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Elliott Gue

 
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  • Updated Outlook For Crude Oil [View article]
    The current 3-2-1 Crack spread -- the approximate profit derived by using 3 barrels of WTI to produce a barrel of heating oil (diesel) and 2 barrels of gasoline -- currently stands at a little over $20/bbl. That's the highest level since early August and is probably the most important driver of the recent surge in the refiners.
    Nov 13, 2013. 05:43 PM | 4 Likes Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    M King Hubbert died in 1999 but the "peak oil" concept lived on long after he passed away.

    Actually, I think he was half right. The world can produce more oil but the "easy" oil is gone. Producers are increasingly targeting more technically complex and expensive-to-produce fields such as deepwater and unconventional.

    The End of easy oil is one of the most powerful themes in the energy markets today.
    Nov 13, 2013. 05:41 PM | 2 Likes Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    Not to put too fine a point on it but....

    The premium for California oil isn't due to the size of California's energy (or oil demand) but to a lack of sufficient in-State production, requiring the import of more expensive supplies from abroad.

    I didn't mention natural gas in the article because it was an article about the outlook for oil. I agree that natural gas is an extremely promising fuel long term but oil and gas aren't really substitutes for one another. Oil is a transportation fuel and natural gas is primarily a fuel used for heating and electricity production. The idea that natural gas will become a key transportation fuel in the short-run is unrealistic. Even Exxon Mobil, a company which made a $41 billion bet on the future of nat. gas when it purchased XTO, sees gas accounting for just 4 percent of global transport demand in 2040 compared to 1 percent today.

    Currently, the US imports about 500,000 barrels of gasoline per day and exports 375,000 for daily net imports of roughly 125,000 bbl/day. Since we use 9.3 million barrels of gasoline per day, US net gasoline imports account for 1.4 percent of supply so I think you're exaggerating the importance of cheap US gasoline imports.

    Finally, solar (like most alternative energy sources) isn't really a disruptive technology at all. Solar is expensive and completely unreliable as a baseload power source. The idea that solar (or wind or tide or any other "alternative" energy source) will supplant fossil fuels like oil, gas and coal for the foreseeable future is an unrealistic dream.

    Of course, that doesn't mean you can't make money buying momentum-driven alt energy names from time to time. But, the bigger longer-term opportunity is in efficiency and companies that are making the internal combustion engine more efficient. Also, groups like freight rail are benefiting as its cheaper from an energy perspective to move goods by rail than truck.
    Nov 13, 2013. 05:37 PM | 5 Likes Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    Like any physical commodity, it's true that oil will benefit from inflation/currency weakness.

    That said, I think this is often exaggerated as a driver of oil prices. The real story globally with Brent is that demand is on the rise and accelerating thanks to a bit of an improvement in the global economy of late. At the same time, non-OPEC production growth outside North America has been disappointing; the global oil market and OPEC spare capacity remain tight. The Saudis, in particular, are spending big to try and increase their production capacity and maintain global spare production capacity close to current levels.
    Nov 13, 2013. 10:39 AM | 2 Likes Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    That will depend on where the major oil company is producing and where their refining capacity is located. Generally the more they're exposed to US/Canada oil production, the more wide differentials will hurt them. In contrast, US/Canada refining and chemicals capacity are positives because they give these companies access to cheap North American feedstocks.

    More broadly, I would be selective with the oil majors. One of my big problems with the large integrated names like Exxon is that they really aren't showing much production growth right now. Nor do they offer particularly attractive yields.

    That's why we've been focusing more on faster growing producers and services companies for investors interested in growth and on groups like the MLPs/LLCs and US trusts for those focused more on yield.

    I recently wrote up a piece on Linn Energy and on the oil services names for Seeking Alpha. Here are the links if you're interested:

    http://seekingalpha.co...

    http://seekingalpha.co...
    Nov 13, 2013. 10:36 AM | 1 Like Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    That's not really how the oil markets work as it ignores the crude quality and infrastructure bottlenecks I covered in the article.

    WTI delivered to Houston and Light Louisiana Sweet (LLS) (priced in St. James, LA by definition) would compete with imported light, sweet crude oils like Brent and Bonny Light. US demand for imported light, sweet crude oil is fast approaching zero and is next-to-zero on the US Gulf Coast, the largest refining center in North America. So, US oil prices -- including the prices of WTI and LLS -- would not need to rise to continue attracting imports because those imports aren't necessary.

    What the US will have to continue importing (as my chart above shows) is heavier oils like Maya from Mexico. Most refineries are set up to blend a particular mix of crudes and the refineries on the US Gulf Coast are already maxed out on light sweet and need more heavy, sour oils to run properly. Fortunately, these heavier grades of crude trade at a significant discount to light, sweet varietals like Brent on world markets.
    Nov 13, 2013. 10:27 AM | 5 Likes Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    That's not really how the oil markets work as it ignores the crude quality and infrastructure bottlenecks I covered in the article.

