Saturday, November 28, 2015
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29% Relief Rally In HCLP


Hi-Crush Partners L.P. is having a little party today, up 29% as of now and taking back some of the vicious losses from the last month. Oil prices are laying under $50 per share; a bleak reminder of the horror lying in wait for everyone in the U.S. oil and gas industry.

The once mighty WTI-Brent spread has been decimated, now barely $2 difference, having all but priced in the US opening domestic oil production for exportation. Or perhaps a global depression of shocking depth and scale. I can’t really tell for sure.

We are fast approaching the winter months, when production budgets for oil and gas companies reset. The next two months will be full of nightmarish stories playing out in real life. Bankruptcies will pick up, solvent firms will implement a drilling holiday anyway, and real hard decisions will be made about what are “core activities”. Non-essential (and especially money draining) operations will never reopen for business.

This should feed the narrative of a tightening market and help to shore up prices a little more. But then in January, with fresh budgets for the year, we’ll see what’s left turn the lights back on and set forward.

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See, It Wasn’t 9 Million

There you go, the 9 million barrel estimate was too high. The real number was …7 1/2 million barrels!?

What the fuck is that, America?

Alright so the API was more right than not on this one. That is awful…just God awful. I don’t know what the hell is going on here; if it’s production ramping up or demand dying down or even just dark storage pools of oil finding its way back to market. I don’t know, but that is a terrible outcome for oil markets right now.

So, with that in mind, let us proceed to end game.

If you are in this industry and you are not positioned in the top three quarters of the field, you are going bankrupt. Bu-bye.

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What’s 15% To OMAB?

A cloudy day wafts across the window of the 9th Floor. The lingering smell of lunch sits in the air while the soft office sounds of my typing keep me company.

What is 15% to OMAB, I ask you?

15% is how much passenger growth OMAB had in September of 2015 over September 2014. The company was growing at a 17% clip. That has moderated 2% to a still impressive 15% annual growth rate.

After the second quarter, revenue growth stood at 36.41%. 19.74% of that was hiking sales prices, and the rest was volume of business.

The stock is in a state of permanent liftoff, and it’s one of the bright spots on my year.

OMAB strategically has two major things going for it. The first is a strong dollar which makes travel for nearby US residents much cheaper. And the second is ultra cheap fuel prices which are coming fast thanks to the crude implosion.

As it becomes more affordable for vacation travel, OMAB’s core business model is going to benefit directly.

I am waiting excitedly to hear how OMAB’s latest quarter shaped up. The company is on a tear.

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Oil Retakes $50 – Saudi Arabia Still Stupid

100816 EIA Oil Production Vs Consumption

Take a good look, because the oil price weakness is about to come to an end. I am not saying that just because the EIA is predicting the production/consumption balance to close (as predicted by everything to the right of the vertical delineation).

I am saying so because all the big players are starting to make very visible, very vocal moves designed to assure the market that they will get the imbalance under control. The Saudi’s have made some token production cuts, after biting off quite a bit more than they can chew with all of this. Shell has just abandoned the Arctic drilling – a project that, in for $4.5 billion, has been the proverbial chain around Shell’s neck – in the loudest and most attention getting way imaginable. And anyone with a pen is writing about how US Shale production is coming down (despite it not really happening yet).

But look close at the EIA historical chart above and realize how tame the production overrun has been. 2 million barrels a day is not the end all, be all of the oil market. In 2009 alone, just US demand for crude oil plunged 1.1 million barrels per day. Demand from all industrialized nations dropped by something like 2.2 million barrels per day. OPEC by itself had to slash production by 1.5 million barrels per day just to try and shore the market up.

Those were real production cuts responding to real demand destruction. By comparison, what we have here is production that’s gotten a little ahead of demand growth. So far, aside from some hiccups in Europe and China, there’s been no demand destruction to speak of. This is not cause for the end of oil; it’s a case of the need for some very weak, very adventurous hands to get flushed out. And that process is almost over.

And isn’t it interesting that the most adventurous, most weakly positioned oil plays all end up being Big Oil or State owned? Let’s be clear, the most expensive plays on the planet are in deep water or remote locations or involve tedious chemical and refinement processes. If you’re drilling 150 feet below the surface of the Atlantic Ocean, or in the middle of the Arctic circle, I have a feeling you’re not a $2 billion market cap company. You’re probably a Shell, or an Exxon Mobile, or the country of Norway, Russia or Brazil.

The Saudi’s haven’t killed the US oil boom; they’ve killed oil funded State welfare schemes. Including their own, I might add…

I will be the first to admit that I didn’t believe the Saudi’s were trying to get into a production war with the US – wrongly. But I didn’t believe it for a pretty good reason; because this was really, really stupid. The Saudi’s have set their own economy in tatters, and why? Because some new king wanted to claim Saudi Arabia was still the biggest oil exporter? Because this was somehow going to make them richer?

What the Saudi’s have done, effectively, is make it necessary for them to produce twice as much oil for the same amount of money. Who fucking does that?

If oil markets had accepted that $70 oil was the new floor price to extract tar sands or deep water fields, the Saudi fields would have been getting $150 a barrel for their extraction cost of – what is it even? – $20 a barrel? As the price had risen, the need for the Saudi’s to be the biggest producer would have just phased out. They could have gotten by on lower production, preserving their precious low cost oil for decades more.

Instead, they get shit. Their dollar reserves are flying out the door and their zero debt position is soon going to be a distant memory.

Well done, House of Saud. You morons deserve to be thrown from power for that.

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That’s More Like It

Man on phone

Hardly the stuff of redemption being made here, but still; BAS rallying 34% inside of two days feels good.

Crude oil is running higher; Brent is pushing back above $50 and WTI is chasing its tail.

I can’t tell if this is just a relief rally or the start of something special. The move is strong though, I’ll give it that.

We were so overextended; companies were going for peanuts. They can’t all fail, physically. I mean, oil demand is still growing folks. Someone is walking out of this alive.

Let’s give it a few more days and see what happens.

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I’ll Believe This Oil & Gas Rebound When It Sticks

Sure BAS is up 20% in one day of trading. And I’m a French Maid.

I’ve seen this enough times not to get my hopes up. As solidly convinced I am that long term everything is going to work out, I am not committing my emotions to any relief rally. This market is out to destroy me and letting me hope for salvation is just one especially heartless part of that process.

Today was fun…if I hold it completely out of context.

We are still in a major selloff and I am not calling any bottoms here.

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