Long term OIL

[deisik]

Rosneft OJSC just released its report for Q1 2016. Crude oil extraction costs fell to just 155 Rubles per barrel (equivalent to $2.42 per bl). That means that Rosneft is now having the lowest cost of crude oil production in the world. In Aramco, the production costs average around $3 per barrel.  (Average prices for brent crude was $34.52 per barrel in Q1 2016).

http://www.bloomberg.com/news/articles/2016-06-08/rosneft-first-quarter-profit-falls-75-as-crude-oil-falls-to-low

It's interesting that 1 barrel roughly equals to 159 liters, so 1 liter of crude oil is approximately worth 1 Russian ruble. A barrel of crude oil gives something like 102 liters of gasoline (petrol) plus some other products like 30 liters of diesel and 25 liters of jet fuels (the volume of oil increases during processing due to changes in density). 1 liter of gasoline with the octane number of 95 costs right now 36-39 rubles...

Thus you can get an idea about the profits oil producing and processing companies make (as well as the government which collects taxes)

[jaysabi]

crude prices will indeed rise from this slump no matter what.that is for sure certain.investing in crude as a long term investment is a wise move.OPEC countries are storing crude oil in different parts of the world in very huge quantities to use when the price reaches a certain level.

There is not much of a chance for crude prices climbing back to the pre-2014 levels, unless all the major producers agree on systematic cuts to the output (which is not possible as some of the major producers are in the US and Canada). Shale oil is being pumped out with a production cost of just $30 to $40 per barrel, and hundreds of billions of barrels worth of new crude oil deposits have been discovered.

At the same time, prior to 2014, everyone believed there wasn't much chance for oil to fall back to pre-2005 levels. There's a tendency to always believe that the current price and the current outlook is a permanent change, and that's never been the case. Shale producers could continue to go under, and Saudi Arabia could cut production to staunch their deficits. (Could, not will.)

There is a major difference though. A majority of the shale oil producers will be profitable at crude prices of $45 to $50 per barrel. Two or three years ago, that was not the case. And this means that the prices will never go back to the pre-2014 levels. Because the extra demand will be met by the shale oil producers in no time.

You raise a good distinguishing point, but it's not definitive. Never is forever, and there were people saying oil would never drop below [insert nominal value] with all the same certainty and with just as iron-clad reasoning.

[jaysabi]

Rosneft OJSC just released its report for Q1 2016. Crude oil extraction costs fell to just 155 Rubles per barrel (equivalent to $2.42 per bl). That means that Rosneft is now having the lowest cost of crude oil production in the world. In Aramco, the production costs average around $3 per barrel.  (Average prices for brent crude was $34.52 per barrel in Q1 2016).

http://www.bloomberg.com/news/articles/2016-06-08/rosneft-first-quarter-profit-falls-75-as-crude-oil-falls-to-low

I found this part interesting:

Extraction costs fell to 155 rubles a barrel, helping to drive the Ebitda margin to 26 percent from 24.1 percent a year earlier, Rosneft said Wednesday in a statement. Its shares rose as much as 2.8 percent to 338 rubles in Moscow, the highest intraday price since May 5, and were at 337.4 rubles as of 11:28 a.m. local time.

The cheapest producer in the world, which you would think to be a major advantage, is trading for under $5.50 a share. That is not a company people are optimistic about owning.

[bryant.coleman]

The cheapest producer in the world, which you would think to be a major advantage, is trading for under $5.50 a share. That is not a company people are optimistic about owning.

The P/E ratio for Russian stocks is the lowest in the world, and Rosneft is no exception to this. Despite being one of the top oil producers, the market capitalization is just around $50 billion. Also, the Russian government is planning to sell 19.5% of the shares later this year (lowering the ownership from 69.5% to around 50.01%).

[botany]

Extraction costs fell to 155 rubles a barrel, helping to drive the Ebitda margin to 26 percent from 24.1 percent a year earlier, Rosneft said Wednesday in a statement. Its shares rose as much as 2.8 percent to 338 rubles in Moscow, the highest intraday price since May 5, and were at 337.4 rubles as of 11:28 a.m. local time.

The cheapest producer in the world, which you would think to be a major advantage, is trading for under $5.50 a share. That is not a company people are optimistic about owning.

Absolute price is meaningless. 
What you do have to look at is the total market capitalization.
You should compare industry multiples with respect to its peers, to find out whether it is overvalued or not.

[hermanhs09]

I think that the problem of oil is that it runs the risk of not being used as the main energy source anymore. We are moving towards clean energy on a daily basis. For example wind power and solar power.

