# Energy sector



## MrBlackhill

Enough talking about tech sector getting hammered.

Energy sector is taking a big hit today.

I decided to create a thread for this sector also. Maybe there could be threads for each sectors.


----------



## doctrine

There is virtually no good news for oil companies or oil investors - it could not be any worse. But not all in the energy space is bad - most renewable companies are up.


----------



## AltaRed

The 'energy' sector is bifurcated. It is really fossil fuels vs renewables, with utilities in general being an awkward hybrid/sector of their own. 

I don't own any fossil fuel companies except as they are in ex-Canada broad market indices. I will stick to primarily utilities and the likes of AQN that I think can either be called a renewable or a utility.


----------



## james4beach

I think the down trend in global energy is resuming. I'm bearish on XEG and XLE.

You can also see the volume on XLE picking up as it sells off. Really bad chart.


----------



## MrBlackhill

TSX Energy Capped Index is down -7.59%
TSX Oil and Gas EW Index is down -4.62%
TSX Renewable and Clean Tech Index is up +0.80%
TSX Utilities Capped Index is up +1.09%

So, yeah, basically, Renewable, Clean Tech and Utilities are currently the best performers today during this sell off.

I just bought of few O&G for their recovery, but I don't plan on holding them long. I have SCL and OVV still up +45% since I bought them around May/June. Though I made a big mistake when I bought SU without looking at the red flags of the spike we had in June and I'm down -30% on that one.


----------



## nobleea

I might consider something like SU after a few more drops like this. Under $16 maybe?


----------



## AltaRed

nobleea said:


> I might consider something like SU after a few more drops like this. Under $16 maybe?


Perhaps.. It seems to be more and more like a casino play, albeit one of the most solid given its integration. No one knows where oil prices will be going, perhaps nowhere for another few years while in the meantime there will be more cost pressures, e.g. carbon penalties, potentially accelerated reclamation work, higher environmental bond security, etc. Nothing but headwinds it seems.

I am not touching anything in this space but will hold the major pipelines because takeaway capacity will still be used AND they have considerable operations in the USA.. Even in the USA, pipelines are having issues, so installed infrastructure will be as valuable as the railroads.


----------



## MrBlackhill

nobleea said:


> I might consider something like SU after a few more drops like this. Under $16 maybe?


16$ would be nice, I'll wish that for you. As for me, I'm not buying more O&G because I don't want that industry to be part of my long term portfolio. I will most likely sell at some point and give my losses on SU to Bay Street.


----------



## nobleea

MrBlackhill said:


> 16$ would be nice, I'll wish that for you. As for me, I'm not buying more O&G because I don't want that industry to be part of my long term portfolio. I will most likely sell at some point and give my losses on SU to Bay Street.


Looks like under $16 is within reach, already at 16.60 or so.


----------



## scorpion_ca

nobleea said:


> Looks like under $16 is within reach, already at 16.60 or so.


Any chance will it go to $12?


----------



## Retiredguy

AltaRed said:


> Perhaps.. It seems to be more and more like a casino play, albeit one of the most solid given its integration. No one knows where oil prices will be going, perhaps nowhere for another few years while in the meantime there will be more cost pressures, e.g. carbon penalties, potentially accelerated reclamation work, higher environmental bond security, etc. Nothing but headwinds it seems.
> 
> I am not touching anything in this space but will hold the major pipelines because takeaway capacity will still be used AND they have considerable operations in the USA.. Even in the USA, pipelines are having issues, so installed infrastructure will be as valuable as the railroads.


AR. Would you be a buyer of ENB at today's sub $40 or maybe TRP as long term holds? Thoughts on their divs? I presently hold both, considering more.


----------



## james4beach

Retiredguy said:


> AR. Would you be a buyer of ENB at today's sub $40 or maybe TRP as long term holds? Thoughts on their divs? I presently hold both, considering more.


For what it's worth, ENB is one of my largest positions and I recently bought more at $42. I would not buy it for the dividend (I don't buy anything for the dividend) but it seems like a perfectly good holding, to me.


----------



## doctrine

Since 8 September, oil bottomed at $37.19. Since then, it is up 6.3% on shrinking inventories worldwide. Yet Suncor is down 9% - an interesting disconnect. CNQ is down a more modest 4.9% - CNQ is not suffering from as much refining issues, and has established itself as one of the world's low cost leaders. 

Suncor does look particularly attractive, although the refining profits are challenged so I don't think the discount is necessarily unwarranted. But a few refineries have already shut down, and when demand fully returns, watch out. Suncor is still unquestionably a low cost producer with very low cost of capital and good debt levels. Definitely looks good here at $16-17.


----------



## AltaRed

Retiredguy said:


> AR. Would you be a buyer of ENB at today's sub $40 or maybe TRP as long term holds? Thoughts on their divs? I presently hold both, considering more.


I own both but have not looked close enough at either recently to say yes. Based on multi-year stock charts alone, I would say probably. I would hope neither would raise dividends near term, especially ENB, because I'd like to see them both pay off non-regulated* debt first to raise credit ratings to A- from BBB+, and to improve both D/E and dividend payout ratios. Both should be looking to raise cash for niche acquisition opportunities and high grade their suite of development opportunities. ENB should be the better prospect with Line 3 replacement adding cash flow. TRP needs to find a way out of KXL, or at least to minimize further financial exposure that may have to be written off soon.

Neither company has high growth ahead of it so I see the last 2 years share price compression as appropriate consolidations from a valuation perspective.

* By non-regulated, I mean corporate debt not captured in tolls and tariffs. I'd like to see both companies, ENB particularly, pay off enough such debt to move into A- credit rating category from BBB+


----------



## AltaRed

Coincidently, there has been discussion today in the ENB thread over at FWF in which I have actively participated in. TRP and ENB both could reduce debt and raise cash to participate more in natural gas and/or renewable power opportunities. The caution, of course, is to be careful of the economics of renewable opportunities. Investors have gone gaga over renewable power bidding up share prices into the ozone layer. The fundamentals are not yet that clear.

P.S. I own AQN in this space.... more of a hybrid than a complete nenewable power company. I don't like buying into momentum/hype.


----------



## OptsyEagle

an interesting energy play, in my opinion, is Pulse Seismic (PSD). Looking at the chart most will probably shy away but when you look closer at the company you find that if drilling ever comes back to Canada this company cannot help but participate in a big way. They own a monopoly rights to many seismic surveys that are required by Oil and Gas companies before they drill. No one competes with them directly. If you want to drill on land they have surveyed, you must do business with them. While we wait for drilling to come back the company can operate on very little operating expense. A few people to answer the phone. They have a little debt on their balance sheet right now from an acquisition of a large data library last year, I think. They tend to pay that down their debt as quickly as cash flows allow. The good news is that the tax write off these acquisitions give them allows them to avoid almost all income taxes, for a long time (must use shareholder free cash flow to analyze them and not earnings per share, due to these non-cash depreciation charges they are allowed).

