Your Oil Stocks Aren't Coming Back 104 comments
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NASDAQ Composite, Spring 2000 to Spring 2003
Remember when Intel (INTC), Microsoft (MSFT), Dell (DELL), Lucent (ALU), Yahoo (YHOO) and Cisco (CSCO) ruled the markets? There was an era, roughly 1997 to 2000 when those stocks actually mattered. They were important companies doing big things in terms of providing the technology needed for the next century’s communications and internet build-out. And then, they just didn’t matter anymore. Once the dot com bubble burst, every bounce or rally in these names was basically a selling opportunity…for 8 years and counting! See the above chart for a notion of how frustrating it must have been to stay positive on NASDAQ tech names.
It took a long time for people to get it through their heads that these stocks had seen the best valuations and prices that they would ever see. Investors couldn’t imagine a world where these stocks would no longer be important, but with each passing quarter and year, these NASDAQ Generals diminished in stature and market cap.
I believe that this story is repeating itself in the oil patch. Market participants seem to be in a state of disbelief that Chesapeake (CHK), Transocean (RIG), National Oilwell Varco (NOV) and ConocoPhillips (COP) aren’t important anymore. These stocks may have have seen the best levels they will ever see, at least for a long time.
OIH, the oil services ETF 4/2008 til Wednesday...sell rallies?
This is not to say that there won’t be phenomenal trading opportunities along the way. If crude stages any kind of recovery, I’m sure these names and all of the others will bounce, but will the backlogs for the service companies and drillers ever be what they were in late 2007, early 2008? I doubt it. And will proven reserves ever be valued as they were during the bull market?
When the credit crunch hit the hedge funds, we saw a raft of speculative money come out of commodities across the board. Then, industrial demand for oil literally disappeared from North America to China. These two events revealed to many newbies what the old school oil traders already knew, that commodities (and the related stocks) could be more volatile than what many were prepared for.
The major difference between the aforementioned tech giants during the peak of the dot com bubble and the oil and gas stocks now, is that the tech giants were coming down from price-to-earnings multiples of 30, 40, even 50! The reason they got that far ahead of themselves was that we were told that the growth would be unlimited and exponential. In fact, earnings of any kind were a detriment, because they meant that a company was too worried about short-term profitability as opposed to grabbing share and eyeballs (seriously!).
The oil names, in contrast, are trading at absurdly low multiples, in fact, the average PE ratio on the 18 oil stocks that make up the Oil Services ETF is only 5.08! This low multiple reflects the fact that last year’s earnings were peak earnings in this very cyclical business. Next year’s “E” is a giant unknown, but the market knows it ain’t going to stack up to when crude was over $100.
And so now, we will watch for years as these stocks grind it out in between the recent lows and the highs of yesteryear. In the meantime, investors on both Wall Street and Main Street will gradually come to the realization that the Chesapeake position they put on at 70 will not be break-even any time soon (if ever). In frustration, the hot money that came in but was too slow to sell closer to the top will come out, which makes all short-term rallies suspect in the entire sector.
I hope to see oil and natural gas prices find a nice equilibrium for consumers to be able to afford gas and for these great companies to be able to make money. On bounces, I will look for quick trades in the better names. That said, I won’t be placing any intermediate or long-term bets in the oil patch this year, as I believe that a once-in-a-generation parade has just gone past.
Sorry, bulls. T. Boone Pickens may not live long enough to see his $300 oil prediction come true.
Full Disclosure: Long CHK.
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This article has 104 comments:
Conventional oil production has peaked. This is why major oil companies are investing heavily in non-conventional projects like the oil sands, deep sea drilling and tight gas extraction. The current economic malaise has hidden the fact that peak oil is happening. The services companies RIG, DO, and NOV as well as producers CHK and COP are excellent long term plays when the economy (and oil demand) recovers.
Alternative energy sources (solar, wind, hydro) currently makes up less than 5% of the world's energy mix. It will take at least 50 years to get off of oil and gas. Oil and gas is king till the middle of this century.
It is an incredible leap to compare a commodity to the internet/Tech bubble. Supply and Demand rules the commodity market, speculation plays a part as well.....But NOV, SLB, RIG etc have all shown profits, massive ones at that. The speculation in the late 90' was in companies that had massive losses Qtr. after Qtr.
So yeah, go ahead and tell Pat Sajak you would like to buy a clue.
Please go back and check your information. Cisco was selling at a P/E of 300 right before the tech stock bubble burst. A 100 PE had been "normal" during Cisco's big growth years, but that was almost reasonable since the PEG was 1 (yes, Cisco was doubling earnings each year for many years). At that point, Cisco had the largest market cap in the world, bigger than either GE or Exxon. The storm flags were flying!
Savior: Technology good enough to replace oil. Not here yet.
I would be very satisfied if the oil stocks I recently bought just made it back to their "highs of yesteryear". I'm not expecting more.
when (not if) Israel attacks Iran ........where do ya think oil is heading ?
and for the U.S. where will they turn for dependable supply ?
Someday you'll wake up and the news will be Israels' attack on Iran and oil going to $200. It's coming !
On Feb 20 08:29 AM longoil wrote:
> Comparing oil services stocks and internet stocks is like comparing
> apples and oranges. The world can live without eBay or Amazon, but
> cannot live without oil and gas.
>
> Conventional oil production has peaked. This is why major oil companies
> are investing heavily in non-conventional projects like the oil sands,
> deep sea drilling and tight gas extraction. The current economic
> malaise has hidden the fact that peak oil is happening. The services
> companies RIG, DO, and NOV as well as producers CHK and COP are excellent
> long term plays when the economy (and oil demand) recovers.
>
> Alternative energy sources (solar, wind, hydro) currently makes up
> less than 5% of the world's energy mix. It will take at least 50
> years to get off of oil and gas. Oil and gas is king till the middle
> of this century.
1. Oil producers can cut supply at a faster rate then demand can be "destroyed". Ergo, at some point prices will rebound.
