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Oil price hit hard - at what level would you consider buying oil majors shares?


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As per title.

 

The oil price has taken a beating today.

 

But in the medium to long term everyone needs oil.

 

How low would you let the oil price go before considering buying oil major shares? (I realise all oil majors are not made the same)

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Markets just looking for an excuse to correct

nothing to see here.

just a buying opportunity, won’t get the real crash for many years yet, it’s going to take a blow off top and nothing else to take this puppy down

 

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Why would you buy a share in a decreasing market that has already refined (lol) the heck out of it's production and delivery processes?

Unless you know that in some way:

  1. the cartels are going to get stronger OR
  2. increased bail outs (subsidies) OR
  3. cost savings are expected to increase OR
  4. major technological change.

The first is unlikely because with falling, but never going to be 0, demand ... I don't think power will increase in those organisations (though it may take decades to wane completely).

The second is unlikely because it is politically not a great plan (though this might not be relevant for a number of years).

The third is unlikely because they are going to have to drill deeper and further to get more oil (which comes back to bite you if you believe /are trying to argue that oil demand is not going to decrease over the coming years).

And the fourth ... well, I will just leave that one out there ...

Aside from the moral question (and some investors suggest you should never let that affect your investment strategy) ... surely getting "profits" from falling oil share price ... not a long term strategy that one ... short term market speculation? Well, that's as much about predicting their won't be any outside (unrelated) forces (or mania) ruining your short term ...

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Posted (edited)
3 hours ago, Aidan Ap Word said:

Why would you buy a share in a decreasing market that has already refined (lol) the heck out of it's production and delivery processes?

 

I don't see it as a decreasing market:

https://auto.ndtv.com/news/india-has-over-60-000-petrol-pumps-sees-45-per-cent-rise-in-last-6-years-1782696

 

https://www.thehindubusinessline.com/economy/auto-fuel-imports-top-5600-cr-in-fiscal-2018-2019-petroleum-ministry/article28643087.ece#

 

There are still whole swathes of the world that don't have a vehicle, I don't see electric vehicles as being the first choice for these people, and once a vehicle had been made in these markets it will be passed on for about 20 years, using fuel all the time.

 

Even in you use an electric vehicle, the reality is a huge amount of oil will be consumed making the batteries, extracting the rare earth metals, making the steel the body is made of, making the electricity etc. etc.

 

 

 

 

Edited by reddog
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18 minutes ago, reddog said:

That's quite a Europe centric view, I don't see it as a decreasing market:

https://auto.ndtv.com/news/india-has-over-60-000-petrol-pumps-sees-45-per-cent-rise-in-last-6-years-1782696 

https://www.thehindubusinessline.com/economy/auto-fuel-imports-top-5600-cr-in-fiscal-2018-2019-petroleum-ministry/article28643087.ece#

 

There are still whole swathes of the world that don't have a vehicle, I don't see electric vehicles as being the first choice for these people, and once a vehicle had been made in these markets it will be passed on for about 20 years, using fuel all the time.

Even in you use an electric vehicle, the reality is a huge amount of oil will be consumed making the batteries, extracting the rare earth metals, making the steel the body is made of, making the electricity etc. etc.

This is out of date. Very little oil is now used to make electricity as it is already too expensive and each year renewables continue to  get cheaper. Also the amount of rare earths/power required to produce a battery pack is rapidly reducing.

Specifically solar cells are getting more efficient and cheaper year by year and the move to perovskite is going to make them maybe 5 times cheaper. In 10yrs time why would you want a car that you have to put expensive fuel in where for most of the world there is the option of one where the fuel comes off your roof and is almost free. 

There is a real risk that the demand for/price of oil will fall enough, behind current projections, to make many reserves uneconomic to exploit; and reduce the value of many western oil companies to zero.      

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12 hours ago, Aidan Ap Word said:

The third is unlikely because they are going to have to drill deeper and further to get more oil (which comes back to bite you if you believe /are trying to argue that oil demand is not going to decrease over the coming years).

Oil demand will fall eventually and the billions they spend looking for and extracting oil will either be returned to shareholders in cash and/or diverted to investment in alternative energy sources. That's already happening.

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14 hours ago, reddog said:

As per title.

 

The oil price has taken a beating today.

 

But in the medium to long term everyone needs oil.

 

How low would you let the oil price go before considering buying oil major shares? (I realise all oil majors are not made the same)

This is the equivalent of:

My neighbour is selling me his place at a 10% discount because it has just been set on fire, should I buy now?

 

If you want to listen, I can give you a lesson about economics.

The world needs oil, but prices are not set with that criteria. Prices do not depend on the average person, but on the people who trade at the margins. In other words, if there are 100 people in a market and 5 people need this product no-matter-what, 80 have variable prices and 15 don’t need it... the price will be very different depending on the levels of supply.

What is going on right now is that supply will not change (no matter what OPEC says), but there has been a drop in demand of some clients and is a huge risk of catastrophic drop in oil needs globally which hasn’t yet materialised. The sector is very leveraged and/or full of big companies that have little manoeuvring space. Cutting production or de-investing are not options for the medium term. At the same time, the more this pandemic situation last... the more permanent effect on demand we will see... (people getting used to videoconferences, not wanting exposure to other countries or xenofobia feeling increasing and making people less keen to be tourists).

I would wait until the entire thing clears out... if you want to have an indicator, look at junk bonds of the oil sector, it will give you an idea about the weakness of the supply side that is suffering the most.

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8 hours ago, Confusion of VIs said:

This is out of date. Very little oil is now used to make electricity as it is already too expensive and each year renewables continue to  get cheaper. Also the amount of rare earths/power required to produce a battery pack is rapidly reducing.

