Oil Prices

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(13-02-2015, 03:15 PM)yewkim Wrote: cityfarmer

I am referring purely to oil only, not any stock or counter that require due diligent as in value investing.

Oil is heading higher, currently 52$, but i believe with each day pass, the supply is building up. Next week, we will hear again US stockpile at record high, then it may retrace down a little only to soar even higher later.

Yewkim,

Yes, oil is a commodity, and pretty different from stocks.

I am not familiar with commodity investing, but I assume Mr. Commodity Market, should be as emotional as our friend, Mr. Equity Market. Short term volatility can never be explained by simply demand and supply. A longer term average may be a more trust-able figure, than daily forecast. Big Grin
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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I think tonight we may see oil going for 53$, hope so.

And Dow to hit all time high, if the consumer sentiment turn out good.

Next week, sti should do well. Today I can sense strong demand for many counters. A very good tell sign for sti. CNY rally maybe. ;-)

Hope all you Chinese have a prosperous CNY.
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The looming threat to American oil output

Tom DiChristopher
Thursday, 12 Feb 2015

http://www.cnbc.com/id/102419892
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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(14-02-2015, 11:06 AM)Boon Wrote: The looming threat to American oil output

Tom DiChristopher
Thursday, 12 Feb 2015

http://www.cnbc.com/id/102419892

Boon san

Thanks for the link. However, I cannot understand what this analyst, Michael Cohen from Barclays is saying.... He said that rig count fell by 600 in 2008/2009 period in Texas but oil production only fell by 50,000.

I cannot believe how slip shod his analysis is!

Baker Hughes Rig Count

If one bothers to look closely at the data, the overall rig count dropped something like 1155 rigs from peak to trough in 2008/2009. BUT, most of the drop in rig count is due to gas rigs! If one looks only at oil rigs, the total drop in 2008/2009 period is a mere 263 rigs for the whole country, i.e. USA!

I wonder whether he understands anything about rig count in the first place.....

P.S. I'm not even a professional analyst. The only analysis I do is for my own portfolio...Tongue
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not all wells produce hundreds or thousands of barrels of oil a day what I read is many of the "closed down" rigs produce less than 15 barrels a day so in other words they could have closed rigs on marginal or non-profitable wells.

According to some reports I read generally shale well production can drop after 1-2 years by as much as 50%.
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(14-02-2015, 03:08 PM)sgd Wrote: not all wells produce hundreds or thousands of barrels of oil a day what I read is many of the "closed down" rigs produce less than 15 barrels a day so in other words they could have closed rigs on marginal or non-profitable wells.

Sgd san

Perhaps you may wish to re-phrase this statement as it is coming out rather confusing. Do you mean oil wells or rigs?


(14-02-2015, 03:08 PM)sgd Wrote: According to some reports I read generally shale well production can drop after 1-2 years by as much as 50%.

That's right, if you measure the average 1st month production versus average 12th month production for LTO (aka shale oil), the decline should be more than 50%.
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Oil is heading higher to 55$ as people are counting barrel and rigs.

Barrels and rigs does not seen to move oil price as perceive supply and demand do of oil some few month down the road .
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Came across this article, can anyone verify those sentences highlighted in bold?
Can US shale producers withstand a price war with OPEC?
Jeff Ronne, scientist at heart

No, the Saudis are going to attempt to and probably bankrupt many USA shale producers and their investors.

The USA shale producers rely on leverage, borrowed money from the banks, seed capital from investors and moderate oil prices to stay solvent.

The Saudis are going insure that this low oil price drop lasts for quite sometime maybe a year or two. Enough to exhaust oil pricing hedges, enough to cause banks to tighten credit, enough to cause investors to seek greener pastures. The price drop will last until it gets the needed results.

Then after oil prices rise again, the banks and investors will likely not fund USA shale producers again because they know if they do, the Saudis will screw them again. It is not a question of if but when.

This is how business and economics works in the real world. If you have the time read on please because these concepts are useful in investing and personal finance. Understanding key, it is not hard, just requires a few minutes.

We have a glut of oil supply, guaranteed glut courtesy of the Saudis and OPEC.

Simply because Saudi Arabia, the key player in OPEC, will not reduce production in the face of increasing global production for an extended period of time.
The most important fact is the cost of Saudi production is between $10 and $15 a barrel.
Many usa shale fracking operations have costs approaching $60 to 70 / barrel funded with borrowed money.

These highly leveraged players will likely fold in the coming years as investment capital flees and banks do not ante up.

This is the sole reason why the Saudis will deliberately leave prices low for a few years to caution future investors in funding new USA shale fracking operations.
This is how the capital markets function, they operate on risk, reward and the expected future returns.
The Saudis have let everyone know that they will not tolerate high cost producers in the oil market.
They want to fiscally punish usa shale oil producers which is working well given the collapse in energy stock prices.
So when prices trend back up to $100 barrel expect the shale oil producers to be sleeping with one eye open.
Until usa shale production costs come down to a level lower than the Saudis are willing to produce at, the Saudis will remain in control.

More details are found in the enclosed article below
Sheikhs v shale
This article has been posted by
gzbkel
Boon
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The cost of Saudi production is around 15 BUT for shale some articles do quote 50+ breakeven. Also some shale producer have hedged their production to price so price up or down they are still Ok.

Article is very critical of Saudi but the other opec nations mostly should be thinking same thing..

It's just business, lowest cost and biggest market share to monopolize then jack up prices.
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i suppose the beneficiary would be the airline and transport companies. recently there was quite a runup for those related counter...
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