# Oil back in the toilet



## none (Jan 15, 2013)

Well that didn't take long. I wonder if the predictions of < $40 oil will come true?

I wonder if this will result in another canadian rate cut - which will help inflate the housing bubble more and actually do very little to stimulate the economy.


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## KaeJS (Sep 28, 2010)

This is just due to the $USD.
With the exception of last week, the supply numbers have been negative.


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## supperfly17 (Apr 18, 2012)

KaeJS said:


> This is just due to the $USD.
> With the exception of last week, the supply numbers have been negative.


And the probability of Iran supplying oil to the market.


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## KaeJS (Sep 28, 2010)

supperfly17 said:


> And the probability of Iran supplying oil to the market.


^ This has been a concern for months and it hasn't happened yet.


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## My Own Advisor (Sep 24, 2012)

The more it drops, the cheaper the O&G stocks get.


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## Getafix (Dec 29, 2014)

Too many bearish events for Oil all at once, Greece, Iran deal, China, EIA numbers, strong $.


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## fraser (May 15, 2010)

MY guess is that it has another $10. to slide. Just like the CAD.


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## supperfly17 (Apr 18, 2012)

KaeJS said:


> ^ This has been a concern for months and it hasn't happened yet.


Yes, but its clear now that the deal with Iran is imminent.


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## supperfly17 (Apr 18, 2012)

My Own Advisor said:


> The more it drops, the cheaper the O&G stocks get.


And less profitable those companies become


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## RBull (Jan 20, 2013)

I'm on the same page as Fraser on oil and CDN $ (in cents not dollars). 

Yes, good chance rates will drop.


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## fraser (May 15, 2010)

The 'street' in Calgary says a second round of significant layoffs are coming to Calgary by Sept. at the latest. Prevailing thought was apparently that oil could hover at $60. Not the feeling now. The only saving grace is the declining dollar which helps offset some of the slide.

And Stephen Harper & Joe Oliver insist that Canada is not in a recession. Just take a look at the May balance of trade numbers. We have been in a technical recession for two months.


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## TopJimmy (Jul 3, 2015)

fraser said:


> And Stephen Harper & Joe Oliver insist that Canada is not in a recession. Just take a look at the May balance of trade numbers. We have been in a technical recession for two months.


Of course one should expect Oliver and Harper to say that. Canada sliding into recession a scant few months before the election doesn't jive well with the 'Conservative are the true good stewards of the economy' narrative.


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## none (Jan 15, 2013)

My Own Advisor said:


> The more it drops, the cheaper the O&G stocks get.


Yeah, this is along the lines of thinking that if you bought it at xxx - isn't buying it at x- x*.5 THAT much better?

No, it's not. That something that people who make poor stock choices tell themselves to make themselves feel better. Paper loses are real.


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## supperfly17 (Apr 18, 2012)

none said:


> Yeah, this is along the lines of thinking that if you bought it at xxx - isn't buying it at x- x*.5 THAT much better?
> 
> No, it's not. That something that people who make poor stock choices tell themselves to make themselves feel better. Paper loses are real.


Exactly the point I was trying to make. Its not like there is a whole market panic and sell-off. The reason is because oil price is down, hence their profits disappear, hence they make no $, hence they are not such a good buy any more at the lower price.


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## cainvest (May 1, 2013)

none said:


> Yeah, this is along the lines of thinking that if you bought it at xxx - isn't buying it at x- x*.5 THAT much better?
> 
> No, it's not. That something that people who make poor stock choices tell themselves to make themselves feel better. Paper loses are real.


It really depends on "why" the prices are down and whether or not you believe they will rise enough in the timeframe you want.
And a paper loss is not real unless you foolishly act on it, as in sell it.


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## none (Jan 15, 2013)

cainvest said:


> And a paper loss is not real unless you foolishly act on it, as in sell it.


Wrong. Sometimes realizing a loss is the smartest thing you can do.


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## cainvest (May 1, 2013)

none said:


> Wrong. Sometimes realizing a loss is the smartest thing you can do.


Agreed, sometimes cutting your loss is good, again with good reason and when not acting foolishly.
As far as O&G stocks go ... well, only time will tell if they will recover with any reasonable return.


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## doctrine (Sep 30, 2011)

My Own Advisor said:


> The more it drops, the cheaper the O&G stocks get.


Yet Suncor continues to trade at $35. Can't buy it above $30.


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## dogleg (Feb 5, 2010)

Doctrine: Interesting. Suncor continues to resist the drop in oil prices as you point out. Why? May I ask why you use the $30 floor.


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## hboy43 (May 10, 2009)

supperfly17 said:


> Exactly the point I was trying to make. Its not like there is a whole market panic and sell-off. The reason is because oil price is down, hence their profits disappear, hence they make no $, hence they are not such a good buy any more at the lower price.


I don't follow your thinking. You are arguing that back when NBD was at $5 to $10, you know when the price of OSB was down, "hence they made no $, hence they are not such a good buy any more at a lower price", that buying NBD then would have been a poor stock choice. Well, it sits at $26 now. The other logical take away from your statement is that buying oil last summer when they were making money and the stock price was high would have been a good stock choice. This simply follows logically from your statement.