2. Much if not all of this collapse has to do with a perverted, illogical rise in the USD. The USD bull is unsustainable. Unfortunately Mr. Cheney, "deficits do matter" when it comes to currency strength. USD strength is about to collapse in a major way.
3. CHK should have NEVER been bought at $70 as it violated the cardinal rule of value investing. Always buy a stock with a margin of safety (Ben Graham's 50% discount to full value rule). I can assure you that CHK is NOT fully valued at $105. More like the $70 price this buyer paid.
Most of the petro-dictators can't easily survive with sub $50 oil. Israel attacking Iran is interesting, but Russia (the biggest, baddest oil producer) is more likely. Putin would not have any scruples about taking Nigeria off-line, would he? Oh, are there a whole bunch of problems now in Nigeria, and Shell is reducing production? I wonder where those weapons came from?
Anyone notice what types of weapons are used in the oil tanker attacks off Somalia... (Hint: they weren't made in America). You do know that a submarine can hide in the turbulence of a tanker...what if a tanker was attacked by pirates, and a torpedo accidentally blew it up...no survivors or witnesses, of course..."those dumb Africans don't know not to smoke on a tanker"...there could be other forms of "foreign aid" from Mother Russia, too.
And remember all the oil in former Soviet areas, like Azerbaijan and Kazakhstan. I wonder if they will have any problems getting oil to market (Ukraine, anyone) or other problems (Georgia...)
Yeah, oil is going to stay in the basement a long time. And Putin is going to get a Nobel peace prize.
sounds like a lot of guys who bought drillers and producers etc at high prices are lookin to take out their frustrations on someone
of course im not comparing these companies to tech companies, nothing to do with the point im making
the point is that the multiple expansion and then multiple contraction that comes from the hot money having moved on is in full effect
my point is not that they cant rally the subsectors of energy stocks again (in fact, im hoping they will) and im certainly not an expert on oil. but i have gotten away from these names on the long side after riding them since 2004, and I think the easy money's been made
these are great american companies, but they've seen the best they'll see in my opinion as far as valuation
end of story
so msft csco and intc had massive losses? show them to me.
and btw, what happens to commodity prices over prolonged periods of time of overinvestment and overcapacity?
I guess you and your portfolio are about to find out.
not an oil bear, Ive just learned that when a sector/ trend is done, move on
On Feb 20 08:52 AM EvilB wrote:
> Yeah, what they said.
> It is an incredible leap to compare a commodity to the internet/Tech
> bubble. Supply and Demand rules the commodity market, speculation
> plays a part as well.....But NOV, SLB, RIG etc have all shown profits,
> massive ones at that. The speculation in the late 90' was in companies
> that had massive losses Qtr. after Qtr.
>
> So yeah, go ahead and tell Pat Sajak you would like to buy a clue.
i dont claim to have a deep understanding of the oil business LOL
I understand what moves stocks and sectors up or down, and I try to get better at understanding it at all times, learning lessons from both successes and failures.
happy trading/investing happycajun
On Feb 20 08:41 AM happycajun wrote:
> Mr. Brown, you show a profound ignorance of the business. You cannot
> compare a pure play upstream company to an integrated to a drilling
> company in the first place - at least not on fundamentals. And fundamentals
> is where you must start. Tech companies of the 90's all set out to
> own 90% of the same unknown pie - there was no market for what they
> all sold to investors. Oil & Gas - has been around & will
> be for some time to come. Some of us who remember the crash of '85
> understand. Mah' as sallamah y'all.
and I dont make predictions on the price of oil....my "prediction" on that would be as good as that of a hen who scratches in the dirt, or for that matter anyone else's
You wanna take the other side of my point and say that your oil stocks will make new highs over the next 2 or 3 years?
go for it.
If you're right, I'll take everyone out for pizza (gladly, cause i will be trading the rallies with you).
give me a break.
On Feb 20 10:30 AM notsosmart wrote:
> im too old & too lazy to do it,but somebody on this site should
> compile a list of authors & their qoutes & predictions &
> then print them a year later on this site.it would make for some
> good reading & laughs.those that look like the biggest fools
> @ that time might quit posting their nonsense.
As long as I do not sell, I am making money, not losing it.
Even the smart money loses in the last scenario.
thats all im trying to say.
however, i will not content myself to "sit back and make money"...i'll buy dips and fade rallies to the best of my ability
and doublebogey...really inciteful comment and personal attack. I'm gonna go out on a limb and guess you've been relentlessly cost averaging down in either RIG or XTO. sorry to hear it
however, at least you own real companies...you dont strike me as one of the solar stock suckers, luckily, so yay for you!
I hope calling me an idiot has made you feel better about yourself and your poorly timed investments.
On Feb 20 11:01 AM Jamookey wrote:
> Wow,what a diverse bunch on this board!True that oil and related
> stocks will not achieve new highs any time soon,but there is no doubt
> that oil fields are being drawn down on an ever increasing rate.This
> temporary bump in the road called a "global downturn in the worlds
> economies" is just that,a TEMPORARY condition.If you believe oil
> and related stocks are finished ,you better not buy ANY stocks in
> anything,just keep it in cash at one percent return.If the economies
> of the world are heading into depression,stay away from stocks.If
> you believe that this is not the end of the world,then you know that
> with economic recovery comes increased energy use.No way around it.I
> don't give a crap about the posters talking about momentum swings,etc.They
> are just traders in for a quick buck.There are guys alot smarter
> than the ones on this board that KNOW that there is going to be a
> terrible energy crisis in the years to come.There are no new major
> oil fields to be discovered.The known supplies will run out,with
> no real credible substitute in sight.Think oil is finished?Better
> think again.Population growth alone will drive oil and other commodities
> in the years to come,but if you believe like the author just sit
> back and watch the rest of us make money.
MSFT was not a speculative stock in 1999. But congrats on picking two stocks that didn't have losses at the time. The fact is, most of the tech stocks never had a profit, but people were banking on them "turning it around any day now" Amazon is one of the few success stories from that time. An over whelming majority lost most, if not all, of their value.
