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| StatTrader |
 Posted: Wed Jun 07, 2006 3:32 pm Post subject: Oil Companies |
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Question for those who examine company books and look at fundamentals.
I've understood that the oil stocks haven't zoomed because a lot of analysts are assuming that the current crude prices are an anomoly and that prices should work their way back down to the $40 range.
What would the "fair value" of these stocks (eg. XOM, CVX, etc) be if oil was $70 for the rest of this year and was assumed to continue increasing in price by 10% per year for the next decade?
Would this make them grossly undervalued currently??
In case you haven't guessed, I've been reading up on peak oil. |
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| Grimreaper |
| Posted: Wed Jun 07, 2006 3:46 pm Post subject: Re: Oil Companies |
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CFO
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Did you see CNBC's interview with the CEO of RDC on Morning Call this AM. He was trying to be veeeery careful about what he said but according to him the Saudi's think there is a $15 premium in the price of crude due to sheer speculation. God forbid if the frenzied fools get confounded this him n hericane season like the natgas speculators did last fall going into the winter heating season. Natgas was s'posed ta be going to $20 during the winter heating season. Ooops!  Any of you oil frenzied fools reading this post had better start praying for another round of devastating hurricanes to hit the gulf coast again this year. Udderwise....yuns guys are in trouble, and I don't mean Mabel! Purty kewel the way I took them energy pigs down like I said I was gonna huh Stat? You ainna seen nuthin yet!   |
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| Im Not Warren Buffett |
| Posted: Wed Jun 07, 2006 8:42 pm Post subject: Re: Oil Companies |
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CFO
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| Grimreaper wrote: | | Did you see CNBC's interview with the CEO of RDC on Morning Call this AM. He was trying to be veeeery careful about what he said but according to him the Saudi's think there is a $15 premium in the price of crude due to sheer speculation. |
What you have to remember here is that the Saudis have their own political agenda which colors all the comments they make about oil prices... as a crucial supplier (aren't all suppliers crucial these days  ) they can move the crude market on a sentence. Such a position requires them to talk delicately, while trying to divert the fact that high oil prices are a great boon to them. If the Saudis say crude prices are fundamentally correctly priced, THAT will make $70 the new base from which to price in a premium, and the subsequent price jump will fuel more anger at the Saudis for the price of oil, etc.
Right now they are taking the diplomatic route of shrugging their shoulders, saying they do what they can, and pumping like there is no tomorrow... because they need to cash in while they still have oil left. |
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| vetelmo |
| Posted: Wed Jun 07, 2006 9:19 pm Post subject: |
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Moderator
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| What about everything going on in Iran? |
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| StatTrader |
| Posted: Thu Jun 08, 2006 2:26 am Post subject: |
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| The question is, if $70 is the base, what does that mean to the fair value of the major oils like CVX and XOM? |
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| Grimreaper |
| Posted: Thu Jun 08, 2006 3:17 am Post subject: |
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CFO
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| StatTrader wrote: | | The question is, if $70 is the base, what does that mean to the fair value of the major oils like CVX and XOM? |
$70 won't be the base. The low after the unwinding of crude after the Katrina/Cramer-induced frenzy was below $60 but above $55 if I remember correctly. That low goes on this move down. As far as the stocks go I mentioned in another post here last night that you could go to Bigcharts.com and put up a 3 year chart on the XOI using DMI with a daily frequency and you will see 2 trend highs (where ADX tagged 60 as +Di was dominant) on da chawt. There is one at 900 and another below 600. 900 is my initial target for this move in the XOI but my honest opinion is that it will break below 900...rally to retest...fail...and then move on to sub 600. I doubt we will see any major rallies in the oil stocks till below XOI 550 so anybody adding on weakness will be adding into a downtrend. Let's enjoy da carnage...shall we?  This is actually good for America and assures that no recession is pending. The only fokes who will get crushed is the speculators...gotta luv that...no?  |
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| Im Not Warren Buffett |
| Posted: Thu Jun 08, 2006 5:43 am Post subject: |
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CFO
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| StatTrader wrote: | | The question is, if $70 is the base, what does that mean to the fair value of the major oils like CVX and XOM? |
For Exxon Mobil, I get a value in the low to mid $70s using all the current cash flow figures. If oil prices were to stay here longer though, it would presumable increase their profits so I am going through the financial statements to try to figure out how much. Analyst's expect five year compound growth of 6.6%, but I don't have their research so I can't tell what they are looking for from each division. Give me a little more time. |
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| StatTrader |
| Posted: Thu Jun 08, 2006 2:59 pm Post subject: |
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Member Of The Month! April
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To NotWarren
Thank you for checking on this for me. I appreciate it. |
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| StatTrader |
| Posted: Thu Jun 08, 2006 3:46 pm Post subject: |
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Member Of The Month! April
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Grim,
I am a bit skeptical regarding your analysis. I suspect that oil has plenty of price support at current levels. Looking at the XOI on a weekly chart
I see the XOI currently hitting support.
Looking at light sweet crude, the chart below has two trend lines drawn, a long-term trend line from late '03 and a shorter term trend line dating from '05. The longer term line gives price support at the $67 level and the shorter term line gives support at the $63 level.
I'll be surprised to see the $63 support broken this year. If we get one good hurricane heading into the gulf, then I also wouldn't be at all surprised to see $80.
