My Worst Day In Three Years

1,783 views

Last night, following the second round of feasting, I took a minute to flip open my phone to see how the OPEC meeting went. Looking at the price of oil, I hit a sudden case of indigestion. That was when I knew how bad today would be.

And it hasn’t disappointed. My entire book is down 10% right now. I’m down almost 15% for the year. The energy & gas sectors are solely responsible for this slaughter, taking me from +25% to -15% in a quarter.

Jim Cramer wins, folks. This is brutal. But I’m going to hold fast through it.

I can’t believe that Saudi Arabia is actually waging a price war against the USA. Why the hell would they? We don’t even export, and don’t use barely any of their oil.

If I were Russia or Venezuela or an Iran puppet nation, I’d be looking at the Saudi’s with crazed, lunatic fringe conspiracies ringing in my ears. I don’t know who Saudi Arabia is trying to kill off, exactly. But the most prescient answer may just be “tomorrow’s oil and gas projects”.

The projects that are online now are set for a few years. Hedging has been erected to support them. None of my positions have seen any change in business – that’s the only thing keeping me sane and focused right now. I want to panic, but I just can’t yet.

Check out this report on oil in the Permian Basin (page 14). Average cost per barrel has declined to $55 per barrel. The $80-90 number only applies to new projects.

The average cost per barrel of the Bakken, Eagle Ford, and Permian formations together is estimated at $60 per barrel.

Business Insider posted this graphic awhile back (by Morgan Stanley) that breaks down the extraction cost per barrel (presumably as of 2013-2014, BI is notoriously horrible about leaving off critical information). You can see the first victims of the oil price decline are Arctic drilling and oil sands (read Canada).

You will also notice that North American shale is not so different from so much oil and gas production elsewhere in the world. Yes, the “average” cost of production is higher. But look at the band; it is contained inside the same maximum range as so much else of the world’s oil and gas production. After Arctic and oil sands plays get cut in half, the next round of production cuts will presumably fall fairly even handed, across the highest cost developments, globally. That hardly spells the end times of the USA fracking boom.

Here’s a supporting set of data from Business Insider, provided by Citi. This post is more interesting, because there is a second graphic that shows the cost of every international oil and gas project, by location.

All this trouble for what really isn’t even a problem in the first place. The EIA short term outlook for crude consumption vs. production shows what can hardly be called an issue – a million barrel a day surplus in historical context. The largest gains in the oil supply surplus came from the first two quarters of 2014. You can hardly call those unprecedented; we experienced a much worse supply shock back in the first half of 2012.

Also look at the historic unplanned crude shortages from the Middle Eastern countries (page 15). In the past year alone, half a million barrels a day came back online after having been unexpectedly dropped off. You can see the effect of two separate war times breaking out in Libya. Saudi Arabia is suddenly popping up. Add another country to the mix, or an expansion in lost production from one of those already on this list, and pretty quickly the million barrel global surplus is absorbed.

But the best blessing of all may just be the effects of low oil prices themselves. Globally growth has been terrible and Europe has been our poster child. But with the euro so low and cheap energy prices coming, we may just finally see old mother Europe do something…anything.

This is going to hurt very badly. I was too quick to add back to positions and far to willing to take on margin. But I’m going to stay calm, and wait to see what comes up next.

nOPEC

785 views

Oil just got beat again when it became public that OPEC is a dysfunctional organization. Who could have imagined that disparate oil producing nations with deep, cultural differences (read racism) might have trouble working through competition?

I never would have guessed it would crop up this quickly. But the demise of OPEC is hardly unforeseen. I myself penned an article this July discussing the possibility of the oil markets being upended.

But it is funny, reading through those thoughts going on just five months old, and seeing how violently they have diverged from what I expected.

I expected the development of US oil and gas reserves would create trouble for the old guards. I did not expect that oil would collapse 30% in two months. While you could say that those price swings were to be expected – just simple economics – I had expected the US might actually do more legislatively to erect a wall between us and the oil nations altogether. Obviously this happened much too quickly for any of that.

