# OPEC finally caps oil



## Chris L (Nov 16, 2011)

I've been saying for a long time that OPEC should and would eventually cap production and there it is. Only took 2 long years of misery and pain for them to succumb to the reality of oil. Oil is not like other products, especially when that's pretty much all you got to sell. When supply is too high, and pumping more is your only option, it can't work. Supply and demand fundamentals can't work to correct a market when only one market exists for many countries. So they all pump more...when the answer is and always was, to cut production. They cut off a fraction of their output and oil is up 10%. They can't outpump their problem, balance is what will work for oil. No matter what US does with fracking or whatever other theories you have about oil coming back online and so forth. The total cost of producing oil is practically the same no matter what the source. Those oil nations still have people to feed, just like those in the US. Oil is bound to $100/barrel. It's the cost of getting it out of the ground and paying the people. It will take a long while to get back to $100, but it's finally well on it's way.


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## SMK (Dec 10, 2015)

Chris L said:


> It will take a long while to get back to $100, but it's finally well on it's way.


Maybe not as long as 2040, as projected by the Energy Board here and elsewhere. Even the projected $80 by 2021 I think will get there sooner.


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## AltaRed (Jun 8, 2009)

The agreement may put an effective floor on oil price, i.e. every time it trends towards $40, someone will make noise about curtailing to bring it back, but if prices are sustained above $50, the USA in particular can raise their production to essentially provide a ceiling on oil prices. The USA is down 1 millon barrels per day from its peak of 2 years ago and it is not hard to get that back. And when the Permian shale takes off, there could be another 2-3 million barrels per day there by 2020 (or earlier depending on oil prices). Oil prices will be range bound for years to come.


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## Chris L (Nov 16, 2011)

AltaRed said:


> And when the Permian shale takes off, there could be another 2-3 million barrels per day there by 2020 (or earlier depending on oil prices). Oil prices will be range bound for years to come.



That should get eaten up by increasing demand. OPEC oil was at record highs, even if they drop 2-3 million barrels a day to account for that extra production, coupled with increased demand, they can still balance oil. Fact is that it's the same outcome to sell half as much oil for twice the price. My point is that they simply can't out-pump the problem. They also aren't at risk of being overthrown by US production. It's really a bit of a joke.


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## AltaRed (Jun 8, 2009)

Perhaps but I doubt it. We can have the discussion again in a few years as SA keeps having to cut back to support price. They have no intention of being the sacrifical lamb any more and will remind everyone of that now and then.


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## jerryhung (Mar 28, 2011)

I still find crude +10% a bit excessive, but WOW is all I can say
Too bad I didn't go all-in YESTERDAY


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## Chris L (Nov 16, 2011)

AltaRed said:


> Perhaps but I doubt it. We can have the discussion again in a few years as SA keeps having to cut back to support price. They have no intention of being the sacrifical lamb any more and will remind everyone of that now and then.


For sure they will. But it's a fools game. They're on the right track when they started to diversify their economy. If they get off the oil, then they won't have to be so concerned about their market share and can do what other countries do and focus on something else when oil gets too cheap. Their problem is that they have only one main market....like a lot of those. I think oil will be around $80 for a while. It might even get a few spikes when the holes in the market are exposed from this last squeeze. Investors will get burned a few times once S.A. swing punishes.


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## Chris L (Nov 16, 2011)

On shale:

But al-Sada said Wednesday that OPEC doesn't fear the shale producers.

"We don't see a threat from shale gas. They will make their own assessment, regardless of what we do," he said.

With renewed discipline, such as expelling Indonesia and creating a mechanism to monitor oil output, OPEC is trying to reclaim its former influence on world prices."

And he's right, what shale does is not of any concern to OPEC.

http://www.cbc.ca/news/business/opec-meeting-wednesday-1.3874039

Oil back to $80-$100.


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## Islenska (May 4, 2011)

Could never understand the economics of pumping away while the oil price tanks. Why not save it up for a rainy day? But if you need the cash at any cost, well that is your problem.

Coupled with that are the high cost producers or drilling in forbidding spots like the Artic.