The commodities are cyclical....and yes, my NOV stock, that I bought at 26/share, FCX @ 25/share and SLW @ 5.25/share will go back up....will they hit the levels of mid 2008, maybe not. But, unlike the losers in the tech bubble....they will recover nicely.
So yeah, the trend from 08 is done....lets wait until later this year or 2010 to see what happens. Buy and hold is not dead, no matter how many times people try to tell you it is.
On Feb 20 10:08 AM The Reformed Broker wrote:
> ok
> so msft csco and intc had massive losses? show them to me.
>
> and btw, what happens to commodity prices over prolonged periods
> of time of overinvestment and overcapacity?
>
> I guess you and your portfolio are about to find out.
>
> not an oil bear, Ive just learned that when a sector/ trend is done,
> move on
Then again.....these oil companies can make a profit even when oil is under $50 per barrel. Oil was less than this in the early part of 2000/2001/2002 etc. and oil companies were still making a profit and growing. Recently, due to the big oil price run up, Big Oil got a little bit crazy with regard to their cap ex spending. After all, does it really make sense to pay Transocean (RIG) a dayrate of $600,000 per day to drill a deepwater well when oil is under $40 per barrel?
But look what we're in for......Big Oil cuts cap ex.....future reserves/supply does not get regenerated and thus constricts, OPEC keeps cutting supply, refiners decrease capacity, hurricane season arrives, and the Iranian President feels like threatening the Jews again.....this, combined with recovering demand in China and India as well as in the US, and we're back at $100 per barrel oil...
Bottom Line: List all the factors that push oil prices up (several I have mentioned above) FROM CURRENT LEVELS....and then list all the factors that push oil prices down FROM CURRENT LEVELS.....and then let yourself decide if current oil prices are sustainable.....
and fyi, i didnt lump MLP's in to what I was talking about, just some integrated, equipments, indie e&ps and driller
MLP's actually make a lot of sense to me in some measure within the context of a portfolio
On Feb 20 11:46 AM Jamookey wrote:
> Gee wiz REFORMED,you copied my post exactly but added in the idiot
> remark which I did not make.If you feel like a idiot,too bad,I didn't
> say that so stick to the facts.I own MLP's I bought at rock bottom
> lows in November.I have been picking up a few shares of RIG in the
> high 40's,EAC in the high teens.No large positions,but I buy when
> they reach ridiculous levels.I sold out of most of my integrated
> oil stocks when oil was at 140$.True they went a little higher,but
> I made some money.Invest the way you like,I could care less what
> you buy or sell,just don't put everone in the same boat.
I'll have the thin crust, please.
> You wanna take the other side of my point and say that your oil stocks
> will make new highs over the next 2 or 3 years?
>
> go for it.
>
> If you're right, I'll take everyone out for pizza (gladly, cause
> i will be trading the rallies with you).
only a matter of time before some i-banker pushes them into some huge acquisitions
hope Im wrong as it's nice to have at least a handful of dow stocks still above $30 per share!
On Feb 20 12:04 PM Gravity404 wrote:
> You better be careful what you bet, I'll take it, 2-3 years on XOM.
> It is not too far from its highs buddy.
>
> I'll have the thin crust, please.
>
On Feb 20 10:08 AM The Reformed Broker wrote:
> ok
> so msft csco and intc had massive losses? show them to me.
>
> and btw, what happens to commodity prices over prolonged periods
> of time of overinvestment and overcapacity?
>
> I guess you and your portfolio are about to find out.
>
> not an oil bear, Ive just learned that when a sector/ trend is done,
> move on
where did anyone on this post or thread recommend "buying tech stocks"
are you kidding me?
I dont tell anyone here to buy anything...is english your second or third language?
and who is talking demand destruction? who even cares about that?
i think you've misread the discussion or you're on the wrong page of SA
On Feb 20 01:31 PM yank wrote:
> I think it's a bit premature to say the energy sector trade is "done".
> Will we be walking to work tomorrow instead of driving? Maybe we
> will copy the Chinese and bicycle to work? That should work out well
> here in Miami with 50 inches of rain per year and 1/2 the year with
> a +90% heat index. The real issue here is manipulation. Do you think
> that the same Govt that regularly delivers contrived and inaccurate
> inflation (CPI/PPI) data would miraculously deliver accurate oil
> inventory data? If you do I have a bridge to selll you. As for the
> daily almost nauseating claim trumpeting "demand destruction" I did
> not see much of that in a late summer drive from Miami to New York
> and back (with gas at/near $3 gallon). In fact as I drove through
> several metro areas including Orlando, Atlanta, Charlotte, Wash,
> DC, and Philadelphia I saw nothing but "bumper to bumper" auto traffic.
> But keep telling me about "demand destruction". It sounds good anyway.
> As other posters have repeatedly said we are many years away from
> any viable replacement for oil as a transportation fuel. But the
> most important reason that the energy bull is NOT over is the continual
> generation of cash flow that companies you sneered at (like RIG and
> XTO) still manage to deliver. If the oil bull is over why would a
> company like Petrobras continue to spend billions on deep sea oil
> exploration? Keep buying Tech stocks thought. That should work well
> until the NASDAQ goes below 1,000 this year.
they dont do sell ratings anymore....only "underweight" or "source of funds", whatever the F@#$ that means
the name of the game for the sell-side is to be vague enough so that they can claim victory regardless of the outcome
LOL
On Feb 20 01:19 PM Jamookey wrote:
> Posters,can anyone posting here come up with an energy stock,oil
> or nat gas with a sell rating on it?
Did you not pay attention during grammer school? - or are you simply hoping to redefine the punctuation rules/conventions of the written English language. Your observations are presented quite well, except for the fact (I suppose) that the Shift key on your computer doesn't work - it makes reading your insightful thoughts awkward.
Whats going to happen when the dollar declines again and the global economy eventually recovers?
