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  • #16
    Re: Oils well that ends well

    Originally posted by GRG55 View Post
    #1 Supply destruction. The nitwits declaring the end of US shale have no idea what they are talking about. That's the fastest supply to turn off and fastest supply to turn back on - as I have posted before it is the closest thing the global oil industry has to "just in time" inventory, and it's not located in some far off, politically unstable desert or tundra. But have a look at the incredible damage being done to the expensive, long lead time projects overseas. A large number of them will never be restarted.

    At the moment there's probably no industry that is more out of favor politically in the west (cue Joe Biden) and financially among the investment elite and the Davos crowd (cue Mark Carney and Jeremy Grantham). Petroleum is an enormously capital intensive business. The lack of capital investment is going to further constrain supply and leave the industry in the hands of the major multinationals in the west (cue Chevron's recent acquisition of Noble for its Permian shale acreage) and the national oil companies most everywhere else - an asset consolidation phase I have previously posted would happen in "the next downturn".

    #2 Increasing demand. No matter what the green cohort says, if we intend to rebuild our economies and create jobs in sufficient numbers in any reasonable time frame after this damn virus is finally done we are going to need oil, natural gas and LPGs. I am not going to waste time here trying to explain the hopelessness of trying to do it without, and rely entirely on sourcing forms of "green, renewable" energy. There will be plenty of money directed at those efforts because of policy decisions, political pressure, tax incentives and direct subsidies, tax disincentives such as carbon taxes, investment momentum, ESG reporting requirements, virtue signalling and a host of other reasons. The investment bankers and private equity are gearing up for the next bonanza, which will be in "clean energy". It will come at the considerable expense of the average Joe and Jill and take yet another slice out of the dwindling "middle class". In the aftermath of this virus destroyed global economy, those that cannot afford the capital investment to convert to the new forms of green energy (a shiny new EV in the driveway, for example) will have to make do with what they already have. I think that's going to be a LOT of people.

    #3 Inflation. I think it may still be a bit too early to declare the death of the US$, and one more rise in the Dixie (to kill off what's left of the rest of the global economy) seems reasonably probable. Certainly when one looks at the US$ in comparison with the second tier currencies not represented in the index, and particularly some of the previous high flier EMs such as Brazil, the potential for a domino effect can't be dismissed. So we may yet be a year or three away from any material inflation due to a secular fall in the US$. But its coming.

    The other thing that will inflate the price of oil and natural gas will be the high cost of the alternative energy sources. There will be all sorts of propaganda published about how costs have come down to par with carbon energy sources, how technology is on the verge of a breakthrough that will create a step function down in the cost, that we are just around the corner from the "tipping point" at which widespread adoption is imminent. I've been listening to this stuff for many years now. And without the government gaming the markets (for the benefit of the folks that bankroll their re-election campaigns and green energy projects) it ain't happenin'. Like every jurisdiction that has force fed citizens a diet of green energy, costs are going to rise. A lot. And that will help inflate the cost of the conventional alternatives.

    I remain amazed at the incredibly cheap price for inflation protection today. It reminds me of the "old economy" stocks that were being thrown away at distress prices in 1999 and early 2000 while everyone stampeded into profitless internet startups. Many of those despised companies with sound balance sheets and real businesses proved incredibly good buys during the subsequent inflationary run to the financial crisis blow off. Two decades later we might be getting another chance at a similar play.
    oil is heavily subsided, I wonder how much capital was squandered getting shale oil so the US could get so called oil independence.

    "A new International Monetary Fund (IMF) study shows that USD$5.2 trillion was spent globally on fossil fuel subsidies in 2017. The equivalent of over 6.5% of global GDP of that year, it also represented a half-trillion dollar increase since 2015 when China ($1.4 trillion), the United States ($649 billion) and Russia ($551 billion) were the largest subsidizers."

    https://www.forbes.com/sites/jamesel.../#614964da4473

    Oil is not cheap, some of that money would be better of looking for alternatives before we are forced to.



    Alternati

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    • #17
      Re: Oils well that ends well

      Thanks GRG55. That's exactly the sort of further explanation I was hoping for.

      Comment


      • #18
        Re: Oils well that ends well

        Originally posted by GRG55 View Post
        I remain amazed at the incredibly cheap price for inflation protection today. It reminds me of the "old economy" stocks that were being thrown away at distress prices in 1999 and early 2000 while everyone stampeded into profitless internet startups. Many of those despised companies with sound balance sheets and real businesses proved incredibly good buys during the subsequent inflationary run to the financial crisis blow off. Two decades later we might be getting another chance at a similar play.
        Thank you for the analysis, GRG55. You're a treasure!