Anyway, the company is not going anywhere. They can wait out this drought probably forever and will surely participate when/if drilling activity ever resumes. Most of the downside is probably in the stock since their seismic data library is probably worth twice what the stock is trading at today.

Anyway. Do your DD. I own a few shares. I don't own any other oil and gas companies, since they are truly awful long term businesses, but I do own the pipelines and some utilities.


----------



## AltaRed

PSD is very much a 'trade' given it is oilfield services without much overhead. It is even more volatile than O&G companies themselves. 

I think the days of its revenue from oil plays is about over, but the next big push will be natural gas drilling playing on the recovery of gas prices and feedstock needed for the LNG facility. I don't have the stomach for such speculative plays myself but it could be worth play money.


----------



## nobleea

scorpion_ca said:


> Any chance will it go to $12?


Well it's in the 15's now. I think 14's is going to happen. But 12's? hmmmph.


----------



## doctrine

$12 is a price/book ratio of 0.5. That is pretty attractive, especially considering SU normally trades at 1.5-2 times book. Refining margins are pretty crappy, but gasoline stocks are actually reasonably low and I think maybe even down year over year. Diesel stocks are high though but are starting to come down. Really, oil will probably have a very, very strong seasonal period given how much supplies are coming down but that doesn't usually start until December.


----------



## Money172375

I Hold ENB, TRP, IPL, SU. Combined, they represent less than 10% of my portfolio. I bought them a few years back when I was looking for income and big names.

I have a 15+ year time horizon. I’m wondering what’s in store for these companies long-term as we Transition away from oil and gas. I think gas has a much Longer lifespan Than oil.

i haven’t done any research yet on what these companies have said or what is thought that their plans will be. Are they Continuing to push The idea of oil and gas or do they Have plans to diversify?

i think the total move away from oil and gas is farther away than people think. However, I don‘t know much about the industry’s long term plans.

ultimately, my questions are...

1. What plans do you have to sell your positions over time? Do you have plans to exit the industry long-term?

2. My time frame could be as long as 25-35 years.....should this change my outlook?


----------



## AltaRed

My view is that Canada will NOT produce higher volumes of oil than it did at its peak of about 4.5 million barrels per day in 2019. Currently oil production is in the range of 3-6-3.8 million barrels per day. Canadian Oil Production

Getting back to 4.5 million barrels per day will happen only if global oil demand climbs back to the range of 100 million barrels per day and prices improve. If demand falls off to 80 million barrels of oil per day by 2030, then Canada will be hard pressed to find a home for more than about 4 million barrels of oil per day and prices will likely never exceed $60-70 ever again for any sustained period. More importantly, if prices become range bound, there isn't enough margin in oil prices to fund incremental volume growth anyway.

My take is SU, like CNQ, are efficient operators and their asset base will make them survivors over the competition for the long haul. But I doubt whether there is enough cash flow growth (volume and crude price) to ever bring them back to 2014/2015 glory. Global oil demand and pricing just isn't there long term.to replicate that. So think about them being range bound at circa $30-$40 long term with short overrun/underrun periods due to supply/demand disruptions.

I think natural gas is in a somewhat better spot. It is the natural fuel for peaking power (for solar and wind) and along with renewables, the replacement for coal fired generation. LNG demand will remain steady, if not strong. Canada will get a piece of that action, as per the West Coast LNG project. I doubt there is economics though to do more. There are many cheap LNG supply sources around the globe.

I think TRP and ENB will thus hold their own but the days of volume growth and thus shipping toll revenue, whether oil or gas transportation, is going to remain approximately flat (once ENB's Line 3 replacement is completed and Coastal Gas for the LNG project is done). I don't see much new pipeline growth opportunities in the USA either. So, without branching out in a significant way into renewables, I don't think there is much growth left. I do think though they will continue to generate cash flows from existing operations for decades to come and their stock prices will become range bound (like Bell has become) for a long time.

Added:
Q1 I intend to hold ENB and TRP indefinitely (20 years time horizon) but could dump them within 10 years if electrification of land transportation really gains momentum. I don't hold producers out of principle as I don't like commodity stocks.

Q2 My time horizon is 20 years. I think I would hold them that long as long as they find ways to improve efficiencies and continue to hold, or slowly grow, EPS. Buying back shares would also help retain EPS but that would be a sign of ultimately shrinking the corporations slowly over time.

Bonus addition: At my stage of life (early 70s), as long as my holdings give me a 5-6% total return, and if that is mostly all dividends in the case of these specific stocks, that is okay with me.


----------



## doctrine

There are scenarios where oil demand falls but oil prices rise. There is such a capital under-investment occurring that there will be a supply crisis in 2-3 years even if demand stays depressed right where it is today, which is a very unlikely scenario. If companies invest any windfalls in buybacks especially, they can buy back their shares at rates exceeding any divestment, making investor sentiment less relevant to their stock prices. 

The other impact of oil volumes no longer rising is that pipeline operators will likely trend towards consolidation. This would make smaller infrastructure owners very attractive targets. Look at telecom in Canada over the last 10-20 years - most of the smaller companies have been bought out, and those buyouts have been at very attractive prices.

So as such I hold the biggest companies, the SU/CNQs, and also IPL. I am out of ENB and TRP but if IPL was bought out I would probably shift those assets into them.


----------



## MrBlackhill

I hope you bought O&G on Monday, there were so many buy signals for quick money, but I didn't have time to catch on them as I just came back from vacation... Sigh.


----------



## robfordlives

Care to share what some of those buy signals were? Do you see this as a short term blip or meaningful long term move up


----------



## MrBlackhill

robfordlives said:


> Care to share what some of those buy signals were? Do you see this as a short term blip or meaningful long term move up


This is just my two cents. This is the pattern I'm seeing with hindsight. I didn't do these trades, I'm not swing trading at the moment and I was in vacation during most of September.

On a 4H chart, analysing XEG and Crude Oil with MACD, RSI and Momentum.

