At what point does a broad contango play come in to provide support? Right now, the one year return on the curve ex storage is ~17%.

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These oil stocks trading weird. Oil
Down about 20% in a month but stocks are flat to positive for last month. Earnings have to be terrible and I don't think any CEO will forecast great numbers for 2015. I think they are being setup for a huge down day on earnings

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just because the commodity is down 20% doesn't mean all stocks should. If the company is situated well financially i would expect little to no sliding. now the ones that aren't, well yes people will be in for a rude awakening.

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Perhaps a relevant chart (via Zerohedge)

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At what point does a broad contango play come in and provide price support? Right now, the one year return ex storage is close to 17%.

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I think it's in the infantile stages but should ramp up. Lots of capacity increases in tankers over the past few years that are sitting empty. Pretty sure I read somewhere that companies are already storing in tankers sitting offshore to wait.

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These oil stocks trading weird. Oil
Down about 20% in a month but stocks are flat to positive for last month. Earnings have to be terrible and I don't think any CEO will forecast great numbers for 2015. I think they are being setup for a huge down day on earnings

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just because the commodity is down 20% doesn't mean all stocks should. If the company is situated well financially i would expect little to no sliding. now the ones that aren't, well yes people will be in for a rude awakening.

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Perhaps a relevant chart (via Zerohedge)

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I should have explained my thinking better, normally the stocks should follow, however the price of crude is artificially deflated because of OPECs unwillingness to balance the market. therefore this tells me that everyone thinks the price of crude is under-valued and the divergence is showing up in the stock prices that should normally track a properly functioning market. Just an educated guess.

If prices should correlate, what are your thoughts on the divergence and the drivers behind them? Not arguing, but genuinely asking a question.

Crude is not artificially deflated. Crude is trading at exactly what the market is dictating currently. You can't assume that it is solely OPEC's responsibility to cut their production to balance the market. Why don't all of the US producers turn off their spigots to balance the market? OPEC was doing just fine when the US only had a 3%-4% market share while the Saudis were sitting fat and happy at a 17% share. Between the minimal/stagnant growth projections in Asia, decreased global demand, and the huge influx in domestic crude, this is just a normalization.

What's keeping a lot of these stocks in good standing has been said numerous times throughout this thread. Lots of cash, low debt, and hedged into 2015. Assuming prices stay low (not artificially deflated), I'd guess at the stocks not taking hits until May-ish.

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These oil stocks trading weird. Oil
Down about 20% in a month but stocks are flat to positive for last month. Earnings have to be terrible and I don't think any CEO will forecast great numbers for 2015. I think they are being setup for a huge down day on earnings

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just because the commodity is down 20% doesn't mean all stocks should. If the company is situated well financially i would expect little to no sliding. now the ones that aren't, well yes people will be in for a rude awakening.

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Perhaps a relevant chart (via Zerohedge)

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I should have explained my thinking better, normally the stocks should follow, however the price of crude is artificially deflated because of OPECs unwillingness to balance the market. therefore this tells me that everyone thinks the price of crude is under-valued and the divergence is showing up in the stock prices that should normally track a properly functioning market. Just an educated guess.

If prices should correlate, what are your thoughts on the divergence and the drivers behind them? Not arguing, but genuinely asking a question.

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Trying to rationalize equity prices has been a tough job since 2008-09 (as in - I personally believe equities trade on Fed expectations first and foremost, and the author of this chart would probably agree). This particular disconnect, and again just speculation, looks like a short-squeeze/momentum trade on the due to market (not fundamental i.e. related to WTI). The energy high yield credit probably provides a better picture of the underlying health and fundamentals of the companies at the margins.

TBH I think the crude price drop, while indicated by an oversupply, was led more by the demand side of the equation falling out (economic issues outside of the energy industry altogether), but I digress.

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Crude is not artificially deflated. Crude is trading at exactly what the market is dictating currently. You can't assume that it is solely OPEC's responsibility to cut their production to balance the market. Why don't all of the US producers turn off their spigots to balance the market?

