Investing

is now the time to invest in oil stocks?

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  • Sep 20th, 2017 9:12 pm
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Deal Expert
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Sep 19, 2004
19960 posts
2978 upvotes
Waterloo
Wavelet wrote:
Aug 18th, 2017 1:35 pm
Calling WCS/WTI not supportive must be some sort of joke. The differential has not been this narrow since June of 2015 and (before that) in 2012. This time last year, the differential was 18, and right now it's 11.8. That it's come up a bit from 9.7 in April just takes it from absurdly low to very low.

Today, oil is up almost 3% (I'd like to pretend it was the supportive rig count, but the move up was well underway before it came out) and the Canadian oil producers are all dead money. You should just accept that, until the market starts running on fundamentals again (and no one can say precisely when that will be, just that it will eventually happen) you're better off buying a chart and looking at voodoo like technicals than trying to make sense of very short-term oil stock price movements on the basis of fundamentals.
Agreed
I simply post here as a support group :) as I imagine most people's Energy holdings aren't doing too well either (unless you're short)
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Sr. Member
Aug 17, 2008
520 posts
148 upvotes
Wavelet wrote:
Aug 18th, 2017 1:35 pm
Calling WCS/WTI not supportive must be some sort of joke. The differential has not been this narrow since June of 2015 and (before that) in 2012. This time last year, the differential was 18, and right now it's 11.8. That it's come up a bit from 9.7 in April just takes it from absurdly low to very low.

Today, oil is up almost 3% (I'd like to pretend it was the supportive rig count, but the move up was well underway before it came out) and the Canadian oil producers are all dead money. You should just accept that, until the market starts running on fundamentals again (and no one can say precisely when that will be, just that it will eventually happen) you're better off buying a chart and looking at voodoo like technicals than trying to make sense of very short-term oil stock price movements on the basis of fundamentals.
I'm not sure what you are ranting on about, but I did post earlier "While I haven't followed the spread, it looks like via a couple of Google searches to be widening from May onwards." I also posted some thoughts on what is suppressing Cdn oil stock prices. Your macro demand/supply thoughts on world oil is part of the Cdn equation, but it goes beyond that. Just to be clear, I'm not long the oil co's nor lamenting low oil prices. I wish Brent, WTI and the multitude of other types were even lower to make my cost of living lower.
Jr. Member
Jun 28, 2016
187 posts
74 upvotes
MrMom wrote:
Aug 18th, 2017 2:02 pm
I'm not sure what you are ranting on about, but I did post earlier "While I haven't followed the spread, it looks like via a couple of Google searches to be widening from May onwards." I also posted some thoughts on what is suppressing Cdn oil stock prices. Your macro demand/supply thoughts on world oil is part of the Cdn equation, but it goes beyond that. Just to be clear, I'm not long the oil co's nor lamenting low oil prices. I wish Brent, WTI and the multitude of other types were even lower to make my cost of living lower.
I'm not ranting about anything. All I'm doing is pointing out that your repeated attempts to explain why oil stocks are down via WCS/WTI spreads don't hold much water when WCS/WTI spreads are close to as low as they ever go.
Sr. Member
Aug 17, 2008
520 posts
148 upvotes
How about the rest of my reasoning then, since you are critiquing my thoughts?
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Oct 9, 2008
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Thornhill
Wavelet wrote:
Aug 18th, 2017 1:35 pm
Calling WCS/WTI not supportive must be some sort of joke. The differential has not been this narrow since June of 2015 and (before that) in 2012. This time last year, the differential was 18, and right now it's 11.8. That it's come up a bit from 9.7 in April just takes it from absurdly low to very low.

Today, oil is up almost 3% (I'd like to pretend it was the supportive rig count, but the move up was well underway before it came out) and the Canadian oil producers are all dead money. You should just accept that, until the market starts running on fundamentals again (and no one can say precisely when that will be, just that it will eventually happen) you're better off buying a chart and looking at voodoo like technicals than trying to make sense of very short-term oil stock price movements on the basis of fundamentals.
I have family who work on the servicing of oil rigs and they've survived through the original collapse of oil (albeit with reduced working hours) but prospects for Canadian oil producers seems like they'll lose more and more market share to the Permian as time goes on. I regrettably believe they will eventually either have to find new jobs or come back to Ontario to look for work in the future.

Advancement in technology along with better infrastructure and investment on the U.S side compared to the Canadian side due to politics both in WTI + NG seems to me that Canadian energy's growth prospects barring a major shortage in supply/demand doesn't look too good for the tar sands...
Jr. Member
Jun 28, 2016
187 posts
74 upvotes
MrMom wrote:
Aug 18th, 2017 3:36 pm
How about the rest of my reasoning then, since you are critiquing my thoughts?
Okay. Looking over the past half-dozen pages, you mention

1. Foreign companies are selling their Canadian oil assets.
2. CVE will probably have an overhang in its stock price for some time.
3. Widening Brent/WTI spread does not support Canadian producers.
4. Widening WTI/WCS spread does not support Canadian producers.