In the long term obviously the demand of oil will cease, but before that happens there will be a huge spike in price.

[patronis]

Oil is going to tank this week. Major rejection on the weekly candle.

Short
Profit
Thank me.
 

[Qunenin]

There is a major difference though. A majority of the shale oil producers will be profitable at crude prices of $45 to $50 per barrel. Two or three years ago, that was not the case. And this means that the prices will never go back to the pre-2014 levels. Because the extra demand will be met by the shale oil producers in no time.

A major conflict in the Middle East (say, Iran bombing the KSA oil fields with the US leveling off Tehran soon thereafter in the paroxysm of retaliation), and only sky is the limit, shale oil or no shale oil...

So, never say never

The oil prices are continuously decreasing as countries like USA has already gathered oil to be used for the next decade. So the supply is more than demand and therefore we see fall in prices every now and then.

[Viyamore]

I think that the problem of oil is that it runs the risk of not being used as the main energy source anymore. We are moving towards clean energy on a daily basis. For example wind power and solar power.

In the long term obviously the demand of oil will cease, but before that happens there will be a huge spike in price.

Exactly chief ,that's the point there we are improving high technologies everyday and everday tgere's a new inventions .but oil will not disappear in the use of many people especially those who use cars as of today but when the time comes as you've said that oil price will spike .

[deisik]

There is a major difference though. A majority of the shale oil producers will be profitable at crude prices of $45 to $50 per barrel. Two or three years ago, that was not the case. And this means that the prices will never go back to the pre-2014 levels. Because the extra demand will be met by the shale oil producers in no time.

A major conflict in the Middle East (say, Iran bombing the KSA oil fields with the US leveling off Tehran soon thereafter in the paroxysm of retaliation), and only sky is the limit, shale oil or no shale oil...

So, never say never

The oil prices are continuously decreasing as countries like USA has already gathered oil to be used for the next decade. So the supply is more than demand and therefore we see fall in prices every now and then.

Since last February oil prices have been on the rise, though I would agree with you that prices above $50 per barrel look suspiciously unsustainable at present. Let's see what happens in the coming week. Personally, I hope for a higher volatility in the markets...

I have options that expire in the mid-week (just testing waters), lol

[bryant.coleman]

Absolute price is meaningless. 
What you do have to look at is the total market capitalization.
You should compare industry multiples with respect to its peers, to find out whether it is overvalued or not.

OK... compare them yourself. LOL!

Rosneft: Market Cap of $52 billion. Daily crude production of 5.2 mbpd.
Shell: Market Cap of $197 billion. Daily crude production of 3.9 mbpd.
Chevron: Market Cap of $191 billion. Daily crude production of 3.5 mbpd.
BP: Market Cap of $94 billion. Daily crude production of 4.1 mbpd.
ExxonMobil: Market Cap of $378 billion. Daily crude production of 5.3 mbpd.

[Karolus]

Market caps don't provide much useful information. He's right that one should compare multiples within an industry. Metrics such as price/book, price/sales, price/cash flow. I like to use Morningstar for that.

Of those 5 companies, BP seems to have the lowest multiples, which would make it the most appealing for investment purposes: http://financials.morningstar.com/valuation/price-ratio.html?t=bp&region=usa&culture=en-US
BP also has a lovely dividend yield and a solid balance sheet to help it through these tough times.

The thing to keep in mind about oil is engines. The biggest use for petroleum products is as fuel for transportation.  The vast majority of engines being made today are fueled by those products. That's probably going to be the situation for at least another generation.

Engines last a long time, right? Developing countries need plenty of more engines, right? That will keep oil companies profitable for many more decades. But occasionally excess supply of oil will depress oil prices and create losses, like these last couple of years.

[bryant.coleman]

The thing to keep in mind about oil is engines. The biggest use for petroleum products is as fuel for transportation.  The vast majority of engines being made today are fueled by those products. That's probably going to be the situation for at least another generation.

Engines last a long time, right? Developing countries need plenty of more engines, right? That will keep oil companies profitable for many more decades. But occasionally excess supply of oil will depress oil prices and create losses, like these last couple of years.

In China, they are converting large number of gasoline-run vehicles to those which can use LNG or LPG. The same is the case in developing nations such as India. Hazardous air pollution is getting a lot of attention now. So don't think that these engines can last for a lifetime. Conversion is now somewhat inexpensive, thanks to the technological progress.

[Karolus]

Yes, there is an increase in the number of gas-fueled engines. But there is a bigger increase in the number of petroleum-fueled engines.