I had also guessed that when things started to get tough, OPEC would at least try to band together first. They’ve been successful at this in the past, so failing to construct even symbolic production cuts this round is certainly worse off along than I would have ventured.

The fallout in oil and energy names, following August, is not something I truthfully believed in. This may sound strange, but I was actually betting against myself when I made those sales of my oil and gas positions. And I never would have believed we’d fall so far. BAS is off 60% peak to trough, for crying out loud. Even when I knew we were experiencing a correction, I didn’t think it would be this extreme.

Now let’s put some context into all of this. Some of these energy names are trading at prices as bad as or worse than they were in 2010-2011 (when oil prices were pretty much where they are now); and lots of these energy companies were losing money back then, whereas they are making money today. I’m talking about BAS explicitly as an example.

So what happens now?

Well, I think that the prices of oil & gas plays are pretty compelling here. Yes oil is a bummer and there is big talk about $30 oil being right around the corner. And it’s no coincidence that I think this talk is stupid and that those responsible should be viciously ridiculed. I think the price drop is temporary, unremarkable and indistinct from any other major selloff that has gripped the price of oil in the past five years.

I think competition will continue to do real damage to the major oil nations in the world bringing about the greatest power shift of our lifetimes. But as apart from my peers, who seem to believe that a Venezuela or Russia has the ability to ramp up production into this price drop, leading to a deflationary spiral that ushers in 1990’s prices for all Western nations, I tend to feel this is silly.

You can’t call for the death of the Bakkens and simultaneously think that oil stays this low. Actually I have a hypothesis that the events that would have to converge to keep oil this low are few and far between. The big question here is timing as to when oil goes higher.

So my guess – and this is definitely just that – is that the US shale boom lives. And here’s what will enable that to happen.

These oil exporting countries have all made brazen moves with their budgets. Places like Russia, Saudi Arabia, or Iran are barely holding it together. Places like Venezuela can’t even muster that; oil prices for Venezuela are kind of like mattresses or trampolines to a guy already falling off a roof – a point of hope.

But if oil prices keep falling, you’re going to see one of these places – and Venezuela is definitely near the top of my list – buckle. Venezuela is probably the easiest case to get back to $100 oil, because one Venezuela is good enough to offset new US production. But it could just as easily be a combination of other smaller oil exporters. A half dozen of the smaller to mid size guys, or even a combination of Syria and Iraq plunging back into darkness. IS is obviously a possible trigger here; a bunch of pissed off twenty year olds, armed with rocket propelled grenades, trying to operate oil machinery? Sounds like a nice, safe combo.

What we’ve seen, repeatedly, is that when a place like, oh, Syria or Libya plunges into anarchy, it’s not just a small setback. Rather, the entire oil infrastructure gets taken offline for years at a time.

Another civil war or resurgent fighting could easily get us back to lower oil production in these places. Some US legislative work (now freed from the concerns about access to supply thanks to the US domestic advances) could help keep our own oil expertise from setting those places back up again after they tumble.

Why would we want to do this? Rome is sick of Carthage.

Just think about the sheer number of problems that these countries have dealt us over the past fifty years. We already know that the US can withstand $100 oil. We’ve been doing it for a few years now. And $100 oil benefits the US economy directly, whereas $80 oil is the worst of all worlds; too cheap or expensive to care about.

With the GOP in Congress and looking to juice the US a little, and with Obama increasingly looking for a major win, sticking a stake in the middle east is probably the lowest hanging fruit around. Kill IS by letting them destroy their own oil infrastructure, then restrict the companies that have usually bailed that region back out (Shell, Exxon, etcetera) from doing that. Lower Russia back into 1993 conditions, then tell Blankfein to keep out this time.

That’s how I see things playing out. Sure we could watch the US shale revolution just go to waste completely. But I think at this junction the US has a pretty vested interest in not letting that happen. It’s a new dawn, after all.

