How High Can Oil Prices Rise? (Part 2 of my previous thread)

[Dan Warnick + 6,100]

10 hours ago, ceo_energemsier said:

The prices will come down but will be shortlived. There has to be "real meat & teeth" in an event, bit of news, real life event to cause prices to fall and stay @ that level. I dont see these bits of info to create a long lasting drop in prices.

In other words, it doesn't take much in an environment of uncertainty to drive prices up; it takes a substantial bit of news to bring prices down.  At least in the oil game/casino.

[Tom Kirkman + 8,860]

1 hour ago, Dan Warnick said:

Hi Tom.  To also highlight your point "It should usually be sufficient to copy & paste just a paragraph or two - or even a few if necessary (Fair Usage) along with a link to the article.".  I find it to be very interesting to have a taster, if you will, of a paragraph or two/three that gives me some idea if I want to pursue a further read.  And to the opposite end of the spectrum, if a paste job results in a TLDR (too long, didn't read), what's the point.  And, lastly, if an entire long article is pasted, it makes it more difficult to respond to.  Thanks for bringing it up and addressing it.

Thanks Dan.

I cut my teeth over a decade ago on the topic of "Fair Use" on the internet (on Freedom of Speech forums).  There are no hard and fast rules.

A 'taste' of a paragraph or so should be sufficient to get readers to click on the source.

Copying & Pasting an entire article is generally not good.  It deprives the source of internet traffic. 

There are exceptions, such as grabbing something before it gets deleted (but screencaps are better for this scenario).

Not providing a link to the source is another no-no.  I've been amused over the years reading musings by others (on non-anonymous forums - LinkedIn for example) that were my words - exactly word for word - but no acknowledgement that they were my ideas and words.  Not a biggie, I've also spent years on anon forums, and on anon forums it's the ideas that count, and not the identity of who wrote it.

[Dan Warnick + 6,100]

3 minutes ago, Tom Kirkman said:

Thanks Dan.

I cut my teeth over a decade ago on the topic of "Fair Use" on the internet (on Freedom of Speech forums).  There are no hard and fast rules.

A 'taste' of a paragraph or so should be sufficient to get readers to click on the source.

Copying & Pasting an entire article is generally not good.  It deprives the source of internet traffic. 

There are exceptions, such as grabbing something before it gets deleted (but screencaps are better for this scenario).

Not providing a link to the source is another no-no.  I've been amused over the years reading musings by others (on non-anonymous forums - LinkedIn for example) that were my words - exactly word for word - but no acknowledgement that they were my ideas and words.  Not a biggie, I've also spent years on anon forums, and on anon forums it's the ideas that count, and not the identity of who wrote it.

Didn't think about or know about a couple of those points.  Thanks.

One thing I wanted to point out earlier and forgot:  A link only, by itself, with no taster, can also get the same amount of interest as a TLDR.  The taster/teaser is key and I get it now about providing the link in all cases.

[Tom Kirkman + 8,860]

1 minute ago, Dan Warnick said:

One thing I wanted to point out earlier and forgot:  A link only, by itself, with no taster, can also get the same amount of interest as a TLDR.  The taster/teaser is key and I get it now about providing the link in all cases.

Yep.  Just a link with no explanation is just as bad as a wall of copypasta text.

Best is usually just a link with a teaser summary, and followed up with your own comment.

 

[Dan Warnick + 6,100]

After all this verbiage about etiquette, I really must say that by no means am I dinging @ceo_energemsier, because he/she is a great contributor with a lot of very relevant and interesting content added by him/her all the time.

[Tom Kirkman + 8,860]

7 minutes ago, Dan Warnick said:

After all this verbiage about etiquette, I really must say that by no means am I dinging @ceo_energemsier, because he/she is a great contributor with a lot of very relevant and interesting content added by him/her all the time.

Agreed.  I'm not picking on ceo_energemsier either.

Just pointing out general guidelines for links on forums.

[Osama + 248]

WHERE IS EVERYONE?

Tired of reading same headlines over and over again? Same here! 