I agree that paper losses are real, as are paper gains. Both are often temporary situations. I could not proceed in investing if I had the criteria than if I bought a stock and the price soon went down, it was defined as a "poor stock choice". On this basis, half of what I do is a "poor stock choice". Yet with all these "poor stock choices" I somehow have a 7 figure net worth and don't have to work for a living. It has much to do with the fact that I ruthlessly buy more shares at lower prices of companies I already own and show (often substantial) losses. In the current round of economic instability, I have the good fortune of not having a huge paper loss on most holdings I have recently being buying hard (contrast with NBD first buy at ~$100, ouch). I think in the long run I'll do well somewhere with TCK.B (ACB $17), COS ($8), BTE ($17), ECA ($17), BBD.B ($3.5) SNC ($22 recent buys $38 range, original buys $4 range), LRE ($0.86) ACO.X ($40). 

People are quite welcome to come back in 5 or 10 years and say "see xxx went bankrupt, I told you it was a poor stock choice"). I'll expect I will reply with "yup that tree had a rotten trunk and fell, but the forest is fine". I have admitted many times here that I have had 5 bankruptcies in my holdings. Failure leads to success in investing as most things in life. So many people make their investing activities into an exercise in avoiding failure, thus in the process making it almost certain.

hboy43


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## Woz (Sep 5, 2013)

I buy a lemonade stand on the expectation that I can sell lemonade at $2 a glass. Suddenly, no one’s willing to pay $2. The most they’ll pay is $1 and I’m not making any profit. I can’t just say oh-well it’s people being irrational. They’ll come to their senses again and start paying me $2 a glass; I haven’t actually lost any money. At some point I need to accept that it was a mistake to expect $2 a glass and accept that the revenue I’ve lost selling at $1 instead of my expected $2 is a real loss.

There’s nothing wrong with making mistakes. I’d be cautious of the investor who claims to never make mistakes. I think it’s healthy to evaluate why a mistake was made. I wasn’t overweight oil before or after the oil crash, but the lesson I see with oil stocks is to make sure you have a good understanding of the underlying commodity. I saw a lot of people buying oil stocks without giving any thought to the underlying commodity price. They looked at the price, looked at the earnings, looked at the dividends and concluded it looked great.

I’m also not sold on the idea of ruthlessly buying more shares at lower prices of companies I already own / constantly doubling down. I’d expect that strategy would lower your number of losses, but it’s a pretty classic example of the gambler’s ruin problem. One big loss wipes out all the smaller gains.


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## KaeJS (Sep 28, 2010)

hboy43 said:


> I don't follow your thinking. People are quite welcome to come back in 5 or 10 years and say "see xxx went bankrupt, I told you it was a poor stock choice"). I'll expect I will reply with "yup that tree had a rotten trunk and fell, but the forest is fine".
> hboy43


hboy,

This is probably my favourite post from you.
Good work.

I can't wait to talk in 5 years and see how both of our forests have flourished.


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## supperfly17 (Apr 18, 2012)

hboy43 said:


> I don't follow your thinking. You are arguing that back when NBD was at $5 to $10, you know when the price of OSB was down, "hence they made no $, hence they are not such a good buy any more at a lower price", that buying NBD then would have been a poor stock choice. Well, it sits at $26 now. The other logical take away from your statement is that buying oil last summer when they were making money and the stock price was high would have been a good stock choice. This simply follows logically from your statement.
> 
> I agree that paper losses are real, as are paper gains. Both are often temporary situations. I could not proceed in investing if I had the criteria than if I bought a stock and the price soon went down, it was defined as a "poor stock choice". On this basis, half of what I do is a "poor stock choice". Yet with all these "poor stock choices" I somehow have a 7 figure net worth and don't have to work for a living. It has much to do with the fact that I ruthlessly buy more shares at lower prices of companies I already own and show (often substantial) losses. In the current round of economic instability, I have the good fortune of not having a huge paper loss on most holdings I have recently being buying hard (contrast with NBD first buy at ~$100, ouch). I think in the long run I'll do well somewhere with TCK.B (ACB $17), COS ($8), BTE ($17), ECA ($17), BBD.B ($3.5) SNC ($22 recent buys $38 range, original buys $4 range), LRE ($0.86) ACO.X ($40).
> 
> ...


Totally agree with you. My reasoning has its flaws. I was trying to argue that just because the Oil and Gas stocks are down, that does not justify an immediate buying opportunity.


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## CPA Candidate (Dec 15, 2013)

Expect more volatility and sentiment changes, but I wouldn't try to make sense of it.

I'd guess that many Canadian producers were busy locking up contracts to sell at $60 US in the past few months as oil steadied at that level. Light oil producers with good well economics can make money at that level and probably jumped at the chance to reduce their risk. The reality is the future revenue of many companies is not nearly at volatile as the oil price.


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## doctrine (Sep 30, 2011)

dogleg said:


> Doctrine: Interesting. Suncor continues to resist the drop in oil prices as you point out. Why? May I ask why you use the $30 floor.


Under $30, it will at least start to trade close to book value. It's trading at about a 20% premium to book at the moment, and there's no reason to buy an oil company at a premium to book value (which could be subject to writedowns) in this environment.


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## My Own Advisor (Sep 24, 2012)

You think it will hit $30 doctrine? Thoughts?


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## doctrine (Sep 30, 2011)

I don't know, but it traded at $26-27 in 2011 and 2012 when oil was significantly higher (even in WCS/Cdn terms during the WCS land-locked time). Of the big integrated, HSE looks the cheapest to me right now.


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