A bet against oil stocks recovering would be a bet against either of these from happening...which seems far fetched in the extreme. Oil doesn't have to go to $300 in my lifetime for my oil/gas stocks to recover. Oil doubling from here, will cause many oil stocks to triple from the abnormally depressed levels that they are at today.
Look at a chart of XOM for the last decade and you will see it has outperformed BRK.b, JNJ, MSFT, and DELL, and many other so called blue chips.
Or if you like, look at the ten year charts for XTO, and UPL (gas stocks primarily) and you see that they vastly outperformed in the lost decade market (up 30 to 70 times respectively the market return).
Todays depression is the anomaly. Sure it may last several years, but when it inevitably ends, oil/gas will come roaring back.
On Feb 20 01:45 PM The Reformed Broker wrote:
> Yank,
> where did anyone on this post or thread recommend "buying tech stocks"
>
>
> are you kidding me?
>
> I dont tell anyone here to buy anything...is english your second
> or third language?
>
> and who is talking demand destruction? who even cares about that?
>
>
> i think you've misread the discussion or you're on the wrong page
> of SA
There is very little interest in healthcare, utilities, foreign stocks, or bonds. Just oil, gold, and commodities - anything that went up a year ago. Do the categories under "The Macro View" change depending on what was hot 12 mos. ago?
These comment boards just joined Cramer as one of my contrarian sources.
All the same reasons for hyperinflation and $500 oil were being posted here last year too.
I see crude going higher as it is a regulated resource with global and domestic strings only pulling the price higher, even with demand drifting lower. OPEC, Russia, Canada and Venezuela all have motivations for higher crude prices, and the new admin does too, since it bolsters their vaunted green initiatives. Analysts calling for crude in the 20s haven't provided much basis for their argument. The natural level appears to be around 50-70. I'm long DXO.
Personally, I see healthcare as dead money. Biotech is a bubble. Utilities are worth a look for the sustainable yields in an environment when equity dividends are disappearing elsewhere. The problem is that the yields are not that great, but they are better than money market assuming one can count on capital preservation. Foreign stocks have underperformed U.S. stocks by a lot and maybe this is a good value play now - but this is such a broad play so one has to ask where the best risk/rewards are. Bonds - I'm looking at corporates and waiting for prices to bottom then I plan to buy.
On Feb 20 05:11 PM Chris B wrote:
> Ahhh... the Seeking Alpha comment board. Where everything that went
> up one year ago is discussed.
>
> There is very little interest in healthcare, utilities, foreign stocks,
> or bonds. Just oil, gold, and commodities - anything that went up
> a year ago. Do the categories under "The Macro View" change depending
> on what was hot 12 mos. ago?
>
> These comment boards just joined Cramer as one of my contrarian sources.
>
>
> All the same reasons for hyperinflation and $500 oil were being posted
> here last year too.
tv is full of wanna be prophets who think they know the future. most are regular guests on CNBC. having said that, if ole boone loved oil at $100, i've got to think it's pushing the limits of the bottom at $35. the risk of war premium alone is worth $10, meaning you're paying $25 for the product itself.
Comparing dot.coms not even out of nappies on p/e's of 1000 with multinational oil service companies drilling wells miles beneath the ocean, just so that we the world can feed its addiction to the black stuff.
Fcking idiot.
just my opinion based on my own experience
i dont stick to my guns either, i go the other way if i'm proved wrong
and im wrong plenty, and you'll never hear me claim otherwise, although from you must be flawless and brilliant
thanks for the personal insult, i must have touched a nerve
On Feb 20 06:23 PM NutritionFacts wrote:
> Another load of old tosh masquerading as insightful analysis from
> some self-serving publicity-seeking halfwit.
>
> Comparing dot.coms not even out of nappies on p/e's of 1000 with
> multinational oil service companies drilling wells miles beneath
> the ocean, just so that we the world can feed its addiction to the
> black stuff.
>
> Fcking idiot.
On Feb 20 09:02 AM weeds wrote:
> you guys never mention the "trump" card in the oil patch.
> when (not if) Israel attacks Iran ........where do ya think oil is
> heading ?
> and for the U.S. where will they turn for dependable supply ?
Hey try Canada.
On Feb 20 09:22 AM yank wrote:
> Couple of observations:
> 1. Oil producers can cut supply at a faster rate then demand can
> be "destroyed". Ergo, at some point prices will rebound.
> 2. Much if not all of this collapse has to do with a perverted, illogical
> rise in the USD. The USD bull is unsustainable. Unfortunately Mr.
> Cheney, "deficits do matter" when it comes to currency strength.
> USD strength is about to collapse in a major way.
> 3. CHK should have NEVER been bought at $70 as it violated the cardinal
> rule of value investing. Always buy a stock with a margin of safety
> (Ben Graham's 50% discount to full value rule). I can assure you
> that CHK is NOT fully valued at $105. More like the $70 price this
> buyer paid.
Some companies have already cut production and are forcasting more cuts. Not large enough to screw up the investor but cumulatively it will matter.
i handle people's portfolios for a living and many of them hold securities that i haven't recommended to them as a result of inheritances, transfers, stock option awards etc.
i have to disclose whether i am long or short both for client accounts or my own accounts whenever i happen to mention any stocks, bonds or funds
On Feb 20 05:27 PM Whitehawk wrote:
> Why is the author long CHK if he's so down on the oil/nat gas sector
> as a whole? CHK was a momentum name and has been tarnished with all
> the debt it has.
>
> I see crude going higher as it is a regulated resource with global
> and domestic strings only pulling the price higher, even with demand
> drifting lower. OPEC, Russia, Canada and Venezuela all have motivations
> for higher crude prices, and the new admin does too, since it bolsters
> their vaunted green initiatives. Analysts calling for crude in the
> 20s haven't provided much basis for their argument. The natural level
> appears to be around 50-70. I'm long DXO.