        If you had cash to invest at a time like this, what might some of those companies be, in your reckoning?

        Be kinder than necessary because everyone you meet is fighting some kind of battle.

        Comment


        • #19
          Re: Oils well that ends well

          Oh how they SCREEM
          https://www.manchestereveningnews.co...ester-18830640

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          • #20
            Re: Oils well that ends well

            Originally posted by Techdread View Post
            oil is heavily subsided, I wonder how much capital was squandered getting shale oil so the US could get so called oil independence.
            I don't have the figures but green energy is even more heavily subsidized with little to show. Of course, it's many times more profitable to pump Tesla stock where valuation don't matter than to earn 5-8% a year dividends on a PE 8-10 stock.

            I'm not saying that green energy is not good. I'm also invested in it, but it's important to know it's a bubble and it will implode again and again as it previously did.

            Warren Buffett plays the Apple bubble while he is silently moving into gold and pipelines. He knows it's a bubble and the moment he pulls out from it, that will be the end because the selling will be huge due to his huge stake.

            Comment


            • #21
              Re: Oils well that ends well

              Originally posted by shiny! View Post
              Thank you for the analysis, GRG55. You're a treasure!

              If you had cash to invest at a time like this, what might some of those companies be, in your reckoning?
              I'd be curious as well. Might serve to create a "watchlist" since "back up the truck" opportunities seem to come and go quite rapidly.

              GRG55 has recommended SunCore Energy (SU) before. Still pretty low. Given his forecast of inflation, commodity companies are worth looking at; I picked up Weyerhaeuser (WY) and Mosaic in the spring downturn. Also any companies that people probably can't do without -- cell phone service providers (VZ) and Waste Management (WM). I'd avoid tech -- a serious reckoning is due there.

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              • #22
                Re: Oils well that ends well

                Comment


                • #23
                  Re: Oils well that ends well

                  Originally posted by jpatter666 View Post
                  I'd be curious as well. Might serve to create a "watchlist" since "back up the truck" opportunities seem to come and go quite rapidly.

                  GRG55 has recommended SunCore Energy (SU) before. Still pretty low. Given his forecast of inflation, commodity companies are worth looking at; I picked up Weyerhaeuser (WY) and Mosaic in the spring downturn. Also any companies that people probably can't do without -- cell phone service providers (VZ) and Waste Management (WM). I'd avoid tech -- a serious reckoning is due there.
                  Ta for this! Maybe others could chime in as well. Different people here have different areas of interest and expertise. I'm interested in everyone's perspective. We should create a list as you say.

                  Be kinder than necessary because everyone you meet is fighting some kind of battle.

                  Comment


                  • #24
                    Re: Oils well that ends well

                    Originally posted by Techdread View Post
                    oil is heavily subsided, I wonder how much capital was squandered getting shale oil so the US could get so called oil independence.

                    "A new International Monetary Fund (IMF) study shows that USD$5.2 trillion was spent globally on fossil fuel subsidies in 2017. The equivalent of over 6.5% of global GDP of that year, it also represented a half-trillion dollar increase since 2015 when China ($1.4 trillion), the United States ($649 billion) and Russia ($551 billion) were the largest subsidizers."

                    https://www.forbes.com/sites/jamesel.../#614964da4473

                    Oil is not cheap, some of that money would be better of looking for alternatives before we are forced to.



                    Alternati

                    There isn't a damn thing that isn't heavily subsidized any more. At least oil is an essential commodity. Unlike, say, bankers. Or Tesla.

