Member Info for Boyobach

Hi bunks

Yes, last night's chart indication was right but G was perky enough at first and I acted early on, rather more heavy handed than planned. I've reduced my holding by 40% and moved it to RDSb. I'm not adding cash until the KSA have done their worst. Further reductions in my G holding may follow depending on how the situation develops, next week's statement and the payments position. The idea will be to move fully back into G if everything comes good and I've still got the appetite after years of 'turning the corner'.

Since the beginning of the year G's prospects have not improved but the risks have got greater, in the meantime 'safer' oil related stocks have become much cheaper in relative terms. These could well track G during the recovery phase (assuming there is one) and so offer a safer alternative whilst OP is very volatile. These alternative won't benefit, of course, if next week's news puts a real rocket under G's sp. So, what is most likely within the next few months: Bina Bawi comes good and Qara Dagh is massive, or neither of those and KRG payment arrears extend further? The recent decline in all oil related stocks has given me an opportunity to re-balance my risks and that's what I'm doing. I'm still invested in G but accept that it has never been a 'lucky' share - external circumstances tend to be blamed but many of the problems stem from fundamental decisions taken in the early years after the Vallares RTO.

Courtesy of Oily Stuff:

"To produce a commodity like oil and sell it below its true value is a criminal waste and the man who does it is guilty of a crime. If the courts cannot punish him, future events can..."

https://www.oilystuffblog.com/single-post/2020/03/08/A-Message-From-the-Past

OPEC/Russia/USA issue is worse, Hawkey.

Loose cannons. Very unpredictable and with swift consequences just by dint of a statement (which may turn out to be misleading)

Covid19 will eventually spread more widely but in an increasingly identifiable pattern and hopefully with fewer health consequences for the population as time goes by. It can't be contained indefinitely - life has to go on for the vast majority who survive it and develop immunity. As those numbers increase then it will have more difficulty finding a host and ultimately fade away.

There seems to be a website problem - here's an alternative link for the daily chart showing the trends I mentioned:
https://tvc-invdn-com.akamaized.net/data/tvc_9ff0da4a184be56c99ae01879594f680.png

I'll post the 5minute chart later if necessary.

(continued)...I think G might perk up a bit (although the chart tonight wasn't encouraging) so decided to wait and see tomorrow.

No Bunks - I would not necessarily jump straight out of one stock into another.
Sometimes it goes like this: sell some G if it looks to be at a high but don't move directly into RDS if you think it'll fall.
Cash then becomes an intermediate stage to lower risk/improve chances if possible. Also, because the market is down, I'll be looking to add using spare cash. However - it's really volatile and the market could move either way having potentially overshot, so I'm talking about tranches (in my case up to £5k max) not the whole shebang. The KSA/Russia spat has made this very complicated - if it had just been Covid-19 then it would have been straightforward.

I think G might perk up a bit

Here's a '5minute' chart showing the last five days since G was 151. I'm paying close attention to the majors, personally and would have transferred a percentage of my G into RDS plus some cash except for one thing - I'm not sure that the bottom has been hit yet. But perhaps I'm just being played by the KSA (and possibly their pals in Russia): there's been a lot of words but not one extra tanker at sea yet. It's all posturing so far, although KSA have a large quantity of oil distributed at major hubs that it can throw at the market any time it wants to.
https://invst.ly/q2n0f

From the point of view of managing a G holding it's probably a good idea to stop agonising about the drop and start from scratch mentally: 105 is the new 175 and we have little choice but to work from there. The sp will move up and down in its new range until and during any recovery phase. The interesting thing is that, for once, G isn't the only company with a potential 50% recovery to do. If, for some people, G looks cheap then so do a heck of a lot of others. The thing to weigh up is whether OP will maintain $37 in the short term and, if it does not, where would G be likely to land. That issue, I believe, trumps any prospective news we are likely to get next week.

The two lowest blue trend lines here, https://invst.ly/q2mg8 , are parallels to G's long term and familiar lines but were something of a guess as they go back to lows of 2016. The lowest is surprisingly accurate and will be tweaked to align with today's closing price. The next one down is currently at around 92p, which may be worth remembering because the long tail on today's candlestick indicates that the sp tested higher but, so far, doesn't want to head that way. Undoubtedly the KSA Aramco 'drama queen' announcement today put a stop to the upward trajectory. Above that there's a 10p gap up to about 138p - if G survives long enough )of course it will!) then that should get filled eventually. Show me any oil co without a gap on that day!

Given the relative state of G and a major like RDS, I feel that in recovery they will track fairly close but with less risk associated with the major. So I'll probably hitch a ride with one and transfer if/when the other looks as if it has the edge. I will do so on a trading basis - they still have highs and lows which don't necessarily synchronise. There's also no big rush - they are all massively down and could slip further with the Aramco production announcement today.

Cut G and run to an alternative oiler with better recovery prospects ...?
As I hinted at yesterday, Bunks.
Although I'd say 'more reliable' rather than 'better'
It should be managed to get the best out of it though. Doing one big lump transfer probably wouldn't be best.

