[OneSeat]

The transition will be messy and inefficient at times but any major change will be that way. It's a 20+ year transition and lots of time for things to adjust and go right during that period.

I hope so.

 

[doctrine]

I was certainly not expecting oil to be +11% higher than 1 year ago and +2% higher than 2 years ago.

I'm definitely not sure what to expect next. I have one of my oil-correlated stock that has recovered from 1 year ago and I'm not sure if I should let it run or sell it. I'll give it another 3 months. My other oil-correlated stock still has room to move up.

(I'm talking of OVV and SCL)

Suncor reported Q4 results. In the last quarter, oil was $42 and they were able to easily sustain operations, pay the dividend, and were already projecting to pay down debt and buy back shares. Oil is now at $56 and they are now projecting at least another $1B of free cash flow (likely conservative) and do you know where it is going? Half to debt repayment, and half to buyback more shares. Zero to additional growth. That is the new way. I have seen some projections from major shale companies that they are only considering a maximum 5% growth in production even in a $100 oil environment. Get your seatbelts ready.

 

[robfordlives]

What does get your seatbelts ready mean? To me this is them saying that they are entering a no growth phase and eventual terminal decline. No thanks and the market thinks the same. It's all about growth in today's market. This will be worthless in 50 years.

 

[doctrine]

What does get your seatbelts ready mean? To me this is them saying that they are entering a no growth phase and eventual terminal decline. No thanks and the market thinks the same. It's all about growth in today's market. This will be worthless in 50 years.

It means get ready for expensive energy as we enter critical shortages and potentially even rationing if protectionism gets involved. Oh, I'm not looking 50 years out. There is going to be an epic shortage of oil and natural gas now if something doesn't change. Our energy infrastructure need massive, massive capital investment today. And without it, it declines. Fast. Faster than you can take your gasoline and diesel vehicles off the road.

Are you going to invest $50 billion in oil? No, and neither are oil companies. But we all need it for a long time to run the world's economy. At least 10 years in equal or growing quantities. And trillions of investment are needed just to maintain that level. And it's not happening. Brent almost hit $60 today. It wasn't supposed to get above $50 ever again by some forecasts. It's not even peak season, but that's coming as the world opens up. Seatbelts.

 

[hboy54]

It means get ready for expensive energy as we enter critical shortages and potentially even rationing if protectionism gets involved. Oh, I'm not looking 50 years out. There is going to be an epic shortage of oil and natural gas now if something doesn't change. Our energy infrastructure need massive, massive capital investment today. And without it, it declines. Fast. Faster than you can take your gasoline and diesel vehicles off the road.

Are you going to invest $50 billion in oil? No, and neither are oil companies. But we all need it for a long time to run the world's economy. At least 10 years in equal or growing quantities. And trillions of investment are needed just to maintain that level. And it's not happening. Brent almost hit $60 today. It wasn't supposed to get above $50 ever again by some forecasts. It's not even peak season, but that's coming as the world opens up. Seatbelts.

Your thinking tracks mine. Good chance fossil fuel prices are going to cycle upwards in price. This is a good thing for everyone. Investors make money. Governments collect taxes. The green types have financial incentive to actually reduce their personal consumption instead of blaming the supply side for the issue. Fossil fuels will fade faster at higher prices. Everybody wins.

If oil and gas got together and colluded to keep supply down, they would be jailed. Now however society is demanding that they keep supply down, part of the lie they tell themselves that the problem is due to supply and not their own demand. There are reasonable chances the industry will comply.

I call this the hypocrisy and irony trade. Here is me with low quartile lifetime fossil fuel usage betting heavily on the industry while all the greens who have actually consumed more than I do (and continue to consume more than I do) won't touch it. I get to double dip: all the money I saved over 40 years not consuming oil and gas is now available to me to own these assets at 1/20th the 2014 prices. Funny as hell.

 

[sags]

Is there a global deficit in oil production, if the embargoes on Venezuela and Iran were lifted ?

Venezuela has more oil reserves than Saudi Arabia.

If all the oil producers were pumping at full throttle, we would be up to our eyeballs in oil.

 

[nobleea]

Is there a global deficit in oil production, if the embargoes on Venezuela and Iran were lifted ?

Venezuela has more oil reserves than Saudi Arabia.

If all the oil producers were pumping at full throttle, we would be up to our eyeballs in oil.

Iran would help. Venezuela not so much. They don't have any local knowledge anymore. If the embargoes ended, it would be the multinationals who would drive growth and as indicated above, they're unlikely to make the capital investments. VNZ has about 20-30 years of deferred capital spend which would be near impossible to catch up on in the environment going forward. VNZ oil reserves are also pretty heavy, which in a greening world is not the most popular oil (much like Canada)

 

[nobleea]

Further, the only way all producers would be going full throttle is if the price was high. Think $90+, which is what others are talking about here.

 

[doctrine]

Is there a global deficit in oil production, if the embargoes on Venezuela and Iran were lifted ?

Venezuela has more oil reserves than Saudi Arabia.

If all the oil producers were pumping at full throttle, we would be up to our eyeballs in oil.

If Iran sanctions were 100% lifted and they fully dumped 2 million barrels a day export capacity on the market, with OPEC fully at previous 2019 production levels, the world would still be in a deficit based on 2019 supply and demand because of structural decreases in production elsewhere, like US shale, but also other OPEC countries like Angola and others. Let alone that every European major international oil producer has committed to reducing oil output by as much as 30-40% over the next 9 years. But Iran is still not lifted yet. If Venezuela was investing tens of billions today, it would be 5 years before they had significant production. That is why WTI is hitting $57 today - there is no additional source of supply coming online.

