Outlook on oil

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Investor13
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Outlook on oil

Post by Investor13 » Sat Aug 27, 2016 12:23 am

What are the views on oil company stocks such as BP, Exxon Mobil, etc.? These stocks pay a hefty dividend and are still pretty low in price. Over the next five years does anyone still think oil will be priced as low? Any fundamental rationale behind opinions? I have a feeling in 3-5 years I will look back and wish I invested more at this time during 2016. Kind of like when I think back 3-4 years ago where real estate prices were vs now. Thanks

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Re: Outlook on oil

Post by oldcomputerguy » Sat Aug 27, 2016 4:51 am

I thought the same thing about a year ago when I noticed how low FSENX was, figured I'd get in at the bottom and ride it up. Went the other way. I learned a lesson that day, namely that I couldn't predict the market. I was lucky, it rose back up a bit and I was able to get out with my skin intact before it fell through the floor. But if you feel lucky, hey, who am I to say "no"?
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Re: Outlook on oil

Post by Fudgie » Sat Aug 27, 2016 5:14 am

:oops:
Last edited by Fudgie on Fri Dec 08, 2017 7:39 am, edited 1 time in total.
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Ari
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Re: Outlook on oil

Post by Ari » Sat Aug 27, 2016 6:14 am

There are definitely plausible scenarios in which the oil price never recovers, or at least not for a long time. The Paris climate deal last fall stipulated that the global warming should be limited to at most two degrees above preindustrial levels. If that is to be held, a third of oil reserves must be left in the ground. There is no shortage of producers, and the Saudis are still defending market shares rather than price. And of course the Iranians want to get into the game.

As long as the Paris deal is expected to be respected, I don't think the oil prices will recover. It's basically a strong push by lots of countries to reduce the demand on oil. Fossil free energy sources are receiving a lot of money and the dominance of electric cars is just a matter of time.

I'm not saying that this is what will happen (I can't predict the future), but it's certainly plausible that the oil price doesn't recover, due to too much supply and not enough demand.
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just frank
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Re: Outlook on oil

Post by just frank » Sat Aug 27, 2016 6:32 am

Several other threads out there if you search. Here are two scenarios:

Near term, next few years....

Upside:
1) Oil prices might recover to something like 2009-2014 levels in the future, oil major stock prices are currently below levels at that time, so they should at least pop back to that level for a nice payday and steady dividend.

Downside:
2) A simple price war. Saudis/OPEC/Russians are seizing market share by driving prices to a level that they find (marginally) profitable and many in North America (frackers, oil sands, deepwater offshore) do not find profitable. Goal: complete destruction of those competing producers.

Longer term, 2020-2030....

Upside:
1) Oil demand is up, up, up, driven especially by the developing world. Meeting that demand will require high-cost (i.e. North American) production, pushing prices toward and beyond 2009-2014 prices, oil fracking spreads to other continents, if prices get high enough, gas to liquid (GTL) and coal to liquid (CTL) projects become the new, price making high cost producers.

Downside:
2) Global oil demand peaks and begins to decline, due to higher efficiency and substitution: higher mpg vehicles continue to replace older vehicles in the fleet and EVs disrupt the gasoline car market. Reductions in Li-battery costs make the purchase price of 200-mile EVs lower than gasoline cars (in luxury class, this is true in 2016, in median price class by 2019, in economy car class, EVs will be cheaper by 2022-2024, operating costs are already lower in all classes). Developing world buys EVs instead and skips the gasoline car in every garage/family. This transformation is sped/paid for by global policy agreements such as COP21. With declining global demand, producers fold in order of highest cost to lowest cost...North American oil production goes essentially extinct by 2025-2030 an by 2040 OPEC and Russia can provide nearly 100% of global demand, at a rather modest price.

I favor the two downside cases, especially the long-term one, given its alignment with current global policy-making to reduce CO2 emissions, which will likely only accelerate in the future.

Bloomberg report on EVs/oil: http://www.bloomberg.com/features/2016-ev-oil-crisis/

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Re: Outlook on oil

Post by Valuethinker » Sat Aug 27, 2016 7:25 am

Investor13 wrote:What are the views on oil company stocks such as BP, Exxon Mobil, etc.? These stocks pay a hefty dividend and are still pretty low in price. Over the next five years does anyone still think oil will be priced as low? Any fundamental rationale behind opinions? I have a feeling in 3-5 years I will look back and wish I invested more at this time during 2016. Kind of like when I think back 3-4 years ago where real estate prices were vs now. Thanks
You've received some excellent analysis in the other posts.

No one can accurately call the price of oil. What I would note is:

- all of the conditions for oversupply are in place - low demand growth, Iranians and Iraqis keen to pump oil (as ISIS retreats, that may bring new sources online)

- in the long run, the cost of a "new" barrel of oil, high cost, is $40-60-- fracking, deep offshore, Canadian oil sands. So it's not likely that oil will stay below that price for an extended period (but could easily do so for say 3 years). Conversely, barring a geopolitical crisis, it's hard to see oil over $100/ bl in the next 3 years (fracking supply is flexible).

Spencer Dale, now Chief Economist of BP, has quite a good piece on future outlook for oil, that because of fracking, it will be much more responsive to demand, and therefore the big price spikes and slumps should be smoothed, ie shorter in timing and scale.

On the stocks themselves (which are driven by expectations of future oil prices, not current ones) I note that they are overdistributing. Companies like Shell are borrowing to keep paying their dividends.

At some point that will stop.

If people are owning these things for income, they are taking a big risk.

The oilfield services sector may be a better way of playing a future rise in the price of oil.

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unclescrooge
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Re: Outlook on oil

Post by unclescrooge » Sun Aug 28, 2016 12:40 am

If I had to speculate in threer oil sector, I would probably chose oil refiners.

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whodidntante
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Re: Outlook on oil

Post by whodidntante » Sun Aug 28, 2016 2:46 am

This isn't a good forum for discussion about commodities and single stocks. Most people here buy and hold index funds. Keep in mind that something like a total stock market fund has a lot of energy exposure already.

I remember that I believed that "peak oil" would come soon a few years ago and the opposite occurred, so I don't know what oil is going to do. Oil has a low elasticity of demand and there is an abundance of supply right now. There are technological and social trends that are working against oil demand long term, and we've made technological advancements that improve oil supply.

I wouldn't use XOM as a play on oil price. It's a well run business that is careful with its money, and can generate decent income even with low oil prices. For example XOM's refining business is fine with basically any oil price, and even benefits slightly from low oil prices.

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Re: Outlook on oil

Post by Valuethinker » Sun Aug 28, 2016 8:45 am

unclescrooge wrote:If I had to speculate in threer oil sector, I would probably chose oil refiners.
I don't have a mental model of what drives the "crack spread" which determines the profitability of a refiner, but I note:

- rising oil prices may hurt or help them, depending on how fast they have to pass on the change to the customers

- note they often use LIFO accounting (under US GAAP) which would tend to increase cost of sales/ reduce profits in a rising oil price scenario

- the oil majors have been exiting this business for years. Partly it has to do with the rise of imported refined products (other refineries outside USA can serve USA). Also sub economic scale and high capital requirements (BP's Amoco plant, the one which blew up and killed all those people in Texas, was a notorious example of an underinvested site with insufficient safety culture, I believe)

- if there is market power, wouldn't Koch Industries hold it? Aren't they the largest US refiner?