The percentage of worldwide excess capacity has been declining precipitously the last few years. Even if all the conflicts in the world go away tomorrow, with global oil demand growing at 2% per year, I suspect that we are within two years of when production can no longer be increased to meet the growing demand. This condition is called Peak Oil.
Peak Oil does not require that oil production decline; it is sufficient for production to level off. This will cause oil prices to escalate in order to scale back the steadily rising demand. Historically, global oil consumption increases at approximately 2% per year. Imagine if the US supply of oil were frozen in 1975 at 1975 consumption levels. What would have happened to the price of oil over the ensuing years?
Geologists do not argue whether Peak Oil will happen, they only argue about when it will happen. The IEA are the optimists claiming that it won't happen until 2030, the pessimists claim that it will occur by 2008. The pessimists include extremists like the CEO of Chevron, the previous CEO of Haliburton, Dick Cheney, and others.
Since there are intelligent people "in the know" on both sides of the debate, I'm curious what the "fair value" of these companies are if the more pessimistic appraisals are correct. If that value is significantly higher than today's prices then committing a small portion of the portfolio to protect against that eventuality may not be a bad idea.
I hope you're right and that oil prices drop through the floor. I'm just not as convinced as you are that that is what we can expect. |
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| Grimreaper |
| Posted: Fri Jun 09, 2006 3:30 am Post subject: |
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CFO
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| You are correct Stat, there is no clear break of major support as of yet. But it's my job to telegraph da future well in advance of it actually happnin. In fact, I take pride in being one of maybe 3 or 4 people on the entire planet dat can do dat. All the funnymental reasons are there for crude to move higher. But all the emotional reasons are there for it to move lower....including a major brokerage house upgrade of the price of crude and all commodities just this moanin. Be careful out there. |
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| StatTrader |
| Posted: Fri Jun 09, 2006 3:43 am Post subject: |
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Just thought I'd add a quote from an industry insider
| Quote: | The supply picture is tight - as tight as it has ever been historically. We've seen what happens when Nigeria reduces its output, or when there's even the threat of a loss of supply from a major producer such as Iran. And that's only compounded by the limited worldwide refining capacity.
Supplies of conventional oil are anticipated to grow nearly 20 percent through 2025. But with world economies consuming over 30 percent more oil by that time, conventional supplies alone won't be sufficient to meet demand.
There's been plenty of debate about the notion of "peak oil." And I'm sure there will be even more discussion on the subject here at the conference. I'm very much a believer in the plateau philosophy - a leveling off of oil supply over many years. |
George L. Kirkland
Executive Vice President
Chevron Corporation
CERAWeek Remarks
The Westin Galleria
Houston, Texas
February 7, 2006
If you want to check the context the full speech is at
http://www.chevron.com/news/speeches/2006/2006-02-07_Kirkland.asp
Emotions can move the markets over the short term but the longer term picture is dictated by supply/demand considerations. Bottom line: as much as people hate to be confused by the facts, especially after they've made up their minds, eventually reality must be acknowledged. |
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| Grimreaper |
| Posted: Fri Jun 09, 2006 4:10 am Post subject: |
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CFO
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| Once again, in regards to the longterm outlook I advise everyone to check the 3-4 year charts. We are now at the end of the "long term" and just about every energy pig stock is up multiple hundreds of %. Of course they could do dat agin over the next 3 years. And I guess $150K homes from 2003 that are now worth $400K could be worth a cooool $million in 3 more years....but I doubt it. I will promise you this....you will have the signal that will make you reassess your opinion within 3 or 4 trading days. Possibly even today but I do see a handful of energy pigs that made recent nonconfirmed tops that will more than likely be taken out before a complete collapse of the entire sector occurs....but only a handful of stocks. |
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| Grimreaper |
| Posted: Fri Jun 09, 2006 2:04 pm Post subject: |
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CFO
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| OK, the XOI setup into the close in a position where the next decision made by the index will prove eithr the bears or da bulls wrong....and probably in a big way. So although I am currently bearish I look at the chart and I must now look at meself and be willing to admit I am wrong if things turn agin me...and make the proper adjustment without emotion. That's sound discipline that pays off in da long run. Interestingly enough the cards are actually stacked in my favor as far as the current setup in the XOI since I am already chort. In order for the near future (14 days out) to be bullish fo da energy pigs among the XOI index the index will actually have to selloff on the open come Mon! That's according to my own trading system of course. If ya ain'ts got a tradin system...please doan try this at home. Therefore, the windup: I will cover shorts if the XOI falls from the getgo OR I will guage the strength of the rally if it rallies on the open. A strong rally probably means more rally. A weak rally and then a failure leading to weakness probably means yuns guys will see true panic. I luuuuuuvs panic. Panic anyone? BTW, when Cramer says "nobody ever made money by panicing" he did not take into consideration that sometimes it is best to panic early and avoid da rush. That's just Reaper tawk though. |
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| yogi-in-oz |
| Posted: Fri Jun 09, 2006 3:23 pm Post subject: |
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Hi ya Grim,
..... some thoughts from Down Under, about the
price of oil (POO) .....
Looking ahead, we are shooting for substantial
downmoves in POO, in August & September 2006?
25 August - 01 September 2006 ... POO down???
22-28 September 2006 ..... POO down???
happy days
yogi
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| vetelmo |
| Posted: Fri Jun 09, 2006 3:25 pm Post subject: |
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| Interesting, I just finished with some POO in my bathroom. It went down too! lol! |
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