Up For The Week, Somehow

198 views

The market may be down, but somehow I ended up a small sum. My account is up 3% today, erasing the nasty tumble I had play out over the past 48 hours.

I’m constructive in oil and energy names, but that applies more to energy services and complement plays than it does to pure oil bets. I’m also very adverse to deep sea drilling, because it’s expensive and easily priced out of competitiveness.

I’m getting excited about uranium for the first time in years. I’ve been enthusiastic up until now, but there was something missing. The fuel run is exactly what the doctor ordered.

Enjoy your weekend, my good man or lady. The 9th floor is closed for business, until Monday.

You Won’t Believe What Happened To Basic Energy Services’ Operation Data Last Month

244 views

Nah, I’m just screwing with you. It was unchanged.

FORT WORTH, Texas, Nov. 11, 2014 /PRNewswire/ — Basic Energy Services, Inc. (BAS) (“Basic”) today reported selected operating data for the month of October 2014. Basic’s well servicing rig count remained unchanged at 421. Well servicing rig hours for the month were 77,800 producing a rig utilization rate of 73%, compared to 71% in both September 2014 and October 2013.

Fluid service truck utilization was up substantially. There was a tick down in drilling rig days, but those remain well above where they were the last time BAS was trading at $11.

Roe Patterson had this to say:

“October activity was strong across all of our business segments rebounding from the Labor Day and weather impacts during September. Our stimulation horsepower operated at near full utilization in October and we maintained price increases to offset higher operating costs.”

Sounds like doom and gloom there. Black smoke everywhere…

“We saw a significant increase in truck utilization in October, particularly in our Permian Basin and Rocky Mountain operating areas, as we continue to benefit from our longstanding strategy of centering our fluid service assets around our advanced disposal well network. Utilization levels in our well servicing and contract drilling segments were steady and remained in line with our expectations.

“While we are pleased with our customers’ current levels of activity, we are closely monitoring them as well as their expected 2015 spending plans. We have positioned ourselves to quickly make appropriate changes to our operating strategy as may be required.”

So far, there remains no proof that the sector is even slowing down. I’m sure there are some high speculation bets out there which will be destroyed. So stop buying husk.

Rumors of the demise of the energy and gas sector are way ahead of themselves.

Huge Move In Uranium Prices

165 views

Uranium spot price is now back above $40. Price for uranium fuel has not been this high in years.

No joke, the recovery is now.

Long CCJ.

Bracing For The Second Impact

373 views

The oil market is in the middle of another sharp leg lower. This is going to jolt the players and be painful. Today will not be fun for me. I’m going to have to grin and bear it and distract myself with a bag of popcorn and the spectacle of fifty million hardcore Democrats breaking down live on public access television tonight.

The impetus for the announcement might be, allegedly, a December price cut by Saudi Arabia to US markets.

This is the key takeaway here:

Top global exporter Saudi Arabia increased its December official selling prices (OSPs), relative to benchmarks, to Asia and Europe on Monday, but lowered prices to the United States, a smaller export market.

Which is to say that Saudi Arabia actually raised prices in December.

Guys, come on. Saudi Arabia’s oil market is Europe and Asia, almost entirely. They don’t sell diddly in the United States. Our oil comes from South America and Canada. You can easily check this via public records – the EIA, I believe it was, keeps detailed records about global oil sales, including by country of origin and destination.

If Saudi Arabia is lowering prices on little to no volume sold, then Saudi Arabia is not lowering prices.

In practice, this leg lower probably has less to do with Saudi Arabia and more to do with what is to be expected in a correction like this. This is not the first time I’ve been in a position that bleeds out, to see a moment of stability followed by more sharp bleeding.

APC comes to mind back when that oil well blew in the Gulf. Uranium prices did the same thing. And shares of gun manufacturers after Sandy Hook.

You get a big blowup, some tepid stability, then another collapse.

