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is now the time to invest in oil stocks?

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  • Nov 22nd, 2017 6:16 pm
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Member
Jun 28, 2016
212 posts
93 upvotes
Flowerp wrote:
Aug 29th, 2017 12:53 am
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?
It's complicated, and I'm pretty sure that the market's knee-jerk reaction was at least partly wrong.

About 2.2 million bpd of refining capacity in the US is shut-in at present. This number may grow, as Harvey is forecast to hit refineries again, but it also may shrink, as the 850,000 bpd in Corpus Christi starts coming back online.

Also, at its peak 450,000 bpd of offshore crude was disrupted, although this was down to a little more than 300,000 bpd offline by Monday afternoon. I have no idea how much of Eagle Ford shale is disrupted, although I would guess a lot. I've read estimates from 300,000 bpd to 1.1 million bpd offline out of 1.3 million bpd Eagle Ford produced before this started. The high estimate does not seem credible to me, as only about half of Eagle Ford (and less of its oil rigs) were within the radius of the tropical storm. Some of this is also coming back online (for example, Baytex announced on Monday it was restarting some production, as did EOG, though we don't know exactly how long it will take them to ramp back up).

Transportation is also an issue, as Texas imports almost 2 million bpd of crude, exports hundreds of thousands of bpds of crude, and exports millions of bpd of refined products by water (this is all closed down right now, and may operate at reduced capacity if ports are damaged). There are also a lot of pipelines closed down, one of which links 650,000 bpd of crude from the Permian to the refineries in Texas.

For gasoline, this is bullish, and we've seen that in the activity of the market. For WTI, this is probably short-term bearish, as refinery outages in the US significantly outweigh production outages at the moment, and the path of the storm looks like it might cause more refinery outages, while it no longer threatens Eagle Ford with further damage. For WCS, I'd guess it's short-term bearish as well. Canada does send hundreds of thousands of bpd to Gulf refineries, and both of the big refineries down in the Houston area process sour crude (which is what the oil sands produce) but the effect is only likely to be material if there's long-term damage to the refineries (which might be the case). Moreover, as Canada only exports to the US, a possible short-term glut in American oil caused by refinery/pipeline outages should pressure WCS.

What's confusing is the price action of Brent crude. Past hurricanes have reduced demand in the month following by 200-300,000 bpd, but crude production outages are on he order of 600,000-1.5 million bpd + Libya (which has another 350,000 bpd disrupted at present). Moreover, the US is already seeking Asian and European gasoline, distillates and airplane fuel cargoes to make up for their shortfall, so one would expect that Brent should have risen due to rising non-US refinery demand, not fallen. I'm really not sure what's going on here.

In the long-run, as oil is an international market, I would expect that this will be a mildly bullish event for global crude oil markets, although maybe not for Canadian oil if too much sour crude refining is shut-in. Shale margins in the Permian will be pressured for a while, which is bullish, much of Eagle Ford is currently flooded, which is bullish, Gulf production will not return immediately, which is bullish, and having to transport oil farther to refine it (if refineries are shut in) is also slightly bullish. Set against that, is the unknown reduction in short-term demand (I say short-term, since demand rebounds during rebuilding) over the next month or two, although we can estimate it (as I did above) from past major hurricanes in the area.
Jr. Member
Aug 16, 2015
146 posts
12 upvotes
avoid energy "investments" like the plague. Im getting burnt on GXO IPL CVE ALA ENB.

play the commodity itself with UWT and SCO.
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Sep 19, 2004
20318 posts
3097 upvotes
Waterloo
kilburn305 wrote:
Aug 30th, 2017 6:07 pm
avoid energy "investments" like the plague. Im getting burnt on GXO IPL CVE ALA ENB.

play the commodity itself with UWT and SCO.
Sadly too late :(

I would've done better playing USO itself too, instead of holding dividend/energy stocks (which I thought was more "protected" than the commodity itself, I was wrong)
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Sep 19, 2004
20318 posts
3097 upvotes
Waterloo
WTI +3% and TSX Energy is still flat, some even RED, ha

North Korea and Strong CAD aren't helping either I guess

Many -1% - SU, ENB
ECA, IPL -2%

People are better buying directly USO itself, ha... in a week $9.4 -> $10 today (+6%), better than energy companies
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Jr. Member
Aug 16, 2015
146 posts
12 upvotes
I caught the bounce with UWT from 47.xx to 48.70. Feels good to actually make some cash.

Man, if I bought UWT when oil was at 42 instead of crap like interpipline I would have made a killing.
Deal Fanatic
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Jun 11, 2001
7758 posts
347 upvotes
Yeah it's pretty frustrating, last time WTI was around 48-50, most of these Canadian companies were about double the stock price.
jerryhung wrote:
Sep 5th, 2017 10:01 am
WTI +3% and TSX Energy is still flat, some even RED, ha

North Korea and Strong CAD aren't helping either I guess

Many -1% - SU, ENB
ECA, IPL -2%

People are better buying directly USO itself, ha... in a week $9.4 -> $10 today (+6%), better than energy companies
...zzz...zzz...zzz...

www.heatware.com
Sr. Member
Feb 1, 2015
607 posts
132 upvotes
MB
MrMom wrote:
Sep 13th, 2017 7:21 pm
SU.to momentum trade candidate. $40.14 area as an entry.

https://www.barchart.com/stocks/quotes/SU.TO/opinion

Will watch BZ & CL in the morning
What if it goes sideways by forming a higher low and then a lower high?
On momentum trades, another way to initiate or add to a position is to buy on the next pullback after a higher low and a higher high is formed, with a stop loss based on Fibo or the previous low.

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