#1 is all about the rush to the Permian. This isn't just Canadian producers, but any oil producer outside a few US shale basins getting hammered, as the US/European majors sell non-core assets around the globe and (most of them) rush into the cash-burning Permian. In the short-term, all the sales will obviously pressure price in effected areas, but it's not actually a threat to the profitability of Canadian oil companies (Canadian government policy is actually a much bigger threat, though I think this is also overblown).
#2 is certainly correct.
#3 is complicated, as it's not great for the price Canadian producers are selling at today, but it does signal that global oil markets are tightening, which is supportive of US exports. Since the US export ban was lifted, the US exports increasing quantities of crude and NGLs, making room for Canadian production to sell in the US (as the government keeps any other options from being realistic right now). So, I would consider Brent/WTI sort of mixed for Canadian producers.
#4 I already mentioned. The WTI/WCS spread is very low right now (in large part due to the OPEC deal taking a lot of sour crude off the market, but also because Canada's biggest competitor for the sour crude market is Venezuela, and they're in steady decline (barring a bloodless coup, or something of the like, putting in a pro-American administration).
Jeenyus1 wrote:
Aug 18th, 2017 3:47 pm
I have family who work on the servicing of oil rigs and they've survived through the original collapse of oil (albeit with reduced working hours) but prospects for Canadian oil producers seems like they'll lose more and more market share to the Permian as time goes on. I regrettably believe they will eventually either have to find new jobs or come back to Ontario to look for work in the future.

Advancement in technology along with better infrastructure and investment on the U.S side compared to the Canadian side due to politics both in WTI + NG seems to me that Canadian energy's growth prospects barring a major shortage in supply/demand doesn't look too good for the tar sands...
The IEA tells me that Canada will add around 500,000 bpd over the course of 2017, 2018, 2019 and 2020. That's more than 10% above 2016 production. For example, this year, CNQ is projecting 9% growth in oil and NGL production, which might not compare to the Permian, but, on the other hand, CNQ produces plenty of free cash flow, earnings and is deleveraging, while the US producers are setting on fire any cash that comes near them. Over the longer term, the IEA also expects strong Canadian production growth out into the 2030s. Could it be wrong? It's possible, but the EIA is predicting almost 400,000 bpd of production growth in 2017 and 2018 alone, so the IEA is hardly alone. Unsurprisingly, the Canadian government and industry groups are even more bullish.

Growth in 2017 and 2018 is largely based on pre-crash spending, but it's hard to find anyone projecting shrinking Canadian production after that either. When oil companies and the Albertan government talk about the need for pipelines, it is not in order to justify new mega-projects, it is to accommodate the oil production which is already on the way, and will be carried by rail if these pipelines are not built. My expectation is that you are going to see increased US exports, while Canada sends oil to the US at a discount (unless the Canadian government grows a brain and lets industry build a pipeline or two). The idea that this won't be profitable does not seem realistic to me, as the big Canadian oil companies are all reporting solid earnings and some production growth, even in the current price environment, while increased drilling is driving US shale costs up, rather than down. No less than Harold Hamm (CEO of one of the best shale companies) tells me that shale needs $50 oil to grow, and that it will be quickly losing rigs at anything below 40. That's a world in which there won't be any new mega-projects, but in which the best Canadian producers should certainly be able to slowly grow production while remaining profitable. Then, whenever the oil markets tighten, Canadian producers can basically take that extra cash and tack it onto their earnings.
Newbie
Dec 8, 2013
26 posts
5 upvotes
jerryhung wrote:
Aug 18th, 2017 10:49 am
wow

IPL dropped like -10% since Aug 8 (after ER), $25 to now $22.5 (Feb 2016 level)

So are other pipeline companies dropping
I was lucky enough to sell XEG last year in September, my only energy holding. HOG ETF on my radar now. I usually don't pick individual oil stocks due to volatility, but IPL is starting to look real tempting. Weak price and decent insider buying.
Newbie
Jun 14, 2016
44 posts
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Calgary
IMO has been down for awhile, I don't even bother anymore.
Sr. Member
Nov 28, 2010
856 posts
116 upvotes
Brampton
Yup and hence tsx continues to be terrible too
Member
Feb 7, 2014
393 posts
19 upvotes
With the disruption that Harvey is causing to the refineries in the Houston, I would have thought that pipelines (or in general oil) should go up due to disruption in supply. I would like to understand the reason why is it working in the exact opposite manner?

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