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Oil
Dec 15, 2014 17:20:12 GMT 7
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Post by zuolun on Dec 15, 2014 17:20:12 GMT 7
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Post by oldman on Dec 15, 2014 20:15:04 GMT 7
Oil price drops: Don't panic, really - 8 Dec 2014 So, what is the absolute lowest price oil can be produced for in the U.S.? Consider this—fracking last boomed in the U.S. back in the mid-1980s, when a barrel of oil fetched around $23. That is equivalent to around $50 a barrel today, when adjusted for inflation. That fracking boom went bust after prices fell to around $8 a barrel, which is worth around $18 in today’s money. With oil last week hitting $63 a barrel, it seems that prices have a lot more room to fall before things get really scary.
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Oil
Dec 16, 2014 4:47:36 GMT 7
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Post by zuolun on Dec 16, 2014 4:47:36 GMT 7
Oil price drops: Don't panic, really - 8 Dec 2014 So, what is the absolute lowest price oil can be produced for in the U.S.? Consider this—fracking last boomed in the U.S. back in the mid-1980s, when a barrel of oil fetched around $23. That is equivalent to around $50 a barrel today, when adjusted for inflation. That fracking boom went bust after prices fell to around $8 a barrel, which is worth around $18 in today’s money. With oil last week hitting $63 a barrel, it seems that prices have a lot more room to fall before things get really scary. The oil and gas turmoil which started immediately after the OPEC's meeting on 27 Nov 2014 impacting global economy was accurately predicted on 2 Jun 2014 (to begin in November this year) by this writer in an article: "Stressful times ahead for world economy in 2015 and 2016" |
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Post by zuolun on Dec 16, 2014 5:32:02 GMT 7
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Post by oldman on Dec 16, 2014 6:48:39 GMT 7
One must also not forget that at US$100 a barrel, there were lots of fat to pass around. Not only were the oil companies making lots of money but their suppliers too were reaping healthy profits. The stock market is configured to magnify these profits with their concept of PE ratios and everyone in the oil industry was having the party of their lives. Now, assume that oil prices falls to US$40 a barrel and remain at this level for a while, then profits of oil related companies are likely to come under significant downward pressure. When oil companies are cutting back, everyone down the line will also suffer. Remembering that the market and its PE ratios will exaggerate these lower profits, you can understand why I will not rush into any of these oil related stocks as I think the bottom will fall off many of these stocks if oil sinks to US$40 a barrel. Worse, if oil falls much lower than this. Right now, it is time to avoid these falling knives as it is not time to bottom fish. Put another way, the risk far outweights the rewards. In investing, always remember to look after your downside as the upside will usually take care of itself. Investing is about timing. Right now, I don't think it is the right time to get into oil related stocks. However, when these stocks have collapsed much further, there will come a time when I too will be interested. Let me expand my thoughts further. When you are a cartel, you have the power to increase the selling price and make more profits. When a cartel decides that it does not want to make more profits, one is best to sit up and ponder. The cartel will not take such a decision unless it feels strongly that its business model will be under significant pressures in the years ahead. Perhaps it is shale oil or alternative power sources but whatever it is, the cartel is willing to take short term pains to protect its long term interests.
Put another way, the cartel will know that unless it can persevere and hold down oil prices for at least a year or more, it is unlikely to be successful in its objective. Now, if you agree with this thought process, then, most of the oil related companies will be under pressure as future projects are likely be postponed and existing contracts may be rescind. Oil majors have significant powers and I am sure their contracts will allow them a way out, legally.
