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Has oil price topped out?

youfoolishboy
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Has oil price topped out?

#140815

Postby youfoolishboy » May 23rd, 2018, 4:53 pm

Reading the article below seems to suggest the Saudis are calling the top of the market, all my oil based shares seem to be starting to drop. Anyone share the veiw or wants to argue against it?
https://oilprice.com/Energy/Crude-Oil/O ... -Cuts.html
It was only a few weeks ago that top officials from OPEC nations were issuing statements assuring the market that the group’s production cuts would remain in effect through the end of 2018, with the possibility of even extending them into next year. But now, with the Vienna meeting just a few weeks away, OPEC is suddenly warming up to the idea of lifting the production limits...

FredBloggs
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Re: Has oil price topped out?

#140831

Postby FredBloggs » May 23rd, 2018, 6:37 pm

Nobody knows? But I understood that both KSA and Russia were looking for around a $100 per barrel?

youfoolishboy
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Re: Has oil price topped out?

#140839

Postby youfoolishboy » May 23rd, 2018, 7:56 pm

KSA are one of the ones looking to increase supply, they seem to have found happiness at $80. I think they are being sensible to high too fast will choke of demand.

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Re: Has oil price topped out?

#140867

Postby dspp » May 23rd, 2018, 11:07 pm

youfoolishboy wrote:Reading the article below seems to suggest the Saudis are calling the top of the market, all my oil based shares seem to be starting to drop. Anyone share the veiw or wants to argue against it?
https://oilprice.com/Energy/Crude-Oil/O ... -Cuts.html
It was only a few weeks ago that top officials from OPEC nations were issuing statements assuring the market that the group’s production cuts would remain in effect through the end of 2018, with the possibility of even extending them into next year. But now, with the Vienna meeting just a few weeks away, OPEC is suddenly warming up to the idea of lifting the production limits...


yfb,
A very interesting question, to which I do not know the answer for certain, but have about half my total portfolio in my best guess being that $60-$80/bbl is a fair mid-price for the next few years. There are many parts to the answer, as I am sure you know, including imponderables such as ROPEC and conflicts.

If you go to Art Berman's site there are two interesting recent items to consider. One is the guest post on the blog pages by Bodell dated 28 Feb 2018.
http://www.artberman.com/blog/
This is a systems dynamics analysis by Bodell that posits a historical mid-cycle price of $73/bbl, but a new mid-cycle price of $65/bbl emerging in the data, i.e. a lower price. As comparitive inventory moves lower then price rises, all else being equal. Unfortunately the chap who used to post inventory numbers on TMF no longer does so on TLF, which is a great shame, and because of how I operate that is not something I watch daily. However in the article you link to it suggests that the inventory level has now fallen back to the 5-year average, hence the rise to $80/bbl. It ascribes most of the cause for this being the Venezuelan implosion (been there, worked there, what a shame).
https://oilprice.com/Energy/Crude-Oil/O ... -Cuts.html
https://oilprice.com/Energy/Crude-Oil/I ... emand.html

So these two sources tend to suggest things topping out as more production gets uncorked, to balance the tightening inventory. But then go to Berman's own latest missive where he updates and restates his core hypothesis (which I very much agree with), and you discover that shale will not be the production that gets uncorked. He sets this out in a very sweeping, but data-backed, presentation dated 10 May 2018 at TEC.
http://www.artberman.com/wp-content/upl ... y-2018.pdf
Bermann continues to hew to the line that shale is an aberration largely begotten by 0% debt, and that debt is being unwound and shale is uneconomic, even in the most attractive parts of the most attractive basins in the most attractive country for shale in the whole world. With 73% of shale producers losing money (!) and he forensically dissects the smoke and mirrors over high grading and efficiencies and etc. And he says it will be game fully over for US shale in seven years or so. Ouch. He leavens that by pointing out that US shale is only a small part of the producers, albeit important, so perhaps just a minor bump globally speaking. However he also points out that the political ructions in USA stem from the end of cheap oil and USian exceptionalism. Something that the Arab street might agree with in some respects, and with similar upheavals - so much more and much worse to come.

Basically Bermann is gently disagreeing with Bodell, and all credit to both of them having that mild disagreement as a guest.