There was one observation that I'd lie to share with you all---please tell me if you have noticed it as well?---the recent news of IRANIAN SANCTIONS cutting in even more exports of Iran came as no surprise but what surprised me was the reaction of the market--somewhat and relatively dull/damp. I suspect that we need different headlines to re-install the recent insane bullish moves we just witnessed-- @ATK can you help the media outlets design one?

So, if we see another build up tomorrow I expect a few bearish days ahead.....that is to assume if there is still a modicum of sanity left in the markets--- @Dan Warnick you think so? @ceo_energemsier what's your take? @Marina Schwarz, still the penguin?

Here is another one:

IEA Urges OPEC to Open the Taps as Oil Market Enters ‘Red Zone’ (Red Zone---mind it ya bears!..including me)

Link: https://www.bloomberg.com/news/articles/2018-10-09/iea-urges-opec-to-open-the-taps-as-oil-market-enters-red-zone

 

[ATK + 355]

4 minutes ago, Osama said:

WHERE IS EVERYONE?

Tired of reading same headlines over and over again? Same here! 

There was one observation that I'd lie to share with you all---please tell me if you have noticed it as well?---the recent news of IRANIAN SANCTIONS cutting in even more exports of Iran came as no surprise but what surprised me was the reaction of the market--somewhat and relatively dull/damp. I suspect that we need different headlines to re-install the recent insane bullish moves we just witnessed-- @ATK can you help the media outlets design one?

So, if we see another build up tomorrow I expect a few bearish days ahead.....that is to assume if there is still a modicum of sanity left in the markets--- @Dan Warnick you think so? @ceo_energemsier what's your take? @Marina Schwarz, still the penguin?

Here is another one:

IEA Urges OPEC to Open the Taps as Oil Market Enters ‘Red Zone’ (Red Zone---mind it ya bears!..including me)

Link: https://www.bloomberg.com/news/articles/2018-10-09/iea-urges-opec-to-open-the-taps-as-oil-market-enters-red-zone

 

IEA is basically saying, current oil prices are harming economies and demand in emerging markets, aka demand destruction.

"A month of $100 barrel will be worth the longterm negetive effects on the global economy " says every hedge fund manager

Also bulls keep in mind, we now have a clearer picture of how much Iranian exports have decreased by, further decreasing uncertainty. If China and India continue buying from Iran  that should at least keep exports in the area of 700,000 bpd, so at most 300 -400k would remain to be replaced. Speculation gravy train coming to an end !

Edited October 9, 2018 by ATK

[Dan Warnick + 6,100]

I couldn't tell you what is going to happen over the next few days.  My view over the next 6 weeks is up, possibly as high as $90 for WTI.

[Osama + 248]

6 minutes ago, ATK said:

IEA is basically saying, current oil prices are harming economies and demand in emerging markets, aka demand destruction.

"A month of $100 barrel will be worth the longterm negetive effects on the global economy " says every hedge fund manager

Also bulls keep in mind, we now have a clearer picture of how much Iranian exports have decreased by, further decreasing uncertainty. If China and India continue buying from Iran  that should at least keep exports in the area of 700,000 bpd, so at most 300 -400k would remain to be replaced. Speculation gravy train coming to an end !

I hope so!!

[Osama + 248]

7 minutes ago, Dan Warnick said:

I couldn't tell you what is going to happen over the next few days.  My view over the next 6 weeks is up, possibly as high as $90 for WTI.

Well-----just let me get out of my position.... and we will pray for it together. Hah!

[Auson + 123]

I don't really want to see $90 WTI right now but it could happen, I think $80 WTI is likely.

But for my own UK investments over $70 WTI will be just fine.

[ceo_energemsier + 1,818]

2 hours ago, Osama said:

WHERE IS EVERYONE?

Tired of reading same headlines over and over again? Same here! 

There was one observation that I'd lie to share with you all---please tell me if you have noticed it as well?---the recent news of IRANIAN SANCTIONS cutting in even more exports of Iran came as no surprise but what surprised me was the reaction of the market--somewhat and relatively dull/damp. I suspect that we need different headlines to re-install the recent insane bullish moves we just witnessed-- @ATK can you help the media outlets design one?