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You understand why they can't "turn off their spigots" correct? There's more forces at work than a simple supply and demand curve. I pulled the data. Either we were artificially held up for several months or something else is at play here. The separation of US production vs supple has been diverging for years now. There's no reason prices just fell off the face of the earth this quickly. There's something else going on here.

Speculators play a huge role. Everybody got pissed when they bid up the price but nobody cares when it goes the other way.

Well, no one but those of us in the industry.

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Crude is not artificially deflated. Crude is trading at exactly what the market is dictating currently. You can't assume that it is solely OPEC's responsibility to cut their production to balance the market. Why don't all of the US producers turn off their spigots to balance the market?

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You understand why they can't "turn off their spigots" correct? There's more forces at work than a simple supply and demand curve. I pulled the data. Either we were artificially held up for several months or something else is at play here. The separation of US production vs supple has been diverging for years now. There's no reason prices just fell off the face of the earth this quickly. There's something else going on here.

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Yes, I know you can't just shut off the spigot. I was being facetious. Personally, I believe that prices have been artificially propped up for quite some time. I believe some strong forces in play is the stabilization of oil production in some of your more war torn countries in the Middle East. Libya, Iraq, Afghanistan, though still going through civil unrest, have been producing at high levels without much interruption in their production.

I also don't mean my last response to ignore all of the other geopolitical/economic war factors.

I think Saudi is pissed at the other OPEC members and want them to play nice on a global scale but also within OPEC. I think they're pissed at the US producers. I think they are realizing they don't have the same control over the world oil supply as they once did and they are trying to get it back (I don't think they will be successful in that, though).

Agreed. In the 90s the Suadis market share was just over 17% of global production. Now it's closer to 12% is my understanding. They want that 5% back and I don't think they care where they get it from.

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Agreed. In the 90s the Suadis market share was just over 17% of global production. Now it's closer to 12% is my understanding. They want that 5% back and I don't think they care where they get it from.

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im not too worried about the price of oil, too many people "want" it between $60 and $90. some sort of conflict will ensue...
i hope i am wrong but by May 1 there will a significant event affecting global oil supply somewhere in the world. Too many crazy dictators and saudi princes running around with a ton of money and power to lose.

Agreed.

If you are the Saudis, Flood the market with cheap oil and sweep the screen as low as it will go. their traders mouse fingers are probably cramping...Flood the mkt as much as it takes to have the great satan american oil drillers say uncle and tap out. Regain market share and then pay 50mill to someone to start a new war in Iran....boom mkt price jumps back up, prices are where they want them and they have their market share back.


Rinse repeat, see you in late 2017 and we will do this all over again.

Not that I would wish this but my money is on ISIS cutting into rapidly growing production in IRAQ. They are getting awful close to some of the larger fields in northern Iraq, and there are quite a few pipelines that run through "their" territory. Also, missed my notice but apparently they also have a hold in Libya as of December. Could also be some upsets there with the recently "stabilized" government, their addition of close to a million bbls a day to the global market and apparently they need $184 oil to balance their budget. http://graphics.wsj.com/lists/opec-meeting Either way though, my money is on ME/OPEC instability bringing oil prices back up within 8-12 months.

As a new grad in O&G, this thread is an excellent read.

I'm also curious/anxious to see if there will be layoffs at my company.

excuse my nativity, but if the sweet spot is 65-90 per why not cut off the importing of oil, drill our own and keep the price relatively tame and less volatile like the price on an all you can eat Furrs Cafeteria?

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To protect American Oil...

Laissez faire

No one wants the government interfering in this. Not even the people losing their asses right now. It would set precedence that no one wants.

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excuse my nativity, but if the sweet spot is 65-90 per why not cut off the importing of oil, drill our own and keep the price relatively tame and less volatile like the price on an all you can eat Furrs Cafeteria?