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Re: Outlook on oil

Post by Valuethinker » Sun Aug 28, 2016 8:46 am

unclescrooge wrote:If I had to speculate in threer oil sector, I would probably chose oil refiners.
My sense is the "play" on oil prices (going up) is:

- oilfield services company - when prices go up, they get busier, and their rates go up

- high cost producers eg Suncor in Canada (oil sands). They've got big fixed costs, so they are highly geared to rises in oil prices

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nedsaid
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Re: Outlook on oil

Post by nedsaid » Sun Aug 28, 2016 10:24 am

The world changes, the economy changes, and markets change. The reason I would be cautious about putting a lot of chips down on energy now is that we don't know if the oil market has permanently changed.

For example, the frackers may have set a permanent ceiling on oil prices. The hydraulic fracking and the horizontal drilling is getting more and more efficient and I am reading that the frackers can now make a profit at $40/barrel. With that in mind, I wonder if oil will ever get over $100 a barrel again.

Another unknown is the renewable energy sector. Wind, solar, thermal, etc. This area holds a lot of promise but I have my doubts. I got stung, but not badly, by a bet on ethanol. It was really a play on government subsidies and not so much on a new source of energy. I don't think putting our food in the gas tank is a sustainable policy.

There is also thought that oil is actually being created all the time and is really not a fossil fuel. It is a controversial idea though what I have been reading there is some credence to it. For example, oil fields once thought to be depleted in some cases are actually able to start producing again. Some of this is due to better extraction techniques but folks have wondered if to some degree the oil fields are regenerating themselves.

I am wondering if there has been a permanent change in the oil markets and perhaps rebounds in oil prices are not as automatic as they were in the past.
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Makaveli
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Re: Outlook on oil

Post by Makaveli » Sun Aug 28, 2016 11:16 am

nedsaid wrote:There is also thought that oil is actually being created all the time and is really not a fossil fuel. It is a controversial idea though what I have been reading there is some credence to it. For example, oil fields once thought to be depleted in some cases are actually able to start producing again. Some of this is due to better extraction techniques but folks have wondered if to some degree the oil fields are regenerating themselves.
I can confirm that new oil is NOT being created, at least in any substantial form. This process takes millions of years. Normally 10's to 100's of millions of years. Geologic time frame. Not human. What is happening is that technology is UNLOCKING previously believed 'depleted fields'. Essentially, the rock has extremely low permeability (e.g. 1 million years to travel 10 meters) so the O&G is trapped. With new technology (drilling & completing techniques) these once dry fields are flowing again. Do not let the media or other sources of information fool you otherwise.

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Re: Outlook on oil

Post by dfitz247 » Sun Aug 28, 2016 12:09 pm

Makaveli wrote:
nedsaid wrote:There is also thought that oil is actually being created all the time and is really not a fossil fuel. It is a controversial idea though what I have been reading there is some credence to it. For example, oil fields once thought to be depleted in some cases are actually able to start producing again. Some of this is due to better extraction techniques but folks have wondered if to some degree the oil fields are regenerating themselves.
I can confirm that new oil is NOT being created, at least in any substantial form. This process takes millions of years. Normally 10's to 100's of millions of years. Geologic time frame. Not human. What is happening is that technology is UNLOCKING previously believed 'depleted fields'. Essentially, the rock has extremely low permeability (e.g. 1 million years to travel 10 meters) so the O&G is trapped. With new technology (drilling & completing techniques) these once dry fields are flowing again. Do not let the media or other sources of information fool you otherwise.
I have a Peteoleum Engineering Degree and a Masters degree in sedimentary Geology...just so this is clear and concise. Makaveli is spot on in his above statement, without getting even more scientific than his response...just take our word for it, old oil fields are NOT regenerating oil right in front of our eyes.

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Re: Outlook on oil

Post by Valuethinker » Sun Aug 28, 2016 1:00 pm

dfitz247 wrote:
Makaveli wrote:
nedsaid wrote:There is also thought that oil is actually being created all the time and is really not a fossil fuel. It is a controversial idea though what I have been reading there is some credence to it. For example, oil fields once thought to be depleted in some cases are actually able to start producing again. Some of this is due to better extraction techniques but folks have wondered if to some degree the oil fields are regenerating themselves.
I can confirm that new oil is NOT being created, at least in any substantial form. This process takes millions of years. Normally 10's to 100's of millions of years. Geologic time frame. Not human. What is happening is that technology is UNLOCKING previously believed 'depleted fields'. Essentially, the rock has extremely low permeability (e.g. 1 million years to travel 10 meters) so the O&G is trapped. With new technology (drilling & completing techniques) these once dry fields are flowing again. Do not let the media or other sources of information fool you otherwise.
I have a Peteoleum Engineering Degree and a Masters degree in sedimentary Geology...just so this is clear and concise. Makaveli is spot on in his above statement, without getting even more scientific than his response...just take our word for it, old oil fields are NOT regenerating oil right in front of our eyes.
The theory nedsaid is alluding to was an old one from some Soviet scientists, a non biological theory re creation of oil and gas.

Vaclav Smil says it is at worth thinking about. He is a Canadian geography professor who is Bill Gates' favourite author. Neither of which says he is right, but to note that the theory is not *quite* dismissable (ie 99.9% unlikely rather than 100% unlikely). My own thought is that there's probably more coal down there than we realize, and it may simply have turned into methane? That wouldn't explain additional oil (not that that needs to be explained) but it might mean there is more natural gas around than we realize?

In truth it doesn't matter, a friend did his Phd on methane clathrates, sitting on the sea bed. There's more than enough CH4 there to drown us all ;-).

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Re: Outlook on oil

Post by Jack FFR1846 » Sun Aug 28, 2016 1:02 pm

I am no expert but I am not blind.

China: Lower demand with a reduction in growth. On top of that, what's China been doing? Look around the South China sea and at contested islands in oil rich areas. China's been building up tiny islands into usable bases for who knows what.....but would you expect perhaps oil extraction? I would. Think of what happens to the world oil market if China becomes oil self sufficient. They're still big coal users as well and all energy sources affect all other energy sources.

Iran: Coming on line to full production post sanctions. They supposedly will enter some agreement with OPEC to limit production. When has ANY OPEC nation ever honored an agreement to limit production? Black market oil entering the market is still supply side increased production.

Oil sands/fracking etc: Natural gas drives oil prices as well. We're only limited by pipelines for natural gas use. Lots of electric generation has converted from coal to gas. To a lesser extent from oil to gas. If this somehow frees up, more generation can go to gas. The sands and such have levels where they get back online. This is going to limit upside.

I'm sure it's only a small bite but there is residential solar and low usage cars out there reducing demand. How many Bogleheads drive a Prius, Leaf, i3, i8 or Model S or X? Will the recharge come from solar panels instead of the grid for plug ins? Yah, I see plenty of SUVs around too with low gas prices. Seems to be the story of my town.....either you're driving a Prius or a Range Rover Sport.