Oil related companies will then be under pressure from both revenues and profits and as they announce lower revs and profits, the market will punish these shares further. What I am saying is that it may be wiser to wait till later to then take positions in such companies. Investors need to be able to have their own crystal ball and forecast what is likely to happen in the future. More importantly, they must know how to position themselves to make money from their crystal ball gazing. In other words, smart investors will be looking into the fundamentals of oil related companies and will be following the oil market closely. He would have done his homework to determine an entry point. For a deep value investor like me, I will only enter at a very deep discount. If I were to hazard a guess, oil may hover around US$40 a barrel for a while.   "Given the fall in oil and commodity prices, I am inclined to classify all related stocks as potential falling knives." Hmmm, ... i wonder. During the 2008/09 crisis, oil price was falling off the cliff too. As would be expected during those periods of "falling knives", analysts were keen to join the herd and forecasting lower and lower prices of oil. As oil price were dipping towards $50/bbl, then $40/bbl, analysts and soothsayers were trying their utmost to outdo one another by being the more bearish. CNOOC, 883 HK, understandably crashed thru the roof, hurdling towards sub-HK$5 during the trough. Yet, if one had dilligently accumulated during those times, one would have done very well. Not too long ago when oil price was still at about $100/bbl, CNOOC was trading well above $20. And yes, you guessed it, the same herd of analysts were calling for big buys with target prices gunning towards $25-30/sh! With oil price having seen a sharp correction in the past two months, CNOOC is now barely holding at $10. I am no expert on oil price. Of course, the dynamics of the oil industry also appear to have changed with the advent and success of the shale evolution in recent times. Still, there must be an intrinsic value for oil. The question is finding out what that breakeven cost is, whether between the different exploration companies or between the traditional oil and shale. my point is, classifying all oil-related stocks as falling knives seem rather harsh. Just as spot oil could go up, come down, ... who could say it would not go up again? OPEC could decide to cut supply drastically, demand could pick up, a large number of the shale operators could be out of business. While it would be a tad optimistic to believe oil price could return to $100/bbl anytime soon, surely a price of $70/bbl isn't as out of reach as we think? Recall that when oil was $70/bbl, many of the oil majors would still be very profitable. |
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Post by zuolun on Dec 16, 2014 6:59:26 GMT 7
One must also not forget that at US$100 a barrel, there were lots of fat to pass around. Not only were the oil companies making lots of money but their suppliers too were reaping healthy profits. The stock market is configured to magnify these profits with their concept of PE ratios and everyone in the oil industry was having the party of their lives. Now, assume that oil prices falls to US$40 a barrel and remain at this level for a while, then profits of oil related companies are likely to come under significant downward pressure. When oil companies are cutting back, everyone down the line will also suffer. Remembering that the market and its PE ratios will exaggerate these lower profits, you can understand why I will not rush into any of these oil related stocks as I think the bottom will fall off many of these stocks if oil sinks to US$40 a barrel. Worse, if oil falls much lower than this. Right now, it is time to avoid these falling knives as it is not time to bottom fish. Put another way, the risk far outweights the rewards. In investing, always remember to look after your downside as the upside will usually take care of itself. , The upswing of oil derivatives made everyone in the oil industry go to heaven; the downswing of oil derivatives will ensure everyone in the oil industry go to hell. The amount of money in the oil derivatives market is in trillions (US$).US shale revolution triggers oil derivatives upheaval — 30 July 2013 Goldman Sachs, Morgan Stanley: "Now’s time to consider energy stocks." — 15 Dec 2014 Over the years, I have learnt to be skeptical over the many sources of stock recommendations. I am cautious about stock broker recommendations as I find it hard to understand the business model of a research division within a stock broker. At the end of the day, stock brokers are commercial organisations with the primary interest of making money. Analyst recommendations are unlikely to make a direct impact to the profitability of a stock broker. Even if an analyst is good, the customer can still chose to buy or sell stocks through another broker. I don't envy the job of a research analyst in a stock broking firm as there are bound to be many grey areas of potential conflicts of interests. I am also wary of websites that appear to be independent but are owned or influenced by public relations companies whose interest is to promote the listed companies that pay them a monthly retainer fee. Rarely does one find a truly independent website. I like going to such truly independent sites like Investor Central ( sg.finance.yahoo.com/news/provider-investorcentral/ ). As for forum websites, I enjoy reading the writings of small investors as they can be pretty knowledgeable and they share the info in the hopes that others will join them as shareholders. I too started as a small investor and I know that having smaller sums of money means that I have to interest other investors in those companies that I have invested as my capital alone is unlikely to influence the market. Many of my investment ideas arose from such postings. However, I am extra careful about the sharing in the forums from market players as these folks make their money from the frequent buying and selling of stocks and it is more likely that they will talk up the stock only to sell to those newbie investors who get excited about such stocks. If you have been in a forum long enough, it is not difficult to pick up the small investors from the market players. Also, be aware that market players are unlikely to work alone in a forum and after a while, one can also identify players that belong to the same group as they often praise the others in the group and vice versa. Hence, be very careful what you read freely in websites and in stock forums. It is good to assume that there is usually no free lunch in the stock market. You should do your own homework before you make any investment in the stock market. |
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Post by zuolun on Dec 16, 2014 13:29:01 GMT 7
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Post by zuolun on Dec 16, 2014 16:17:43 GMT 7
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Oil
Dec 16, 2014 17:10:16 GMT 7
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Post by zuolun on Dec 16, 2014 17:10:16 GMT 7
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Post by oldman on Dec 18, 2014 7:34:53 GMT 7
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Oil
Dec 18, 2014 22:39:59 GMT 7
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Post by zuolun on Dec 18, 2014 22:39:59 GMT 7
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Oil
Dec 19, 2014 7:08:55 GMT 7
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Post by zuolun on Dec 19, 2014 7:08:55 GMT 7
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Oil
Dec 19, 2014 9:24:34 GMT 7
oldman likes this
Post by zuolun on Dec 19, 2014 9:24:34 GMT 7
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Post by oldman on Dec 20, 2014 7:17:35 GMT 7
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Post by zuolun on Dec 20, 2014 9:14:44 GMT 7
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