econjunkie

Why Is Oil Trading at $53 When Supply and Demand Is So Bearish?

Long_on_Oil,

What about producers that require cash flow to cover debt service, retirement obligations, and operating expenses? Especially if they have just been expanding rapidly and taking on debt, which a lot of firms have. What if they can't refi their debt (a familiar situation, especially for juniors)? The project starts with profit as an end, but you're ignoring the financing of these projects. I agree with the spirit of your statement however, the business cycle is frustrating.


On Mar 24 09:14 AM long_on_oil wrote:

> When the price of oil was high the oil companies tried to maximize
> profits by drilling new wells and increasing supply. Now that the
> price is low the opposite will be the rule. The stockholders must
> demand profit maximization irregardless of the price of oil. This
> is just business 101.
> Why the natural gas companies aren't cutting production is beyond
> me. We stockholders should be writing our management to insist they
> cut production to protect our investment. We are tired of giving
> our product away. No responsible management of any successful company
> operates like these natural gas companies.

The Case for Natural Gas

Nat gas demand in the long-run will increase from new power gen. Currently available renewables can't provide the capacity increases required to meet load. Add to this the fact that heating demand in the Northeast is relatively inelastic. Subtract from this the absolute crushing industrial demand has taken, growing inventories due to the lag in well shut-ins (a lot of these guys are keeping wells flowing gas for cash).

The 200-day MA is incredibly deceiving given that the front-end of said metric takes into account one of the biggest BS run-ups in the history of gas pricing.

Long run gas looks good, but I don't expect $10 prices anytime soon.

Disclosure: long UNG