I see no reason to see upside in oil.
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Re: Outlook on oil

Post by Valuethinker » Sun Aug 28, 2016 1:06 pm

nedsaid wrote:The world changes, the economy changes, and markets change. The reason I would be cautious about putting a lot of chips down on energy now is that we don't know if the oil market has permanently changed.

For example, the frackers may have set a permanent ceiling on oil prices. The hydraulic fracking and the horizontal drilling is getting more and more efficient and I am reading that the frackers can now make a profit at $40/barrel. With that in mind, I wonder if oil will ever get over $100 a barrel again.
Unless fracking globalizes, it's unlikely to have set a ceiling quite so low. As frackers turn to more difficult resources, their breakeven price will rise. The flexibility of fracking to respond to rising prices (and vice versa) probably helps to limit price spikes, but does not stop them altogether (particularly if they are geopolitically imposed).
Another unknown is the renewable energy sector. Wind, solar, thermal, etc. This area holds a lot of promise but I have my doubts. I got stung, but not badly, by a bet on ethanol. It was really a play on government subsidies and not so much on a new source of energy. I don't think putting our food in the gas tank is a sustainable policy.
Ethanol is a horror story from an environmental point of view (Brasilian ethanol from sugarcane may not be, but US corn ethanol). Unless we achieve some radical gains with genetic engineering, and/ or solve the cellulosic ethanol problem (at industrial scale) I tend to agree with you. Biofuels have a role in aviation, perhaps, but not much else. Plants are, in any case, relatively inefficient converters of sunlight into stored energy.

Generally renewable prices keep falling (for electricity production). They are now falling below the cost of the competitors -- depends on which country you are in. The main problem is intermittency, which is why energy storage is such a hot topic.
There is also thought that oil is actually being created all the time and is really not a fossil fuel. It is a controversial idea though what I have been reading there is some credence to it. For example, oil fields once thought to be depleted in some cases are actually able to start producing again. Some of this is due to better extraction techniques but folks have wondered if to some degree the oil fields are regenerating themselves.
See my other post. There were some scientists behind the Iron Curtain- USSR. It doesn't appear that this theory has much legs.

But it doesn't matter, we were only getting c. 40% of the oil in a field out, so moving that dial to 50% or 60% creates huge new reserves.
I am wondering if there has been a permanent change in the oil markets and perhaps rebounds in oil prices are not as automatic as they were in the past.
So thinks Spencer Dale, Chief Economist at BP. And indeed fracking is his logic.

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Toons
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Re: Outlook on oil

Post by Toons » Sun Aug 28, 2016 1:08 pm

Buy Exxon.
Hold it for 30 years.
Reinvest the dividend.
Risky.
Maybe,
Maybe Not.
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Re: Outlook on oil

Post by Valuethinker » Sun Aug 28, 2016 1:15 pm

Jack FFR1846 wrote:I am no expert but I am not blind.

China: Lower demand with a reduction in growth. On top of that, what's China been doing? Look around the South China sea and at contested islands in oil rich areas. China's been building up tiny islands into usable bases for who knows what.....but would you expect perhaps oil extraction? I would. Think of what happens to the world oil market if China becomes oil self sufficient. They're still big coal users as well and all energy sources affect all other energy sources.
They are pushing fracking hard, too. But this is a country whose new car market is now the world's largest. Barring a change in basic methods of car propulsion, they are unlikely to catch up to their rising imports--- China's existing fields in Xinjiang are declining quite rapidaly.
Iran: Coming on line to full production post sanctions. They supposedly will enter some agreement with OPEC to limit production. When has ANY OPEC nation ever honored an agreement to limit production? Black market oil entering the market is still supply side increased production.
The are a paid up member of OPEC. The Saudis historically have acted as the swing producer, I agree the other countries don't stick to quota. However the Saudis don't seem minded to cut production right now.
Oil sands/fracking etc: Natural gas drives oil prices as well. We're only limited by pipelines for natural gas use. Lots of electric generation has converted from coal to gas. To a lesser extent from oil to gas. If this somehow frees up, more generation can go to gas. The sands and such have levels where they get back online. This is going to limit upside.
Fracking yes. The capital spending for deep offshore and oil sands is in the multi billions-- say 7+ billion. So you need sustained high prices to justify it, before companies will commit. Existing oil sands will keep producing but unless the price gets significantly above $60/ bl and *stays* there, I don't see Canada's oil patch making heavy new investments.
I'm sure it's only a small bite but there is residential solar and low usage cars out there reducing demand. How many Bogleheads drive a Prius, Leaf, i3, i8 or Model S or X? Will the recharge come from solar panels instead of the grid for plug ins? Yah, I see plenty of SUVs around too with low gas prices. Seems to be the story of my town.....either you're driving a Prius or a Range Rover Sport.

I see no reason to see upside in oil.
Solar of course has an impact on oil demand only in emerging markets where there's no grid and diesel generators are common.

Cars? US Vehicle Miles Travelled is rising again, after 10 years of stagnation. As long as gas prices are low, Americans will find a way to drive. that may or may not increase demand faster than improving mpg will reduce it. Given the average car lasts 13 years, it is like turning the proverbial supertanker.

The big thing is explosion of motor vehicles in EM-- China, India, Africa to come.

What is at issue is how far and how fast EVs will come on stream. Places like China, with their bad local air pollution problems, might be prepared to give them a really big push.

Overall I agree with you the outlook for oil prices is not particularly bullish HOWEVER anchoring plays an effect in this, I also made good arguments why oil would stay around $100 or at the lowest perhaps $80 ;-). (I did concede $60 ;-).

So now it's low, and I think that it will stay there, too ;-).

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Re: Outlook on oil

Post by grabiner » Sun Aug 28, 2016 1:27 pm

Investor13 wrote:What are the views on oil company stocks such as BP, Exxon Mobil, etc.? These stocks pay a hefty dividend and are still pretty low in price. Over the next five years does anyone still think oil will be priced as low? Any fundamental rationale behind opinions?
The best answer is that the current prices of oil stocks are set by traders who have their own expectations of what will happen to oil in the future. I don't know as much about oil stocks as the pensions, mutual funds, endowments, and other large traders who determine the stock prices, so I do best by assuming that their consensus is right; oil stock prices are set so that they are no better or worse as investments than any other stocks.
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Re: Outlook on oil

Post by Tycoon » Sun Aug 28, 2016 1:33 pm

grabiner wrote:
Investor13 wrote:What are the views on oil company stocks such as BP, Exxon Mobil, etc.? These stocks pay a hefty dividend and are still pretty low in price. Over the next five years does anyone still think oil will be priced as low? Any fundamental rationale behind opinions?
The best answer is that the current prices of oil stocks are set by traders who have their own expectations of what will happen to oil in the future. I don't know as much about oil stocks as the pensions, mutual funds, endowments, and other large traders who determine the stock prices, so I do best by assuming that their consensus is right; oil stock prices are set so that they are no better or worse as investments than any other stocks.
This is the best answer.
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Re: Outlook on oil

Post by nedsaid » Sun Aug 28, 2016 1:33 pm

Valuethinker wrote: Ethanol is a horror story from an environmental point of view (Brasilian ethanol from sugarcane may not be, but US corn ethanol). Unless we achieve some radical gains with genetic engineering, and/ or solve the cellulosic ethanol problem (at industrial scale) I tend to agree with you. Biofuels have a role in aviation, perhaps, but not much else. Plants are, in any case, relatively inefficient converters of sunlight into stored energy.

