[londoncalling]

The gleeful Eric Nuttal mentioned the probability of $150 -$180 a barrel by fall. His statement was that until we see money go into capex the price will climb. Even then it takes years for new production to come online. It doesn't look like the war in Ukraine will see resolve anytime soon. As long as that continues price will stay high. However, I am starting to see a lot of toys (boats, RVs, 5th wheels etc.) for sale. Those that have money will travel/play no matter the cost after being cooped up for the past couple years. That should keep a floor under oil prices. Also, the EV market disruption will not be immediate. Still a lot of ICE out there and other uses for oil beyond gasoline.

 

[doctrine]

Some analysts are suggesting that sustained $180 oil is the price that would level out supply and demand, whether or not that causes a recession. Currently at $120 but refining margins are $60 or higher - implying today's demand could already support an oil price above $150 if refining margins were just an "abnormally high" $30.

 

[james4beach]

Some analysts are suggesting that sustained $180 oil is the price that would level out supply and demand, whether or not that causes a recession. Currently at $120 but refining margins are $60 or higher - implying today's demand could already support an oil price above $150 if refining margins were just an "abnormally high" $30.

Wouldn't surprise me at all to see oil double. Oil seems incredibly cheap for the utility we get out of it.

But anyway I don't want to make wild guesses at oil prices. Thanks for your earlier comment about Suncor's assumptions. Seems like a safe estimate to say their forward P/E is somewhere between 5 and 9. Either way, this is a cheap stock.

I'm long XEG

 

[zinfit]

most energy stocks will pay off all debt in 2022. In 2023 most will have no debt and will have 30 % plus FCF. and will be using that to buy 50 % back stocks and paying out the balance to shareholders . Can anyone explain the downside?

 

[james4beach]

Can anyone explain the downside?

The Chinese economy is slowing, and the US could enter a recession if there's a change of fortunes. So global demand could plummet.

The war could end, and oil markets could bounce back to normal. Maybe the price of oil could fall a lot in this kind of scenario.

The sharp increase in interest rates and QT could even trigger some kind of financial crisis. You might recall that there was a similar energy & commodities scare in 2007/2008 right before all markets crashed. Oil went through the roof, and speculators aggressively pushed oil contracts higher, right before everything crashed.

I'm not saying that will happen but there are clearly risks. Nothing is a sure thing. Commodities could weaken, and people buying now could be buying at the peak.

 

[zinfit]

The Chinese economy is slowing, and the US could enter a recession if there's a change of fortunes. So global demand could plummet.

The war could end, and oil markets could bounce back to normal. Maybe the price of oil could fall a lot in this kind of scenario.

The sharp increase in interest rates and QT could even trigger some kind of financial crisis. You might recall that there was a similar energy & commodities scare in 2007/2008 right before all markets crashed. Oil went through the roof, and speculators aggressively pushed oil contracts higher, right before everything crashed.

I'm not saying that will happen but there are clearly risks. Nothing is a sure thing. Commodities could weaken, and people buying now could be buying at the peak.m,.

yes but even if China slows with the drop of covid restrictions is a still a plus. Russia backs off? doesn't change the sanctions . Do energy companies increase production ? lot luck for that one. Does Trudeau back off from anti fossil fuel policies? do I have to answer that one.

 

[Gumball]

most energy stocks will pay off all debt in 2022. In 2023 most will have no debt and will have 30 % plus FCF. and will be using that to buy 50 % back stocks and paying out the balance to shareholders . Can anyone explain the downside?

I agree with you the fundamentals make sense - the article below is what worries me, as do the Biden and Trudeau socialist governments that would be foaming at the mouth to replicate Bojos move...


U.K. introduces temporary 'windfall tax' of 25% on oil and gas profits

https://www.cbc.ca/news/business/britain-gas-oil-tax-1.6466747

 

[londoncalling]

As EU nations ween itself off Russian energy, they will be replacing some of it but they will also make a huge shift to renewable energy to fill the gap. There will likely be further investment in renewables. Smart oil companies are already making that shift over putting the money into oil capex.

As @Gumball has noted the government is often a wild card in its ability to disrupt fundamentals. Many provinces are offering temporary tax relief. Alberta will have a windfall year but Ontario will need to find replacement revenue.

 

[AltaRed]

There is a limit to how fast renewables can pick up the slack. Activists and governments either have not thought this through or their ideology is clouding their judgement. Renewables are having a tough 2022 because they cannot get product, e.g. turbine blades, solar arrays, etc, etc.