>
>
On Feb 20 08:57 AM SteveTN wrote:
> "And so now, we will watch for years as these stocks grind it out
> in between the recent lows and the highs of yesteryear."
>
> I would be very satisfied if the oil stocks I recently bought just
> made it back to their "highs of yesteryear". I'm not expecting more.
One rule I have in my investing. Never ever buy a stock, income trust unit or anything that doesnt pay a dividend , distribution or interest.
That simple rule has helped me keep my investments above water. Sure I have been hit lately but knowing that every month I get cash to reinvest sure makes it easier.
Been around long enough to know this will pass just like every other one has.
On Feb 20 04:23 PM Swing Timer wrote:
> Reformed Broker:
> Did you not pay attention during grammer school? - or are you simply
> hoping to redefine the punctuation rules/conventions of the written
> English language. Your observations are presented quite well, except
> for the fact (I suppose) that the Shift key on your computer doesn't
> work - it makes reading your insightful thoughts awkward.
Retired English/ Grammar teacher?
i will add that while alternatives will change the mix for sources of electricity, our growth and transportation demands will remaion high, along with our nation's incredible ability to procrastinate and live in denial.
ultimately, the oil services industry will consolidate, there will be larger players making great money, and even if the OIH only holds half the companies it does today, it will be valued at twice today's price.
i will add that while alternatives will change the mix for sources of electricity, our growth and transportation demands will remaion high, along with our nation's incredible ability to procrastinate and live in denial.
ultimately, the oil services industry will consolidate, there will be larger players making great money, and even if the OIH only holds half the companies it does today, it will be valued at twice today's price.
as for replacements?
Anyone remember the Corn into fuel Fiasco..Ethanol? remember where that went to? Its all over..Seems like it was found that the Ethanol ptoduction had a little problem..The price of Corn products went through the roof and Ethanol was found to be corrosive..Poof~! there went Ethanol..Same future is in store for so called Renewable energy....Does anyone have any Idea how many Wind turbines would be needed to power one major city like New YorK? Forget Wind power. Solar is nice to power lawn ornaments but untold millions of Solar Panels would be needed to put a dent in Power needs for the worlds major cities and thats if the Sun comes out...As for Power derived from the action of waves at sea....? resultant Hazards to Navigation will soon put a stop to that Idea..
My Point is that Oil is King and will be for at least another 50 years so hold on.....The idea of Renewable fuels is a nice one but the amount of output per dollar from Solar, Wind, Sea generated will soon be found to be a "pipe dream" and they will all go the way of Ethanol....Back up the truck and buy Canadian Oil Trusts..........
For me at least, I am storing some of my assets in gold and oil - equal parts in each.
And yes it's not about getting it right or wrong; we certainly all manage to do both.
But you could at least *think* before committing pen to paper (so-to-speak).
The fundamental premise for your argument, which is not even hedged with 'probably', is flawed.
Surely even you can see that.
Yes you touched a nerve, and yes you deserved the insult, but my ad hominem doesn't make your argument any less leaky.
And yes I do have one oil service stock, FTI, which bought about 3 days ago, and which frankly I'll be holding for about as long as it takes to get up to around 30-40 dollars, which could be 3 days or 3 weeks, 3 months or maybe 3 years.
On Feb 20 07:28 PM the reformed broker wrote:
> not insightful analysis, im no analyst
>
> just my opinion based on my own experience
>
> i dont stick to my guns either, i go the other way if i'm proved
> wrong
>
> and im wrong plenty, and you'll never hear me claim otherwise, although
> from you must be flawless and brilliant
>
> thanks for the personal insult, i must have touched a nerve
>
> On Feb 20 06:23 PM NutritionFacts wrote:
You said:
And yes I do have one oil service stock, FTI, which bought about 3 days ago, and which frankly I'll be holding for about as long as it takes to get up to around 30-40 dollars, which could be 3 days or 3 weeks, 3 months or maybe 3 years.
Guy, that is exactly what I'm saying I'll be doing....trading some of the more high quality ones and getting out into rallies, knowing fully that the broad, upward trend and new highs are a thing of the past.
thanks for agreeing with me. and by confirming that I'm not an analyst, I think you'll agree, you are unwittingly paying me the highest compliment I can think of.
On Feb 21 10:06 AM NutritionFacts wrote:
> Too right you're no analyst.
> And yes it's not about getting it right or wrong; we certainly all
> manage to do both.
> But you could at least *think* before committing pen to paper (so-to-speak).
>
> The fundamental premise for your argument, which is not even hedged
> with 'probably', is flawed.
> Surely even you can see that.
> Yes you touched a nerve, and yes you deserved the insult, but my
> ad hominem doesn't make your argument any less leaky.
> And yes I do have one oil service stock, FTI, which bought about
> 3 days ago, and which frankly I'll be holding for about as long as
> it takes to get up to around 30-40 dollars, which could be 3 days
> or 3 weeks, 3 months or maybe 3 years.
>
The author should have indicated within his article that his conclusions would become immediately wrong in the event that something happened to seriously constrain supply in the immediate future that was outside of simple economics.
Such events could include, but are not limited to
1) Aforementioned isreal vs iran conflict
2) Internal terrorism within saudi arabia
3) Sudden water cut or other intrusion into the guar field
Imagine a scenario in which 1 month from now either #2 happened at the guar field or #3 were to happen and suddenly Saudi Arabia had to reduce daily production by 4 plus million barrels per day, with no word on how long or if ever that production would ever come back online? What would happen to the prices of oil service and other oil majors? I can think that the multiple expansion would be very large in anticipation of a lot of new orders from every nook and cranny around the world. All it takes is 2% of daily production swings to go from boom to bust. Events over the past 24 months have shown us exactly that
Kind Regards
I don't think this has changed. It takes up to 11 years to get a kid entering high school interested in math and willing to look at petroleum engineering, through college and then through the mandatory Master degree. This same brain is being hunted by the IT industry as well. This person will need several months to several years in addition to become familiar with the company's business before meaningful production can be realized. The industry's technology as well, is nothing more than computerized 'stone age' compared to what the Russians are doing.