Oil is a tricky investment, proceed with caution....


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## AnonymouslyInvesting (Nov 29, 2016)

Yes, great to see an agreement. Although, most of the members have a history of cheating on their caps, even selling it on the black market. The agreement is a good signal to the market nevertheless.

SA is smart for diversifying away from their reliance on oil. I think there will be a cap on the price of oil for a long time to come (what that price is, I have no idea). There is so much capacity that could come back on in North America. Some companies operating in regions like the Permian-Basin and the Bakken have seen their costs decrease by about 30% with new technology. It's just astonishing. That being said, the cuts to CAPEX over the past two years could cause a crinkle in that theory, but that would probably be relatively short lived.

Islenska - those countries have so much oil, they can't even think of shutting off the taps, especially since so much of their expenses are paid for predominantly from oil production. There was a lot of news headlines floating around when oil started selling off that SA and others needed +$100/bbl to support their social funding. That's true only because they promised so much funding. It only costs SA something like 8-$10 to produce a barrel of oil, so they're still making money at $30/bbl. And they price off Brent, which has tended to trade a few bucks higher than WTI.


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## Just a Guy (Mar 27, 2012)

Islenska said:


> Could never understand the economics of pumping away while the oil price tanks. Why not save it up for a rainy day? But if you need the cash at any cost, well that is your problem.
> 
> Coupled with that are the high cost producers or drilling in forbidding spots like the Artic.
> 
> Oil is a tricky investment, proceed with caution....


You're thinking of oil production as a product, it is also a weapon. There are a variety of middle eastern countries currently at war with one another. How are these wars funded? Oil production. If you glutt the market in oil, and have better cash reserves, your enemy can't buy as many bullets.

Next, your competing with other countries who produce oil. The USA with fracking, the Alberta oil sands, the Russians, the Venezuelans, he Chinese, etc. Contrary to the above statement, not all oil production costs the same. Alberta oil is more expensive, so is fracking...how do you wipe out competition? Drop the price of oil until these companies shut down. Production for them can take years, and they'd probably have to fight the environmentalists to get started again causing further delays. Your two years of pain will probably result in twice as many years of being in the driver's seat for dictating prices before the competition gets up to speed...then rinse and repeat.


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## sags (May 15, 2010)

OPEC talks of cuts and the headline in Canada is......

"This makes a vast difference’: Canadian producers eye growth plans as OPEC cuts".

http://business.financialpost.com/n...eye-growth-plans-as-opec-cuts?__lsa=cca4-b635


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## OnlyMyOpinion (Sep 1, 2013)

^+1 Good points JaG.


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## mordko (Jan 23, 2016)

Very sceptical this would have any effect beyond short term. May seem like a small reduction but it comes right off profit as all the costs have already been sunk. Countries like Russia... I don't even see a mechanism they can use to reduce production. We know OPEC countries will cheat. And if they don't, non OPEC countries will increase production and take over their matket share. Once the cheating by some is detected, the rest of them will exceed their limits.

And by the way, if the price were to go up, US under Trump will pump like crazy. 

There are just way too many players in the game for a successful cartel these days. Price may go up if consumption increases or revolutions start in places like Venezuela.


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## Kher-Spade (Oct 6, 2016)

Does anyone else think its not a coincidence that Canada announced 2 major pipeline projects the day before OPEC's meeting? Scratching my head to understand the connection here.


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## AltaRed (Jun 8, 2009)

Kher-Spade said:


> Does anyone else think its not a coincidence that Canada announced 2 major pipeline projects the day before OPEC's meeting? Scratching my head to understand the connection here.


There isn't a connection. Coincidence as the Libs had to act pretty soon anyway. None of these projects will actually start construction for some time anyway. Oil could be up/down 10 times by then.


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## Pluto (Sep 12, 2013)

AltaRed said:


> There isn't a connection. Coincidence as the Libs had to act pretty soon anyway. None of these projects will actually start construction for some time anyway. Oil could be up/down 10 times by then.