My personal view is that there are overshoots and undershoots. However much ROPEC try to manage the path it will be volatile, and it will spike upwards as much as downwards. Whether that will be $60 mid-point, or $80 mid-point I don't know. What I do know is that at $60 the majors that I hold as a quarter of my portfolio hold their own quite nicely (unsurprisingly, as I bought them at $40/bbl), and at $80/bbl they are coining it. If it spikes up to $100 - which it could easily do - then the incipient demand reduction (or at least reduction in rate of increase) I see around the place will begin to bite (e.g. our shipping rates are creeping up again), but that will take time to take effect. [as an aside and for completeness the other quarter of my portfolio is in HUR as an exploration play, something akin but different]

I have noted before, and will do so again, that with each year that passes the penetration of renewables increases and that ameliorates oil's effect on the global economy. The last time I estimated the quantum this equated to maybe 1% of oil production per year, but I did that sum a few years ago and so it could well be 2% or maybe 3% by now. At that level, and with renewables now at levelised parity with O&G, then this will tend to damp the system somewhat. However I also fundamentally agree with Bermann that the era of cheap energy is over.

So that's a long way of going round the discussion to say I don't know the answer, but I am tending towards thinking higher in the short term rather than lower. But I am also fully expecting a lot of volatility in the short term. This is what Peak Oil looks like - a long drawn out event measured in decades not years.

I notice you don't give an opinion yourself - may I ask what is it ?

regards, dspp

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Re: Has oil price topped out?

#141060

Postby Nimrod103 » May 24th, 2018, 6:39 pm

Interesting contributions by Art Berman (as always). I only scanned Bodell's work and I am not an economist, but it seemed just a statement of of the obvious constraints on supply and demand. Berman has been a doubter of the long term potential of US shale oil, based on the fact that robust commerciality is only attained in the sweet spots, and those are of limited and by now well defined extent. So a decline will set in, barring further technical/cost breakthoughs, which seem a bit far fetched. It is just a question of when the decline sets in.

I have been quite bullish on the medium to long term PoO for a long time, for two simple reasons

1) World consumption continues to rise inexorably - from the Finding Petroleum newsletter (30 April 2018):

These are the figures for world oil supply and demand from the US EIA, as reported in the May issue of the Society of Petroleum Engineers' Journal of Petroleum Technology.
Q1 2017 supply 97.10 demand 97.58
Q2 2017 supply 97.65 demand 98.38
Q3 2017 supply 98.37 demand 98.93
Q4 2017 supply 98.65 demand 99.15
Q1 2018 supply 98.78 demand 99.62
Units = million barrels of oil per day
Supply includes "crude oil, lease condensates, natural gas plant liquids, biofuels, other liquids, and refinery processing gains."
You don't need to get graph paper out to see that oil demand for Q2 2018, ie now, has probably passed 100m bopd.


2) Frontier exploration has been very disappointing since about 2010. Future discoveries will only come from the existing big basins, many of which are in countries with wars, instabilitiy, and greedy governments.

Of course the rise in PoO will be lumpy due to unpredictable political troubles constraining supply, the impact on growth of high oil prices and the impact of renewables. Concerning renewables, I think we are still in an ignorant Govt and media driven frenzy about their potential. IMHO renewables investment is much like shale oil investment (as according to Berman), and has been driven by ultra low interest rates leading to investment in what is a high cost and uneconomic technology, but unfortunately one driven by Govt needing to be seen to be doing something for the environment.

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Re: Has oil price topped out?

#141062

Postby spasmodicus » May 24th, 2018, 6:57 pm

it's an interesting dynamic. The effect that high prices might have in choking off oil and gas demand is surely small compared with the excess supply that could be unleashed by production not being constrained by OPEC. Reducing supply by a few percent can double the OP, e.g. recently from $40 to $80/bbl. Shale oil can only ever produce a small percentage of global demand, so the right way for OPEC to bankrupt shale producers is to keep adjusting conventional supplies to keep the price at or below $45/bbl to encourage more shale production at what is probably an uneconomic price, especially if interest rates go up. That's difficult for OPEC to do politically of course and the temptation for members to produce above OPEC target is huge. Meanwhile, outside the USA shale oil/gas is going nowhere, for environmental and economic reasons. Throw in Iran sanctions, Venezuela economic collapse, uncertainty in N. Africa and everywhere a general lack of appetite for oil and gas exploration** and you have a perfect cocktail of uncertainty.