So, if we see another build up tomorrow I expect a few bearish days ahead.....that is to assume if there is still a modicum of sanity left in the markets--- @Dan Warnick you think so? @ceo_energemsier what's your take? @Marina Schwarz, still the penguin?

Here is another one:

IEA Urges OPEC to Open the Taps as Oil Market Enters ‘Red Zone’ (Red Zone---mind it ya bears!..including me)

Link: https://www.bloomberg.com/news/articles/2018-10-09/iea-urges-opec-to-open-the-taps-as-oil-market-enters-red-zone

 

The biggest and most significant driver of prices right now is as I said before the "elephant in the room", Iran's exports based on what the buyers of their crude oil are willing to risk with the sanctions coming up fast. In one of my opinions that I posted I gave several points that could and would affect the prices driving up or down both for the short term and long term outlook. Another factor in the world crude supply is Venezuela and we know how bad that is and not expected to improve anytime soon. The media is a "pump and dump" scene, someone sneezes and they say damn bird flu versus maybe just allergies, as a metaphor. The speculative futures trading of crude and commodities and the speculative buying and selling of these contracts  feeds into it and is fed by it, the news cycles it makes and creates and perpetuates. Putting Iran and Venezuela together should create a long term price escalation if indeed Iranian sanctions achieve what they are intended for.

Here it is again for reference

From my perpective,

It all depends on

1) When the sanctions will be enforced and if the importers of Iranian crude & condensate will be given any additional time to "wrap up" loose ends with their Iranian cargoes

2) If the US will provide waivers to certain countries and for how much volume , will it be just a token? and for how long?

3) It is a fact that buyers of Iranian oil & condensate can successfully lift oil cargoes from South America, West Africa , Russia and Mid East (Q8, KSA, UAE, Oman) and North Sea as well as US crude that can make it down to the USGC for exports.

4) The Panama Canal can facilitate more US barrels moving across the Pacific to FEA & PACRIM (S. Korea, Japan etc minus China due to Tariff issues , however no tariffs on US crude yet). China suppliers may also be able to circumvent the tariff and political hot potato of buying US crude via blending of US crude with crude oils from other countries by carrying out lightering and ship to ship transfers and this has been done and is being done. This process is also fairly normal practice in physical crude trade.

5) The desire and courage? of countries to defy US sanctions. Risk VS reward for India, China, EU  states and other countries to keep buying a large volume of Iranian oil

6) The willingness and resolve of the US to enforce the sanctions and go after violators

7) US willingness to use the stick and carrot on the enforcement of sanctions

8.)  We have historical evidence of the capabilities of the US to enforce navy blockades and enforcement of embargoes in the Arabian Gulf, Hormuz Straits and the Red Sea and the Suez Canal. The bottlenecks work in favor of the naval enforcement of sea trade outflow within that region

9) The US's ability to impose financial blockade

10) We have to wait and see Saudi Arabia's response to the supply issue, however, I strongly believe they will work in their best interests to capture as much market share as possible for however the length of the sanctions , not to forget Russia wanting to do the same. These two will be the "key suppliers" to China and India in the event of a truly enforced sanction and blockade of Iranian barrels as their crude oil grades and condensates fall in line with the requirements of the major Chinese and Indian refiners and their refineries product slates.

11) Iran may barter with Russia for crude swap to other commodities.

Adding to this , there is data coming out of China that their demand is growing for refined products and oil and the coming winter in CHina will further add to the demand increase in all forms of energy. That is another factor that will drive demand and prices. India is in a precarious position, they need cheaper oil , they have already slashed domestic fuel prices to maintain the "calm" of their population and with elections coming up on the horizon the current admin cant afford to have that public disaster and have protests leading to losses in the elections.

What India does for its own benefit will be a part of the future price range in terms of India to continue buying Iranian oil under what ever terms they think they could use to circumvent US sanctions and same with China. Most recent data and info shows that Iran suffered further losses in the first week of October in terms of exports.

[ceo_energemsier + 1,818]

I am "copying and pasting" some of these articles in whole. When they arrive in my inbox, there is no link some times, just the source name @ the end of the article.