I'll go along with your perspective in this thread. 
I think the bump up in oil price is mostly short covering. 
Any rise in price will just bring on more production that OPEC can't control, and an eventual flop in prices. This is going to take years of consolidation, and for demand to catch up with supply. 
the Canadian pipelines east and west are a strategy to be less Dependant on the US for sales. don't think it has much to do with OPEC's claim to cut production.


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## kcowan (Jul 1, 2010)

I don't think it is a coincidence that both approved pipelines reach ocean accessible tankers. Funny I don't hear any outcry about all the extra tankers plying the Great Lakes. It is clear the JT is intent on reducing our dependency on US prices.


> Line 3 product ends up in other pipelines such as the Great Lakes Transmission system, not in tankers.


By what is the capacity of this pipeline and who controls it?


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## sags (May 15, 2010)

A big spill in the Great Lakes would be catastrophic, given the small comparative volume of water to the ocean and that the lakes are the source of fresh water for tens of millions of people in both the US and Canada as well as the beach/tourist industry and Niagara Falls.

There is no way Canada should be approving pipelines to move bitumen to waiting tankers on the Great Lakes.


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## humble_pie (Jun 7, 2009)

kcowan said:


> I don't think it is a coincidence that both approved pipelines reach ocean accessible tankers. Funny I don't hear any outcry about all the extra tankers plying the Great Lakes. It is clear the JT is intent on reducing our dependency on US prices.
> 
> 
> 
> ...




i can't find the original quote for this Great Lakes Transmission system but i too would like to know more. 

is there a map of this system? where do the pipes lead? who owns this system? if it works why is TRP working on Energy East, other than building the quebec-st-john's-NB leg?

.


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## Pluto (Sep 12, 2013)

^

https://www.google.ca/search?q=nort...QAhUS6GMKHcN3AJQQsAQIJg#imgrc=zff3iDJENLY9jM:


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## humble_pie (Jun 7, 2009)

Pluto said:


> ^
> 
> https://www.google.ca/search?q=nort...QAhUS6GMKHcN3AJQQsAQIJg#imgrc=zff3iDJENLY9jM:



^^


not a good link, the map is too small, the text leads to non-topic blurbs ...

but i googled myself, Great Lakes is a _gas_ transmission system, nothing to do with alberta crude oil ...

.


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## AltaRed (Jun 8, 2009)

Duh.... my mistake re Great Lakes Transmission system (wasn't my day yesterday).

Line 3 volumes end up in Enbridge Lines 5 and 6A....plus others. Line 5 goes across the peninsula (and under Mackinaw Straits) and puts oil into Sarnia while Line 6A (and others) go to the Chicago area and into Indiana, etc.

If you really want to know gory details, this is quoted from Wikipedia:


> Today, there are two routes that oil can take between Superior and Sarnia. A northern route passes through the upper and lower peninsulas of Michigan before crossing into Ontario, while the southern route circles south of Lake Michigan through Illinois and Indiana before reaching Michigan. There are 59 pumping stations in the pipeline system, and the actual pipes range in diameter from 12 to 48 inches (300 to 1,220 mm).
> 
> One major junction point is in Clearbrook, Minnesota where the pipeline connects to the Minnesota Pipeline, which carries crude to the Pine Bend Refinery in Rosemount, Minnesota. The North Dakota Pipeline Company system of pipeline also has a connection in Clearbrook, linking the Mandan Refinery in Mandan, North Dakota. The Murphy Oil refinery in Superior, Wisconsin, is directly linked to the pipeline.
> 
> ...


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## humble_pie (Jun 7, 2009)

AltaRed said:


> If you really want to know gory details, this is quoted from Wikipedia:



it's nice to see the gory details! i am being serious, i am not being sarcastic!

isn't it amazing how ingenious so many companies have been, across so many years, moving oil & gas from west to east while feeding giant population centers in the US & canada?

i am pleased about kinder morgan. It was the best of all possible outcomes for the time being. Big step forward for canada imho.

somewhere i've glimpsed someone (kcowan perhaps?) posting what looked like it might be a warning article about increased tanker traffic in burrard inlet. Me i have to go read that. Next step is to make sure that all tankers are double-hulled, every precaution is being taken all of the time. Just like they've promised. 