May 15th, oil rising, RSI rising from mid-level, MACD cross over, buy at 4.75
May 22th, RSI decreasing, MACD about to cross under, sell at 5.07 (+6.7% in 7 days)
June 2nd, oil rising, RSI rising from mid-level, MACD cross over, buy at 5.12
June 5th, RSI too high, sell at 5.92 (+15.6% in 3 days)
July 10th, RSI rising from mid-level, MACD cross over, buy at 4.74
July 16th, RSI decreasing, MACD decreasing, sell at 4.98 (+5% in 6 days)
August 4th, oil rising, RSI rising from low, MACD cross over, buy at 5.01
August 12th, RSI decreasing, MACD decreasing, momentum decreasing, sell at 5.51 (+10% in 8 days)
September 15th, oil rising, RSI rising from low, MACD cross over, buy at 4.58
September 18th, RSI decreasing, MACD decreasing, low momentum, sell at 4.61 (+0.65% in 3 days)
October 5th, oil recovery rise, RSI rising from low, MACD cross over and also all confirmed by 1D chart, buy at 4.14
Currently at 4.48 which is +8.2% in 3 days, take huge profits because RSI is high or risk to hold until more sell signals in 1-3 days (potential profits from May 15th to October 8th : +55%)


----------



## MrBlackhill

Just read this article (in French) in LaPresse.

_Translated by DeepL_


> The sale of new gasoline-powered vehicles will be banned in Quebec as of 2035, Environment Minister Benoit Charette revealed in an interview with La Presse. A "big move" to force the shift to electric cars and reduce greenhouse gas (GHG) emissions.
> 
> As of 2035, in Quebec, it will no longer be possible to buy gas-powered vehicles [in the new market]. It will have to be fully electric or plug-in hybrid vehicles.
> 
> It targets all "personal use" vehicles: the small compact such as the sport utility vehicle (SUV) and pickup truck. Vehicles that are used for commercial and industrial purposes are excluded.
> 
> In the United States, California has just decided to ban it as of 2035, a major announcement coming from the country's most populous state. "This is the most effective action our state can take to combat climate change," Democratic Governor Gavin Newsom said in September.
> 
> In Europe, France and England have set the ban for 2040; it will be as early as 2025 in Norway.











Québec | La vente de véhicules à essence interdite dès 2035


La vente de véhicules neufs à essence sera interdite au Québec dès 2035, révèle le ministre de l’Environnement, Benoit Charette, dans une entrevue accordée à La Presse. Un « grand coup » pour forcer le virage vers l’auto électrique et réduire les émissions de gaz à effet de serre (GES).




lp.ca





(Found a version in English : Quebec | The sale of gasoline vehicles banned from 2035 - The Canadian)


----------



## AltaRed

The BP Oil Outlook is worthy of a read (the oil sector specifically) to put all this into context. Start with the definitions of the three scenarios and move on to the oil link. In the context of what is being stated as policy objectives in parts of Europe, California, Quebec and BC, but not necessarily in much of the world, I suspect the most realistic scenario is somewhere between Business As Usual (BAU) and Rapid Transition (Rapid), so in the order of 60-70 million barrels per day range by 2050....from about 95 million barrels per day today.


----------



## doctrine

Probably, a company like BP is uninvestible given their strategy. I say this because the company has no moat or particular skillset that enables them to produce and distribute electricity more effectively than the competition. There is already more than enough companies delivering such equipment and at the very least, they are at least a decade behind if not more. So, they will divest their high quality assets obtained over a century of operations at a cyclical low and buy into industries with far lower (or negative) ROEs with far more competition where they have no competitive advantages at a cyclical high where they are nearly bubble-priced.

What could possibly go wrong? It's like coming up with a plan in 2015 that you are selling all your gold bullion and mines at a cyclical low only to invest it fully in Bitcoin in 2017 at the peak of the market along with all of the cryptocurrency mining equipment you can find and expecting this to be a viable strategy that rewards shareholders.

Here is an alternate strategy - stop growing, shut down highest cost assets, reduce your costs, wait for prices to recover, eliminate your debt, and start buying back your shares at an ROE an order of magnitude higher than investing in solar and wind power. If your shares recover, consider alternate deployment of your capital at that time. Protect your moat. This is a proven model in a shrinking market that is achievable if you have structural and cost advantages.


----------



## AltaRed

doctrine said:


> Here is an alternate strategy - stop growing, shut down highest cost assets, reduce your costs, wait for prices to recover, eliminate your debt, and start buying back your shares at an ROE an order of magnitude higher than investing in solar and wind power. If your shares recover, consider alternate deployment of your capital at that time. Protect your moat. This is a proven model in a shrinking market that is achievable if you have structural and cost advantages.


Absolutely! BP failed once already with their Beyond Green campaign. This is another one that will most likely destroy shareholder value, not necessarily because they shouldn't invest in renewables, but they need to do it in a low risk way, e.g. team up with BEPC or AQN (as lead) in a joint venture that knows what they are doing. In the meantime, re-position their own O&G assets by strengthening the best of them and shedding the high cost ones (the 80/20 rule). 

There was a time in the '80s where all the multi-national oil companies diversified considerably after the oil busts of '83 and '86. Companies bought department store chains, packaging companies, etc, in a failed attempt to diversify. They all ended up taking a bath on these and selling them for cents on the dollar.


----------



## Money172375

I bought ENB, IPL, TRP, SU over the past few years for dividend income. I have a very long time horizon but am worried about the long term prospects of oil. I admittedly bought them for yield and name recognition.

I’m trying to better understand oil producers vs. Pipeline Cos. Do they face the same risks? 
I feel like natural gas producers and movers aren’t as risky vs straight oil producers.

basically...which of these companies would you be worried about in 10+ years?

do the AQN, FTS, BIP, EMA face similar risks?


----------



## doctrine

I personally would be more bullish on oil producers than oil pipelines. In a world of peak oil demand, there are scenarios where supply drops faster and oil remains profitable, especially for low cost and low debt producers. But volume reduction will have long term impacts on pipelines. There may still be opportunities, but there are basically no pipelines with low leverage and they will need to account for the very high debt - ENB has some ~$60-80? billion in debt versus a $16-17B at Suncor. Even 10-20 year take or pay contracts eventually roll over. They are still okay though but I would be more comfortable if they took the time to drop their debt, maybe by even as much as half. I think the days of high dividend growth pipelines are going away and these high 7-8% yields may be around for a while.


----------



## MrBlackhill

Currently a good time to hold beaten down Of&G stocks for their recovery.

I have two of these stocks. One soared +70% during November and the other soared +50%. I more than doubled my money since I bought them. I plan to dump them maybe around next summer or once they get around 80% of their pre-COVID level.

Meanwhile, I also have a clean energy stock which soared +20% in November. I plan to hold that one for long. That one is up +180% YTD. I'm personally up +77% since I bought it at the end of April.


----------



## doctrine

No names? I'll name the ones that are going to the moon now - Suncor and CNQ. Suncor is up a mere 55% in 6 weeks and can go another 100% just to get back to January prices. CNQ is up nearly 200% from March when I bought shares. My smaller cap pick is ERF, which is up 50% as well in 6 weeks and has 200% potential upside; as a low debt company, they will be one of the first to start share buybacks.

Suncor and CNQ are making big money at oil prices today and will be heavily buying back their shares next year. Both are very likely to see $40+ prices in 2021 as there is a high probability of WTI hitting $50 soon and could easily see $60 by next summer.

