Jees Louise, at least you sort of framed the issues! Now let me get my 2 by 4 out and whomp you upside the head <g>.
<You have given NOTHING of substance>
BTW, all the bulletpoint points I will offer have been made here ad nauseam by myself and others, so cut the nonsense.
<WAR-Many contend once premium is taken out>
There is no significant war premium. Nobody is really speculating on energy as they did in 91. There are no specs positions to blow out on the futures, they're basically square and flat. There is no inventory buildup as in 1991. In fact QUITE THE OPPOSITE. We have a severe fiat accompli inventory problem in NG AND oil, and there is no slack.
Message 18609910
OPEC is only a factor at the margin in "normal markets", whatever normal means now. In times of calm, and when everything is working right (recession, warm weather, no trouble in the world), OPEC can increase and decrease their little 2m BOE/day swing and influence prices. Well guess what Sherlock, in the real (non-TOHOE) world we sometimes have cold weather, and geopolitical issues, and this winter they are all hitting (and will continue to hit)at the same time. Now, if you'd been absorbing (that's not my job, and given your lack of effort, go find it: of course you know this post is not about you?) some of the excellent posts here, you would have at one point noted one relating to excess capacity at OPEC. In a nutshell there isn't much: OPEC is producing all out. I've also seen you try to insert the "Russia" supply solution. I'm bullish on Russian oil, but in two or three years. The most they could do this year (when we need it, NOW) and only if they get the Latvian terminal is increase 300,000/bpd, and that's spit.
<GSF this week reiterated that GULF drilling is not picking up at all.
I subscribe to the notion that declining NG and oil production will not be solved out of thin air, and without effort. The fact that offshore drilling is slow to respond, just pours more fuel on the supply erosion (6% YOY)problem. And since we will be running on fumes at the end of the heating season, I ask you again, where does all this shoulder season replenishment you keep talking about come from?
<Historical: will get replenished as it did in 96. and 2001.>
Very counterintuitive, as you just told me drilling wasn't picking up. Those were drilling boom years, totally lacking so far in the current situation. Again nothing comes out of thin air. It's pay me now or pay me later, and IMO checkmate. With land rigs starting to surge (just in the last few weeks) we may get a little stabilization in 4-6 months, but I think that's very optimistic. On oil there's the strategic reserve, but if Iraq blows up Kirkuk and Mosel, or even if ME oil is just briefly disrupted, SR of western nations will be needed to maintain even subsistence levels. I just don't see pulling SR oil as a meaningful argument against the bull case, anything but in fact.
Valuation: Some "history" for you. The historical range of the drillers (DO, ESV, GSF, NE, PDE, RDC, RIG)in these cycles has been about 95-260% of NAV: see page 8 Jeffries report, available at oilviews;http://oilviews.com/
95% occurred at $12 oil. Right now even with the surge last week we are at 120% NAV. That hardly marks peak valuation with the epic crisis that is unfolding. The market has been slow to respond, no doubt about that. I sees it is psychological: what the French theorist Guyot called "errors of pessimism (and conversely optimism)". You can see this even on this board, where sentiment towards energy is muted because folks "have been burned by these so called predictable cycles before". I think what I hear you saying is that energy investing just isn't viable? That's a flawed argument as the market doesn't really care what prevailing sentiment is. In fact such sentiment merely sets the stage for surprise. All the elements for that are well in place.
Demand:
It's a worldwide (Asia) equation now, not just the US. Worldwide oil demand is growing at about 8m BOE/day, just tick, tick ,tick. The whole energy infrastructure is old and underinvested. Enormous capital will be required, whether it's North America, The ME, Russia, LNG terminals, drilling equipment, oil services. Simmons uses the number $5 trillion.
Message 18616238
I don't know what it is, but I know it's well north of today's levels. On NG, it looks like we have even more cold weather, so if demand dropped people are going to consciously have to turn it off.
grads.iges.org
At some point price elasticity has an impact I agree, but it's not $5, or even $6, try $10, or $12.
Wildcard: A spike from here may set off a worldwide energy induced economic collapse. That would take out demand big time, and might reduce things to barely functioning. Cars would be off the roads, utilities would be bankrupt and shut down, whole industries (airlines, anybody who uses energy in a major way) would go under with a blink of an eye. Little old ladies in Chicago would swelt all summer in 90 degree heat or freeze next winter. My bull case would fall apart pretty quickly in that scenario, although I'd still likely get a bull move as it unfolded. This doomsday scenario is something to really watch out for. But $20 oil, no way. |