Nedsaid: Cellulosic ethanol is the holy grail. I actually bought stock in a company that was supposed to be on the forefront on this and it turned out to be a scam. Cellulosic ethanol is real the problem is whether or not it can be made economically feasible.

Generally renewable prices keep falling (for electricity production). They are now falling below the cost of the competitors -- depends on which country you are in. The main problem is intermittency, which is why energy storage is such a hot topic.

Nedsaid: Intermittency is the big issue. The sun doesn't always shine, the wind doesn't always blow. Energy storage is the other big issue. Where the greatest potential is comes from solar power. Just heating our water with the sun rather than electricity or gas would save a lot on energy. Green energy holds promise but the technology has to advance to where it is feasible economically. Are we generating energy or just subsidies?
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Re: Outlook on oil

Post by nedsaid » Sun Aug 28, 2016 1:35 pm

Valuethinker wrote:
dfitz247 wrote:
Makaveli wrote:
nedsaid wrote:There is also thought that oil is actually being created all the time and is really not a fossil fuel. It is a controversial idea though what I have been reading there is some credence to it. For example, oil fields once thought to be depleted in some cases are actually able to start producing again. Some of this is due to better extraction techniques but folks have wondered if to some degree the oil fields are regenerating themselves.
I can confirm that new oil is NOT being created, at least in any substantial form. This process takes millions of years. Normally 10's to 100's of millions of years. Geologic time frame. Not human. What is happening is that technology is UNLOCKING previously believed 'depleted fields'. Essentially, the rock has extremely low permeability (e.g. 1 million years to travel 10 meters) so the O&G is trapped. With new technology (drilling & completing techniques) these once dry fields are flowing again. Do not let the media or other sources of information fool you otherwise.
I have a Peteoleum Engineering Degree and a Masters degree in sedimentary Geology...just so this is clear and concise. Makaveli is spot on in his above statement, without getting even more scientific than his response...just take our word for it, old oil fields are NOT regenerating oil right in front of our eyes.
The theory nedsaid is alluding to was an old one from some Soviet scientists, a non biological theory re creation of oil and gas.

Vaclav Smil says it is at worth thinking about. He is a Canadian geography professor who is Bill Gates' favourite author. Neither of which says he is right, but to note that the theory is not *quite* dismissable (ie 99.9% unlikely rather than 100% unlikely). My own thought is that there's probably more coal down there than we realize, and it may simply have turned into methane? That wouldn't explain additional oil (not that that needs to be explained) but it might mean there is more natural gas around than we realize?

In truth it doesn't matter, a friend did his Phd on methane clathrates, sitting on the sea bed. There's more than enough CH4 there to drown us all ;-).
Thank you Valuethinker, the old theory from some Soviet scientists was the one I was thinking about.
A fool and his money are good for business.

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unclescrooge
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Re: Outlook on oil

Post by unclescrooge » Sun Aug 28, 2016 6:13 pm

Valuethinker wrote:
unclescrooge wrote:If I had to speculate in threer oil sector, I would probably chose oil refiners.
I don't have a mental model of what drives the "crack spread" which determines the profitability of a refiner, but I note:

- rising oil prices may hurt or help them, depending on how fast they have to pass on the change to the customers

- note they often use LIFO accounting (under US GAAP) which would tend to increase cost of sales/ reduce profits in a rising oil price scenario

- the oil majors have been exiting this business for years. Partly it has to do with the rise of imported refined products (other refineries outside USA can serve USA). Also sub economic scale and high capital requirements (BP's Amoco plant, the one which blew up and killed all those people in Texas, was a notorious example of an underinvested site with insufficient safety culture, I believe)

- if there is market power, wouldn't Koch Industries hold it? Aren't they the largest US refiner?
I'm by no means an expert, and I have only a passing interest, so my research and my thoughts are quite shallow.

That being said, with the US having amongst the world's largest shale oil, and being profitable at $40, I think there would be enough U.S. oil to keep the refiners in business. They may have lower profit margins, but this is reflected in their stock price, which is pretty low. The sector ETF as a whole sells at 10x earnings, I'm sure you could find several gems amongst it's constituents.

If I really wanted to bet on the oil sector, this is where I would start.

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Re: Outlook on oil

Post by BuyAndHoldOn » Sun Aug 28, 2016 6:35 pm

Like many of the other Oil threads in the last 2+ years, there are a lot of good replies/good thoughts in this thread.

Here is my situation:
*I Bought VGENX (Vanguard Energy - actively managed) about a year ago looking for a value investment.
*I saw oil/the equities in the fund go up and down - mostly on expectations - without much fundamental change to the sector. I bought in a little more in the winter when oil was around $26/barrel. (not much more, just a little more).
*On the last round of OPEC production-freeze rumors in August 2016: I sold the fund. The equities were going up in price without much support from how the underlying businesses were actually doing. Or how *I thought* they were going to be doing in the next 2-5 years.

So I sold Big Oil/energy within about 11 months of the initial purchase - I was willing to take the short-term Capital Gain tax hit to get out. I learned a fair amount about the sector during that time, as I was concerned for how long I should hold the investment for. My takeaway: The [traditional fossil fuel] energy sector has cut productions costs by a great deal, but climate change concerns, the [eventual] effects of more efficient/electric vehicles, and the oversupply situation were enough to get me to sell when I had the chance.

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Re: Outlook on oil

Post by denovo » Sun Aug 28, 2016 6:39 pm

Investor13 wrote:What are the views on oil company stocks such as BP, Exxon Mobil, etc.? These stocks pay a hefty dividend and are still pretty low in price. Over the next five years does anyone still think oil will be priced as low? Any fundamental rationale behind opinions? I have a feeling in 3-5 years I will look back and wish I invested more at this time during 2016. Kind of like when I think back 3-4 years ago where real estate prices were vs now. Thanks

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Re: Outlook on oil

Post by Caduceus » Sun Aug 28, 2016 6:52 pm

Asking for the outlook of oil isn't the same as asking about the outlook of oil companies. The outlook for tobacco/smoking went down but some companies experienced increased profitability even with declining gross revenues.

What you want to figure out is if an oil company is underpriced relative to expectations about oil prices, not whether oil itself is going to go up or down. It may well shoot up to $100 a barrel, but that still doesn't help you if you've paid an overvalued price to acquire the position.

The oil industry has had its booms and busts since the discovery of the first oil fields (actually, according to Yergin, the first boom and bust occurred within months of the first discovery of oil in the Americas). Every time it happens, there's a new theory for why it's different this time.

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Re: Outlook on oil

Post by arcticpineapplecorp. » Sun Aug 28, 2016 7:12 pm

Welcome to the forum!