The next few years could see a severe oil supply crunch as there are almost no major projects left anywhere in the world. A world where major oil companies like the BPs are reducing production by 40% over 10 years, it is entirely plausible to think $100 oil could be back in 2-3 years. There won't be any new supply and prices will have to rise high enough to curb demand.


----------



## MrBlackhill

doctrine said:


> No names?


I've made contrarian moves on smaller names. I bought SCL at $1.80 and OVV at $8.40.

Should have sold SCL in June when it soared over 175% only 5 days after I bought it, but at that time I had about 2 months of experience investing, ha. I didn't know what to expect next. I'm still a novice. All of my experience as a novice playing around is "documented" here : MrBlackhill's reckless fun and struggles



doctrine said:


> Both are very likely to see $40+ prices in 2021 as there is a high probability of WTI hitting $50 soon and could easily see $60 by next summer.


That's what I'm hoping for and that's why I'm currently excepting to sell and take my profits in mid-2021.



doctrine said:


> it is entirely plausible to think $100 oil could be back in 2-3 years.


As a beginner, I'm not ready yet to bet on this. If I end up being more confident in that forecast, I'd surely hold my shares a bit longer.


----------



## hboy54

Many investors won't touch energy on principle. Too easy to get burned. I am currently crispy both on current holdings and less so on a lifetime energy experience. Problem is you then miss buying at 1/10 to 1/50th the 6 year high a commodity which is arguably the second most useful thing on the planet after water, and approximate returns like the following since March:

BTE 3X
PEY 3X
OVV 6X
SU 1.5 X

I don't need a return to 3 figure oil. I expect even WTI starting with a 5 will drive me to break even.


----------



## AltaRed

doctrine said:


> The next few years could see a severe oil supply crunch as there are almost no major projects left anywhere in the world. A world where major oil companies like the BPs are reducing production by 40% over 10 years, it is entirely plausible to think $100 oil could be back in 2-3 years. There won't be any new supply and prices will have to rise high enough to curb demand.


I am not quite as bullish as some of the O&G pundits are. There is tremendous surplus productive capacity in the system. Upwards of 10-15 million barrels per day. OPEC+ alone has curtailed almost 8 million barrels per day and that does not count the war ravaged under performing volumes from Iraq and Libya, never mind the sanctions against Iran. Even if demand recovers another 5 million barrels per day post-pandemic, and 5-7%/yr natural declines, there is slack in the system. Never mind quite a bit of re-investment happening under the radar in SA, in Kazakhstan, Guyana, etc.

I do think there will be 'firming' of oil prices 3 years out, but I don't see any $100 spikes on the horizon. About the time there is the potential for a supply crunch, global oil demand will be starting to fall off constraining growth.


----------



## doctrine

True, the more aggressive price closing in on $100 would require two things - a sustained demand move back above 100 million boe/d, and oil majors and shale producers holding onto their commitments to reduce capital expenditures as much as they have advertised in their long term plans. If both those start to occur, watch out 3 years out. Oil prices will be firmly in the hands of OPEC.

Of course, prices even now are healthy and companies like WCP (no shares) have indicated discipline still. There is hope. ERF is my small cap pick and it was the top performer on the entire TSX today. And I think is still a double at $50 (almost there) and a triple at least if oil goes to $60, which many analysts project by the end of next year.


----------



## AltaRed

A reasonable thing would be oil firming up in the $60-70 range. That would be bordering on more than enough for oil companies to start blowing their brains out again on volume growth rather than being disciplined on netback improvement.


----------



## robfordlives

Well the last nail in the coffin today from Trudeau. Carbon tax to increase 7 fold and gas will rise 40 cents per litre and nat gas about $6per Gj. This industry is done....amazing this news was released end of day Friday, almost like noone would see it. Oh well


----------



## AltaRed

robfordlives said:


> Well the last nail in the coffin today from Trudeau. Carbon tax to increase 7 fold and gas will rise 40 cents per litre and nat gas about $6per Gj. This industry is done....amazing this news was released end of day Friday, almost like noone would see it. Oh well


Clearly will put Canada at an economic disadvantage but when did ideologists with an abundance of wealth care about economics? It won't hurt the robust part of the O&G industry, the ones with healthy margins for whatever reason (investing discipline, quality of resource, etc) but it will wipe out the fringe players. After all, the rest of the world still demands O&G and so exports will continue. Norway's O&G production sector is heavily taxed but the ones with good assets continue to be successful.


----------



## doctrine

Believe it or not, but $170 a ton is not that much. 37 cents a liter in tax will barely boost gasoline prices above 2014 highs, and that is in 2030. I have seen some estimates that $600 a ton is required, or $1.30 more per liter in gasoline tax, which will bring gasoline to $2.25 to $2.50 a liter. There is a lot of time between now and 2030 for the issue to change of course. But Canadians will have to vote for it. 

Also, given Canada exports 70-80% of its crude oil, it's hardly the death of the industry. Developed countries as a group may have reached peak crude oil consumption as as much as 4-5 years ago which didn't stop oil from moving to $60-70 a barrel.


----------



## MrBlackhill

Oil is moving up, up, up. I wasn't expecting that. It was in the 40s only two months ago and now it's in the 50s.


----------



## hboy54

MrBlackhill said:


> Oil is moving up, up, up. I wasn't expecting that. It was in the 40s only two months ago and now it's in the 50s.


Yes indeed. I would not be surprised if April 2020 +- in oil and gas will in hindsight in a few years be the opportunity of a lifetime.


----------



## doctrine

Oil has just, very very quietly, hit a new post-pandemic high again. Oil prices in Alberta are nearly at 2 year highs, higher than pre-pandemic already. Goldman Sachs just estimated oil consumption could be back at 100 million boe/d by August, and that $65 Brent is forecast but >$70 is a strong possibility. Oil futures curve are pointing to a dramatic draining of surplus supplies.

$70 oil? Brent is already pushing $60 and demand season is just starting. $70 is a real possibility this year.

All the hype about carbon emissions, but it seems like everyone forgot how capital intensive it is to actually maintain our energy sources. And that capital has been hacked and slashed everywhere in the world at the same time and has not returned and probably never will.

What is going to happen when everyone gets back in their cars this summer and there isn't enough oil for everyone? Prices will rise, of course. How much? Did anyone see the LNG price spikes this winter in Asia and Europe? Turns out, you have to heat and you will pay anything - even 20 times higher prices (+2000%). Expect more of this in the near future for oil once the surplus disappears, and it is disappearing quickly.