.


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## AltaRed (Jun 8, 2009)

The thing about the KM deal is that all it should take to allay fears would be really good piloting of tankers in Burrard Inlet and a very good spill response organization and equipment in Burrard Inlet. Georgia Strait doesn't count as it is full of tankers going down into Washington State already amongst a host of other 'product' shipping). Even if there are an extra 30 tankers a month going through Burrard Inlet, that is one a day and it can be done safely. Anyone observe current ship traffic in Burrard Inlet today? What is the problem folks?

Sadly, NIMBY fervor will try to hold what is in the overall public interest hostage. Some sanity needs to be brought to bear but I fear we will be into a long drawn out fight. KM knows this is by no means a slam dunk.


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## sags (May 15, 2010)

Could one consideration of the Trudeau government have been to keep their "oil spill" response teams and equipment in one area, rather than having the northern BC coastline to protect as well. Resources can be doubled in the key area, rather than split between two areas. Presumably the response time would be faster.

If the government can allay fears of huge environmental damaging spills, I think the public will get behind the project.

People will be saying, don't tell me there will never be any spills because you can't guarantee that. 

Tell me how well we are prepared to respond to them if they happen.


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## humble_pie (Jun 7, 2009)

sags said:


> If the government can allay fears of huge environmental damaging spills, I think the public will get behind the project.



if folks insist on fretting forever on every what-if-what-if detail, we might as well go back to living in caves.

altaRed would you mind reflecting on whether kinder morgan has ever had any pipeline spill in all its long half-century of operating the transMountain pipe? me i cannot recall any.

neither can i recall any oil tanker mishap in burrard inlet. It's true that tanker traffic will increase. But as sags says, if the proper precautions are in place then risks should not increase proportionately.

.


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## AltaRed (Jun 8, 2009)

I don't recollect anything on either front but I am not that close to such matters. IF there was anything, it would likely be somewhere in the tons of NEB documentation either as a KM disclosure or an intervenor submission. 

Bottom line though is KM has had a harmonious relationship in its operations with its stakeholders.

And yes, focusing spill response in and around Burrard Inlet and Georgia Strait concentrates resources. A good thing in my mind.


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## kcowan (Jul 1, 2010)

There was a spill in Burnaby but it was caused by construction equipment not knowing where the pipe was. Crude spilled for 3 days and made many of the homes unlivable. But this was not the norm.


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## Chris L (Nov 16, 2011)

....and the rest follow. Oil up 4.5%.


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## Nerd Investor (Nov 3, 2015)

Looks I may have sold one of my oil positions a little early last week, but it was kind of a dog so getting out at a profit seemed reasonable. 
Still riding out CPG and SU, nice little start to the day.


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## AltaRed (Jun 8, 2009)

A question for those of you in XEG and bought in the sub-$11 range...... ready to take profits @ $14.50-15? or are you throwing the dice on more to come? 

How about those who were $16+ buyers pre-2015? Riding it out in an attempt to avoid losses? Or will you tax loss harvest?

Not meant to be critical...just curious??


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## mordko (Jan 23, 2016)

KSA is making money on production but it's going bankrupt as a country. And no, they have not actually diversified; rather they "want to" diversify and need high oil prices to achieve said diversification.

The deal is a win for N. American oil. KSA's whole strategy was to completely strangle N. American production. Well, they failed. Now they have given up on their strategy. As prices go up and OPEC cuts production, the main beneficiary will be shale oil in the US which will capture the market share.


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## hboy54 (Sep 16, 2016)

AltaRed said:


> A question for those of you in XEG and bought in the sub-$11 range...... ready to take profits @ $14.50-15? or are you throwing the dice on more to come?
> 
> How about those who were $16+ buyers pre-2015? Riding it out in an attempt to avoid losses? Or will you tax loss harvest?
> 
> Not meant to be critical...just curious??