Wouldn't you rather invest in ALL of the energy/oil companies instead of just one or two (BP/Exxon Mobil)? You can if you own the total stock market index fund or world stock market index fund. BP isn't below because it's an international stock and I'm only showing how many choices of oil/energy stocks are in the S&P500 index fund. Own the total international stock market in addition and get all those oil/energy stocks (along with all other sectors) as well. Why take a sector bet when you can own everything the market has to offer? See below:

APC Anadarko Petroleum Corp
APA Apache Corporation
BHI Baker Hughes Inc
COG Cabot Oil & Gas
CHK Chesapeake Energy
CVX Chevron Corp.
XEC Cimarex Energy
CXO Concho Resources
COP ConocoPhillips
DVN Devon Energy Corp.
DO Diamond Offshore Drilling
EOG EOG Resources
EQT EQT Corporation
XOM Exxon Mobil Corp.
FTI FMC Technologies Inc.
HAL Halliburton Co.
HP Helmerich & Payne
HES Hess Corporation
KMI Kinder Morgan
MRO Marathon Oil Corp.
MPC Marathon Petroleum
MUR Murphy Oil
NOV National Oilwell Varco Inc.
NFX Newfield Exploration Co
NBL Noble Energy Inc
OXY Occidental Petroleum
OKE ONEOK
PSX Phillips 66
PXD Pioneer Natural Resources
RRC Range Resources Corp.
SLB Schlumberger Ltd.
SWN Southwestern Energy
SE Spectra Energy Corp.
TSO Tesoro Petroleum Co.
RIG Transocean
VLO Valero Energy
WMB Williams Cos.

https://en.wikipedia.org/wiki/List_of_S ... _companies
Last edited by arcticpineapplecorp. on Sun Aug 28, 2016 7:21 pm, edited 2 times in total.
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arcticpineapplecorp.
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Re: Outlook on oil

Post by arcticpineapplecorp. » Sun Aug 28, 2016 7:19 pm

Investor13 wrote:What are the views on oil company stocks such as BP, Exxon Mobil, etc.? These stocks pay a hefty dividend and are still pretty low in price. Over the next five years does anyone still think oil will be priced as low? Any fundamental rationale behind opinions? I have a feeling in 3-5 years I will look back and wish I invested more at this time during 2016. Kind of like when I think back 3-4 years ago where real estate prices were vs now. Thanks

Hindsight is 20/20. There's no way to know what the future holds. Best to hold ALL stocks so you have no regrets. If you make a sector bet and it doesn't go your way, you'll have regret. Stick to diversification.

Besides, how will you know when the time will be to sell the oil stocks if they do go up? No one rings a bell telling you the party's over. So even if things go your way for a while, eventually you still may have regret if things turn ugly.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Outlook on oil

Post by miles monroe » Sun Aug 28, 2016 8:42 pm

ytd numbers:

the SP500 is up 6%.

both chevron and exxon qualified as dogs of the dow as of year end. they are both up 13% this year.

hmmm....

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Re: Outlook on oil

Post by moneywise3 » Sun Aug 28, 2016 8:58 pm

You already own the right proportion of these stocks, assuming you are a boglehead. Then the price of oil doesn't matter. Go back to loving your family.

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Re: Outlook on oil

Post by NHRATA01 » Mon Aug 29, 2016 8:52 am

Pure fun and speculation, not investing strategy, but my thoughts:

I have a hard time being bearish on oil over the long term. We really still haven't moved away from fossil fuels as much as we like to think. US fleet average has actually dropped thanks to the resumption of CUV/SUV purchases with lower gas prices. The Chinese and Indian populations are adding vehicles at a rapid rate. Electric and hybridization has gathered some momentum in the US but slowed by low prices. And, I try to be pragmatic but not political in saying this, but I just don't see a mass move to green vehicles for purely social/political/feel good reasons. Some people are altruistic, many are not. The latte-drinking suburban soccer mom/dad is by and large is buying an SUV/CUV because room and convenience outweigh environmental impact and gas prices are too low to drive an economic incentive.

Then we get into the arenas where there is no viable substitute yet. Air travel. Heavy equipment. Freight shipping in boats, trucks or heavy rail. All are growing industries.

Then we touch on the uses of oil as a raw material feedstock, such as plastics, lubricants, etc.

Even looking at the "green" fuel cell, the predominant large scale source of hydrogen is steam reformation of natural gas so even the beloved fuel cell is still a fossil fuel source.

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Re: Outlook on oil

Post by Valuethinker » Mon Aug 29, 2016 9:00 am

nedsaid wrote:
Valuethinker wrote: Ethanol is a horror story from an environmental point of view (Brasilian ethanol from sugarcane may not be, but US corn ethanol). Unless we achieve some radical gains with genetic engineering, and/ or solve the cellulosic ethanol problem (at industrial scale) I tend to agree with you. Biofuels have a role in aviation, perhaps, but not much else. Plants are, in any case, relatively inefficient converters of sunlight into stored energy.

Nedsaid: Cellulosic ethanol is the holy grail. I actually bought stock in a company that was supposed to be on the forefront on this and it turned out to be a scam. Cellulosic ethanol is real the problem is whether or not it can be made economically feasible.

Generally renewable prices keep falling (for electricity production). They are now falling below the cost of the competitors -- depends on which country you are in. The main problem is intermittency, which is why energy storage is such a hot topic.

Nedsaid: Intermittency is the big issue. The sun doesn't always shine, the wind doesn't always blow. Energy storage is the other big issue. Where the greatest potential is comes from solar power. Just heating our water with the sun rather than electricity or gas would save a lot on energy. Green energy holds promise but the technology has to advance to where it is feasible economically. Are we generating energy or just subsidies?
http://www.vox.com/2016/8/24/12620920/u ... ts-falling

on that last question, see above, and in particular international comparisons re installation costs (much lower in other countries).

We are not just generating subsidies. It is true that renewable energy costs are front end loaded-- capital costs and then very low Operations & Maintenance and fuel costs. Even lower than nuclear.

But there are plenty of places in the world where onshore wind is cheaper than new gas (and both are significantly cheaper than new coal or nuclear). Even when you include the cost of backup generation/ Demand Side Response etc. this is true. And solar is getting there, there are locations where solar is cheaper than other solutions. When you start to get to 30-40% of grid electricity demand from renewables, then the intermittency problem becomes more serious (although in the case of the USA, it is physically huge, and it has both solar and wind resources, which are not necessarily strong or weak at the same times).

Offshore wind is expensive (up there with new nuclear) but only at the beginning of its move down the cost curve-- there's lots of learning to be made there (and the winds are generally more constant, and faster, offshore).

Each doubling of world capacity leads to a 15-18% fall in unit cost for wind power, generally. And something like 50% in solar, historically (that is likely to slow).

Most of the world imports its energy so there is an energy security dimension western Europe gets c. 30% of its energy from Russia-- primarily in the form of natural gas. For example the UK imports over 70% of its energy requirements, and oil and gas production are falling steadily. Whereas we have fantastic wind resources. The US is unusual in being so self reliant (hydro electricity as well as oil, coal, gas). So gas & coal are alternatives in most of the US. However there are significant environmental costs which are not considered in that.

Of course so far electricity doesn't meet transportation needs (to a small extent on electrified railways and public transport). That could well change.