----------



## AltaRed

IMO, far too optimistic on oil demand returning to 100 million barrels per day any time soon, potentially never, but the trend towards firming of oil price is well underway and that is good news for everyone, including the consumer who will need a healthy oil industry for decades to come. Too much momentum is underway to move to 'greener' solutions in Europe, and now the USA, to default back to ICE revival. A second Biden (Democrat) administration in 2024 would cement an irreversible trend. If I had my way, I'd want all our civil (government/municipal) transport and waste management collection to be EV by 2030, with replacement vehicles being EV starting right now.

The pandemic will not be slayed enough globally until at least the end of 2021 to create that kind of rebound in demand. There is also still plenty of idle oil supply around in the Middle East and Russia to pick up the slack but that is a good thing. Oil prices above ~$65-70 do not bode well for anyone.


----------



## peterk

I'd like to know more about this momentum that's occurring in ICE being phased out? All the newest, best, most popular vehicles are mid-large SUVs with turbo charged engines that suck gas and drive fast. Driving tech has improved a lot in 5 years to push people to upgrade their not-too-old-yet vehicle early, but PHEV SUVs are not really even out yet, and just regular hybrids are still not being bought much. Everyone is buying brand new gas powered, high horsepower SUVs with lanekeep assist features. The few Hybrids that sell well aren't even that good on gas compared to the honda civic they're replacing in all of the sensible low-budget people's / environmentally conscious people's car-to-SUV upgrade.


----------



## AltaRed

Many jurisdictions have dictated when new vehicle registrations have to reach zero emissions. Vehicle manufacturers are thus making commitments as to when their fleets will transition. If an ICE cannot be purchase at a dealership and/or supplies are constrained by regulatory action, there will be no choice but to buy an EV. Initially it will be a mandated transition but momentum and scale and charging stations will make purchasing EVs a no-brainer. EVs have a highly efficient torque curve and there is no issue getting 500HP or 1000HP out of electric drive trains. Way more easily than from ICEs.

Today, that is not the case but remember ALL of Tesla's current profit comes from EV credits purchased by other auto manufacturers until they can catch up. Tesla even said in their latest earnings release that they know that revenue stream will disappear, even as early as sometime in 2021, but likely not until 2022.

Most of those gas guzzlers will be retiring from the roads by 2030.


----------



## peterk

Oh, well I could see why you would think that then if that's how you suspect an "EV revolution" will unfold.

Looking at the numbers though...

There are 1.2 Billion vehicles on the road now, 10M of which are EV or PHEV.

Between 2030 and 2035 there will be 2-2.5 Billion vehicles, with 100-300M of them being EV or PHEV. New vehicles EV/PHEV will be ~30% of all new vehicle sales at that time as well.

Road fuel makes 50% of oil consumption. The rest in petro chemical, industry, shipping and aviation. Only 2% of oil goes towards electricity generation. All of these industries will likely grow and their use of oil will expand.

So how do we get from 1.2B gas vehicles now, 1.8-2.2B gas vehicles in 10 years, and increasing use in the other 50% of oil consumption to - "never going surpass the 100M BBL/day peak of 2019 ever again" ??


----------



## AltaRed

I don't know where you get the math on vehicle numbers, but I believe there will be under 1B ICE vehicles by 2030 and what ICE vehicles remain will have higher CAFE requirements. Vehicle production has not really been increasing much overall per International Vehicle Sales and where there is growth, it will mostly be in China and South Asia per Automotive Outlook. It is more likely than not that more than 50% of all new production will be EV by 2030. 

Ultimately, spend some time on BP's energy outlook - Oil Segment for some plausible scenarios on oil demand. Peak demand is likely only going to 'flirt' with 100 million barrels per day for the next 3-5 years.

Now I agree outlooks are simply forecasts and scenarios but road vehicle fuel demand will roll over and go into decline globally, probably before 2030. I doubt one will see increasing usage in aviation and shipping. They are all looking for increased fuel efficiency and means to do it. It is a whole bunch of things including electrified shipping (short haul, ferry, etc).


----------



## doctrine

peterk said:


> So how do we get from 1.2B gas vehicles now, 1.8-2.2B gas vehicles in 10 years, and increasing use in the other 50% of oil consumption to - "never going surpass the 100M BBL/day peak of 2019 ever again" ??


Goldman has 100 M bbl/day as early as August, although that is optimistic. I believe they also have 102M in 2022. I could easily see 102M or more by 2023.

The world is not investing for 102M oil consumption. It's investing for 90-92B within 5 years. It's really crazy the disconnect. There is going to be massive price spikes unless capital investment doubles now, and it may already be too late.


----------



## AltaRed

We will have to see how it plays out. Clearly you are more bullish than I am and it will be interesting to see where we land come 2022-2023.


----------



## MrBlackhill

I was certainly not expecting oil to be +11% higher than 1 year ago and +2% higher than 2 years ago.

I'm definitely not sure what to expect next. I have one of my oil-correlated stock that has recovered from 1 year ago and I'm not sure if I should let it run or sell it. I'll give it another 3 months. My other oil-correlated stock still has room to move up.

(I'm talking of OVV and SCL)


----------



## Money172375

What’s the cost to recharge a car at say $0.15 kw/hr? Will there be a time that you will pay for a charge in the parking lot while out shopping?

I have no insight at all into EV. Will there be a dramatic increase in the need for electricity production in the future if we’re all EV? We have occasional brown-outs and outages now.....whats the growth in electricity needs look like 10-20, 30 years out?


----------



## OneSeat

Money172375 said:


> What’s the cost to recharge a car at say $0.15 kw/hr? Will there be a time that you will pay for a charge in the parking lot while out shopping? I have no insight at all into EV. Will there be a dramatic increase in the need for electricity production in the future if we’re all EV? We have occasional brown-outs and outages now.....whats the growth in electricity needs look like 10-20, 30 years out?


Do you think people actually have answers to those questions? Even those that attempt to answer them usually belong to one side or the other of the argument - and develop their own answers accordingly. Did Henry Ford have such estimates? Did JFK require cost info before committing to the moon shot? Did strategic planners a century ago include the cost of fertilizer production to replace horse manure?

At this stage political motivation will decide the speed of any change - speed will determine the cost.

The extent of the changes needed is enormous. Far more than say the Interstate highway program and look how much longer and more expensive that was than the original estimates.


----------



## like_to_retire

Money172375 said:


> What’s the cost to recharge a car at say $0.15 kw/hr? Will there be a time that you will pay for a charge in the parking lot while out shopping?


Yeah, I don't think the end game will result in charge stations being located in shopping parking lots. But there's lots of discussion that needs to occur on these charging issues for sure.

There's not a lot of debate about the lack of infrastructure capacity to allow every household to charge an EV overnight. It just isn't there. We can slowly charge at home overnight or fast charge at a high current facility.

