Long term OIL

[Kingno.1]

A general thumb rule is that you should invest in upstream oil companies when the crude price is increasing. When the crude price is decreasing then it is advisable to invest in downstream companiesOn papers, it looks good Investment opportunity but on the ground there is NO Long term growth story in these companies.

[jaysabi]

By the way, Warren Buffett bets on falling oil prices. His Berkshire Hathaway has bought about $1 billion worth of Phillips 66 (oil refinery) stock since the beginning of 2016 (oil refineries usually profit from falling oil prices):

Berkshire already owned 61.5 million shares of the oil refining giant, and has recently spent $964 million to buy an additional 12 million shares of the company. Buffett's firm now owns 14% of Phillips 66 shares, making it Bershire's sixth largest holding

The drop in prices means that Phillips can buy the crude it refines more cheaply. And it profits from the fact that the price of gas hasn't fallen as much as the price of oil has. Phillips' refining profits actually rose last year to $2.6 billion from $1.6 billion in 2014.

Berkshire isn't buying Phillips as a bet on falling oil prices, but on the fundamentals of the company, taking advantage of weakness in oil and general market pessimism during a down period in a cyclical industry. I think you're assigning a sinister motive that doesn't exist.

Obviously, you failed to read the article at the link I had provided (or even look at the headline), since if you did you would have known that it was not me who was allegedly assigning "a sinister motive that doesn't exist", lol...

The piece headline reads "Warren Buffett's $1 billion bet on oil"

If you're passing on the source, isn't it implicit you're subscribing to the conclusion it presents?

[jaysabi]

By the way, Warren Buffett bets on falling oil prices. His Berkshire Hathaway has bought about $1 billion worth of Phillips 66 (oil refinery) stock since the beginning of 2016 (oil refineries usually profit from falling oil prices):

Berkshire already owned 61.5 million shares of the oil refining giant, and has recently spent $964 million to buy an additional 12 million shares of the company. Buffett's firm now owns 14% of Phillips 66 shares, making it Bershire's sixth largest holding

The drop in prices means that Phillips can buy the crude it refines more cheaply. And it profits from the fact that the price of gas hasn't fallen as much as the price of oil has. Phillips' refining profits actually rose last year to $2.6 billion from $1.6 billion in 2014.

Berkshire isn't buying Phillips as a bet on falling oil prices, but on the fundamentals of the company, taking advantage of weakness in oil and general market pessimism during a down period in a cyclical industry. I think you're assigning a sinister motive that doesn't exist.

Obviously, you failed to read the article at the link I had provided (or even look at the headline), since if you did you would have known that it was not me who was allegedly assigning "a sinister motive that doesn't exist", lol...

The piece headline reads "Warren Buffett's $1 billion bet on oil"

If you're passing on the source, isn't it implicit you're subscribing to the conclusion it presents?

Actually, scratch that, because the article doesn't even draw the conclusion you did.

Article: Buffet betting on oil industry.
You: Buffet betting on falling oil prices.

That's not the same. I stand by my original statement. Perhaps it's not a sinister motive you're assigning (clumsy wording by me), but I think you're drawing an incorrect conclusion. Berkshire's acquisition of additional shares doesn't equate to a bet on falling oil prices.

[deisik]

Actually, scratch that, because the article doesn't even draw the conclusion you did.

Article: Buffet betting on oil industry.
You: Buffet betting on falling oil prices.

That's not the same

No problem. So you're saying that Buffet is betting on rising oil prices, right? If not, then what is he actually betting on, since he is still betting as per article headline, huh? You see, betting is about making choice between mutually exclusive options, by definition (win or loss, contest or no contest)...

I myself drew that conclusion (the validity of which is essentially proven by the second quote from the piece), and so what?

[deisik]

Besides, the article headline is Warren Buffett's $1 billion bet on oil (i.e. price of oil going up or down), surely not Warren Buffett's $1 billion bet on oil industry (i.e. success or failure of the oil industry) as you pretend it to look. These are not the same, are they?

So who is actually drawing wrong conclusion and inspiring deliberate confusion?

[MingLee]

Besides, the article headline is Warren Buffett's $1 billion bet on oil (i.e. price of oil going up or down), surely not Warren Buffett's $1 billion bet on oil industry (i.e. success or failure of the oil industry) as you pretend it to look. These are not the same, are they?

So who is actually drawing wrong conclusion and inspiring deliberate confusion?

A few people probably intend on doing this, it allows for better headlines, bigger arguments, or making easy clickbait money.

There could be someone with a different agenda behind that too, but I doubt that is what is occurring.

[jaysabi]

Actually, scratch that, because the article doesn't even draw the conclusion you did.

Article: Buffet betting on oil industry.
You: Buffet betting on falling oil prices.

That's not the same

No problem. So you're saying that Buffet is betting on rising oil prices, right? If not, then what is he actually betting on, since he is still betting as per article headline, huh? You see, betting is about making choice between mutually exclusive options, by definition (win or loss, contest or no contest)...