 

Rocked by Trump’s sanctions, Iranian oil exports drops further

09/10/2018

 

Iran’s crude exports fell further in the first week of October, according to tanker data and an industry source, taking a major hit from U.S. sanctions and throwing a challenge to other OPEC oil producers as they seek to cover the shortfall.

The Islamic Republic exported 1.1 million barrels per day (bpd) of crude in that seven-day period, Refinitiv Eikon data showed. An industry source who also tracks exports said October shipments were so far below 1 million bpd.

That’s down from at least 2.5 million bpd in April, before President Donald Trump in May withdrew the United States from a 2015 nuclear deal with Iran and reimposed sanctions. The figure also marks a further fall from 1.6 million bpd in September.

Tanker schedules are often adjusted and exports can vary week by week. The early October figures add to signs, however, that Iranian exports are falling more steeply than expected, stretching the ability of Saudi Arabia, non-OPEC Russia and other producers to fill the gap.

“The U.S. government’s tough stance raised the stakes for a more significant Iran export loss than previously foreseen,” said Norbert Ruecker, head of macro and commodity research at Swiss bank Julius Baer.

Oil prices have extended a rally on expectations the sanctions will test the Organization of the Petroleum Exporting Countries and other producers. Brent crude LCOc1 on Wednesday last week reached $86.74 a barrel, the highest since 2014.

None of the Iranian crude exported in the first week of October is heading for Europe, according to the Refinitiv data. The tankers are sailing to India, China and the Middle East.

While Washington has said it wants to cut Iran’s oil exports to zero, Iran and Saudi Arabia say that is unlikely. The Trump administration is considering waivers on sanctions for countries that are reducing their imports.

India, a major buyer, has ordered Iranian oil for November, although New Delhi does not yet know whether it will receive such a waiver.

Iran has questioned whether the market needs more oil and says its output is holding steady at about 3.8 million bpd. Iran has pledged to block any OPEC supply increase that the country deems to be against its interest.

“The market does not want a single barrel,” Iran’s representative on OPEC’s board of governors, Hossein Kazempour Ardebili, told Reuters in late September.

But figures OPEC compiles from secondary sources that include oil-industry media and government agencies put output in August at 3.58 million bpd, down 150,000 bpd from July. Some of these sources say output fell further in September.

Iran may indeed have not cut production yet to match the rate of decline in its exports, as the country appears to be storing more oil on ships as it did during sanctions that applied until the 2015 nuclear deal.
Source: Reuters (Reporting by Alex Lawler; Editing by Dale Hudson)

[ceo_energemsier + 1,818]

I am "copying and pasting" some of these articles in whole. When they arrive in my inbox, there is no link some times, just the source name @ the end of the article.

09/10/2018

 

The oil tanker market is surging amid signs that impending U.S. sanctions against Iran are prompting rival producers in the Middle East to ramp up shipments.

Rates to haul 2-million-barrel cargoes to Asia jumped to $40,275 in the week ended Oct. 5, more than doubling from late September, according to data from Clarkson Research Services Ltd., a unit of the world’s biggest shipbroker. Asia is sourcing more crude from the U.S. and West Africa, increasing the length of journeys, according to researcher Petromatrix GmbH.

“Crude demand from Asia increases from October and will peak in the next two months,” Olivier Jakob, managing director at Petromatrix, said by phone. “That’s why we expect October chartering activity will be higher than September.”

Oil Tanker Rates Surge as Iran Rivals Look to Be Boosting Supply
The Persian Gulf is by far the world’s biggest crude-exporting region and is home to rivals Saudi Arabia and Iran. Saudi Arabia is already pumping enough to make up for the loss in Iranian supply due to U.S. sanctions and can produce more if needed, Saudi Crown Prince Mohammed Bin Salman said in an interview last week.

Strong Demand
“Asian buyers are also sourcing more from the U.S. and West Africa, that’s also helping ton/mile calculations and reducing the availability of tankers,” Jakob said.

A total of 78 supertankers were booked on the Middle East spot market in the first week of October, compared with 136 in all of September, according to data from shipbroker Galbraith’s Ltd. Vessels are normally booked about three weeks in advance, with a voyage to Asia from the Middle East taking several weeks.

