Oil Prices & USO

by rawemotions Wed Dec 31, 2014 4:16 pm

Oil Prices are likely to go back up eventually, as demand ticks up with lower prices and
many of the shale producers cutback production.

I believe it might be time to accumulate USO. It can go down another 25% , to may be 15-16,
but not much below that, keeping in mind 35$ per barrel cost price for Soft Crude.

While the USO, may not reach the astounding $40's, I feel it could go back to high 20's.

Comments?

by truthbetold Wed Dec 31, 2014 5:32 pm

raw

my two cents.

If anyone knows the answer to that question, Putin may pay him tons of millions.
Unlike Netflix and Tesla which are small, cult investments, oil is a large real commodity market. It has place for bulls and bears.

Theory A: Oil goes back up in six months by summer of 2015. Some major producer will cutback or some world political crisis or mideast crisis will cause price rally.

Theory B: Oil goes back up in 2 or 3 years. China demand will go up.

Theory c: Oil may never go up. Renewable energy will take over.

US shale oil - read articles on Bloomberg. many producers have sunk costs (money already spent) on many oil wells. they need to keep them going to keep cash flowing. According one logic, many currently producing shale oil wells only require $20 oil to be continue to produce. It is investment in new wells that is drying up. The impact of banks going after loans in some wells is not yet known.

Overall US shale oil is not a small business that can be scared by Saudis. They will fight it for months and may be years. US shale oil cutback may not be the first domino in oil price rise.

I will not invest in oil for few more months. After that I will wait for market to show strength before putting my money to work. I will miss bottom. That is OK.

by rawemotions Wed Dec 31, 2014 6:04 pm

truthbetold wrote:raw

my two cents.

If anyone knows the answer to that question, Putin may pay him tons of millions.
Unlike Netflix and Tesla which are small, cult investments, oil is a large real commodity market. It has place for bulls and bears.

Theory A: Oil goes back up in six months by summer of 2015. Some major producer will cutback or some world political crisis or mideast crisis will cause price rally.

Theory B: Oil goes back up in 2 or 3 years. China demand will go up.

Theory c: Oil may never go up. Renewable energy will take over.

US shale oil - read articles on Bloomberg. many producers have sunk costs (money already spent) on many oil wells. they need to keep them going to keep cash flowing. According one logic, many currently producing shale oil wells only require $20 oil to be continue to produce. It is investment in new wells that is drying up. The impact of banks going after loans in some wells is not yet known.

Overall US shale oil is not a small business that can be scared by Saudis. They will fight it for months and may be years. US shale oil cutback may not be the first domino in oil price rise.

I will not invest in oil for few more months. After that I will wait for market to show strength before putting my money to work. I will miss bottom. That is OK.

Actually your 2 cents turned out to be quite a comprehensive reply with its share of Humour with Putin and all Smile

Russia has managed to survive until now because it has 390 USD Billion in reserves.
They might pull along for a few more months.

I am inclined towards Theory A. Theory C might be a long term play.
Taking your argument further, the very fact that despite such a large base, the price has rapidly come down indicates some distortions in the market. World demand Vs Supply has not really changed that much in the past 6 months to warrant a halving of the price. Clearly there is some price manipulation by OPEC + US to create pain for geo-political foes. The market is playing up the price decrease as a fight between Saudi Arabia and US+Canada, but the real reason could also involve
geo-politics. Anyway, countries like India are benefiting, but I hope they go for fixed price long term contracts taking advantage of the reduction in prices.

Even if you have sunk costs, you cannot use the well, if the revenue does not compensate for operational costs + amortized fixed costs. On Shale, I remember reading that the break-even price is $30's and not $20's. So you might want check your numbers on that. There are also high cost shale producers in many other countries and they are certain to throw in the towel.

by truthbetold Thu Jan 01, 2015 9:03 am

"the price has rapidly come down indicates some distortions in the market."

Rapid fall off in oil price is not unusual. Check how it fell in 2007 time frame. Unfortunately such quick price fall is not always translated to retail customers.

In this particular case, price fall was expected but not that drastically. What compounded the fall was the Saudi decision not to cut production in November.

Why did the saudi's do it? Theory 1: To punish putin and Iran. Theory 2: to shake US and Canada shale oil. Theory 3: to slow down renewable energy. Theory 4: all of the above or some combination of the above.

What ever may be the motive, peak oil theory is dead. They have to come up with a new theory to justify next abnormal price rise. It can only happen when fundamentals starts to improve with china and europe economies clicking again. That is why a rebound in short term is low probability. ( meaning going back to $80)

All of the above theories will go to waste in times of a world wide political crisis or middle eastern crisis.

by Sponsored content

Hitskin.com

Oil Prices & USO

Oil Prices & USO

Re: Oil Prices & USO

Re: Oil Prices & USO

Re: Oil Prices & USO

Re: Oil Prices & USO