. and Williams Cos. will be among the energy companies that survive the worst oil rout in decades.
Seth Klarman of Baupost Group bought 898,063 shares in Texas shale explorer Pioneer during the second quarter while Richard Perry’s firm added 6.26 million shares of Williams, according to regulatory filings.

Energy investors have lost more than $1.3 trillion in shareholder value as the price of oil dropped about 60 percent from its peak last year, according to data compiled by Bloomberg. And now hedge fund managers are on the hunt for bargains, said oil and gas restructuring specialist John Castellano at AlixPartners in Chicago. Many companies are struggling to survive as revenue falls and banks curtail their access to credit.

“Not every oil and gas company is distressed,” Castellano said. “There are good companies out there that have good assets, but because the entire market has come down everyone’s equity has been hit by a reduction in value.”
...
http://www.bloomberg.com/news/articles/2...pportunity