RE:RE:RE:RE:RE:I'd like your opinion on the following scenario Case for $80 oil post-covid
Could discuss oil and natural gas for hours with this group.
Won't make me any more accurate.
We are roping wild mustangs.
Here's the thing.
We can make assumptions about the future price of these Finite fuel sources until TheBridge's cows come home.
Life ALWAYS seems to get in the way.
This sector goes through gluts and shortages, for many different reasons, many different years and decades.
A recovery in oil and natgas was already underway when Globe was hit with Covid19.
Pandemic articifically suppressed demand, companies were dragged close to brink of bankruptcy, priced at $0.05 on the dollar of value due to debt levels and low commodity prices.
Nukester has touched on important factors:
FINITE
Highly correlated demand with Ecnomic growth, population growth and sensitive to interest rates like most commodities.
Required to sustain standards of living and also to feed a population that has shot past sustainability.
World expected to be using 100mm barrels per day this year. We may be there now, or soon.
Getting to TLV's question about an oil price range... BARRING economic setbacks that negatively impact demand, yes oil can trade in the $80's rather than the $60's.
It can stay there for years.
We may be lined up for Stagflation scenario. Economic growth stalls while commodity prices climb and for many different reasons.
Oil is interesting to me because it's become a taboo subject. We have been told to hate oil and gas. Schools teach kids, professors teach students, media teaches retirees, govt jumps on board and vilifies our good old oil and gas sector, same with coal and uranium etc.
It is fashionable to hate fossil fuels.
What is the alternative? When you have this conversation with others, it can be difficult.
Remove oil and gas from our lives and bad things happen to the most vulnerable groups of people on the planet. They starve, they freeze, they overheat, they don't live very long.
Everyone has an answer but I'm sorry, EVs and Wind Farms and Solar Farms will not save the world.
With the trajectory of populations in developing countries, more fossil fuels will be required to ensure places like China and India can feed and house their people. There's a hell of a lot of people in FE. If they go hungry, that's how rebellions start. The Far East is deficient in oil and natural gas and food production.
I have long believed that wars will be fought over fuel and food. We are catching a glimpse of that now in Eastern Europe.
So where the heck are we today??
Oil and natural gas consumption back on the rise, discoveries of new reserves continue to get smaller in size and more expensive to extract.
Face it, most of the easy stuff is gone, now we are getting into more expensive reserves.
So ya, oil can stay at $80 for a long time. Economics suggest so under current conditions.
Global inventories are collapsing, and what happens when we have less of something in the stores?
Last time Costco ran out of toilet paper, I saw Canadian Tire selling single rolls for $5!
When we believe that there's very little oil around, there will be a scarcity premium.
We aren't at $5 toilet paper just yet but today's oil price is probably $75 fundamentals and $25 fear premium.
Premiums can stay for long periods of time. They will shift with the news.
Goldilocks and 3 bears?
$70 oil too low
$110 oil too high
$90 oil just right to keep things running smoothly for everyone
M&A?
Each corporation is a living being. Differing in size, composition, age, strength, logic/reason, health.
Threre will surely be M&A, we've already seen it.
Having been through 7 brutal years of oil and gas glut, these companies are seeking to reduce debt, maintain production, buy their undervalued shares, maybe pay divs and maybe acquire peers.
I think they have "war rooms" where co's are constantly looking to buy/sell/merge within the industry. Some things fit, some don't. But the M&A stuff is certainly underway, just not raging.
Govt interference may cause many management groups to pause on getting too big. Exxon is favourite target of ESG and govt. Suncor and CNQ often the focus of anti oil groups in Canada and US.
Sometimes bigger isn't better.
Deals have been done. There will be more.
For broken balance sheets, it's best if co's do buybacks and debt reduction.
Once they are in good health, they will look at NCIB, divs and maybe M&A.
So many other factors.
We can’t look too far down the road. Marginal cost of production today for unconventional rock, $80/bbl.
That’s a decent base price for modelling future cash flows. IMO
Those who sunned oil and ng the past decade will now be forced to reconsider its importance in their lives and everybody else's lives around the globe.