The big oil companies also produce natural gas. They're also hedging their bets by investing in alternative energy technologies. They're diversified. Trading oil futures is dicey but going long on fairly valued big energy companies is ok.

[STT]

LPG is a off shoot of oil drilling, LNG can also be found with oil sometimes but I guess that is a fairly clean energy overall.   The BP oil failure was methane in that oil field, so common that exxon avoided the place as too risky if I remember right.    Most energy is related in some way, thats what makes electric cars kinda ridiculous as its just taking the fuel at a location elsewhere.   It does make sense in a city center I guess but its not magic, they still pollute

Kinda amazing oil got so high, I think its also related to a weaker then expected dollar in 2016.   No more rate rises before election is my guess so I dont expect oil to go back to $20

Rosneft: Market Cap of $52 billion. Daily crude production of 5.2 mbpd.
Shell: Market Cap of $197 billion. Daily crude production of 3.9 mbpd.
Chevron: Market Cap of $191 billion. Daily crude production of 3.5 mbpd.
BP: Market Cap of $94 billion. Daily crude production of 4.1 mbpd.
ExxonMobil: Market Cap of $378 billion. Daily crude production of 5.3 mbpd.

Theres a famous Uk fund manager who says all oil companies are overvalued.  Its not for this take but their ability to renew their reserves, I think the companies do track this worth themselves.    The cost of oil is alot of cases finding the resource to begin with and then establishing a line of supply, refining.   Once its all setup for production like you listed above the deal is done but they also have to repay debt in setup.   I think the hidden factor is the future these companies have or their cost of discovery.  I forget the exact term, BP and Rosneft are partly merged due to BP owning large Russian reserves at one point 2bn cost  20bn profit was nice

[bryant.coleman]

Most energy is related in some way, thats what makes electric cars kinda ridiculous as its just taking the fuel at a location elsewhere.   It does make sense in a city center I guess but its not magic, they still pollute

Unless the electricity is produced from renewable sources (hydropower, windpower, Uranium.etc), the pollution is not going to go way. However, the catch is that now the pollution is occurring far away from the city centre, mostly in open rural localities. This greatly reduces the number of people, who are negatively affected by the air pollution.

[Barnabe]

Most energy is related in some way, thats what makes electric cars kinda ridiculous as its just taking the fuel at a location elsewhere.   It does make sense in a city center I guess but its not magic, they still pollute

Unless the electricity is produced from renewable sources (hydropower, windpower, Uranium.etc), the pollution is not going to go way. However, the catch is that now the pollution is occurring far away from the city centre, mostly in open rural localities. This greatly reduces the number of people, who are negatively affected by the air pollution.

It could be interesting to see the pollution impact of electric cars charged with hydrocarbons power plants. Since power plants have a much higher yield than small car engines, it might still be more efficient even when considering all losses due to the electrical grid and battery charging.

[tyz]

Most energy is related in some way, thats what makes electric cars kinda ridiculous as its just taking the fuel at a location elsewhere.   It does make sense in a city center I guess but its not magic, they still pollute

Unless the electricity is produced from renewable sources (hydropower, windpower, Uranium.etc), the pollution is not going to go way. -snip-

Could you explain what you mean with this (see the bold sentence in the quote)?
First, since when is Uranium a renewable source? Wind power is completely pollution free, I do not know how you think it pollutes the environment. Hydro power however is an strong intervention into the nature, but I can not really see, too, where it pollutes the environment?
Maybe I got your post wrong.

[deisik]

Most energy is related in some way, thats what makes electric cars kinda ridiculous as its just taking the fuel at a location elsewhere.   It does make sense in a city center I guess but its not magic, they still pollute

Unless the electricity is produced from renewable sources (hydropower, windpower, Uranium.etc), the pollution is not going to go way. -snip-

Could you explain what you mean with this (see the bold sentence in the quote)?
First, since when is Uranium a renewable source? Wind power is completely pollution free, I do not know how you think it pollutes the environment. Hydro power however is an strong intervention into the nature, but I can not really see, too, where it pollutes the environment?
Maybe I got your post wrong.

Yes, you got it wrong. The sentence can be rephrased as "the pollution is here to stay if only electricity is not produced from renewable sources" (unless essentially means if not)...

Though I agree that uranium is not a renewable resource

[bryant.coleman]

Though I agree that uranium is not a renewable resource

Unlike the case with crude oil, Uranium resources are not going to get depleted anytime soon. We have enough Uranium for another 10,000 or 20,000 years. And we can use the spent nuclear fuel in the fast-breeder reactors. Even if the Uranium resources get exhausted, we can go for other types of nuclear fuel, such as Thorium and Radon.