For fast charging (unlike your home), existing gas stations will install high current EV chargers that will facilitate under 15 minute charges as required. I suppose the hope is that you'll avail yourself of their high margin junk food facilities while you wait.

ltr


----------



## AltaRed

Some study work can be googled. It just hasn't been part of the public conversation yet. Here is a 2014 National Study focused primarily on 'point of end use' infrastructure but some sections have conversation on the bigger transmission and distribution issues. Also BC Hydro estimated that an estimated 350k EVs on the road in 2030 will require an additional 1050 gigawatt hours of incremental electricity per year. So it is being talked about, both on a utility level and no doubt an industry level.

I suspect there is more if one makes the effort to access industry wide reports/studies. The bigger question is what will this cost and how will those costs be amortized.


----------



## OneSeat

I wonder "which side of the equation" those reports are on. They are pretty old in a fast changing (political) situation.


OneSeat said:


> Even those that attempt to answer them usually belong to one side or the other of the argument - and develop their own answers accordingly.





AltaRed said:


> The bigger question is what will this cost and how will those costs be amortized.


I certainly agree with that - but let's face it we really don't know.
But then , maybe Joe Biden does.


----------



## peterk

AltaRed said:


> I don't know where you get the math on vehicle numbers, but I believe there will be under 1B ICE vehicles by 2030 and what ICE vehicles remain will have higher CAFE requirements.


I don't know either, the internet. IEA website and some green site talking in-depth about electric car and total car growth. Doubling of cars on the road by 2030 to 2035 sounded high to me too, but who knows? maybe. It seemed like all the high estimates had maximum 300M electric cars by 2035, 100-200M more likely. Tons of unknowns for production growth ability in the coming years. What's desire and what's reality?

My interest is on the demand side, and maybe it's Canada biased, Alberta biased especially, but I don't see the demand for EVs if gas works just fine and not only that but gas has improved a lot in 10 years, and will keep improving.

Turbo engines are more efficient and faster than ever so that people buying new will already be impressed with the improvements over their old vehicle. The EV improvement over that is incremental and even "too much" for people. Going from a big engine car to a turbo 4-cylinder SUV is one step, from a turbo 4 to a hybrid, then a hybrid to an EV. Most consumers will want to take these steps and they each take 10 years.

Genuine environment enthusiasts and climate change worriers are not in the car market. All cars are bad for the environment. Those people walk and ride bikes, and if they really need a car it's a 15 year old Honda Civic. I don't see a bigger societal desire for environmental consideration being associated with increased EV and car use. They're only loosely related for the headlines and government talking points during elections.

I think your main point though is that the demand side doesn't matter so much because either way EVs are going to be crammed down our throats by governments hostile to the will of the consumer and the taxpayer? Maybe. But there's no reason that governments can't go about throwing away trillions of dollars on EV infrastructure and subsidies and making grand proclamations to manufactures that end up having no teeth, while simultaneously having the regular car industry keep ticking away as usual while all the EV programs expand but remain unprofitable as ever, and continue-on being underutilized boondoggles, especially the government power generation side, for decades to come.

Why not? We can definitely have both things occur. Tons and tons of ineffective EV related investment of tax-payer dollars that completely goes to waste but is celebrated as a huge success, and regular gas vehicle transportation carrying on.


----------



## AltaRed

@ OneSeat: I just grabbed a couple of links so don't go by that. I was just demonstrating there is work being done.

To me, the industry players and the provincial utility commissions need to be the ones doing the legwork, research et al, and then presenting various costed options for the policy makers (civil servants, corporate boards and politicians). Some of the power utilities (generation and/or transmission) are crown corporations and some are publicly traded.

If I was on the CU/EMA/FTS boards, I'd be wanting to see a range of options pretty quick so as to have input to strategic direction over the next 5-10 years. It is naive to think a lot of hard work is not being done for these reasons alone.


----------



## AltaRed

peterk said:


> Turbo engines are more efficient and faster than ever so that people buying new will already be impressed with the improvements over their old vehicle. The EV improvement over that is incremental and even "too much" for people. Going from a big engine car to a turbo 4-cylinder SUV is one step, from a turbo 4 to a hybrid, then a hybrid to an EV. Most consumers will want to take these steps and they each take 10 years.
> 
> Genuine environment enthusiasts and climate change worriers are not in the car market. All cars are bad for the environment. Those people walk and ride bikes, and if they really need a car it's a 15 year old Honda Civic. I don't see a bigger societal desire for environmental consideration being associated with increased EV and car use. They're only loosely related for the headlines and government talking points during elections.


We recently bought a Mazda CX-5 turbo and it is an exceptionally lively machine. Hopefully in our garage for the next 10 years. That doesn't change the fact that around our area, there are now a lot of hybrids and EVs as well. By ordinary people too. Not just tree huggers. I think you underestimate the willingness of folks to be progressive. AB may be in a time warp but Albertans will come around...because they will have too. There won't be enough ICEs in the dealerships. Regardless, there is determination by enough governments now that the momentum towards PHEV/EV won't be stopped. Time to get those ridiculous quad cab gas guzzling pick ups off the road. Go EV instead. There is a ton of room for a lot of battery pack in those things.

The transition will be messy and inefficient at times but any major change will be that way. It's a 20+ year transition and lots of time for things to adjust and go right during that period.


----------



## OneSeat

AltaRed said:


> The transition will be messy and inefficient at times but any major change will be that way. It's a 20+ year transition and lots of time for things to adjust and go right during that period.


I hope so.


----------



## doctrine

MrBlackhill said:


> I was certainly not expecting oil to be +11% higher than 1 year ago and +2% higher than 2 years ago.
> 
> I'm definitely not sure what to expect next. I have one of my oil-correlated stock that has recovered from 1 year ago and I'm not sure if I should let it run or sell it. I'll give it another 3 months. My other oil-correlated stock still has room to move up.
> 
> (I'm talking of OVV and SCL)


Suncor reported Q4 results. In the last quarter, oil was $42 and they were able to easily sustain operations, pay the dividend, and were already projecting to pay down debt and buy back shares. Oil is now at $56 and they are now projecting at least another $1B of free cash flow (likely conservative) and do you know where it is going? Half to debt repayment, and half to buyback more shares. Zero to additional growth. That is the new way. I have seen some projections from major shale companies that they are only considering a maximum 5% growth in production even in a $100 oil environment. Get your seatbelts ready.


----------



## robfordlives

What does get your seatbelts ready mean? To me this is them saying that they are entering a no growth phase and eventual terminal decline. No thanks and the market thinks the same. It's all about growth in today's market. This will be worthless in 50 years.


----------



## doctrine

robfordlives said:


> What does get your seatbelts ready mean? To me this is them saying that they are entering a no growth phase and eventual terminal decline. No thanks and the market thinks the same. It's all about growth in today's market. This will be worthless in 50 years.