OP is inching it's way back to $40 and the lowest red trend here:
https://invst.ly/q2j23
which is kinda what it overshot. Here's a closer view: https://invst.ly/q2j2z
The blue+green shaded track is where OP spends most of it's time since the last crash in 2015 and seemed to be where OPEC were guiding the price. Despite the recent theatrics I think they'll try to get back in that range as soon as they can provided they manage to knock US Shale back for a while. However, Covid-19 will slow that process and no one knows for how long.

Your logic is correct Hasiba, except for one thing - there is no state control over production levels in the US Shale industry.
It has long been utterly crazy from a national pov for the US to pump a valuable and finite resource at ludicrous prices relative to the true cost of production (which includes the burden of debt).
US refiners also use heavier oils, I believe, hence the continued need to import other grades and the excess of LTO available for export.

According to my calculations, Brent has averaged about $58 year to date, so it would need to average below $38 for the rest of the year to fall below an overall average of $40.
I'm working on the basis of $40 average for the year with a brief stint in the $20 range a possibility and $40-$45 the broad average for the rest. It would put G at around 130 average for the year, provided payments are received.
The rationale is simple - there's an optimum level below which OPEC+ damage themselves rather more than they limit US shale (they can't destroy it btw). There is also the question of how much spare capacity KSA and Russia actually have readily available - to some extent Covid-19 is doing their work for them at the moment. They are hardly likely to spend more on production simply in order to drive OP down and will therefore be limited by their maximum existing capacity.

There won't be any 'agreement' between US Shale producers and OPEC+, Hasiba, there is no mechanism for that. The one is reactive to the other. Indeed the current crisis is partly due to US Shale continuing to pump record amounts of oil despite demand weakness. US Shale is overall unprofitable at the current OP - some drillers are still making money and some are at break-even, whilst many are operating at a loss. However, whilst rigs, manpower etc. are contracted or paid for they will continue to pump as hard as they can to earn at least some revenue and mitigate the losses, so reductions in Shale production will happen as it becomes cost effective to do so rather than as it becomes unprofitable.

It’s obviously worth considering how OP might realistically move over the next three months. My thoughts are these:

Whilst the market has reacted instantly, the physical commodity position has not yet changed. The effect on US Shale production might be the first supply change, and it is generally reported that Shale’s break-even point is in the region of $40. This is also supposed to be around the level that Russia needs - although reports suggest that they will stomach lower prices for a while in order to squeeze Shale production. KSA are effectively threatening to join this game of ‘chicken’ - however none of these players wants or can afford for OP to remain below $40, although it was naturally heading there without any need for production increases because of Covid 19. So they do not need to increase production to play this game.

Given the demand position, logic points to a possible 2020 average of $40 Brent, bearing in mind that we have had 3 months already at an average around $60. However, it is equally likely that demand will rise sharply when production kicks back in and as long-haul transportation levels resume. We may yet see G fall to below 100p, of course - that’s the bottom blue trend here: https://invst.ly/q22g4 which points to about 93p, with 106p on the penultimate line. Those levels are consistent with OP as low as $30. Don’t forget that the divi should be based on last year’s results and that $54m of revenue postponed from 2019 should be boosting this year’s numbers. Ha! I’ll believe that when it happens.

The dilemma, for those who are looking to take advantage of the market, is where to put cash when they perceive that the low has been reached (or, as Hasiba rightly says, as they top up prudently on the dips). What could derail G’s recovery? Well we all know the answer to that - I’ll just say KRG malarky. Which may be another reason why shifting cash to an alternative oil-based stock with similar recovery prospects could be considered.

In looking at G’s performance relative to other oil co’s during the current economic glitch, this comparison chart goes back to last Thursday’s close because various ‘shocks’ (OPEC+ failure, Italian virus escalation, loo-roll crisis etc.) had not occured at that point. Chevron hasn’t moved yet, of course, as NY is still closed.
https://invst.ly/q21mi

One factor worth bearing in mind when considering whether to sell G - and I’m not necessarily advocating doing so - is whether any similarly battered stocks have a better chance of recovery or a smaller chance of declining further. That is definitely a dyor area!

As far as I can see, G is currently performing as well as can be expected given OP - and the ratio has actually increased to 3.2x.

I assume G will be freezing its cap-ex plans until the positions re OP and Payments respectively become clear.

Article: ..Putin dumps OPEC to start a war with America’s shale oil industry
extract:
... the decision to take on shale could backfire. While many drillers in Texas and other shale regions look vulnerable, as they’re overly indebted and already battered by rock-bottom natural gas prices, significant declines in U.S. production may take time. The largest American oil companies, Exxon Mobil Corp. and Chevron Corp., now control many shale wells and have the balance sheets to withstand lower prices. Some smaller drillers may go out of business, but many will have bought financial hedges against the drop in crude.

In the short run, Russia is in a good position to withstand an oil price slump. The budget breaks even at a price of $42 a barrel and the finance ministry has squirreled away billions in a rainy-day fund. Nonetheless, the coronavirus’s impact on the global economy is still unclear and with millions more barrels poised to flood the market, Wall Street analysts are warning oil could test recent lows of $26 a barrel.

https://www.worldoil.com/news/2020/3/6/putin-dumps-opec-to-start-a-war-with-america-s-shale-oil-industry