The second collapse is usually the best buying point. Usually…

My Worst Day In Three Years

1,783 views

Last night, following the second round of feasting, I took a minute to flip open my phone to see how the OPEC meeting went. Looking at the price of oil, I hit a sudden case of indigestion. That was when I knew how bad today would be.

And it hasn’t disappointed. My entire book is down 10% right now. I’m down almost 15% for the year. The energy & gas sectors are solely responsible for this slaughter, taking me from +25% to -15% in a quarter.

Jim Cramer wins, folks. This is brutal. But I’m going to hold fast through it.

I can’t believe that Saudi Arabia is actually waging a price war against the USA. Why the hell would they? We don’t even export, and don’t use barely any of their oil.

If I were Russia or Venezuela or an Iran puppet nation, I’d be looking at the Saudi’s with crazed, lunatic fringe conspiracies ringing in my ears. I don’t know who Saudi Arabia is trying to kill off, exactly. But the most prescient answer may just be “tomorrow’s oil and gas projects”.

The projects that are online now are set for a few years. Hedging has been erected to support them. None of my positions have seen any change in business – that’s the only thing keeping me sane and focused right now. I want to panic, but I just can’t yet.

Check out this report on oil in the Permian Basin (page 14). Average cost per barrel has declined to $55 per barrel. The $80-90 number only applies to new projects.

The average cost per barrel of the Bakken, Eagle Ford, and Permian formations together is estimated at $60 per barrel.

Business Insider posted this graphic awhile back (by Morgan Stanley) that breaks down the extraction cost per barrel (presumably as of 2013-2014, BI is notoriously horrible about leaving off critical information). You can see the first victims of the oil price decline are Arctic drilling and oil sands (read Canada).

You will also notice that North American shale is not so different from so much oil and gas production elsewhere in the world. Yes, the “average” cost of production is higher. But look at the band; it is contained inside the same maximum range as so much else of the world’s oil and gas production. After Arctic and oil sands plays get cut in half, the next round of production cuts will presumably fall fairly even handed, across the highest cost developments, globally. That hardly spells the end times of the USA fracking boom.

Here’s a supporting set of data from Business Insider, provided by Citi. This post is more interesting, because there is a second graphic that shows the cost of every international oil and gas project, by location.

All this trouble for what really isn’t even a problem in the first place. The EIA short term outlook for crude consumption vs. production shows what can hardly be called an issue – a million barrel a day surplus in historical context. The largest gains in the oil supply surplus came from the first two quarters of 2014. You can hardly call those unprecedented; we experienced a much worse supply shock back in the first half of 2012.

Also look at the historic unplanned crude shortages from the Middle Eastern countries (page 15). In the past year alone, half a million barrels a day came back online after having been unexpectedly dropped off. You can see the effect of two separate war times breaking out in Libya. Saudi Arabia is suddenly popping up. Add another country to the mix, or an expansion in lost production from one of those already on this list, and pretty quickly the million barrel global surplus is absorbed.

But the best blessing of all may just be the effects of low oil prices themselves. Globally growth has been terrible and Europe has been our poster child. But with the euro so low and cheap energy prices coming, we may just finally see old mother Europe do something…anything.

This is going to hurt very badly. I was too quick to add back to positions and far to willing to take on margin. But I’m going to stay calm, and wait to see what comes up next.

nOPEC

785 views

Oil just got beat again when it became public that OPEC is a dysfunctional organization. Who could have imagined that disparate oil producing nations with deep, cultural differences (read racism) might have trouble working through competition?

I never would have guessed it would crop up this quickly. But the demise of OPEC is hardly unforeseen. I myself penned an article this July discussing the possibility of the oil markets being upended.

But it is funny, reading through those thoughts going on just five months old, and seeing how violently they have diverged from what I expected.

I expected the development of US oil and gas reserves would create trouble for the old guards. I did not expect that oil would collapse 30% in two months. While you could say that those price swings were to be expected – just simple economics – I had expected the US might actually do more legislatively to erect a wall between us and the oil nations altogether. Obviously this happened much too quickly for any of that.