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Re: Outlook on oil

Post by Valuethinker » Mon Aug 29, 2016 9:10 am

NHRATA01 wrote:Pure fun and speculation, not investing strategy, but my thoughts:

I have a hard time being bearish on oil over the long term. We really still haven't moved away from fossil fuels as much as we like to think. US fleet average has actually dropped thanks to the resumption of CUV/SUV purchases with lower gas prices. The Chinese and Indian populations are adding vehicles at a rapid rate. Electric and hybridization has gathered some momentum in the US but slowed by low prices. And, I try to be pragmatic but not political in saying this, but I just don't see a mass move to green vehicles for purely social/political/feel good reasons. Some people are altruistic, many are not. The latte-drinking suburban soccer mom/dad is by and large is buying an SUV/CUV because room and convenience outweigh environmental impact and gas prices are too low to drive an economic incentive.
Couple of things going on. One Electric Vehicles are running down the cost curve-- early stages of disruption. Surprised me how fast it has moved. That's true of renewable generation technologies as well-- particularly solar. Way ahead of what the forecasts for adoption were.

The second thing is these things turn on a dime. It was once thought uneconomic and impossible that London would give up using coal for heating, and thus the famous "London fogs" (or more propertly, smogs). After the 1952 smog, estimated to have cost 5-10k additional deaths due to respiratory ailments, the Cabinet believed it impossible to change, yet the public demanded it, and it was done.

I can well remember what the air was like in big North American cities (Tokyo was worse) in the early 1970s, and that has changed, a lot, in a relatively short time.

Whilst I agree it will be hard to give up oil, because of its energy density, I also note that when these things happen, they are made to happen at an accelerated pace.

The best analogy I can come up with besides the early 70s and auto and water pollution (or the CFCs and the Montreal Protocol) is Britain 1939-1942. An industrial economy roughly 2/3rds size of the German one *outproduced* the Germans in most major armaments categories despite aerial bombing, submarine war etc. "I promise you blood, and sweat, and tears, and toil".

Churchill was a political has-been, distrusted as much by his own party as by the Opposition. Something of a strategic nightmare-- only Hitler had a worse reputation for trying to meddle with his generals. Yet 1940 was an hour of need, and it was his moment.
Then we get into the arenas where there is no viable substitute yet. Air travel. Heavy equipment. Freight shipping in boats, trucks or heavy rail. All are growing industries.

Then we touch on the uses of oil as a raw material feedstock, such as plastics, lubricants, etc.

Even looking at the "green" fuel cell, the predominant large scale source of hydrogen is steam reformation of natural gas so even the beloved fuel cell is still a fossil fuel source.
All agreed, but I note that if we become resolved to go somewhere, we will or rather we shall.

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Re: Outlook on oil

Post by Tigermoose » Mon Aug 29, 2016 9:19 am

What are the odds that somewhere between now and death there will be war in the Middle East that will send the price of oil through the roof, at least temporarily?

What are the odds that inflation will unexpectedly rise higher than forecast and lead to a substantial increase in the price of oil?

These are a couple "black swan" type events that oil can help with. Others have already posted analysis on normal conditions.
Institutions matter

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Re: Outlook on oil

Post by alfaspider » Mon Aug 29, 2016 9:43 am

I'm in the industry, so predicting prices is a constant parlor game. My take:

Short term prices (6-12 months) are completely unpredictable. There are just too many things that can cause a short-term crash or spike.

Medium term (1-5 years) prices will almost certainly rise. There's simply not enough $50 oil in the ground to meet even modest demand growth. There are certainly plenty of wells profitable blow that price, but not enough to grow production. There have been some cost efficiencies, but a lot of those "efficiencies" are actually just the service companies cutting prices to stay in the game- something they can't survive indefinitely. Shale is a big deal, but I don't think it puts a cap on prices quite the way people think. You need massive investment to see supply growth like we saw from 11-14. In fact, U.S. shale production is declining and that decline will likely accelerate at current prices. Massive investment won't happen until most players are confident of higher prices. Outside the U.S., you have both bearish and bullish factors. Iran has ramped up production, but they are going to need a lot more investment to continue to grow. The Saudis are pumping all-out right now, but it's unclear whether they have any spare capacity. Meanwhile, Venezuela's production is dropping, as is Nigeria's.

Long term (5+ years) are completely unpredictable. Electric transportation and renewables, oil technologies, and geopolitics could take prices in any direction.

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Re: Outlook on oil

Post by just frank » Mon Aug 29, 2016 10:07 am

NHRATA01 wrote: I have a hard time being bearish on oil over the long term. We really still haven't moved away from fossil fuels as much as we like to think. US fleet average has actually dropped thanks to the resumption of CUV/SUV purchases with lower gas prices. The Chinese and Indian populations are adding vehicles at a rapid rate. Electric and hybridization has gathered some momentum in the US but slowed by low prices. And, I try to be pragmatic but not political in saying this, but I just don't see a mass move to green vehicles for purely social/political/feel good reasons. Some people are altruistic, many are not. The latte-drinking suburban soccer mom/dad is by and large is buying an SUV/CUV because room and convenience outweigh environmental impact and gas prices are too low to drive an economic incentive.
Two adjustments:

New car MPG is flatlined or decreasing slightly with a shift CUV purchasing, but fleet efficiency is still increasing, because the 2016 average is still well above 2010 average (average fleet age).

EV sales were robust when gas prices fell in 2014 and early 2015, and are now flatlined as folks wait for the next generation in the next 6-12 months...affordable all battery EVs under $40k with 200 mile range (Chevy Bolt) and 140 mile range (Nissan 2017 LEAF). BMW's updated longer range i3 has been selling like hotcakes.

EV sales are driven by them being superior, fun to drive cars.

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Re: Outlook on oil

Post by Valuethinker » Mon Aug 29, 2016 10:09 am

alfaspider wrote:I'm in the industry, so predicting prices is a constant parlor game. My take:

Short term prices (6-12 months) are completely unpredictable. There are just too many things that can cause a short-term crash or spike.

Medium term (1-5 years) prices will almost certainly rise. There's simply not enough $50 oil in the ground to meet even modest demand growth. There are certainly plenty of wells profitable blow that price, but not enough to grow production. There have been some cost efficiencies, but a lot of those "efficiencies" are actually just the service companies cutting prices to stay in the game- something they can't survive indefinitely. Shale is a big deal, but I don't think it puts a cap on prices quite the way people think. You need massive investment to see supply growth like we saw from 11-14. In fact, U.S. shale production is declining and that decline will likely accelerate at current prices. Massive investment won't happen until most players are confident of higher prices. Outside the U.S., you have both bearish and bullish factors. Iran has ramped up production, but they are going to need a lot more investment to continue to grow. The Saudis are pumping all-out right now, but it's unclear whether they have any spare capacity. Meanwhile, Venezuela's production is dropping, as is Nigeria's.

Long term (5+ years) are completely unpredictable. Electric transportation and renewables, oil technologies, and geopolitics could take prices in any direction.
That's a very good summary and thank you.

$50 say seems to be a sort of common marker, at which point new fracking makes sense. It also justifies sustainable capex on existing oil sands and North Sea, if not greenlight of new developments.

Spencer Dale Chief Economist at BP has a couple of pieces on his BP webpage about oilfield economics which I found to be useful.