                    Comment


                    • #25
                      Re: Oils well that ends well

                      Reproducing GRG's earlier posts from March 2020 on this topic

                      "Thanks for the props, but sometimes one just gets lucky...
                      If, as I expect, this latest "global health care" export from China turns out to be yet another overdramatized international scaremongering episode, it will be the final washout for this phase of the oil cycle.
                      These are not recommendations, just what I am running the ruler over.
                      I am looking in two areas; 1) the best of the multi-national majors, and 2) the totally decimated Canadian mid-cap producers
                      For the first, I am considering a basket of XOM, BP, TOT, CVX, RDS.A - in that order.
                      I am looking at the latter for the first time in about two decades (some here will recall that takes us back to the era of the 1999 "Drowning in Oil" and 2003 "The End of the Oil Age" Economist Magazine covers. I suppose I should check what that reliably contrary cover indicator is saying now) . Look for the Canadian midcaps with conventional oil exposure in Alberta and Saskatchewan, such as Whitecap, that have good balance sheets, repeated quarterly free cashflow, and management track records. These are the survivors of the absolute worst downturn I have ever seen in the Canadian oil sector in my 43 years in the energy space. The drop in the price of oil, aided by our narcissist, dilettante Prime Minister and his utterly incompetent Federal Government for the last 5 years, has created the buying opportunity of a lifetime. The rail and port disruptions Canada has been experiencing in recent weeks, in no small part due to our nitwit government, are pretty well the last straw for a permanent stake through the heart of any future major national energy project investment. Canada as a destination for capital for such projects is now dead. That will ultimately benefit the mid-caps who, unlike Teck or Suncor, operate below the political radar screen. Avoid overexposure to the heavy oil sector, although no need to avoid it entirely (MEG is one of the companies you may want to consider).
                      These companies may not do anything for a year, so patience. Let's understand...the world is not going to stop using oil and natural gas anytime soon."

                      Would appreciate knowing if the suggested order still holds or subsequent plays by these companies warrants a rejig.

                      Comment


                      • #26
                        Re: Oils well that ends well

                        Originally posted by sunpearl71 View Post
                        Reproducing GRG's earlier posts from March 2020 on this topic

                        "Thanks for the props, but sometimes one just gets lucky...
                        If, as I expect, this latest "global health care" export from China turns out to be yet another overdramatized international scaremongering episode, it will be the final washout for this phase of the oil cycle.
                        These are not recommendations, just what I am running the ruler over.
                        I am looking in two areas; 1) the best of the multi-national majors, and 2) the totally decimated Canadian mid-cap producers
                        For the first, I am considering a basket of XOM, BP, TOT, CVX, RDS.A - in that order.
                        I am looking at the latter for the first time in about two decades (some here will recall that takes us back to the era of the 1999 "Drowning in Oil" and 2003 "The End of the Oil Age" Economist Magazine covers. I suppose I should check what that reliably contrary cover indicator is saying now) . Look for the Canadian midcaps with conventional oil exposure in Alberta and Saskatchewan, such as Whitecap, that have good balance sheets, repeated quarterly free cashflow, and management track records. These are the survivors of the absolute worst downturn I have ever seen in the Canadian oil sector in my 43 years in the energy space. The drop in the price of oil, aided by our narcissist, dilettante Prime Minister and his utterly incompetent Federal Government for the last 5 years, has created the buying opportunity of a lifetime. The rail and port disruptions Canada has been experiencing in recent weeks, in no small part due to our nitwit government, are pretty well the last straw for a permanent stake through the heart of any future major national energy project investment. Canada as a destination for capital for such projects is now dead. That will ultimately benefit the mid-caps who, unlike Teck or Suncor, operate below the political radar screen. Avoid overexposure to the heavy oil sector, although no need to avoid it entirely (MEG is one of the companies you may want to consider).
                        These companies may not do anything for a year, so patience. Let's understand...the world is not going to stop using oil and natural gas anytime soon."

                        Would appreciate knowing if the suggested order still holds or subsequent plays by these companies warrants a rejig.
                        I can't think of a more out of favour sector than petroleum at the moment (although the European banks are trying). After a nice rebound into the first week of June, all of the multinational majors have been drifting down as the recovery in demand from the worldwide COVID lockdowns drags on. The longer this goes on the longer the delay before the supply destruction is reversed. Based on current outlook my assessment is we are setting up for one hell of an oil crisis no later than mid-decade.

                        Chevron and Total have fared better than their peers. Chevron made a renewed commitment to US shale with the acquisition of Noble. Total took a huge writedown ($7 Billion) on its remaining Canadian heavy oil, but has completed a couple of important non-core asset divestments (North Sea and Gabon). In the meantime the two worst performers, BP and RDS, continue to promote the "remaking" of their companies in "Life After Oil" (I am awaiting the resurrection of John Browne's Beyond Petroleum campaign) And I still think ExxonMobil gets less credit than it deserves and remains imo the best value play of the supermajor multinationals.

                        BP and RDS aren't of as much interest. BP looks like it is falling back into the woke John Browne strategy of sunflower logos, etc. And RDS appears to have doubled down on sponsoring exotic "green" science projects instead of efficiently finding and delivering energy. If one wants to own a renewable energy company one should find a pure play, not an oil company that has signed up for gender reassignment surgery.
                        Last edited by GRG55; 08-29-20, 05:45 PM.