I myself drew that conclusion (the validity of which is essentially proven by the second quote from the piece), and so what?

No, he doesn't have to be betting on the price of oil at all. He doesn't care what the price of oil is because it's not material to this business's ability to turn a profit. It makes a profit when oil prices are high, it makes a profit when oil prices are low. The decision to buy these shares is completely price agnostic. He's taking advantage of an opportunity to buy cheap stock because pessimism in the entire oil industry has whacked all oil companies, regardless of what part of the oil production cycle they are in.  This is the strategy he has executed his entire life: buy good companies when others' fear drives the price down. It's not a bet on what oil is going to do at all, just that this business is going to continue to make money and he can buy a lot of it more cheaply than normal right now.

[jaysabi]

Besides, the article headline is Warren Buffett's $1 billion bet on oil (i.e. price of oil going up or down), surely not Warren Buffett's $1 billion bet on oil industry (i.e. success or failure of the oil industry) as you pretend it to look. These are not the same, are they?

So who is actually drawing wrong conclusion and inspiring deliberate confusion?

You are. You are wrongly drawing a conclusion that isn't sound, and you've apparently taken one data point of anecdotal evidence in the article to try and claim that he's betting on the price of oil because in the present instance, it is more profitable to refine oil to gasoline than normal because gasoline prices have not fallen as much as oil. This is only a temporary circumstance, oil and gas prices normally track each other very reliably.

Also, if you would have bothered to read the sub headline of your own source, you would see clearly what the article is talking about:

Oil prices have plunged this year, but Warren Buffett isn't scared. He's bet nearly a $1 billion on the sector since the start of the year.

Emphasis added, but notice your own source that you claim is so definitive definitively states that Buffet's bet is on the sector, not the price of oil.

So there you have it, plain-as-day proof from your own source that the conclusion you drew is incorrect.

[deisik]

<BS skipped>

So there you have it, plain-as-day proof from your own source that the conclusion you drew is incorrect.

So you make claims on me being wrong and not on the article itself, which (its author) according to your own logic should be the ultimate miscreant, since you yourself previously said that betting on oil (price) is not the same as betting on oil industry (sector). Okay then, but you still didn't draw your own conclusion ("not a bet on what oil is going to do at all", which I totally disagree with), that is, what Buffett is actually betting on as this article pretends he is, not me...

Note, I didn't shy from doing just that

[deisik]

As an aside, you can't possibly claim some evidence as anecdotal if it allows you to earn more profits. Let's talk economic here, not bullshit. You still have to deal with the fact that Buffett bought shares of an oil refinery, not of an oil producer, given (as per article) that he doesn't have exposure to oil sector beside just that...

Phillips 66 is the only oil company in his top 50 holdings, according to share tracker LionShare

Whenever you try to generalize that Buffett is just betting on oil sector since oil is down ("buy the fucking dip"), you are instantaneously poised against his specific choices

[STT]

Phillips 66 is not that simple a company as I understand it, I recently read they have a revenue share of a new Dakota oil pipe line vital to stopping a log jam with all the production in that area.  They were just one of many owners but still majorly involved with the infrastructure behind USA new production.   Despite the price falls some think there is no going back for all this new fracking and associated productive capacity, its just a case of efficiency meeting the prices available hence cheap transport and the refinerys being part of that I guess

Williams and ETE are due to merge at some point this year, creating the largest private distribution network in the world ?   Lots of fuss being kicked up about the amount of debt in the merger but I imagine it'll probably go ahead as the best management is required for the cheapest prices, such is capitalism

Buffet sold conoco, he took the refiner side because there is a strong arbitrage from cheap oil to less cheap oil products and money to be made in that production I presume.  cany as ever

[deisik]

Buffet sold conoco, he took the refiner side because there is a strong arbitrage from cheap oil to less cheap oil products and money to be made in that production I presume.  cany as ever

According to jaysabi, this is no more than an anecdotal evidence. So, does Buffett bet on falling oil prices or on rising oil prices when he sells production stocks and buys processing stocks?

[xht]

Embargo Lifted, Iranian Oil Reaches Europe


Iranian oil attained a new level of restored legitimacy Monday, with word that a tanker anchored near a Spanish refinery had begun off-loading the first shipment for Europe’s consumption since the lifting of a 2012 European Union embargo.

Shana, the official news service of Iran’s Oil Ministry, said the tanker, the Monte Toledo, an 890-foot vessel registered in Portugal, had started transferring the Iranian oil to the refinery of Compañía Española de Petróleos, in Algeciras, a southern Spanish port near Gibraltar.

The news, first reported Sunday by Bloomberg, came as President Hassan Rouhani of Iran and other top Iranian officials asserted that the country was regaining its share of the market in crude oil, forfeited when the European oil embargo and other Western sanctions were intensified years ago in response to Iran’s disputed nuclear activities.