Crude traded near the highest in four years this month as concern about supply losses from Iran and Venezuela outweighed the risk that the trade war between China and the U.S. would curb demand. China is set to boost imports from West Africa this month to the highest in seven years as a result of the trade spat, according to tanker-tracking data compiled by Bloomberg.

“The spike in rates was driven by record vessel demand in the Middle East, coupled with a built-up momentum in West Africa that led to a sharp decline in the VLCC availability in the Arabian Gulf,” Morgan Stanley analyst Fotis Giannakoulis said in a research note dated Oct. 7. “West Africa chartering activity is strong as key Asian buyers have started to look elsewhere to replace the Iranian volume, further reducing available tonnage in the Middle East.”
Source: Bloomberg

[ceo_energemsier + 1,818]

This from OilPrice:

https://oilprice.com/Energy/Crude-Oil/Iran-Saudis-Arent-Replacing-Our-Oil-Exports.html

 

If this holds true, then the prices should be going up more when the smoke clears and the true effects of the sanctions are realized by the world!

[ceo_energemsier + 1,818]

 

 

 

08/10/2018

 

Rising oil prices may hurt demand in some of the world’s fastest-growing nations unless producers take steps to boost supplies, according to the International Energy Agency.

“I wouldn’t be surprised if we revise our numbers,” Fatih Birol, the executive director of the Paris-based adviser, said in a phone interview, referring to the IEA’s forecast for demand growth this year of 1.4 million barrels a day. High energy prices are hurting consumers today, and could hurt the economies of exporting countries tomorrow, he said.

Brent crude, benchmark for half the world’s oil, has gained more than 20 percent since mid-August due to concern over supply losses from Venezuela and Iran. Saudi Arabia, the world’s largest exporter of crude, is comfortable with Brent above $80 a barrel as the global market adjusts to the loss of Iranian supply from U.S. sanctions, according to people familiar with the kingdom’s view.

Brent added 0.4 percent to trade at $84.88 a barrel as of 11:55 a.m. in Singapore on Friday, near the highest in almost four years.

“We are rather worried that the expensive energy is back, which may be hurting the global economy at a vulnerable time,” Birol said. “The oil exporting countries must, in my view, take these developments into consideration and it is high time for those countries to put more oil in the markets and comfort the markets.”

India is among emerging market economies struggling with a combination of a weakening currency and rising oil prices. The nation, which enjoyed a 12th straight month of demand growth in August, could see its trade deficit worsen because of the high crude, according to Birol. The nation moved to cut retail fuel prices on Thursday.

“With these prices, I would expect that the demand growth in India, other parts of Asia and in the Americas will be negatively affected,” Birol said, adding that there may be slowdown in demand growth.
Source: Bloomberg

[ceo_energemsier + 1,818]

Reference to the Indian demand and India's own needs first.

We will have to find out if under the sanctions terms , if a country entered into SPA's with Iran before the sanctions date, would those contracts and oil barrels be exempt from the sanctions, if so then I guess India, China and others could place orders for loadings for the next 3, 4 , 6 months and under those terms would not be violating the sanctions

____________________________________

Two Indian oil companies have placed request to buy crude from Iran in November, Oil Minister Dharmendra Pradhan said, underscoring the nation’s plan to keep importing fuel from the Persian Gulf nation despite the U.S. sanctions.

“Some of our companies have already nominated their quota for Iranian crude in November,” Pradhan told reporters on the sidelines of an event in New Delhi. “We are discussing with all authorities concerned on this issue. But we have to fulfil our own domestic requirement. We expect global leaders to understand India’s needs.”

The U.S. announced sanctions on Iran following its withdrawal from a nuclear deal signed more than three years ago. The first batch of U.S. sanctions on Iran, one of the largest suppliers of crude to India, came into effect in August. The curbs that will have a direct impact on trade will kick in on Nov. 4.

