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Oil Drops Huge (under $70) After OPEC Doesn't Cut Production
Quite the price war we have here. Despite assurances to the contrary, I think we're getting to the point where this becomes a very big problem for smaller and more heavily leveraged producers...
Futures higher, as lower oil is good for consumers until the "shale revolution miracle" collapses and leaves a wake of debt defaults (or has to be bailed out.)
@scott Thank you. A decent overview of this area, including the debt concerns. Not unlike so many other HY bond issues, for expansion/M&A in other sectors, too; that a lot of money has been raised to finance these operations based upon enough time in an economic cycle to cover their "bond butts" for payback. Take care, Catch
"Rice Energy Inc. (RICE), a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought.
Not bad for the Canonsburg, Pennsylvania-based company’s first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells -- most named after superheroes and monster trucks -- and said it will spend $4.09 for every $1 it earns in 2014. (note: emphasis mine.)
The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it. (again: emphasis mine)
“There’s a lot of Kool-Aid that’s being drunk now by investors,” Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”
You know I've been looking to get back in. Have not pulled the trigger yet. Something told me (ha!) we would go lower.
We've all seen it before. And, it's here again, looks like.
APA just had an investor day where they based their future earning on $80/barrel, which seemed reasonable. And they provided sensitivity metrics for $70 and $90.
Nothing below $70.
Gotta help airlines. Truckers. Hell, everybody that runs a machine. Manufacturing. Consumers.
Will help to further the strengthen dollar, no?
Will hurt all alternative energy pursuits, granted some more than others.
@Dex Hmmmm............ You noted: "US 10 year 2.2%, oil $65 OPEC wants to stop USA fracking."
The thought has crossed my mind that there may indeed be other folks in the energy game who need to shake up or shake out this sector. Could be a most interesting period going forward, related to "oil". The Kingdom of Saud has had interesting events in their part of town ever since the Brits wandered around that area more than 100 years ago.
We "more normal" investors are constantly surrounded and involved in monetary games that could be part of a most interesting movie about how some things really evolve and/or come to be in the global games of power and ego; let alone actual money. Take care, Catch
John, brave guy going after those bonds. They (the so-called experts) are saying the next shoe to drop will be junk corporates and primarily because of their exposure to oil and gas junk bonds. So who knows, running counter to the experts may work well for you.
Dex, you may get that $250 yet out of me. I had been completely out of bonds focusing on three stocks. But now in addition to them back to around 40% in the junk munis and increasing. So would love to see a close at 2% or lower in the Treasuries.
Edit: Oops! It's heezsafe at 2%. You are the $500 at 1%. Feel fairly confident that will never occur. But who knows.
@Junkster Yes, indeed; we live in interesting times. Just a late night blip from me with the below link...........pillow time here though. Noticed that the U.S. 10 year yield took another dip on Wednesday.
You know I've been looking to get back in. Have not pulled the trigger yet. Something told me (ha!) we would go lower.
Gotta help airlines. Truckers. Hell, everybody that runs a machine. Manufacturing. Consumers.
Will help to further the strengthen dollar, no?
Will hurt all alternative energy pursuits, granted some more than others.
Railroads will have lower fuel costs, but if fracking shuts down, that's frack sand, pipes, etc that will not be on the railroads.
If this becomes much worse, I do think you have the possibility of a real situation where states that were booming because of fracking (the Dakotas, etc) suddenly have things come to a halt. I'm not sure having the "shale revolution" that was/is such a big deal for GDP come to a halt is dollar positive, but who knows with the currency markets.
We were talking about having so much energy that we were going to start exporting it. Look at Cheniere Energy (LNG), which has basically gone vertical - until recently. If the dollar goes higher, that idea loses a lot of appeal.
Alternative energy will go in the toilet, because we have no real forward vision.
If this is happening because we want to put the hurt on Russia, I think that's an aggressive and desperate move that is not without potential consequences.
If this is happening because OPEC wants to put the squeeze to the shale producers in the US, that's not good, either.
If this is happening because the reality is that the oil demand isn't there, that's not good, either.
This whole thing about "lower oil is good for the consumer" that gets repeated over and over on CNBC is right, but it's not that simple and there is a level where it's trouble. Oil falling in 2008 was good for the consumer too, until it wasn't. Not saying this is 2008, but oil dropping in the manner it is is - I think - indicative of something bigger going on.
Edited to add: one thing that it seems to help are the commodities exchanges. ICE, CME higher.
Edited to add 2: Canadian co's getting obliterated CNQ -11.25%, VET -8% (I continue to own the latter. Sold very small position in the former earlier this week and OMG random good move.) As much as fracking starts to shut down around these levels, the Canadian stuff - oil sands, etc - comes to a real halt.
Edited to add 3: More Canada: Freehold -10%, Interpipeline -7.5%. FRHLF is a royalty play with a significant yield and IPPLF is I believe the largest pipeline operator North of the border (and they have operations in Europe.)
Dex, you may get that $250 yet out of me. I had been completely out of bonds focusing on three stocks. But now in addition to them back to around 40% in the junk munis and increasing. So would love to see a close at 2% or lower in the Treasuries.
@Junkster, I'm 100% in junk munis. To be clear, not solely on your being 100% at the time. I did my own research. They make sense to me for several reasons 1. limited supply 2. primarily US investors 3. primarily conservative investors 4. governments that can pay the interest 5. off their all time highs HYD all time high 10/12 $33.56 6. deflation in the offing
On the other hand, high yield corp bonds are influenced by general economics and stock prices.
Dex, good for you. Hope it works out. The only thing that could derail things is an unexpected sharp rise in Treasuries. Junk corporates are hostage to oil prices and have been recently. Not sure if it will be reflected in today's shortened trading session or Monday but the open end junk corporates will be getting hit hard (like HYG and JNK are today) because of their exposure to the lower rated oil bonds. That's fine with me because they could be setting up for a great entry in the next few months.