Just because demand may spike to heaven it may just be impossible to meet that demand quickly. While the commodity is still oil; the capability to meet it will be mired in mud - but not the price of that oil.
Oils and materials are simply cyclical sectors that routinely go through boom and bust cycles. Stocks of well capitalized and well maanged companies should do quite well. Also, China is becoming a voracious consumer of oil. While we consume much more energy then they do, they already consumer 3x more iron ore than US to see where that could head.
Internet stocks, many of them, had no earnings, no earnings history and no path to profitablity. It was a mania, not a cycle.
On Feb 20 10:01 AM ricardoRI wrote:
> Well, we can all agree oil was temporarily overpriced last summer.
> And it is extremely underpriced now, as the futures contango show.
> China will be back soon roaring for more energy, as will India. Americans
> are still so stupid - sales of Hummers actually went up recently!
>
>
> Most of the petro-dictators can't easily survive with sub $50 oil.
> Israel attacking Iran is interesting, but Russia (the biggest, baddest
> oil producer) is more likely. Putin would not have any scruples about
> taking Nigeria off-line, would he? Oh, are there a whole bunch of
> problems now in Nigeria, and Shell is reducing production? I wonder
> where those weapons came from?
>
> Anyone notice what types of weapons are used in the oil tanker attacks
> off Somalia... (Hint: they weren't made in America). You do know
> that a submarine can hide in the turbulence of a tanker...what if
> a tanker was attacked by pirates, and a torpedo accidentally blew
> it up...no survivors or witnesses, of course..."those dumb Africans
> don't know not to smoke on a tanker"...there could be other forms
> of "foreign aid" from Mother Russia, too.
>
> And remember all the oil in former Soviet areas, like Azerbaijan
> and Kazakhstan. I wonder if they will have any problems getting oil
> to market (Ukraine, anyone) or other problems (Georgia...)
>
> Yeah, oil is going to stay in the basement a long time. And Putin
> is going to get a Nobel peace prize.
On Feb 20 08:29 AM longoil wrote:
> Comparing oil services stocks and internet stocks is like comparing
> apples and oranges. The world can live without eBay or Amazon, but
> cannot live without oil and gas.
>
> Conventional oil production has peaked. This is why major oil companies
> are investing heavily in non-conventional projects like the oil sands,
> deep sea drilling and tight gas extraction. The current economic
> malaise has hidden the fact that peak oil is happening. The services
> companies RIG, DO, and NOV as well as producers CHK and COP are excellent
> long term plays when the economy (and oil demand) recovers.
>
> Alternative energy sources (solar, wind, hydro) currently makes up
> less than 5% of the world's energy mix. It will take at least 50
> years to get off of oil and gas. Oil and gas is king till the middle
> of this century.
i did not reference a single "internet" stock with "no earnings"
read the first sentence of my post again'
i mentioned only intc, lu, msft, csco....the real earnings producers of the movement
On Feb 21 04:26 PM Deepv wrote:
> The author makes a poor comparison. If this is how most investors
> think there should be a great opporunity in oils looking out.
>
>
> Oils and materials are simply cyclical sectors that routinely go
> through boom and bust cycles. Stocks of well capitalized and well
> maanged companies should do quite well. Also, China is becoming
> a voracious consumer of oil. While we consume much more energy then
> they do, they already consumer 3x more iron ore than US to see where
> that could head.
>
> Internet stocks, many of them, had no earnings, no earnings history
> and no path to profitablity. It was a mania, not a cycle.
Adam Robinson, head of commodities at Armored
Wolf, a Southern California-based hedge fund, said the United States
has 54.2 days of oil consumption in commercial inventories and if
Energy Department forecasts are correct there will be 56.8 days of
inventories by August. He notes that would be only two days less than
the level reached in August 1998, when oil prices plunged to $12 a
barrel.
"As long as supply isn't falling as fast as demand, prices will keep
falling," Robinson said.
I'm concerned also about the destabalizing effects that the global economic meltdown will have in the ME and everywhere else. The current director of the CIA shares my thoughts:
www.sfgate.com/cgi-bin...
So I share this author's thoughts that, barring a major war, prices will be depressed for some time but NOT for the reasons he gives. By the way, assuming there will be no major war in the ME within the next 2 years is a BIG assumption. Just look at the weakening state of Pakistan, Iran's dogged nuclear pursuit and Israel's recent war of words.
$150 oil by 12/31/2010.
Here is the link to the interview on Bob Brinker's program so you have to suffer through the news, couple of adds and Bob's intro but its worth a listen.
www.kgoam810.com/Artic...
The rest of the century is going to be the tale of declining oil. Our economies are still completely dependant on it, so there will be more peaks in price as the economy again grows to hit the limits of production. Followed again, by recession as the high prices drive the bottom of the market into bankruptcy. I recommend that you use future peaks to get into nuclear.
Clark Jenkins
FishGoneBad.com
On Feb 20 08:29 AM longoil wrote:
> Comparing oil services stocks and internet stocks is like comparing
> apples and oranges. The world can live without eBay or Amazon, but
> cannot live without oil and gas.
>
> Conventional oil production has peaked. This is why major oil companies
> are investing heavily in non-conventional projects like the oil sands,
> deep sea drilling and tight gas extraction. The current economic
> malaise has hidden the fact that peak oil is happening. The services
> companies RIG, DO, and NOV as well as producers CHK and COP are excellent
> long term plays when the economy (and oil demand) recovers.
>
> Alternative energy sources (solar, wind, hydro) currently makes up
> less than 5% of the world's energy mix. It will take at least 50
> years to get off of oil and gas. Oil and gas is king till the middle
> of this century.
the commodity itself could and probably should rally at some point in 2009, but the shares of the oil companies, both producers and servicers, will be for sale after each rally
not comparing the companies to tech companies, but I am comparing the stocks, as they will be waving goodbye to hot money investors on each pop for some time to come...trade'em, don't believe in 'em is the message
sounds like many of my detractors agree with me without realizing it
The deflation of the price of oil, along with so many other commodities and other equities, is a situation caused by a larger problem --- a collapse in available credit and liquidity. NOV, RIG, and others still have a great deal of cash and actually make money.