It means get ready for expensive energy as we enter critical shortages and potentially even rationing if protectionism gets involved. Oh, I'm not looking 50 years out. There is going to be an epic shortage of oil and natural gas now if something doesn't change. Our energy infrastructure need massive, massive capital investment today. And without it, it declines. Fast. Faster than you can take your gasoline and diesel vehicles off the road.

Are you going to invest $50 billion in oil? No, and neither are oil companies. But we all need it for a long time to run the world's economy. At least 10 years in equal or growing quantities. And trillions of investment are needed just to maintain that level. And it's not happening. Brent almost hit $60 today. It wasn't supposed to get above $50 ever again by some forecasts. It's not even peak season, but that's coming as the world opens up. Seatbelts.


----------



## hboy54

doctrine said:


> It means get ready for expensive energy as we enter critical shortages and potentially even rationing if protectionism gets involved. Oh, I'm not looking 50 years out. There is going to be an epic shortage of oil and natural gas now if something doesn't change. Our energy infrastructure need massive, massive capital investment today. And without it, it declines. Fast. Faster than you can take your gasoline and diesel vehicles off the road.
> 
> Are you going to invest $50 billion in oil? No, and neither are oil companies. But we all need it for a long time to run the world's economy. At least 10 years in equal or growing quantities. And trillions of investment are needed just to maintain that level. And it's not happening. Brent almost hit $60 today. It wasn't supposed to get above $50 ever again by some forecasts. It's not even peak season, but that's coming as the world opens up. Seatbelts.


Your thinking tracks mine. Good chance fossil fuel prices are going to cycle upwards in price. This is a good thing for everyone. Investors make money. Governments collect taxes. The green types have financial incentive to actually reduce their personal consumption instead of blaming the supply side for the issue. Fossil fuels will fade faster at higher prices. Everybody wins.

If oil and gas got together and colluded to keep supply down, they would be jailed. Now however society is demanding that they keep supply down, part of the lie they tell themselves that the problem is due to supply and not their own demand. There are reasonable chances the industry will comply.

I call this the hypocrisy and irony trade. Here is me with low quartile lifetime fossil fuel usage betting heavily on the industry while all the greens who have actually consumed more than I do (and continue to consume more than I do) won't touch it. I get to double dip: all the money I saved over 40 years not consuming oil and gas is now available to me to own these assets at 1/20th the 2014 prices. Funny as hell.


----------



## sags

Is there a global deficit in oil production, if the embargoes on Venezuela and Iran were lifted ?

Venezuela has more oil reserves than Saudi Arabia.

If all the oil producers were pumping at full throttle, we would be up to our eyeballs in oil.


----------



## nobleea

sags said:


> Is there a global deficit in oil production, if the embargoes on Venezuela and Iran were lifted ?
> 
> Venezuela has more oil reserves than Saudi Arabia.
> 
> If all the oil producers were pumping at full throttle, we would be up to our eyeballs in oil.


Iran would help. Venezuela not so much. They don't have any local knowledge anymore. If the embargoes ended, it would be the multinationals who would drive growth and as indicated above, they're unlikely to make the capital investments. VNZ has about 20-30 years of deferred capital spend which would be near impossible to catch up on in the environment going forward. VNZ oil reserves are also pretty heavy, which in a greening world is not the most popular oil (much like Canada)


----------



## nobleea

Further, the only way all producers would be going full throttle is if the price was high. Think $90+, which is what others are talking about here.


----------



## doctrine

sags said:


> Is there a global deficit in oil production, if the embargoes on Venezuela and Iran were lifted ?
> 
> Venezuela has more oil reserves than Saudi Arabia.
> 
> If all the oil producers were pumping at full throttle, we would be up to our eyeballs in oil.


If Iran sanctions were 100% lifted and they fully dumped 2 million barrels a day export capacity on the market, with OPEC fully at previous 2019 production levels, the world would still be in a deficit based on 2019 supply and demand because of structural decreases in production elsewhere, like US shale, but also other OPEC countries like Angola and others. Let alone that every European major international oil producer has committed to reducing oil output by as much as 30-40% over the next 9 years. But Iran is still not lifted yet. If Venezuela was investing tens of billions today, it would be 5 years before they had significant production. That is why WTI is hitting $57 today - there is no additional source of supply coming online.


----------



## AltaRed

nobleea said:


> Iran would help. Venezuela not so much. They don't have any local knowledge anymore. If the embargoes ended, it would be the multinationals who would drive growth and as indicated above, they're unlikely to make the capital investments. VNZ has about 20-30 years of deferred capital spend which would be near impossible to catch up on in the environment going forward. VNZ oil reserves are also pretty heavy, which in a greening world is not the most popular oil (much like Canada)


It is the sovereign (and semi-sovereign) oil companies (think Russia, Saudi Arabia, Kuwait, Iran, Iraq, Libya) who control most of the remaining large oil reserves and have the ability to substantially increase production. Both SA and Russia have substantial shut in capacity ready to go. Iraq and Libya will happen sooner rather than later. Who knows about Iran..... The big multi-nationals are no longer the key players since they no longer have access to much of the upside.


----------



## nobleea

I was referring to the multinationals in VNZ, as their home grown knowledge base is effectively zero now.


----------



## AltaRed

nobleea said:


> I was referring to the multinationals in VNZ, as their home grown knowledge base is effectively zero now.


Agreed. I didn't interpret your post as you wrote it.

Doubt anyone will go back in a significant way. They've been bitten (confiscated) twice, once in the mid-1970s and then again in the early 2000s. That said, it looks like some are getting involved again, Venezuela capitulates to some extent.


----------



## MrBlackhill

When reading about sector rotation...
And about current sector weightings...
And seeing tech sector weighting at its highest...
And seeing energy sector weighting at its lowest...
And seeing that we will soon be able to go out...

Are we soon about to see a huge profit-taking (selling) in the tech sector to jump in (buying) energy sector recovery?

Some people talk about oil supercycle... The new buzzword.


----------



## Covariance

I don't know about an oil supercycle. However, it seems logical to include in a straight forward reflation trade.


----------



## doctrine

Whether there is an oil supercycle with $150+ a barrel, or something more like $80-120, may be a little harder to say. The $80-120 scenario is pretty easy to see, we're at $60 and demand is just starting to heat up and no one is drilling for new oil. If demand fully returns, but there is a significant response and increase in capital investment as well as commitment by OPEC/Saudis/Iran to boost production as well as US shale ramping back up, then $80-120 is a worst-case scenario. But anything less than a rapid and significant investment in the very near term is going to quickly result in oil pushing towards all time highs. No private company has a budget even close to 60-70% of what it was in 2019. Most are at 50% or less. And OPEC isn't that much better.