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Re: Outlook on oil

Post by Valuethinker » Mon Aug 29, 2016 10:19 am

just frank wrote:
NHRATA01 wrote: I have a hard time being bearish on oil over the long term. We really still haven't moved away from fossil fuels as much as we like to think. US fleet average has actually dropped thanks to the resumption of CUV/SUV purchases with lower gas prices. The Chinese and Indian populations are adding vehicles at a rapid rate. Electric and hybridization has gathered some momentum in the US but slowed by low prices. And, I try to be pragmatic but not political in saying this, but I just don't see a mass move to green vehicles for purely social/political/feel good reasons. Some people are altruistic, many are not. The latte-drinking suburban soccer mom/dad is by and large is buying an SUV/CUV because room and convenience outweigh environmental impact and gas prices are too low to drive an economic incentive.
Two adjustments:

New car MPG is flatlined or decreasing slightly with a shift CUV purchasing, but fleet efficiency is still increasing, because the 2016 average is still well above 2010 average (average fleet age).

EV sales were robust when gas prices fell in 2014 and early 2015, and are now flatlined as folks wait for the next generation in the next 6-12 months...affordable all battery EVs under $40k with 200 mile range (Chevy Bolt) and 140 mile range (Nissan 2017 LEAF). BMW's updated longer range i3 has been selling like hotcakes.

EV sales are driven by them being superior, fun to drive cars.
1. and the US is not the rest of the world, which tends to have more demanding mpg standards (or litres/ 100km). Emerging Market growth in units may well offset that, but China and Europe have higher standards

There are big vested interests behind diesel engines in Europe, and that turns out to have very negative urban air pollution consequences. So unwinding that bet will be painful, but not so in the US and Japanese car markets.

2. EVs. There are subsidies in most major car markets, and as these are being withdrawn, that will raise prices. However there are structural things going on (Norway and Netherlands seriously talking about ending Internal Combustion Engine cars). And what has surprised me is that "geek chic" has hit the EV market-- I grew up in the age of the 1970s muscle car, and I certainly didn't see that EVs would become, not second utility vehicles (Nissan Leaf) but impress-the-date cars.

Very early stages on EVs, yet the last 5 years or so, they have surprised on the upside-- both in appeal and technology.

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Re: Outlook on oil

Post by Grt2bOutdoors » Mon Aug 29, 2016 10:19 am

Valuethinker wrote:
- if there is market power, wouldn't Koch Industries hold it? Aren't they the largest US refiner?
Not even close, Valero is the largest petroleum refiner, followed by Exxon Mobil, Marathon Petroleum, Phillips 66 and Motiva (RDS/Aramco).
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Re: Outlook on oil

Post by keithintx » Mon Aug 29, 2016 12:27 pm

While no one can accurately predict the price there are a couple of other things that have not been mentioned (although I have not read every thread fully).
1. Much of the shale gas drilling was driven by cheap capital and this has dried up in the low price environment. In the future I think you will see a shale company have a drilling program that is much more inline with their revenue and not be as dependent on borrowing to keep it going. For example, they run a 15-20 rig drilling program versus a 25-30 one.
2. The majors have significantly cut back on their major projects. Have you heard of any major discoveries being sanctioned lately? Somewhere I read where oil companies have taken trillions of dollars of projects off of the table. This will lead to a major dip in production in the future - give it two or three years. Yes shale may make up for a part of the lost production but it takes alot of onshore wells to replace a 100,000 barrel per day facility offshore. The offshore wells have better pressure support than the onshore ones which means they produce longer.

What does this all mean. My crystal ball says oil stay around $55/$60 in the near term which allows shale drilling and the majors to progress their bigger projects. In a year or two oil steadily rises to around $75 which will make the shale oil companies lots of money. After a couple of years this will attract the attention the attention of wall street and they will start pumping more and more money into them which may lead to another over-supply situation.

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Re: Outlook on oil

Post by Engineer250 » Mon Aug 29, 2016 12:50 pm

just frank wrote:
NHRATA01 wrote: I have a hard time being bearish on oil over the long term. We really still haven't moved away from fossil fuels as much as we like to think. US fleet average has actually dropped thanks to the resumption of CUV/SUV purchases with lower gas prices. The Chinese and Indian populations are adding vehicles at a rapid rate. Electric and hybridization has gathered some momentum in the US but slowed by low prices. And, I try to be pragmatic but not political in saying this, but I just don't see a mass move to green vehicles for purely social/political/feel good reasons. Some people are altruistic, many are not. The latte-drinking suburban soccer mom/dad is by and large is buying an SUV/CUV because room and convenience outweigh environmental impact and gas prices are too low to drive an economic incentive.
Two adjustments:

New car MPG is flatlined or decreasing slightly with a shift CUV purchasing, but fleet efficiency is still increasing, because the 2016 average is still well above 2010 average (average fleet age).

EV sales were robust when gas prices fell in 2014 and early 2015, and are now flatlined as folks wait for the next generation in the next 6-12 months...affordable all battery EVs under $40k with 200 mile range (Chevy Bolt) and 140 mile range (Nissan 2017 LEAF). BMW's updated longer range i3 has been selling like hotcakes.

EV sales are driven by them being superior, fun to drive cars.
I agree with both above. The people I know buying electric cars due to saving the environment are a tiny, tiny part of the population. Some people buy them for purely selfish reasons: can drive in the HOV lanes, don't have to go through the bother of buying gas anymore. Other people buy them for status symbols: owning an EV can make you feel morally superior to your friends, or if you are young buying a Tesla is like a much more expensive Apple that can say something about you same as what clothes you wear etc.

That doesn't mean EVs won't take over tomorrow (who knows). Just that the market is a lot more complicated than "more people like the environment" or whatever.

That said, VGENX is in my ~5% of "play money" in my portfolio. Part of it is pure hunch that oil will stay a critical part of the market, and I believe oil companies will continue to do well-ish enough to keep up with inflation. Secondly, I didn't like how tech-heavy and financials-heavy a normal market weighting of total stock market is, so I had few problems with buying small bits of other sectors so I wasn't quite as financial/tech focused.
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Re: Outlook on oil

Post by Grt2bOutdoors » Mon Aug 29, 2016 12:54 pm

keithintx wrote:While no one can accurately predict the price there are a couple of other things that have not been mentioned (although I have not read every thread fully).
1. Much of the shale gas drilling was driven by cheap capital and this has dried up in the low price environment. In the future I think you will see a shale company have a drilling program that is much more inline with their revenue and not be as dependent on borrowing to keep it going. For example, they run a 15-20 rig drilling program versus a 25-30 one.
2. The majors have significantly cut back on their major projects. Have you heard of any major discoveries being sanctioned lately? Somewhere I read where oil companies have taken trillions of dollars of projects off of the table. This will lead to a major dip in production in the future - give it two or three years. Yes shale may make up for a part of the lost production but it takes alot of onshore wells to replace a 100,000 barrel per day facility offshore. The offshore wells have better pressure support than the onshore ones which means they produce longer.