With increasing demand, the larger oilies will probably survive, even thrive, for a few years. I'm hoping that the medium sized explorer/producers, e.g. the Tullows and Premiers (which I have) can continue to improve their balance sheets and along with that their share prices, which they can do at $50/bbl. I think the key is to have decent production, with residual capex plus opex/bbl well below 40 bucks. That pretty well rules out pure exploration companies dealing in offshore frontier stuff, but rules in onshore and some offshore mature areas and companies doing secondary recovery on existing fields, i.e. boring, but profitable.

hydrocarbonically,
S

** except by our Russian chums, the jokers in the pack, it seems.

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Re: Has oil price topped out?

#141087

Postby youfoolishboy » May 24th, 2018, 8:21 pm

My view is less on the numbers more on the politics.
The Saudis have just changed the dynamic. PoO was rising due to the OPEC/Russian cap and various problems round the world but now they have said they will increase supply to keep the price down. I believe this is to keep Trump happy, American business cannot live with PoO too high, and he after all is punishing Iran Saudi’s arch rival plus too high an oil price too soon would throttle rising demand.
Shale I used to think would be the next swing producer and to a certain extent they are however the supply constraints they have run up against regarding pipelines and the false claims of reduced production costs due to the temporary drop in labour and equipment costs which was really due to the downturn seem to have taken the crown away so nothing seems to be stopping the Saudis with the help of Russia dictating the price by increasing or decreasing supply.
I see the price staying around $80 or potentially going lower if the rest of OPEC want a piece of the spare capacity gifted to them by Venezuela and Iran. I could go on but I think you all understand the politics of what is going on round the world.
I made my call this morning and sold around about 50% of my oil related stocks. I kept big oil and some PFC the rest I sold the rest these were some PFC, small oilers and equipment vendors. I was massively in profit and wanted to protect my gains. This derisked my portfolio as now if the price goes lower I have the divis and knowledge the companies I have kept are sound but if the price rises I still have a way of profiting.
All sounds good today lets see in a few weeks lol

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Re: Has oil price topped out?

#141089

Postby FredBloggs » May 24th, 2018, 8:30 pm

Could be a smart move and taking profits is always good. Nobody goes bust harvesting their profits.

To my mind, shale producers are not to be underestimated over the Atlantic. In Europe, the industry seems to have died a still birth. But in the US, the remaining operators seem very smart people to me. I think they can ramp up/down a lot of capacity to suit themselves. They may yet be a swing producer as the USA moves from self sufficiency into export markets. Maybe........

But with the small oilers, if politics really is turning bad again, then with perhaps >25% of all the remaining oil reserves on the entire UKCS within their ownership, I could soon be kicking myself for not buying more HUR stock when t was on sale at 24p-ish.

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Re: Has oil price topped out?

#141171

Postby PeterGray » May 25th, 2018, 9:46 am

Reducing supply by a few percent can double the OP, e.g. recently from $40 to $80/bbl. Shale oil can only ever produce a small percentage of global demand, so the right way for OPEC to bankrupt shale producers is to keep adjusting conventional supplies to keep the price at or below $45/bbl to encourage more shale production at what is probably an uneconomic price, especially if interest rates go up.

That seems to have been the conventional wisdom - but it doesn't make sense.

If OPEC and co can double the PoO by selling a few % less, they are much better off doing that, unless shale can realistically replace a large chunk of their output. That doesn't look likely. If Bergman and co are right (which I tend to think) and shale is much more limited than the optimists have suggested the the right policy is the one they seem to be working towards now - keep oil at a highish price, to maximise revenue, but don't let it get too high to cause a global recession. let shale produce what it can or wants, but understanding that it's never going to replace the great majority of OPEC+ production. It could be a tricky balancing act, but financially it's a much better route for SA etc than trying to flood the market. I'd guess $70-90 is probably optimum.

In practice of course it's going to be very hard to control that, and we are pretty much certain to see a lot of volatility, some lower, but $100+ is definitely still on the cards at least for some of the time.