The real problem will end up supply destruction, not demand destruction and T. Boone Pickens prediction of 300 dollar a barrel oil could come to pass. Too many geo-political hot spots and too many countries like Iran, Mexico, and Venezuela that need higher oil prices to support their collapsing economies. The longer we stay at these low levels, the worse it will be when either demand returns, natural events disrupts supply , or one of many geopolitical situations erupts.
We would be better off if the world agreed to a fixed price of 75 to 80 dollars a barrel for five years, while we sort out the financial meltdown. Very tough to fight inflation with the Fed rate at zero.
Even if by some act of God a new oil vein is tapped and the stuff starts flowing like water, it won't do much good for a recovery when you have however many hundreds of thousands (or millions - who knows, the car makers are certainly being obtuse when it comes to inventory unless requesting a piece of the FAILout pie) unsold new cars lying on race tracks collecting dust and depreciating by the minute.
Deal. Oil is done. Next.
That being said Josh I tend to agree with you. Sector bubbles occur during every bull market. However, this tends to be the last hurrah for those sectors for a very long time. What usually happens is a new sector or group of stocks lead a new bull market. The old leaders do not. You are right there are several of these names that will never go back to their old highs. They will either tank completely or be bought at significantly lower levels by their much bigger, better capitalized competitors.
Sure people can try and make a fundamental case for the continued rise in oil price, but these were the same folks who said I was crazy when I pointed out a major oil correction was coming at the end of 07. I was a tad early but oil was well over 100 then and has since cratered. If you think the global business cycle is swooning now, just let oil take off again and stay at those incredibly speculative highs. It is not in the capitalist or the working man's bets interest to see this happen. I, too, took flack for my crazy prediction. Make no mistake oil will bounce sharply, technically it has fallen too hard, too quickly. This is not the first time peak oil has been kicked arpund by the speculators, nor will it be the last. But it will take an end of the world scenario to bring it back to where it was at the peak.
Nevertheless, even if the price of oil skyrockets the companies exploring for, drilling or producing it will not benefit handsomely from it. Sure relief rallies are in store for the sector. It along with most of the stock prices in it have been obliterated. A few stocks may rally to new highs but most will never rise enough to allow the hot money trapped in them an escape.
I am not afraid to stand by any of my writings. Hey, not one investor is right all the time, but by posting sound information in front of a community of other investors it may allow everyone to benefit as a well thought out debate should follow. I think everyone needs to exercise civility and start posting their real names. That may stop some of the unnecessary carping.
but I think when people are frustrated because they believe that "they are right and the market is wrong" they tend to lash out at anyone within reach.
as far as the stocks, there will be oil rallies, but these stocks have nseen the salad days and I like your rationale as a complement to mine
g'luck
On Feb 22 11:44 PM appledeadmoney wrote:
> I wish people would remain civil on this board, especially in their
> disagreements. These exchanges our to be intellectual and educational.
> Words like idiot and fool have no place here. Those resorting to
> that level of debate demonstrate their own inability to communicate
> effectively or intelligently. I, myself, stopped posting due to the
> mean spirited feedback I would receive. Why help those who know everything?
>
>
> That being said Josh I tend to agree with you. Sector bubbles occur
> during every bull market. However, this tends to be the last hurrah
> for those sectors for a very long time. What usually happens is a
> new sector or group of stocks lead a new bull market. The old leaders
> do not. You are right there are several of these names that will
> never go back to their old highs. They will either tank completely
> or be bought at significantly lower levels by their much bigger,
> better capitalized competitors.
>
> Sure people can try and make a fundamental case for the continued
> rise in oil price, but these were the same folks who said I was crazy
> when I pointed out a major oil correction was coming at the end of
> 07. I was a tad early but oil was well over 100 then and has since
> cratered. If you think the global business cycle is swooning now,
> just let oil take off again and stay at those incredibly speculative
> highs. It is not in the capitalist or the working man's bets interest
> to see this happen. I, too, took flack for my crazy prediction. Make
> no mistake oil will bounce sharply, technically it has fallen too
> hard, too quickly. This is not the first time peak oil has been
> kicked arpund by the speculators, nor will it be the last. But it
> will take an end of the world scenario to bring it back to where
> it was at the peak.
>
> Nevertheless, even if the price of oil skyrockets the companies exploring
> for, drilling or producing it will not benefit handsomely from it.
> Sure relief rallies are in store for the sector. It along with most
> of the stock prices in it have been obliterated. A few stocks may
> rally to new highs but most will never rise enough to allow the hot
> money trapped in them an escape.
>
> I am not afraid to stand by any of my writings. Hey, not one investor
> is right all the time, but by posting sound information in front
> of a community of other investors it may allow everyone to benefit
> as a well thought out debate should follow. I think everyone needs
> to exercise civility and start posting their real names. That may
> stop some of the unnecessary carping.
On Feb 21 05:48 PM User 361647 wrote:
> almost everything is made from oil. with out it we will be back in
> the 1800's u can have a horse and grow your own food. since most
> people can do neither only the strong will be left . There is your
> change you voted for.
I agree. The poster thinks the name of the site is "Seeking Zeta".
On Feb 20 09:04 AM SkipinCA wrote:
> You don't seem to address the fundamentals of peak oil or the ability
> of suppliers to bring production into balance with demand. This was
> not a well reasoned article and forgive me, but a good example of
> the worst side of SA.
That could also spur much-needed competition from alternative energy sources, primary among them being nuclear. Nuclear energy and its proper handling and disposal of wastes is highly technical and would educate the American people, if they would listen. But other energy sources are also valid and necessary too. It will also relax world tension.