Specifically solar cells are getting more efficient and cheaper year by year and the move to perovskite is going to make them maybe 5 times cheaper. In 10yrs time why would you want a car that you have to put expensive fuel in where for most of the world there is the option of one where the fuel comes off your roof and is almost free. 

There is a real risk that the demand for/price of oil will fall enough, behind current projections, to make many reserves uneconomic to exploit; and reduce the value of many western oil companies to zero.      

Totally - that’s why Saudi have already sold off a part Aramco - to test the appetite for a bigger sale - Bahrain likely to follow - Saudi have just imposed vat - a clear sign they know they will have to move to a post oil wealth economy 

Some also say the reduced demand for oil is part of its spat with Qatar -who have seen their economy boom with the demand for their natural gas - 4th largest reserves in the world with only USA,Russia,Iran ahead of them 
 

’THE Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil‘

The quote has been widely credited to the Saudi oil Minister who said it years ago

 

 

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https://www.bbc.co.uk/news/business-51774622

Oil prices plunged about 10% on Friday, after a proposal by major oil producers to cut output collapsed.

The plan had been intended to keep oil prices steady despite the hit to demand as the coronavirus slows travel, manufacturing and global supply chains.

However, Russia declined to participate, with talks ending with no new deal to restrain production.

The result triggered some of the biggest one-day falls in prices in more than five years.

Brent Crude suffered its biggest one-day loss since 2008, falling more than 9% to about $45.27 a barrel. West Texas Intermediate prices tumbled 10.1% to $41.28, the biggest one-day fall since 2014 and the lowest level since 2016.

Oil exporters group Opec was pushing for an additional 1.5 million barrels per day (bpd) of cuts, which would have reduced production by about 3.6% of the world's total supply.

Non-Opec states - such as Russia- had been expected to contribute 500,000 bpd to the overall extra cut, Opec ministers said.

Oil prices have already tumbled about 30% since the start of the year. 

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15 hours ago, jiltedjen said:

Markets just looking for an excuse to correct

nothing to see here.

just a buying opportunity, won’t get the real crash for many years yet, it’s going to take a blow off top and nothing else to take this puppy down

 

we'll see.

short term prices will look to be going down, as rears over the ecomony/global free trade routes grow.

longer term, if say coronavirus does expand ,or iran v saudi+ respective proxies goes hot, peoples focus will shift to supply chain issues,rather than overall demand, problems, so prices would go up.

You would also see a lot more "nationalism" when it comes to release of energy supplies to the market.There will be a clamour for energy security on a state by state basis globally.Including us.

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as above, take a look at the tech market as a forward indicator.

apple etc are waring their revenues will be down, but you look at the price for components like SSD's and NAND chips for RAM, and the price of these is increasing as inventory is worn out and resupply becomes more difficult.

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51 minutes ago, oracle said:

as above, take a look at the tech market as a forward indicator.

apple etc are waring their revenues will be down, but you look at the price for components like SSD's and NAND chips for RAM, and the price of these is increasing as inventory is worn out and resupply becomes more difficult.

That would mean the final price will be higher, pricing some people out, most people have a budget.

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19 minutes ago, Confusion of VIs said:

All that would do is speed its demise. 

correct. look at gas, used to be hailed as the cleaner wonder fuel for electricity. well windpower is now cheaper per kw than gas is. it just takes a long time to turn around a tanker. next year the uks last coal mine is closing. the move is full on removal of carbon producing fuels from the system. so if you want a slice of the new revolution because you never got a chance to invest in the tech industries and you were too young for the railroads. then the next step the future is the low carbon economy. get in while you can. 

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I think we are HPC are guilty of thinking what will happen will happen in our favour, basically wishful thinking investing

but 95% of the population think different to us. and invest differently. 

Most will pile in as soon as the market trades sideways for a few days. and the money printing will make sure there is a prop at some point. 

when you have central banks printing relentlessly printing the markets can’t fall, not until money has lost all value, and that won’t happpen in the short to medium term.

what will happen is a series of corrections (which otherwise would be crashes if not for the central banks) followed by huge new all time highs over and over again. there is only one thing that can and eventually will take this puppy down, and that’s a massive blow off top, it has to get manic stupid crazy high first. 
 

everyone and their dog will be throwing everything into the stock markets, it will take another 8 or 9 years yet, two more generations of ‘can’t lose’ investors. 

who ever thought it would get to this? who ever thought falls were abolished? 

really if it was a crash it would be down 60 or 70% considering the funny money, and of course that would involve a sudden shutting off of the tap of funny money 

its going to be a case of the funny money raising all boats, you can’t go wrong with anything other than cash, property, shares, bonds, gold.

now is not the time to be sitting on the sidelines waiting for a HPC, we might get a massive HPC value fall come 2029 but that’s no good if it’s £15 for a loaf of bread by then, and that additional decade of losing value won’t be kind to any cash pile. 

what’s worse will be the extremes methods put in place towards the end of the share bubble to try and prevent it from ever correctly, bans on investing elsewhere, huge bank charges for amounts over £1000 when spread over all accounts in a household, so by the time any cash pile is ready to grab bargains it would of been decimated. 

BUY THE DIP!!
 

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As soon as/if RDSB hits sub 1400, I'll start buying speculatively....worked twice before.

Tullow looks interesting as a punt - it's either going bust of will be a spectacular short term return.

Not advice, DYOR.

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1 hour ago, hurlerontheditch said:

With oil down 20%tonight expect tullow to drop to sub 20p

 

 

This will be good in the long run for the lower cost producers and bigger firms that are distributed enough to stay in game. It will reduce capacity and ultimately lead to higher prices. This is a big issue with oil as sunk costs are high and extraction cost vary. Expect say BP and Shell to fall tomorrow, but to rebound in 18 months to much higher levels until the high cost prices get back in stream

 

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