I had also guessed that when things started to get tough, OPEC would at least try to band together first. They’ve been successful at this in the past, so failing to construct even symbolic production cuts this round is certainly worse off along than I would have ventured.

The fallout in oil and energy names, following August, is not something I truthfully believed in. This may sound strange, but I was actually betting against myself when I made those sales of my oil and gas positions. And I never would have believed we’d fall so far. BAS is off 60% peak to trough, for crying out loud. Even when I knew we were experiencing a correction, I didn’t think it would be this extreme.

Now let’s put some context into all of this. Some of these energy names are trading at prices as bad as or worse than they were in 2010-2011 (when oil prices were pretty much where they are now); and lots of these energy companies were losing money back then, whereas they are making money today. I’m talking about BAS explicitly as an example.

So what happens now?

Well, I think that the prices of oil & gas plays are pretty compelling here. Yes oil is a bummer and there is big talk about $30 oil being right around the corner. And it’s no coincidence that I think this talk is stupid and that those responsible should be viciously ridiculed. I think the price drop is temporary, unremarkable and indistinct from any other major selloff that has gripped the price of oil in the past five years.

I think competition will continue to do real damage to the major oil nations in the world bringing about the greatest power shift of our lifetimes. But as apart from my peers, who seem to believe that a Venezuela or Russia has the ability to ramp up production into this price drop, leading to a deflationary spiral that ushers in 1990’s prices for all Western nations, I tend to feel this is silly.

You can’t call for the death of the Bakkens and simultaneously think that oil stays this low. Actually I have a hypothesis that the events that would have to converge to keep oil this low are few and far between. The big question here is timing as to when oil goes higher.

So my guess – and this is definitely just that – is that the US shale boom lives. And here’s what will enable that to happen.

These oil exporting countries have all made brazen moves with their budgets. Places like Russia, Saudi Arabia, or Iran are barely holding it together. Places like Venezuela can’t even muster that; oil prices for Venezuela are kind of like mattresses or trampolines to a guy already falling off a roof – a point of hope.

But if oil prices keep falling, you’re going to see one of these places – and Venezuela is definitely near the top of my list – buckle. Venezuela is probably the easiest case to get back to $100 oil, because one Venezuela is good enough to offset new US production. But it could just as easily be a combination of other smaller oil exporters. A half dozen of the smaller to mid size guys, or even a combination of Syria and Iraq plunging back into darkness. IS is obviously a possible trigger here; a bunch of pissed off twenty year olds, armed with rocket propelled grenades, trying to operate oil machinery? Sounds like a nice, safe combo.

What we’ve seen, repeatedly, is that when a place like, oh, Syria or Libya plunges into anarchy, it’s not just a small setback. Rather, the entire oil infrastructure gets taken offline for years at a time.

Another civil war or resurgent fighting could easily get us back to lower oil production in these places. Some US legislative work (now freed from the concerns about access to supply thanks to the US domestic advances) could help keep our own oil expertise from setting those places back up again after they tumble.

Why would we want to do this? Rome is sick of Carthage.

Just think about the sheer number of problems that these countries have dealt us over the past fifty years. We already know that the US can withstand $100 oil. We’ve been doing it for a few years now. And $100 oil benefits the US economy directly, whereas $80 oil is the worst of all worlds; too cheap or expensive to care about.

With the GOP in Congress and looking to juice the US a little, and with Obama increasingly looking for a major win, sticking a stake in the middle east is probably the lowest hanging fruit around. Kill IS by letting them destroy their own oil infrastructure, then restrict the companies that have usually bailed that region back out (Shell, Exxon, etcetera) from doing that. Lower Russia back into 1993 conditions, then tell Blankfein to keep out this time.

That’s how I see things playing out. Sure we could watch the US shale revolution just go to waste completely. But I think at this junction the US has a pretty vested interest in not letting that happen. It’s a new dawn, after all.