State-owned refiner Indian Oil Corporation Ltd. booked its “usual quota from Iran in November”, Chairman Sanjiv Singh said, adding that the company plans to pay for it in rupees. “In the past also, Iran was open to payment in rupees, and that is one option.”
Source: Bloomberg

[ceo_energemsier + 1,818]

China is also a swing factor in on the demand side of the Iranian (therefore global) oil equation, with Chinese state-run oil major and Asia’s bigger refiner Sinopec indicating two weeks ago that it would actually bow to pressure from the Trump Administration and cut Iranian oil imports by as much as half in October.

Sources that spoke to Reuters about the matter didn’t specify volumes but based on the prevailing supply contract between Sinopec and the National Iranian Oil Company (NIOC), Sinopec will reduce its loadings to about 130,000 barrels per day (bpd), equaling 20 percent of China’s daily average imports from Iran in 2017 - the deepest Chinese cut in Iranian oil exports in years.

This would be 20 percent of China’s average daily imports from Iran in 2017, the report added, dealing a blow to Tehran, which has counted its top oil client to maintain imports while European and other Asian buyers wind down purchases to avoid U.S. sanctions.

https://oilprice.com/Geopolitics/International/A-New-Era-Of-Geopolitical-Risk-In-Global-Oil-Markets.html

[ceo_energemsier + 1,818]

3 hours ago, Osama said:

WHERE IS EVERYONE?

Tired of reading same headlines over and over again? Same here! 

There was one observation that I'd lie to share with you all---please tell me if you have noticed it as well?---the recent news of IRANIAN SANCTIONS cutting in even more exports of Iran came as no surprise but what surprised me was the reaction of the market--somewhat and relatively dull/damp. I suspect that we need different headlines to re-install the recent insane bullish moves we just witnessed-- @ATK can you help the media outlets design one?

So, if we see another build up tomorrow I expect a few bearish days ahead.....that is to assume if there is still a modicum of sanity left in the markets--- @Dan Warnick you think so? @ceo_energemsier what's your take? @Marina Schwarz, still the penguin?

Here is another one:

IEA Urges OPEC to Open the Taps as Oil Market Enters ‘Red Zone’ (Red Zone---mind it ya bears!..including me)

Link: https://www.bloomberg.com/news/articles/2018-10-09/iea-urges-opec-to-open-the-taps-as-oil-market-enters-red-zone

 

You can play the short term market and make some $$$$ with this daily up and down , while we reach a fact based price consensus and seems which will only happen after Nov 4th. Plenty of opportunities to make $$$ both in the paper and physical markets

[ceo_energemsier + 1,818]

https://finance.yahoo.com/news/oil-prices-fall-u-may-004452067.html

 

China's so called stimulus now is a factor in pushing prices up! We have an ongoing topic discussion on OILPRICE about China and the US trade issues

[ATK + 355]

6 minutes ago, ceo_energemsier said:

https://finance.yahoo.com/news/oil-prices-fall-u-may-004452067.html

 

China's so called stimulus now is a factor in pushing prices up! We have an ongoing topic discussion on OILPRICE about China and the US trade issues

Haha a stimulus meant to help china's hurting economy results in a rise in oil prices which ultimately still hurts china's economy! I'll give it to the bulls, they really want their cake and to eat it too!

[Dan Warnick + 6,100]

30 minutes ago, ceo_energemsier said:

State-owned refiner Indian Oil Corporation Ltd. booked its “usual quota from Iran in November”, Chairman Sanjiv Singh said, adding that the company plans to pay for it in rupees. “In the past also, Iran was open to payment in rupees, and that is one option.”
Source: Bloomberg

This bit about paying in rupees, while certainly a topic being discussed these days, does not seem to relate to the U.S. Sanctions at all.  The sanctions that will be re-imposed* on November 4th are simply about buying oil from or participating in oil industry activities in or with Iran, not about dollars or any other currency.  Meaning if you buy oil from Iran or participate in any business related to its oil ports or oil infrastructure after November 4th, your financial assets or transactions in or passing through the United States will be more or less frozen or simply not accepted/revoked, any insurance underwriter that insures such cargos are also prohibited from participating and/or providing insurance, you will be subject to large $$ fines, and you are not even allowed to access or use electronic financial information from U.S. financial institutions you normally use.  I went to the U.S. State Department, the U.S. Treasury Department and the White House websites for a detailed review and it is complex, to say the least, but I believe the above are the key components.