@scott Oh, I'm sure the exchanges involved are giddy. Fear, wild swings, HFT uber alles, opaque price discovery, speculation, successful gatekeeping/blocking of any regulatory supervision changes at the CFTC, dark pool derivative revving--- you bet your bippy, they're ready to rock-and-roll!!
Comments
Thank you. A decent overview of this area, including the debt concerns. Not unlike so many other HY bond issues, for expansion/M&A in other sectors, too; that a lot of money has been raised to finance these operations based upon enough time in an economic cycle to cover their "bond butts" for payback.
Take care,
Catch
From my post over the Summer (http://www.mutualfundobserver.com/discuss/discussion/13960/some-concerns-with-the-fracking-theme)
"Rice Energy Inc. (RICE), a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought.
Not bad for the Canonsburg, Pennsylvania-based company’s first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells -- most named after superheroes and monster trucks -- and said it will spend $4.09 for every $1 it earns in 2014. (note: emphasis mine.)
The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it. (again: emphasis mine)
“There’s a lot of Kool-Aid that’s being drunk now by investors,” Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”
http://www.bloomberg.com/news/2014-04-30/shale-drillers-feast-on-junk-debt-to-say-on-treadmill.html
added more oil platforms bonds - good investment vehicles for 3-10 yrs imho [yield ~ 8%]: Tesoro Corporation, seadrills, teresco comp, atwoods oceanic, key energy, oneok
https://finance.yahoo.com/news/seadrill-drills-oil-services-etfs-171611773.html
http://www.nasdaq.com/article/hold-mid-day-etf-update-etfs-stocks-give-up-earlier-gains-on-lackluster-consumer-confidence-spcase-shiller-data-cm417109
But it will be the major economies slowing down that will really lower oil prices.
You are stating that you have added the bonds of the companies in the/your list above
, correct?
You know I've been looking to get back in. Have not pulled the trigger yet. Something told me (ha!) we would go lower.
We've all seen it before. And, it's here again, looks like.
APA just had an investor day where they based their future earning on $80/barrel, which seemed reasonable. And they provided sensitivity metrics for $70 and $90.
Nothing below $70.
Gotta help airlines. Truckers. Hell, everybody that runs a machine. Manufacturing. Consumers.
Will help to further the strengthen dollar, no?
Will hurt all alternative energy pursuits, granted some more than others.
Hmmmm............
You noted: "US 10 year 2.2%, oil $65 OPEC wants to stop USA fracking."
The thought has crossed my mind that there may indeed be other folks in the energy game who need to shake up or shake out this sector. Could be a most interesting period going forward, related to "oil".
The Kingdom of Saud has had interesting events in their part of town ever since the Brits wandered around that area more than 100 years ago.
We "more normal" investors are constantly surrounded and involved in monetary games that could be part of a most interesting movie about how some things really evolve and/or come to be in the global games of power and ego; let alone actual money.
Take care,
Catch
Dex, you may get that $250 yet out of me. I had been completely out of bonds focusing on three stocks. But now in addition to them back to around 40% in the junk munis and increasing. So would love to see a close at 2% or lower in the Treasuries.
Edit: Oops! It's heezsafe at 2%. You are the $500 at 1%. Feel fairly confident that will never occur. But who knows.
Yes, indeed; we live in interesting times.
Just a late night blip from me with the below link...........pillow time here though.
Noticed that the U.S. 10 year yield took another dip on Wednesday.
BOJ 2 year yield goes negative
Take care,
Catch
If this becomes much worse, I do think you have the possibility of a real situation where states that were booming because of fracking (the Dakotas, etc) suddenly have things come to a halt. I'm not sure having the "shale revolution" that was/is such a big deal for GDP come to a halt is dollar positive, but who knows with the currency markets.
We were talking about having so much energy that we were going to start exporting it. Look at Cheniere Energy (LNG), which has basically gone vertical - until recently. If the dollar goes higher, that idea loses a lot of appeal.
Alternative energy will go in the toilet, because we have no real forward vision.
If this is happening because we want to put the hurt on Russia, I think that's an aggressive and desperate move that is not without potential consequences.
If this is happening because OPEC wants to put the squeeze to the shale producers in the US, that's not good, either.
If this is happening because the reality is that the oil demand isn't there, that's not good, either.
This whole thing about "lower oil is good for the consumer" that gets repeated over and over on CNBC is right, but it's not that simple and there is a level where it's trouble. Oil falling in 2008 was good for the consumer too, until it wasn't. Not saying this is 2008, but oil dropping in the manner it is is - I think - indicative of something bigger going on.
Edited to add: one thing that it seems to help are the commodities exchanges. ICE, CME higher.
Edited to add 2: Canadian co's getting obliterated CNQ -11.25%, VET -8% (I continue to own the latter. Sold very small position in the former earlier this week and OMG random good move.) As much as fracking starts to shut down around these levels, the Canadian stuff - oil sands, etc - comes to a real halt.
Edited to add 3: More Canada: Freehold -10%, Interpipeline -7.5%. FRHLF is a royalty play with a significant yield and IPPLF is I believe the largest pipeline operator North of the border (and they have operations in Europe.)
shortsideoflong.com/2014/11/panic-crude-oil-prices/
I'm 100% in junk munis. To be clear, not solely on your being 100% at the time. I did my own research.
They make sense to me for several reasons
1. limited supply
2. primarily US investors
3. primarily conservative investors
4. governments that can pay the interest
5. off their all time highs HYD all time high 10/12 $33.56
6. deflation in the offing
On the other hand, high yield corp bonds are influenced by general economics and stock prices.