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This would be the end of US refiners

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excuse my nativity, but if the sweet spot is 65-90 per why not cut off the importing of oil, drill our own and keep the price relatively tame and less volatile like the price on an all you can eat Furrs Cafeteria?

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This would be the end of US refiners

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Why? why not retool them to refine the lighter sweet crude instead of refining imported oil...

if you can produce your own product for roughly the same cost or have some benefit such as market stabilization, then why do we continue to allow ourselves to be run by other countries who do not have our best interests in mind?

also, cutting off imports could be tricky outside the "everyone is pissed about government meddling" aspect. the likely outcome of cutting of imports would be a massive spike in prices (bad for consumers), followed by a mad dash by companies to be the first to capitalize on those prices, followed by a production glut and a corresponding fall in prices, putting us back in this same scenario, kinda like what happened with natural gas. although long term it could stabilize price at least until we ran out of domestic oil. but then see again "government meddling"

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then why do we continue to allow ourselves to be run by other countries politicians who do not have our best interests in mind?

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FIFY

Low oil prices = low gas prices = "vote for me again, because I definitely have the power to control gas prices, and low oil is totally not bad for the economy"

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excuse my nativity, but if the sweet spot is 65-90 per why not cut off the importing of oil, drill our own and keep the price relatively tame and less volatile like the price on an all you can eat Furrs Cafeteria?

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Socialism

http://fuelfix.com/blog/2015/01/13/halliburton-cuts-jobs-in-houston/

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Halliburton Co. said Tuesday it has cut jobs in Houston because of weakening market conditions as oil prices slide, but the oil field services company refused to say how many employees it let go.

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My opinion is the decoupling of oil stock prices from the underlying price of crude oil that began in mid-December is due to a group of investors who think this will be a short downturn like we saw in 2009. Personally, I disagree so I'm not buying energy stocks.

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excuse my nativity, but if the sweet spot is 65-90 per why not cut off the importing of oil, drill our own and keep the price relatively tame and less volatile like the price on an all you can eat Furrs Cafeteria?

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This would be the end of US refiners

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Why? why not retool them to refine the lighter sweet crude instead of refining imported oil...

if you can produce your own product for roughly the same cost or have some benefit such as market stabilization, then why do we continue to allow ourselves to be run by other countries who do not have our best interests in mind?

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US refiners are exporting a lot of refined product. You would basically fix their input price while their product price still fluctuates along with the world crude market. They may have some really awesome times (US $70 vs World $100) and some really bad times (US $70 vs World $40). No way to run a business with that much unpredictability.

thanks for the response, not expert but just trying to work through it rationally....

obviously made a mistake when i brought rational thinking to oil haha

You also don't want to say a big FU to countries still producing from reservoir rocks while we are producing from source rocks.

Eventually the source rocks will be drilled up here, and most OPEC countries will still have their source rocks to deplete. We can bank on finding another EF or Bakken, but it's not a bet I would make.

US Energy Secretary meets with Saudi Oil Minister...

http://in.reuters.com/article/2015/01/13/saudi-united-states-oil-idINL6N0US4KQ20150113

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Saudi Oil Minister Ali al-Naimi met U.S. Deputy Energy Secretary Elizabeth Sherwood-Randall on Tuesday in Riyadh where they discussed oil markets, the official Saudi Press Agency (SPA) reported. SPA gave no specific details about the meeting in a brief statement but said the officials looked into cooperation on energy and environmental issues, climate change, solar energy use and mutual investments.

A U.S. energy department spokesman said in addition to those areas, the two officials discussed global oil markets.

Venezuela's President Nicolas Maduro is in Algeria on a diplomatic push to persuade reluctant fellow members of OPEC to prop up a sinking market by cutting output. Saudi Arabia, OPEC's dominant member state and the world's biggest oil exporter, has repeatedly said the group will not cut production.
On Tuesday, United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui stood by OPEC's decision to keep production unchanged.
Mazroui showed no sign of backing down from OPEC's insistence that other producers, particularly the U.S. shale oil drillers which it blames for oversupplying the market, reduce their output.

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