Guys like you AltaRed are not wrong when they say avoid resources like the plague long term, as they regularly bite you in the ***. The thing is, when I started deep into oils and TECK.B, plenty of *** biting had already happened. Maybe I'd only get a flesh wound to the left cheek. 

When I first purchased TECK.B at $24, I had zero mining since I sold Inco to the buyout what was it 7 or 9 years ago now. So I agree with your general feelings on the subject, but am flexible enough to jump in with both feet on a temporary basis when it becomes compelling.

So I am out of LRE on it going private with ~9% gain for my years worth of sweating, made a killing on TECK.B and ECA, both sold down but together still 15% of my portfolio, and BTE is now my largest holding and currently up about 25% in the aggregate for my 9 buys between $18 and $2 something. I added to BTE as recently as November when I sold down ECA to hold both at equal weighting. They are no longer equal :tickled_pink:

I have done very good work here these past two years, but am moving out over time. One day I'll be back to zero mines, and only SU and HSE for oil, but that day is not quite here yet.


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## AltaRed (Jun 8, 2009)

You've done well. I agree money can be made IF these stocks are bought once the baby has been thrown out with the bathwater, and then sold before getting too greedy.


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## mordko (Jan 23, 2016)

Is it just me or is it a little strange that nobody here is reporting losses they made trading shares in oil companies? Do people only ever win?


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## AltaRed (Jun 8, 2009)

mordko said:


> Is it just me or is it a little strange that nobody here is reporting losses they made trading shares in oil companies? Do people only ever win?


It is human nature not to broadcast being taken to the woodshed. Thousands lost millions (or millions lost billions) throughout 2014 and 2015. Some folks do tell their story and it is good learning for others. 

I did reasonably well on the few oils I've had over the years except for my 2nd entry to COS. I had a 5 bagger from about 2002 and shed much of COS by 2014, but thought I'd be cute when the crash came and re-entered with a partial position at about $18-20. Pulled the plug real quick when it slid to $10 with no end in sight. Lesson: Never buy until it hits a double bottom and is on its way back up and be willing to cut your losses.

I no longer participate in any of the commodity/resource stocks (except what will be in my ex-Canada ETF holdings).


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## hboy54 (Sep 16, 2016)

mordko said:


> Is it just me or is it a little strange that nobody here is reporting losses they made trading shares in oil companies? Do people only ever win?


I know this is a rhetorical question and it looks like a shot at me (but might not be) ... but nope.

In 2015 I sold 2000 HSE at $23.74 that had ACB $28.40. Also sold 530 at a slight gain, but total loss was about $9,000 in HSE.

If you had asked about 3 weeks ago on November 23 when I last purchased BTE at $5.28, I could report BTE being in loss in the aggregate with ACB $5.67 and 5 of 9 buy transactions losing. As of today 3 of 9 lose.

It would also be very easy to report a loss if I only ever made the first purchase of BTE at $16 or $18, whatever it was, and refused to buy again on account of falling knife and all. I held ECA from about 6 or 7 years ago at ACB $19.90, again would be a nice loss if I had not purchased more.

You don't read enough of my stuff. I was actively reporting losses about a year ago, including in 4 oil companies. Very large losses at the time. All I got was crickets. Now when I report better times, the implication is I am talking BS.

I have a very long history of reporting when things are not going well - see also the 2015 "what was your annual return" thread where I reported -26% for the year. Or go back to circa 2008 and 2009 on the other site (userID hboy43) and find my postings on Nova Chemicals and Norbord among others for example.

Either I am telling the truth or playing the really long BS game, like 10 years long. Which is more likely?

hboy54


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## AltaRed (Jun 8, 2009)

FWIW, I've had my head handed to me in a few other stocks in the past. Yellow Pages a few years ago comes to mind....what was I thinking? And I have been tax loss harvesting my Fixed Reset prefs this year... swapping one out for another. That process will continue late 2017 or 2018 if things do not change (have a 5 year ladder of fixed reset prefs).


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## Eder (Feb 16, 2011)

mordko said:


> Is it just me or is it a little strange that nobody here is reporting losses they made trading shares in oil companies? Do people only ever win?