Oil should be in everyone's long position because its here to stay for a hundred years or more. It's like saying that air is in short supply but we should short it anyway, because everyone is exhaling less lately. Its time to breathe normally.
That being said, I look at the valuations of a company like CHK or MCF (which are very different companies in the same industry (nat gas)) and I say, boy, this market IS crazy! These copmanies do not need $12/mcf in gas prices to generate huge profits. they could live with $6-$7 just very very fine - when most other companies in that business will struggle and cut production left and right.
CHK at $15 and MCF at $36 are so screaming bargains, that I could not care less whether or not their earnings or stock prices or both will ever surpass their historical peaks. Just a return to a normalized economic and commodity environment would make their stock prices double or triple from here - and still be very very reasonably valued.
It's already been stated throughout the comments, but there are very few similiarities between oil & gas and the high tech stocks. if demand for computers shoots up from 8000 to 10000 units for a company, they simply ramp up production --- it probably does not increase their average costs over the long-term (in fact, it may lower them). More demand simply leads to more competition and greater price cuts.
If demand for oil shoots up, production is ramped up, but as lower-cost fields are rapidly being depleted, that means that producers have to extract oil using higher-cost processes. This means that as demand goes up, prices continue to go upwards rather than getting pushed downwards by competitive forces that might be present in other industries. In this sense, oil is nothing like the high-tech stocks that dominated the late '90s.
The only way oil prices go down is via demand-destruction. Given the average costs of production and the total demand right now, I think it's very unlikely that oil would dip much below $25/barrel and even that might be below the actual floor. We still haven't seen it push $30/barrel yet. And the days of $10/barrel oil are long gone.
news.goldseek.com/Gold...
Since the Obama administration wants to "stimulate" the economy, they will do anything they can put their hands on to make sure that energy prices are managed so that people don't freak out and totally stop dead in their tracks to do what Bush wanted everyone to do: go out and shop till ya drop! And buy those big SUVs!
1) U.S. oil consumption is approximately 21 million barrels of oil per/day. The population of the U.S is 303 million meaning that each person in the U.S. uses approximately 3 gallons of oil per/day.
China's oil consumption is approximately 8.05 million barrels of oil per/day. With a population of 1.3 billion that averages only .25 gallons of oil consumption per/person per/day.
Can you imagine what would happen to world oil demand/supply situation if they ever reach the same level as the United States? That would be a 12 fold increase to almost 97 million barrels - unlikely but even and increase to 1 gallon per/person per/day would be more than the U.S. consumption at 21 million.
2) Take a look at the gold/oil ratio which is currently at a 10 year high of 25:1 - historically this ratio has maintained a level of 10:1 to 14:1.
If you think gold is going to come down to bring this ratio into line - think again. With the amount of money that's been printed by the Treasury over the last 7 years and with no end in sight for the foreseeable future, the inflationary spiral we are about to see will unprecedented!
Oil and gold my friend are both going to new highs!
On Feb 20 08:29 AM longoil wrote:
> Comparing oil services stocks and internet stocks is like comparing
> apples and oranges. The world can live without eBay or Amazon, but
> cannot live without oil and gas.
>
> Conventional oil production has peaked. This is why major oil companies
> are investing heavily in non-conventional projects like the oil sands,
> deep sea drilling and tight gas extraction. The current economic
> malaise has hidden the fact that peak oil is happening. The services
> companies RIG, DO, and NOV as well as producers CHK and COP are excellent
> long term plays when the economy (and oil demand) recovers.
>
> Alternative energy sources (solar, wind, hydro) currently makes up
> less than 5% of the world's energy mix. It will take at least 50
> years to get off of oil and gas. Oil and gas is king till the middle
> of this century.
SCAN THE ARTICLES AND FOCUS ON THE GOOD COMMENTS!!!
Some good thoughts hidden in these comments, folks!
Furthermore, like most savants, I possess 20/20 hindsight.
I'm investing in integrated oil companies in dribs and drabs. So, if oil goes up, I'll keep up with inflation (maybe). If it goes down, I won't get killed (important when you're retired!). Meanwhile, I'll collect my dividends until they, too, disappear into thin air.
Reminds me of Woody Allen's definition of an investment counselor: "someone who helps you to invest your money until it's all gone".
Words of wisdom, those.
Currently, we are in a period of deflation and the credit market is still thawing. As such demand has been hit, and CAPEX has necessarily been greatly reduced. However, there is only a finite amount of demand that can be curtailed without completely halting the economy. Capacity reductions lead to near term equilibrium at the expenses of future imbalances in supply and future demand. Under investment, is laying the groundwork for incredible inflation, a pattern we will see across the whole economy. Price increase in energy should spike in '10- '11, as under investment in '09-'10 will create supply constrictions as demand returns with the economy. If you look at the NYMEX strip you can already see it has moved from contago towards backwardation, based on fears that capacity is insufficient even today; and, this is before planned Capex reductions make a dent in supply.
I have not even mentioned the effect of acceleration in demand from China and India, or the fact that we have likely passed peak oil. For that matter, I will stay on the macro level, leaving out the fact that all the companies you have mentioned are profitable at current commodity prices.
Look at where the preponderance of hydrocarbons are located and then think about your thesis. A couple of examples of the problems created by the geopolitical picture;
The risk of an exogenous shock, say a configuration in the Middle East between Iran and Israel resulting, as it would, in the straits of Hormuz closing for an undetermined time. Or an attack on or destruction of Saudi Arabia's Ras Tanura facilities; about 10% of the world's supply goes through this loading platform and refinery. These are just two very real scenarios, that which fundamentally alter the price of oil. Any econometric model will show you the effect of even a mild shock to the market.
Russia, Qatar and Iran are talking about creating an OPEC like cartel for natural gas. Collectively, they control around 60% of the world's supply. Given their ideology, I wonder what effect that would have on a MCF of natural gas?
I am not really sure how anyone can conclude hydrocarbons have seen there best days when thematically you have a finite resource and long term sustained demand growth.