 

[damian13ster]

The investment in renewables is precisely why oil prices will be massive next couple of years and precisely why FCF yields of 20%+ are starting.
They won't invest in Capex since governments are actively working against investments - nothing to do but ride that cash cow and return all the profits to shareholders.
Britain's windfall tax already had major companies slash Capex in UK. Stable tax jurisdictions are a must for investments. The smaller companies that are in a single country/geographical areas are much more exposed to such risk, but major corporations will do well

 

[londoncalling]

My statement was directed to the medium term and about capex investment in general. The oilcos have done a great job in debt repayment and share buybacks and have not gotten silly with their dividend policy. If oil prices hold they will have an abundance of cash. This poses both a threat and an opportunity. Those that mismanage the capital will be punished and those the execute will survive the next downcycle. I think some of that capital will go into energy diversification. Both the transition from Russian supply and the move to energy replacement will take time. The unfortunate part is consumers will pay more at the pumps during that time. The good news for energy producing companies (and their shareholders) and regions as they will benefit from the higher prices. Like most things it is a tight rope walk. Countries that are too punitive in their taxation policy will forego the opportunity for full participation.

 

[damian13ster]

There is absolutely no point for oil companies to invest in renewables at this point, other than greenwashing.
Raw material prices are very high - and 'green' energy has massive demand for raw materials.
The electric network is not ready to take in the extra capacity from PV and wind power. More and more people who invested in small PV installations are now tackling that issue.
It is simply better to wait couple of years or a decade, when ROI will be much higher from such transition.

I want them to invest more into carbon capture, into electrolysis as a way to recover energy (from flaring, for example), etc. Investment into batteries, solar panels at this point in time simply makes no sense until the issues above are solved or better technology comes along

 

[zinfit]

There is absolutely no point for oil companies to invest in renewables at this point, other than greenwashing.
Raw material prices are very high - and 'green' energy has massive demand for raw materials.
The electric network is not ready to take in the extra capacity from PV and wind power. More and more people who invested in small PV installations are now tackling that issue.
It is simply better to wait couple of years or a decade, when ROI will be much higher from such transition.

I want them to invest more into carbon capture, into electrolysis as a way to recover energy (from flaring, for example), etc. Investment into batteries, solar panels at this point in time simply makes no sense until the issues above are solved or better technology comes along

I would like to invest in modular nuclear power if governments and society would get off their rearends. May-be a swing to CPC and Republicans might show some real movement on this front. We are deceiving ourselves if we think we can make serious progress on reducing CO2 without a major reliance on nuclear.

 

[AltaRed]

It is likely going to take the collective (aggregate) effort of the major oil sands producers (Fort Mac and Cold Lake) to support the first modular nuclear power installation (anchor tenants so to speak). It could be justified simply from the increasing cost of natural gas as fuel for their operations. I don't see a current electrical utility putting up their hands willing to do this any time soon.

 

[damian13ster]

There was a bit of a growing support to nuclear recently, but it will be quickly extinguished.
An improvement in attitude to nuclear power was very quickly followed with increase in media publicity, netflix shows, etc. that show nuclear in negative light.

nevertheless, I have not yet heard of any oil company entering nuclear energy, nor have I heard of any of them (including Suncor) indicate any interest of doing that.

There were however solar and wind projects, although Suncor is not leading the charge

 

[AltaRed]

I am not suggesting Suncor or any of the oil sands producers actually own and operate modular nuclear power plants, but to be the anchor long term contracts so the plant could be financed by an enterprising entity. Same as is done for major pipeline projects. Someone somewhere, e.g. Brookfield Infrastructure, should see this as an opportunity

 

[zinfit]

I am not suggesting Suncor or any of the oil sands producers actually own and operate modular nuclear power plants, but to be the anchor long term contracts so the plant could be financed by an enterprising entity. Same as is done for major pipeline projects. Someone somewhere, e.g. Brookfield Infrastructure, should see this as an opportunity

May-be a partnership with TC Energy, the large energy players, the Alberta government and someone like Brookfield ? Gates is a big believer in modular nuclear power . Get him involved ?

 

[Money172375]

Down 6.5% at the open

 

[zinfit]

Down 6.5% at the open

sentiment has certainly turned on the energy stocks . They start reporting earnings in early August. Even at current prices they are a giant cash flow machine. I guess the market anticipates a recession and a pile of demand destruction. I just spent a week driving through western Canada and a number of US states. I saw no shortage of vehicles and traffic. It seems that Canadians and Americans are just paying fuel prices which Europe has been paying for decades. The free ride is over.

 

[investor65]

I still think energy is the best place to put your money for the next 1 to 2 years.
But is anyone concerned about a windfall tax by Lib/NDP alliance? They did it to the banks, surely they'll do it to energy companies which they hate.
Also, Biden could reimpose an oil export ban.
For this reason, I'm in BNO (Brent oil etf) and not in any other energy stocks right now.
I believe the world is headed to an energy shortage crisis due to chronic underinvestment due to the ESG scam. Left wing policies are not just foolish, they're dangerous.