Some of us post our trades instead of beating American politics to death.


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## mordko (Jan 23, 2016)

@hhboy54 - It wasn't a shot at you specifically. I just found it curious that your gains report was the ONLY response to "how are oil/resource investors doing". Coming after a fairly major industry wipeout, something didn't compute. And no, I didn't read your 2015 reports as I only joined in 2016. 

@AltaRed -


> Never buy until it hits a double bottom and is on its way back up


Really? Double bottom? You are looking for patterns when the whole thing was a game of chicken between a Saudi Prince and US lenders who bankrolled the shale industry through the crisis? If anything can explain this whole thing it would be the game theory and even then I have my doubts. And the game isn't over yet.


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## londoncalling (Sep 17, 2011)

I averaged down on Renegade Petroleum repeatedly until an quick bounce put me into the profit zone. Unfortunately I reallocated the proceeds from sale into Surge Energy
Currently down 61%. Other losers include a micro position (.3% of equities) in CPG currently down 56%,Eagle Energy down 87% and Temple Reit down 67%. all of these were less than 3% prior to their descent. I consider these positions the tuition of investment education. My pipes are still way in the green. My biggest regret so far when it comes to energy is not buying Chevron a few months back around $100. It is now $117ish. As a result my YTD return is 13% thanks to buying 40% gain in CWB, 31% in BNS, 20% in AT&T, 12% in PWF and Telus all purchased this year. Some up some down. Dividends streaming and nothing lost until I sell other than opportunity cost. this post is a bit off topic but I think I will steer clear of energy for the next while and play energy through the likes of associated stocks as opposed to pure plays. 

Cheers


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## AltaRed (Jun 8, 2009)

mordko said:


> Really? Double bottom? You are looking for patterns when the whole thing was a game of chicken between a Saudi Prince and US lenders who bankrolled the shale industry through the crisis? If anything can explain this whole thing it would be the game theory and even then I have my doubts. And the game isn't over yet.


Generally speaking, most oil stocks bounced a few times off the bottom when oil was in the $30 range earlier this year (Jan-Feb). This seems a lot to me like 'capitulation' after investors had been whackamoled since mid-2014. Think that was a pretty good bet those were the lows for the current cycle. Even if oil prices sidewind back to sub-$40 for a short period of time and I believe they will within the year (shale oil will be more robust than most think), I don't think oil stock prices will retreat to as deep in the gutter as they were then. That said, oil stocks as of today have priced in success and I wouldn't remotely consider current prices as entry points either.

Added: I've had 30+ years of cyclic brutality working in the oil patch so nothing surprises me, but there are also no real surprises. The cycle repeats itself.


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## Drauss (Nov 29, 2016)

Saudi need to do whatever they need to push prices up in the short term. Mainly to get the best possible valuation for Aramaco as it prepares for IPO in 2017 and possibly cause a price spike on the back of the major CAPEX cuts of the past previous two years. The games hasn't changed though. They still see it as a volume game with crude in the ground having less value in the future than the present and thus the need to maximize volume.

Question how fast will shale producers bounce back and take that market share from OPEC voluntary cut. One thing for sure the next downturn is going to be tough one for OPEC as shalers have hedged and locked in at higher price point.

Pre-2014, it was other way around. With crude in the ground having more value in the future than the present.


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## AltaRed (Jun 8, 2009)

It will be interesting to find out in the next quarterly results (from Canadian oil companies at least) how much they hedged from the futures euphoria of the past week or so, and for what price in 2017.


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## lightcycle (Mar 24, 2012)

Drauss said:


> Saudi need to do whatever they need to push prices up in the short term. Mainly to get the best possible valuation for Aramaco as it prepares for IPO in 2017.


They've got time. The IPO isn't till 2018.



AltaRed said:


> It will be interesting to find out in the next quarterly results (from Canadian oil companies at least) how much they hedged from the futures euphoria of the past week or so, and for what price in 2017.


We're not too far up from the last couple of times oil's spiked up to the low 50s in June and October.


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