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                        • #27
                          Re: Oils well that ends well

                          "If one wants to own a renewable energy company one should find a pure play, not an oil company that has signed up for gender reassignment surgery."

                          Just fell off my chair laughing at that one!

                          Comment


                          • #28
                            Re: Oils well that ends well

                            Originally posted by GRG55 View Post
                            If one wants to own a renewable energy company one should find a pure play, not an oil company that has signed up for gender reassignment surgery.
                            Would you stop it? That's twice today you've made me laugh so hard I scared the cat!

                            Be kinder than necessary because everyone you meet is fighting some kind of battle.

                            Comment


                            • #29
                              Re: Oils well that ends well

                              Some other perspective. Not important to me at this time...fully invested in land and cattle.
                              Is Big Oil Still a Big Deal?


                              By Julian Lee | Bloomberg


                              August 30, 2020 at 8:52 p.m. GMT-3



                              From Monday there will be just one oil company in the Dow Jones Industrial Average — Chevron Corp. The removal of Exxon Mobil Corp. from the index after an uninterrupted presence since 1928 shouldn’t come as a surprise. It’s not the end of Big Oil, but it may signal the start of the beginning of the end.


                              It may seem odd to remove one of only two oil companies in the index at a time when the shale boom has transformed America’s role in the global market. After all, the U.S. now produces more oil and more natural gas than any other country. Last year’s domestic oil production was up by 125% from levels in 2010, while gas output has increased by 60%.

                              But those figures only tell part of the story, and not the most important part.


                              It’s not the first time that there’s only been one oil and gas company in the Dow. The last time was between 2000 and 2008, when Exxon was the sole industry representative. Before that you have to go back to the 1920s. For a brief period of two weeks in 1924, there were none at all.



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                              Why remove Exxon rather than Chevron? That’s easy. The Dow is calculated using share prices, not market capitalization, so Chevron’s higher share price (it’s more than twice that of Exxon’s) gives it greater weight in the index. At the close of business on August 27, Chevron accounted for 2.04% of the Dow; Exxon just 0.96%.

                              Removing Chevron would have reduced the weight of oil to an unreasonably low level. Its stock has also outperformed that of its larger rival over almost any recent period you care to choose.


                              The replacement of Exxon with Salesforce.com, a cloud-software bellwether, reflects the evolution of the U.S. economy even as the current president champions the fossil fuel industries.



                              The first shale boom, which saw natural gas output start to rise from 2005 and oil follow it five years later, helped spur a massive surge in jobs in the sector. The number of people employed in oil and gas extraction rose from about 125,000 in the first half of 2005 to a peak of more than 200,000 at the end of 2014, according to the Bureau of Labor Statistics. The second shale boom only created a quarter of the jobs that had been shed in the sector between 2015 and 2017 before it ran out of steam at the end of last year — and then the Covid-19 pandemic struck.

                              AD




                              Despite record production levels, oil and gas extraction contributed a mere 1% of U.S. GDP last year, according to the Bureau of Economic Analysis.


                              Oil just isn’t what it was to the U.S. economy and, with much of the shale boom driven by small independent oil and gas companies, Big Oil is even less important.

                              It is not just in the U.S. that Big Oil faces headwinds. Its opportunities and reputation are in decline worldwide.

                              The oil majors, including Royal Dutch Shell Plc, BP Plc and Total SE, operate in a world where they are often denied access to prime prospects. They’re kept from investing in key areas of low-cost production, such as Saudi Arabia, Iran, Venezuela and Russia, by local laws or the risk of sanctions. In other areas, they face contract terms that make investment unattractive.


                              It’s not just the lack of opportunities to discover and develop big, new oil fields. The companies are facing the need to reinvent themselves in a world where their core product is coming under increasing pressure from consumers for its impact on climate change and local pollution. And the long, hard slog of trying to turn themselves into producers of sustainable energy has only just begun.

                              AD




                              Exxon’s removal from the Dow may not signal the end of Big Oil, or even that its end is near, but it is reflective of the industry’s failure so far to adapt.

                              This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

                              Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

                              For more articles like this, please visit us at bloomberg.com/opinion

                              2020 Bloomberg L.P.



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                              • #30
                                Re: Oils well that ends well

                                https://insideevs.com/news/441798/hy...ransportation/

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