Capital investment and oil production growth take time and money. Demand doesn't - all of those cars, trucks, SUVs, and planes are just sitting there ready to go. In fact, there are many, many more as every car factory in the world has still been making new cars, and they are flying off the shelves - especially big gas guzzlers. And everyone is just itching to get back and travel. Everyone, everywhere. There is a reason oil is at $60 today - and Brent at $63. Personally, unless something changes and capital investment doubles in the next year, $150+ seems quite possible. And maybe sooner than you think.


----------



## hboy54

Another delicious day in a delicious 2 or 3 weeks in the energy patch. Even SU is moving today today.


----------



## james4beach

hboy54 said:


> Another delicious day in a delicious 2 or 3 weeks in the energy patch. Even SU is moving today today.


Quite a nice rebound, very good for the TSX index as well.

But how are you going to differentiate between a brief rebound (from oversold conditions) vs the start of a new bull market, something that lasts for many years? Those are very different things.

I'm maintaining my 20% energy weight in my 5-pack, plus I get my oil & gas exposure in the TSX 60.


----------



## Ponderling

I am not sure of the long term on oil but I surmise the shut down of the Texan and other gulf coast oil and petrochemical facilities will have some short term push on the price of the things they usually produce.


----------



## doctrine

james4beach said:


> Quite a nice rebound, very good for the TSX index as well.
> 
> But how are you going to differentiate between a brief rebound (from oversold conditions) vs the start of a new bull market, something that lasts for many years? Those are very different things.
> 
> I'm maintaining my 20% energy weight in my 5-pack, plus I get my oil & gas exposure in the TSX 60.


-Very good for the Canadian dollar as well. Both the dollar and the TSX index are doing well - a double bonus, because we can buy more assets outside our country while our assets appreciate.

-Oil is in structural supply constraint - investment has fallen by _half_ in an industry that struggled to raise production by 1-2% a year worldwide at full investment - think about this. Longer term, I believe oil prices will rise until demand starts to suffer, and we enter a scenario where electric vehicle production is able to replace existing ICE vehicles. We are quite far from that - 5 years at least.

-The oil consumption deficit is estimated at something like 2.5-3 million barrels a day so far this year. That might have doubled over the last week with the loss of US supply. Supplies were already dropping. New estimates by Goldman Sachs and others are $70-75 oil in the next 3 months.

-Look at Suncor and CNQ breaking out. And some mid caps like MEG and ERF booming today. It's really only a question of how fast these stocks rise and how soon, not whether they rise. They're going up. Suncor is still at $26 - it was nearly $50 the last time oil was sustaining these price levels.


----------



## james4beach

doctrine said:


> -Very good for the Canadian dollar as well. Both the dollar and the TSX index are doing well - a double bonus, because we can buy more assets outside our country while our assets appreciate.


Yup I agree, this has been great. CAD strengthening while our stocks are strong... we are truly getting richer in absolute terms.

This is true, I often forget about this part. Strong commodities & energy result in a stronger CAD, so really, we all benefit. Even a fixed income investor is getting richer!


----------



## MrBlackhill

So... We're now already approaching $65 crude oil. How high will it go? Will there be a sharp drop at some point this year or just volatility? When oil starts dropping, it's so quick...


----------



## doctrine

What would the reason be for the drop? I am looking for bearish scenarios, but to make a dent OPEC would have to bring forward all available production right now, and I believe they are quite enjoying the higher prices. If OPEC sticks to anything resembling their official plan until next year where supply comes on in bits and pieces, supply looks very tight. 

Interesting to see a few more forecasts for $100 oil within a few years from a variety of outfits. That seems totally reasonable to me. We were there not that many years ago and that was with massive over investment that has quite disappeared. I think oil could eventually see all time highs. Virtually every other commodity in the world is heading that way.


----------



## hboy54

The last 5 or 6 weeks has been ... satisfying.


----------



## MrBlackhill

MrBlackhill said:


> So... We're now already approaching $65 crude oil.





hboy54 said:


> The last 5 or 6 weeks has been ... satisfying.


Oil now above $65. I'm very happy that I've took big positions in beaten down oil-correlated stocks. One of them is at +300%, the other is at +200%. And some people are barely just starting to buy the their underweighted energy. S&P 500 is currently only 3% energy and it could certainly reach 5%. TSX is 13% energy and it could certainly reach 20%. I see 50% upside. 2021's energy sector will be 2020's tech sector.

The funniest part to me is that I use my car only about once a month, so I don't care if gas price rises. (It would be even funnier is my car was an EV, but that'll be the next one in 5-10 years)


----------



## doctrine

hboy54 said:


> The last 5 or 6 weeks has been ... satisfying.


Boom. OPEC is fully in control of prices here.

Oil price forecasts are soaring. Oil is such a critical market for the world to work and people forget how tight inventories actually are under normal circumstances. They are going to get very tight now. And no one has budged on capital investment. No one is drilling for new oil. Anywhere. Many companies are still dealing with dropping production. Others are dropping production intentionally.

Oil is going to rise to the price of demand destruction, something it only teased in even in 2007 with oil at $150/barrel. It took 7 years before supply could truly respond and prices crashed in 2014. How much do you have to pay for gas before you decide not to use it? And perhaps more importantly, until businesses decide not to use it, for farming and transportation for example? Yikes. Who is the incremental demand user who yields and gives that supply to someone else?

I have big positions in oil. It's quite enjoyable if only because it has been very predictable. There is a maximum upside here, but it's not reached yet.


----------



## AltaRed

I generally agree with everything Doctrine has said except for tightness of supply. There is lots of 'developed' Middle East oil that has not begun to hit the market yet for various reasons from sanctions to civil strife in places like Iran and Libya. Even in unstable countries, the lure of billions of dollars will speak volumes. Longer term, Russia will provide more oil out of the Arctic as will Kazakhstan in the Caspian. Guyana is a lesser player as is Brazil but companies like XOM are focused there spending billions. I believe price will be substantially more constrained than Doctrine suggests but I also agree there is a lot more money to be made by investors in oil this year and next.

It is a cyclic sector as we all know, not for buy and hold investors like myself. We had ~5 years of a commodity bear and now there will be ~5 years of a commodity bull. This will be what will make the TSX perform over the next few years, potentially more than the S&P500.


----------



## MrBlackhill

Pretty happy with my large positions in the hated energy sector.


----------



## hboy54

hboy54 said:


> The last 5 or 6 weeks has been ... satisfying.


Continues to be satisfying. First $1M position today, at least transiently.


----------



## hboy54

hboy54 said:


> Yes indeed. I would not be surprised if April 2020 +- in oil and gas will in hindsight in a few years be the opportunity of a lifetime.


Another day of energy shares galloping upwards. BTE set a new 52 week high today after releasing results yesterday. Also yesterday, OVV increased the quarterly dividend from $US0.14 to $US0.20.


----------