Many of those sanctions, including the European embargo, were terminated or suspended under Iran’s international agreement with major world powers to restrict its nuclear work. The agreement was completed in July and officially took effect in January.

http://www.nytimes.com/2016/03/08/world/middleeast/embargo-lifted-iranian-oil-reaches-europe.html

[expert4knowledge]

Besides, the article headline is Warren Buffett's $1 billion bet on oil (i.e. price of oil going up or down), surely not Warren Buffett's $1 billion bet on oil industry (i.e. success or failure of the oil industry) as you pretend it to look. These are not the same, are they?

So who is actually drawing wrong conclusion and inspiring deliberate confusion?

As you say it is a bit complicated but I can say that if price of oil decreases from a value i.e cost of extraction then we have a bankrupted industry and if it rises from a value then rivals of oil can overcome and I think both of oil and oil industry have the same fate.

[deisik]

Besides, the article headline is Warren Buffett's $1 billion bet on oil (i.e. price of oil going up or down), surely not Warren Buffett's $1 billion bet on oil industry (i.e. success or failure of the oil industry) as you pretend it to look. These are not the same, are they?

So who is actually drawing wrong conclusion and inspiring deliberate confusion?

As you say it is a bit complicated but I can say that if price of oil decreases from a value i.e cost of extraction then we have a bankrupted industry and if it rises from a value then rivals of oil can overcome and I think both of oil and oil industry have the same fate.

There is no single cost of extraction. Each oil field has its own cost. For example, in the KSA the extraction costs are around $2 per barrel, still a far cry from the recent lows of $26 per barrel. The same holds true for the US shale oil (in respect to the diversity of costs across different oil plays). So it is next to impossible to bankrupt the industry, even if the price of paper oil would somehow go into negative. It would just mean the disruption of the oil world market as a set of global exchanges (i.e. oil no longer traded there)...

But refineries would be fine in any case, at least, as long as oil remains a key economic commodity (Buffett's bet)

[n0ne]

Besides, the article headline is Warren Buffett's $1 billion bet on oil (i.e. price of oil going up or down), surely not Warren Buffett's $1 billion bet on oil industry (i.e. success or failure of the oil industry) as you pretend it to look. These are not the same, are they?

So who is actually drawing wrong conclusion and inspiring deliberate confusion?

As you say it is a bit complicated but I can say that if price of oil decreases from a value i.e cost of extraction then we have a bankrupted industry and if it rises from a value then rivals of oil can overcome and I think both of oil and oil industry have the same fate.

Now over the past few days the price of oil has increased to a small extent. If this increase continues surely industry will boom high and the east Asian countries will be the most beneficiaries.

[bryant.coleman]

There is no single cost of extraction. Each oil field has its own cost. For example, in the KSA the extraction costs are around $2 per barrel, still a far cry from the recent lows of $26 per barrel. The same holds true for the US shale oil (in respect to the diversity of costs across different oil plays).

I will agree with you on the Aramco production cost, but I suspect that the production costs for the US shale oil is much higher. Aramco is producing crude incurring an expense of $2 to $10 per barrel (depending on the field). The same for US shale oil is $20 to $60, depending upon the geological formation and remoteness of the location. But you should also remember that many of the US rigs produce extremely low-quality crude such as North Dakota Sour, which are priced much below the Brent / WTI official prices.

http://money.cnn.com/2015/11/24/news/oil-prices-production-costs/

[deisik]

I will agree with you on the Aramco production cost, but I suspect that the production costs for the US shale oil is much higher. Aramco is producing crude incurring an expense of $2 to $10 per barrel (depending on the field). The same for US shale oil is $20 to $60, depending upon the geological formation and remoteness of the location. But you should also remember that many of the US rigs produce extremely low-quality crude such as North Dakota Sour, which are priced much below the Brent / WTI official prices

My point was that the industry couldn't be crushed due to price wars or price manipulation because everyone needs oil, in that or other form. To put it in other words, the price swings of so wide a range (when the price can fluctuate by dozens percent within a few days) are made possible just because of this, i.e. oil uniqueness and irreplaceability. So these "games" are pretty much safe for the oil industry at large and profitable for a wise "gamer" in particular...

North Dakota Sour made a history when it went negative (though it was just a typing error, lol)

[tyz]

The oil price crash is over says an article of financial post and predicts that the recovery of Alberta’s hard-hit economy begins. It is too early and I think that is more a wish than a fact.

http://business.financialpost.com/news/energy/the-oil-price-crash-is-over-let-the-recovery-of-albertas-hard-hit-economy-begin?__lsa=9202-09f5

[bryant.coleman]

The oil price crash is over says an article of financial post and predicts that the recovery of Alberta’s hard-hit economy begins. It is too early and I think that is more a wish than a fact.

There will not be a recovery in the crude prices anytime soon. Because there is still an oversupply of close to 2 million barrels per day, and the storage facilities are all filled up 110% of their capacity. The temporary spike was caused by the supply disruption in some of the oil producing countries (pipeline sabotage in Peru, pipeline explosion in Nigeria, and reduced output from Iraq).