Peter

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Re: Has oil price topped out?

#141312

Postby spasmodicus » May 25th, 2018, 5:15 pm

It could be a tricky balancing act, but financially it's a much better route for SA etc than trying to flood the market. I'd guess $70-90 is probably optimum.


yes, good point. One interesting thing is that in days gone by, $70-$90 was enough to stimulate quite a lot of quite speculative exploration activity. That isn't showing much sign of happening at present. According to EIA, current global oil consumption is around 35 billion barrels, total discoveries (oil and gas) in 2017 amounted to about 7 billion barrels. However global proven reserves are at almost at an all time high and according to BP represent about 50 years of consumption at present levels. The bottom line is that oil exploration production can be quite a profitable activity at $70-90 a barrel, but currently it just isn't fashionable and has a major image problem. Many EV enthusiasts do not seem to realize that their cars are largely powered by burning hydrocarbons, but at a remote power station rather than under their car's bonnet (albeit the overall thermal efficiency is about double that for a petrol powered car). Along with political instability in many of the major producing countries, combined with ever increasing consumption, it all seems to me to add up to an investment opportunity.

S

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Re: Has oil price topped out?

#141343

Postby PeterGray » May 25th, 2018, 8:26 pm

One interesting thing is that in days gone by, $70-$90 was enough to stimulate quite a lot of quite speculative exploration activity. That isn't showing much sign of happening at present

I'd suspect the fact that we've only just got back into that range, and a lot of people remain sceptical about oil remaining there has something to do with it. These are very big and expensive decisions that get modelled and thought over, and definitely (hopefully?)
not rushed. If oil stays in this range for a while and people start to be thinking in terms of $70+ oil going forward I think we'll see some changes in attitude.

.... Perhaps just in time for HUR to have got the EPS working well?

Peter

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Re: Has oil price topped out?

#141346

Postby FredBloggs » May 25th, 2018, 8:33 pm

PeterGray wrote:One interesting thing is that in days gone by, $70-$90 was enough to stimulate quite a lot of quite speculative exploration activity. That isn't showing much sign of happening at present

I'd suspect the fact that we've only just got back into that range, and a lot of people remain sceptical about oil remaining there has something to do with it. These are very big and expensive decisions that get modelled and thought over, and definitely (hopefully?)
not rushed. If oil stays in this range for a while and people start to be thinking in terms of $70+ oil going forward I think we'll see some changes in attitude.

.... Perhaps just in time for HUR to have got the EPS working well?

Peter

:lol:

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Re: Has oil price topped out?

#141412

Postby Nimrod103 » May 26th, 2018, 8:40 am

PeterGray wrote:One interesting thing is that in days gone by, $70-$90 was enough to stimulate quite a lot of quite speculative exploration activity. That isn't showing much sign of happening at present

I'd suspect the fact that we've only just got back into that range, and a lot of people remain sceptical about oil remaining there has something to do with it. These are very big and expensive decisions that get modelled and thought over, and definitely (hopefully?)
not rushed. If oil stays in this range for a while and people start to be thinking in terms of $70+ oil going forward I think we'll see some changes in attitude.

.... Perhaps just in time for HUR to have got the EPS working well?

Peter


I am a bit divorced from the idustry these days, but I think the slump in exploration has been so deep that it will take a couple of years of high oil prices to spur much activity. A huge number of creative people have retired. Also, exploration had been increasingly focussed towards deep water, and I don't think $70-90 will be enough to repay the extrmely high costs involved. $100 maybe.

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Re: Has oil price topped out?

#141743

Postby HaiderAli » May 27th, 2018, 7:56 pm

Interesting piece on Bloomberg:

The missing nail in this case will be the low-sulfur fuel that ships plying international waters will soon require. And the consequence could be a spike in oil prices large enough to threaten global recession.


https://www.bloomberg.com/view/articles ... ot-so-fast

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Re: Has oil price topped out?

#142038

Postby petroleum1 » May 29th, 2018, 10:04 am

Opinion Oil
"The surge is over — why $50 oil is now more likely than $100"
https://www.ft.com/content/ec6101b0-618 ... f188287fff

Saudi will not raise oil price if Trump do not like that who said is unacceptable. Also Putin said he will be happy with $50/bbl.


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