Up For The Week, Somehow

198 views

The market may be down, but somehow I ended up a small sum. My account is up 3% today, erasing the nasty tumble I had play out over the past 48 hours.

I’m constructive in oil and energy names, but that applies more to energy services and complement plays than it does to pure oil bets. I’m also very adverse to deep sea drilling, because it’s expensive and easily priced out of competitiveness.

I’m getting excited about uranium for the first time in years. I’ve been enthusiastic up until now, but there was something missing. The fuel run is exactly what the doctor ordered.

Enjoy your weekend, my good man or lady. The 9th floor is closed for business, until Monday.

You Won’t Believe What Happened To Basic Energy Services’ Operation Data Last Month

244 views

Nah, I’m just screwing with you. It was unchanged.

FORT WORTH, Texas, Nov. 11, 2014 /PRNewswire/ — Basic Energy Services, Inc. (BAS) (“Basic”) today reported selected operating data for the month of October 2014. Basic’s well servicing rig count remained unchanged at 421. Well servicing rig hours for the month were 77,800 producing a rig utilization rate of 73%, compared to 71% in both September 2014 and October 2013.

Fluid service truck utilization was up substantially. There was a tick down in drilling rig days, but those remain well above where they were the last time BAS was trading at $11.

Roe Patterson had this to say:

“October activity was strong across all of our business segments rebounding from the Labor Day and weather impacts during September. Our stimulation horsepower operated at near full utilization in October and we maintained price increases to offset higher operating costs.”

Sounds like doom and gloom there. Black smoke everywhere…

“We saw a significant increase in truck utilization in October, particularly in our Permian Basin and Rocky Mountain operating areas, as we continue to benefit from our longstanding strategy of centering our fluid service assets around our advanced disposal well network. Utilization levels in our well servicing and contract drilling segments were steady and remained in line with our expectations.

“While we are pleased with our customers’ current levels of activity, we are closely monitoring them as well as their expected 2015 spending plans. We have positioned ourselves to quickly make appropriate changes to our operating strategy as may be required.”

So far, there remains no proof that the sector is even slowing down. I’m sure there are some high speculation bets out there which will be destroyed. So stop buying husk.

Rumors of the demise of the energy and gas sector are way ahead of themselves.

Huge Move In Uranium Prices

165 views

Uranium spot price is now back above $40. Price for uranium fuel has not been this high in years.

No joke, the recovery is now.

Long CCJ.

Bracing For The Second Impact

373 views

The oil market is in the middle of another sharp leg lower. This is going to jolt the players and be painful. Today will not be fun for me. I’m going to have to grin and bear it and distract myself with a bag of popcorn and the spectacle of fifty million hardcore Democrats breaking down live on public access television tonight.

The impetus for the announcement might be, allegedly, a December price cut by Saudi Arabia to US markets.

This is the key takeaway here:

Top global exporter Saudi Arabia increased its December official selling prices (OSPs), relative to benchmarks, to Asia and Europe on Monday, but lowered prices to the United States, a smaller export market.

Which is to say that Saudi Arabia actually raised prices in December.

Guys, come on. Saudi Arabia’s oil market is Europe and Asia, almost entirely. They don’t sell diddly in the United States. Our oil comes from South America and Canada. You can easily check this via public records – the EIA, I believe it was, keeps detailed records about global oil sales, including by country of origin and destination.

If Saudi Arabia is lowering prices on little to no volume sold, then Saudi Arabia is not lowering prices.

In practice, this leg lower probably has less to do with Saudi Arabia and more to do with what is to be expected in a correction like this. This is not the first time I’ve been in a position that bleeds out, to see a moment of stability followed by more sharp bleeding.

APC comes to mind back when that oil well blew in the Gulf. Uranium prices did the same thing. And shares of gun manufacturers after Sandy Hook.

You get a big blowup, some tepid stability, then another collapse.

The second collapse is usually the best buying point. Usually…

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Oil Soap Opera
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