 

[AltaRed]

Iran would help. Venezuela not so much. They don't have any local knowledge anymore. If the embargoes ended, it would be the multinationals who would drive growth and as indicated above, they're unlikely to make the capital investments. VNZ has about 20-30 years of deferred capital spend which would be near impossible to catch up on in the environment going forward. VNZ oil reserves are also pretty heavy, which in a greening world is not the most popular oil (much like Canada)

It is the sovereign (and semi-sovereign) oil companies (think Russia, Saudi Arabia, Kuwait, Iran, Iraq, Libya) who control most of the remaining large oil reserves and have the ability to substantially increase production. Both SA and Russia have substantial shut in capacity ready to go. Iraq and Libya will happen sooner rather than later. Who knows about Iran..... The big multi-nationals are no longer the key players since they no longer have access to much of the upside.

 

[nobleea]

I was referring to the multinationals in VNZ, as their home grown knowledge base is effectively zero now.

 

[AltaRed]

I was referring to the multinationals in VNZ, as their home grown knowledge base is effectively zero now.

Agreed. I didn't interpret your post as you wrote it.

Doubt anyone will go back in a significant way. They've been bitten (confiscated) twice, once in the mid-1970s and then again in the early 2000s. That said, it looks like some are getting involved again, Venezuela capitulates to some extent.

 

[MrBlackhill]

When reading about sector rotation...
And about current sector weightings...
And seeing tech sector weighting at its highest...
And seeing energy sector weighting at its lowest...
And seeing that we will soon be able to go out...

Are we soon about to see a huge profit-taking (selling) in the tech sector to jump in (buying) energy sector recovery?

Some people talk about oil supercycle... The new buzzword.

 

[Covariance]

I don't know about an oil supercycle. However, it seems logical to include in a straight forward reflation trade.

 

[doctrine]

Whether there is an oil supercycle with $150+ a barrel, or something more like $80-120, may be a little harder to say. The $80-120 scenario is pretty easy to see, we're at $60 and demand is just starting to heat up and no one is drilling for new oil. If demand fully returns, but there is a significant response and increase in capital investment as well as commitment by OPEC/Saudis/Iran to boost production as well as US shale ramping back up, then $80-120 is a worst-case scenario. But anything less than a rapid and significant investment in the very near term is going to quickly result in oil pushing towards all time highs. No private company has a budget even close to 60-70% of what it was in 2019. Most are at 50% or less. And OPEC isn't that much better.

Capital investment and oil production growth take time and money. Demand doesn't - all of those cars, trucks, SUVs, and planes are just sitting there ready to go. In fact, there are many, many more as every car factory in the world has still been making new cars, and they are flying off the shelves - especially big gas guzzlers. And everyone is just itching to get back and travel. Everyone, everywhere. There is a reason oil is at $60 today - and Brent at $63. Personally, unless something changes and capital investment doubles in the next year, $150+ seems quite possible. And maybe sooner than you think.

 

[hboy54]

Another delicious day in a delicious 2 or 3 weeks in the energy patch. Even SU is moving today today.

 

[james4beach]

Another delicious day in a delicious 2 or 3 weeks in the energy patch. Even SU is moving today today.

Quite a nice rebound, very good for the TSX index as well.

But how are you going to differentiate between a brief rebound (from oversold conditions) vs the start of a new bull market, something that lasts for many years? Those are very different things.

I'm maintaining my 20% energy weight in my 5-pack, plus I get my oil & gas exposure in the TSX 60.

 

[Ponderling]

I am not sure of the long term on oil but I surmise the shut down of the Texan and other gulf coast oil and petrochemical facilities will have some short term push on the price of the things they usually produce.

 

[doctrine]

Quite a nice rebound, very good for the TSX index as well.

But how are you going to differentiate between a brief rebound (from oversold conditions) vs the start of a new bull market, something that lasts for many years? Those are very different things.

I'm maintaining my 20% energy weight in my 5-pack, plus I get my oil & gas exposure in the TSX 60.

-Very good for the Canadian dollar as well. Both the dollar and the TSX index are doing well - a double bonus, because we can buy more assets outside our country while our assets appreciate.

-Oil is in structural supply constraint - investment has fallen by half in an industry that struggled to raise production by 1-2% a year worldwide at full investment - think about this. Longer term, I believe oil prices will rise until demand starts to suffer, and we enter a scenario where electric vehicle production is able to replace existing ICE vehicles. We are quite far from that - 5 years at least.

-The oil consumption deficit is estimated at something like 2.5-3 million barrels a day so far this year. That might have doubled over the last week with the loss of US supply. Supplies were already dropping. New estimates by Goldman Sachs and others are $70-75 oil in the next 3 months.

-Look at Suncor and CNQ breaking out. And some mid caps like MEG and ERF booming today. It's really only a question of how fast these stocks rise and how soon, not whether they rise. They're going up. Suncor is still at $26 - it was nearly $50 the last time oil was sustaining these price levels.

 

[james4beach]

-Very good for the Canadian dollar as well. Both the dollar and the TSX index are doing well - a double bonus, because we can buy more assets outside our country while our assets appreciate.

Yup I agree, this has been great. CAD strengthening while our stocks are strong... we are truly getting richer in absolute terms.

This is true, I often forget about this part. Strong commodities & energy result in a stronger CAD, so really, we all benefit. Even a fixed income investor is getting richer!