In all sanctions-related legal documents (they are all laid out in detailed long-form legal format) the terms are strong and pretty unforgiving.  The possibility of waivers, while discussed, is meant to be extremely rare and only to be used while a country continues to wind down oil business with Iran.  The reason is repeatedly stated as because every country has been given 180 days already to wind down such activities and find alternate supplies in the meantime.  I recently speculated that a country could possibly purchase their future oil supplies so long as they paid before November 4th; that is true to a limited extent as covered in the U.S. Government documents, but any country that wishes to do so must lay out a detailed need and a plan for the continued wind down of deliveries, usually within a few months, as well.  In other words, you can't buy a year's worth of oil in advance.

*These sanctions were initially imposed BEFORE the Trump administration by the Obama administration, who also lifted them just prior to the end of his term when he signed the treaty that Trump later revoked.

[ceo_energemsier + 1,818]

https://blogs.imf.org/2018/10/08/global-growth-plateaus-as-economic-risks-materialize/

[ceo_energemsier + 1,818]

Tuesday, October 09, 2018

Big Oil to Bury Skeptical Investors in Cash Piles

(Bloomberg) -- Investors still haven’t forgiven oil companies for being ill-prepared for a crude-price collapse four years ago. Perhaps more than half a trillion dollars will change their minds.

With oil above $80 a barrel as costs languish at an eight-year low, the industry is seeing green. In 2018 alone, it will rake in as much extra money as it did in the previous five years combined, according to consultant Rystad Energy AS. You could liquidate Facebook Inc. and it wouldn’t touch what oil companies will generate in free-flowing cash over the next three years.

They may need every dollar. So far nothing oil companies have done -- from $25 billion buyback programs to better earnings than in the days of $115 oil -- has gotten them out of the doghouse with investors. Share-prices increases have fallen well behind the surge in crude. while in the U.S., oil companies haven’t kept up with broader index gains at all.

“The comeback in free cash flows has only gradually started to be visible,” said Espen Erlingsen, a partner at Rystad, by email. Investors are probably “waiting to see how these oil companies will spend the extra money.”

Free cash flow at international oil companies is expected to more than double this year, to a record $175 billion. Then it will rise again in 2019, to close to $200 billion, and stay around that level for at least two years after that, according to Rystad Energy.

The estimate comes with a big caveat. Oil prices can’t fall from today’s level of more than $80 a barrel, and companies can’t return to pre-crash spending heights.

There are reasons to doubt the sustainability of crude’s rally. Oil prices have surged in the past year, in part because a snap-back of U.S. sanctions on Iranian fuel exports is driving fears of supply shortages. BP Plc Chief Executive Bob Dudley said those concerns could subside by the end of the year and that prices “feel high.”

Investors are also uncertain whether they can trust oil company executives to exercise restraint as crude keeps soaring. Firms committed to increasingly large projects from 2008, buoyed by a bullish crude market. By 2014, when prices collapsed, costs and investments for international oil companies rose to $560 billion, while free cash flow fell to less than $50 billion, not enough to cover dividend payments, Rystad data show.

While the same companies cleaned up their balance sheets and are now more profitable than before the crash, investor confidence in the sector hasn’t been fully restored. The S&P 500 Energy Index has gained about 9 percent this year, lagging behind U.S. crude’s 23 percent increase.

“The concern of some investors is that capital discipline isn’t really here to stay,” said Jason Gammel, an analyst at Jefferies LLC. “We’re not that far into the recovery yet.”

Executives will have the chance to make their case this week at the Oil & Money conference in London, which kicks off Tuesday.

Investors have heard austerity pledges after previous down cycles in the oil price, only to abandon the idea when crude shot back up, said Gammel. The big cash flow figures would have to actually materialize, accompanied by sustained efforts to return extra money to shareholders, to win back trust.

To contact the reporter on this story: Kelly Gilblom in London at kgilblom@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Helen Robertson.

__________________________________________________________________________________________________

 

Go ahead, bury me in piles of cash, I am ordering new high volume Samsonite suitcases!!!!!!!!🍾