    WTI delivered to Houston and Light Louisiana Sweet (LLS) (priced in St. James, LA by definition) would compete with imported light, sweet crude oils like Brent and Bonny Light. US demand for imported light, sweet crude oil is fast approaching zero and is next-to-zero on the US Gulf Coast, the largest refining center in North America. So, US oil prices -- including the prices of WTI and LLS -- would not need to rise to continue attracting imports because those imports aren't necessary.

    What the US will have to continue importing (as my chart above shows) is heavier oils like Maya from Mexico. Most refineries are set up to blend a particular mix of crudes and the refineries on the US Gulf Coast are already maxed out on light sweet and need more heavy, sour oils to run properly. Fortunately, these heavier grades of crude trade at a significant discount to light, sweet varietals like Brent on world markets.
    Nov 13, 2013. 10:27 AM | Likes Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    Historically that's involved a number of factors including location, quality of the oil (heavy/light sweet/sour) and infrastructure (pipelines). At this time, geography and access to end markets is the dominant consideration over crude quality. For example, heavy oil produced in California trades at a premium to light, sweet oil produced in North Dakota.
    Nov 13, 2013. 10:19 AM | 2 Likes Like |Link to Comment
  • Mounting Evidence Suggests Linn Energy LLC Is In The Clear [View article]
    Not much changes actually.

    First, the vast majority of Linn's production is hedged for 5 years in the future at prices much higher than that.

    Second, the Berry acreage they're acquiring is in California where oil prices are tied to waterborne markets like Brent, not the WTI prices you reference. Brent is currently at over $105/bbl.
    Nov 4, 2013. 04:11 PM | 8 Likes Like |Link to Comment
  • Oil Field Services Companies: Key Takeaways From Q3 Results And Investment Implications [View article]
    Thanks for the comment. In the article I was referring specifically to the outlook for global services firms, not the drillers. It's extremely important to make this distinction: Schlumberger, Weatherford, Halliburton and Baker Hughes are not contract drillers -- they do not own rigs that they lease out to producers for a fee known as a day-rate.

    For Schlumberger, a growing fleet of deepwater rigs is really great news because deepwater wells are 10 to 13 times more service-intensive than onshore rigs. That means that they have the opportunity to sell more of their services as these rigs are put to work.

    That said, I do not think that the outlook for deepwater drillers is all that negative despite the new supply of rigs. The fact is that the majority of these rigs already have signed contracts to work as soon as they're delivered from the shipyard. Given the sheer number of new deepwater discoveries and prospects out there, I suspect the remaining uncontracted rigs will be contracted before they're delivered.

    Note: I have been a long-term bull on Seadrill but have recommended taking profits on the stock.
    Nov 2, 2013. 10:47 AM | Likes Like |Link to Comment
  • Oil Field Services Companies: Key Takeaways From Q3 Results And Investment Implications [View article]
    Thanks for the comment. The North American side of the business is in a pretty steep downturn with pressure pumping margins still sliding and the weakness spreading to other product lines. I do think were nearing (or scraping along) the bottom there.

    The international business is finally beginning to recover from the last downturn...I think we could see some pretty solid spending growth into 2014 as the supply/demand balance for oil and gas remains tight outside North America. Saudi Arabia for one is spending billions to develop more spare capacity.
    Nov 1, 2013. 10:13 AM | Likes Like |Link to Comment
  • Oil Field Services Companies: Key Takeaways From Q3 Results And Investment Implications [View article]
    Thank you.

    No, the fundamental issue is that Carbo Ceramics (CRR) is still too focused on ceramic proppant, which is disadvantaged in the current environment.

    Producers in the US are moving away from ceramics in favor of raw sand (such as what HCLP mines). Raw sand is much cheaper than ceramic and the latter's main advantage is crush resistance, which is more of an issue in deep gas wells, not typically shallower oilfields.

    I covered these issues at more depth in this SA article from June:
    http://seekingalpha.co...
    Nov 1, 2013. 10:08 AM | Likes Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    I'd avoid all of the refiners right now. In particular, I think some of the high-yield names like ALDW, NTI, etc will be vulnerable to the decline in spreads. When these names start to pay out lower quarterly distributions, there's risk that income-oriented investors attracted to their sky-high yields will be spooked.
    Aug 22, 2013. 09:56 AM | Likes Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    That's certainly one valid takeaway. US producers will benefit from higher realizations this year due to the closing WTI-Brent spread.

    While I think the spread will open up a bit heading into 2014, average spreads will be much less going forward than the extreme levels of late 2012.
    Aug 22, 2013. 09:35 AM | 1 Like Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    That may well be true but the refiners are reluctant to blend above 10% due to fear of lawsuits. Certainly, refiners like Valero wouldn't be paying up for RINs if they could simply blend a bit more ethanol into gasoline and meet their mandates. It would be cheaper for them to blend more ethanol than to buy the RINs.
    Aug 22, 2013. 09:33 AM | 2 Likes Like |Link to Comment
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