What does this all mean. My crystal ball says oil stay around $55/$60 in the near term which allows shale drilling and the majors to progress their bigger projects. In a year or two oil steadily rises to around $75 which will make the shale oil companies lots of money. After a couple of years this will attract the attention the attention of wall street and they will start pumping more and more money into them which may lead to another over-supply situation.
It's not revenue per se, that drives the drilling program, it's cash flow. If the cash dries up, the cap ex will dry up as well. Banks have become more stringent on reserve based lending, wildcatters are going to have a rough time attracting capital if the returns aren't there.

http://www.wsj.com/articles/chevron-exx ... 1467709203

Chevron, Exxon commit to expansion - article from July 5, 2016.
To find out what other projects have got the FID, you'd have to go to individual company websites under Investor Relations to read the news releases.
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Re: Outlook on oil

Post by alfaspider » Mon Aug 29, 2016 1:08 pm

Engineer250 wrote: That doesn't mean EVs won't take over tomorrow (who knows). Just that the market is a lot more complicated than "more people like the environment" or whatever.
I agree with these sentiments. EVs will become dominant when they are a better product at a better price. That's only arguably true in one market segment right now - large luxury cars- which makes up a very small portion of the vehicle market. Eventually, that will likely be true more broadly, but I think we have at least 10-15 years before EVs start to take a significant bite out of oil demand.

It's also worth noting that EV adoption in developed countries may be offset by the growth of vehicle ownership in developing countries. Much of Africa, Latin America, and Asia do not have a sufficiently robust electric power grid to support mass EV adoption. They may eventually come around, but many of those countries have had issues with their power grids for decades, and there's no reason to believe that will magically resolve. As more people enter the middle class in those countries, it's likely they will be purchasing a lot of internal combustion powered vehicles.

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Re: Outlook on oil

Post by onthecusp » Mon Aug 29, 2016 3:50 pm

New to bogleheads. There seems to be more "future prediction" going on here than most threads. Much of it is the bear case for oil, which I also appreciate hearing. This subject attracted me because I work for a midstream company and am overweight the oil sector due to job related ownership. I agree with most all of the above in that there are a variety of pressures on oil price.

Something I almost never read about, but think is important long term, is oil is not all about energy. Petrochemicals, as in plastics, synthetic rubber, lubricants, and other products are other outlets for these carbon molecules. As a chemical engineer I've always thought it kind of foolish to burn our oil when it is long term useful in so many other ways. When oil prices were skyrocketing I figured it would be a self correcting problem, but as long as it is "cheap" we will keep burning it somewhere in the world, to the detriment of the environment and the future cost of these other products. For what little it is worth I see some price increases by this time next year as some of the oil in storage is sold off then a long term price capped around $60 going up erratically with inflation and business cycles like any commodity.

If one is overweight in the sector and can't lighten up, how does one avoid buying more? As was pointed out above, the S&P 500 has some pretty major exposure anyway?

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Re: Outlook on oil

Post by LadyGeek » Mon Aug 29, 2016 3:56 pm

This thread is now in the Investing - Theory, News & General forum (general discussion).
onthecusp wrote:This subject attracted me because I work for a midstream company and am overweight the oil sector due to job related ownership.

...If one is overweight in the sector and can't lighten up, how does one avoid buying more? As was pointed out above, the S&P 500 has some pretty major exposure anyway?
Welcome! We can help you with that, but we need to see some details.

Why don't you start a thread in the Investing - Help with Personal Investments forum? Post your portfolio info using the Asking Portfolio Questions format. It will force you to think about the "big picture" while providing us the information we need to point you in the right direction.

Don't mention the name of your company, other than it's "company stock".

Take your time and do some reading. The wiki can help you get started: Getting started
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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nedsaid
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Re: Outlook on oil

Post by nedsaid » Mon Aug 29, 2016 4:31 pm

onthecusp wrote:New to bogleheads. There seems to be more "future prediction" going on here than most threads. Much of it is the bear case for oil, which I also appreciate hearing. This subject attracted me because I work for a midstream company and am overweight the oil sector due to job related ownership. I agree with most all of the above in that there are a variety of pressures on oil price.

Something I almost never read about, but think is important long term, is oil is not all about energy. Petrochemicals, as in plastics, synthetic rubber, lubricants, and other products are other outlets for these carbon molecules. As a chemical engineer I've always thought it kind of foolish to burn our oil when it is long term useful in so many other ways. When oil prices were skyrocketing I figured it would be a self correcting problem, but as long as it is "cheap" we will keep burning it somewhere in the world, to the detriment of the environment and the future cost of these other products. For what little it is worth I see some price increases by this time next year as some of the oil in storage is sold off then a long term price capped around $60 going up erratically with inflation and business cycles like any commodity.

If one is overweight in the sector and can't lighten up, how does one avoid buying more? As was pointed out above, the S&P 500 has some pretty major exposure anyway?
Good to see someone who talks about oil not being all about energy. I have heard that other chemical engineers have made similar comments. It seems a waste of such a useful substance to burn it.
A fool and his money are good for business.

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just frank
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Re: Outlook on oil

Post by just frank » Mon Aug 29, 2016 7:07 pm

onthecusp wrote:New to bogleheads. There seems to be more "future prediction" going on here than most threads. Much of it is the bear case for oil, which I also appreciate hearing. This subject attracted me because I work for a midstream company and am overweight the oil sector due to job related ownership. I agree with most all of the above in that there are a variety of pressures on oil price.

Something I almost never read about, but think is important long term, is oil is not all about energy. Petrochemicals, as in plastics, synthetic rubber, lubricants, and other products are other outlets for these carbon molecules. As a chemical engineer I've always thought it kind of foolish to burn our oil when it is long term useful in so many other ways. When oil prices were skyrocketing I figured it would be a self correcting problem, but as long as it is "cheap" we will keep burning it somewhere in the world, to the detriment of the environment and the future cost of these other products. For what little it is worth I see some price increases by this time next year as some of the oil in storage is sold off then a long term price capped around $60 going up erratically with inflation and business cycles like any commodity.
Welcome. It seems that petrochemicals consume only about 5% of oil produced. No reason why that can't continue for centuries if we stop burning so much of the stuff. The ChemE's I know say that the vast majority of petrochemicals can be made from biomass feedstock instead of oil, at a slightly higher cost.
Last edited by just frank on Mon Aug 29, 2016 8:27 pm, edited 1 time in total.

TOJ
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Re: Outlook on oil

Post by TOJ » Mon Aug 29, 2016 8:07 pm

I think people are way too optimistic on the pace of EV adoption and its effect on the price of oil.

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Re: Outlook on oil

Post by just frank » Mon Aug 29, 2016 9:03 pm

TOJ wrote:I think people are way too optimistic on the pace of EV adoption and its effect on the price of oil.
Have you test-driven any EVs yet? :beer

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Re: Outlook on oil

Post by TOJ » Mon Aug 29, 2016 9:27 pm

just frank wrote:
TOJ wrote:I think people are way too optimistic on the pace of EV adoption and its effect on the price of oil.
Have you test-driven any EVs yet? :beer
I have nothing against the cars.

But,

Where do all the cars that don't live in garages charge (urban street parking, apartments)?
Gas stations can "recharge" hundreds of cars an hour, at a few minutes each. Contrast that with 20 minutes or more per each 300 miles. We are not a patient people.
Are we going to add 220v outlets to houses across the country?
An EV runs out of electricity on the road. What's the procedure for recharging it? Versus the lowly gas can.

To me, the more likely disruptor is driverless cars. That is what could lower the number of cars needed, which is going to have a much larger impact on gasoline consumption than retrofitting the nation with electrical plugs.

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