[quote=stockstradr]Think again regards Big Oil versus small oil companies.
What do you think will happen to the small oil companies (also bigger players with high extraction costs, such as shale oil) when this recession keeps oil prices under $75 for an extended period?
They cannot make money at these current oil prices. Yet Big Oil can make money even when oil prices are low, due to benefits of economy of massive scale. This theme has been discussed many times on Bloomberg/CNBC. Small oil is already getting hammered much harder on stock price than we see with Big Oil.
we might face deflation
We MIGHT face it? Have you read the paper lately? CPI shows we are already into deflationary period. I should note that I do not expect gold to appreciate significantly during this deflationary phase for the overall economy.[/quote]
I tend to be wishy/washy in my posts because I get overwhelmed with all the conflicting info. It is precisely because I read the papers (or more accurately, economic and financial posts on the web here, at the Economist, Finantial Times, LA Times, Slate, The Atlantic…)
My point was that the bookable reserves (oil in the ground they own, or have a right to extract) for large oil multinationals are falling and currently not being replenished. New reserves are mostly controlled by sovereigns. These countries (like Russia) were demanding larger and larger concessions from oil companies in all future development and extraction. This means that long term big oil might go under once their bookable reserves run out even as oil goes up and up. A respected reporter of energy producing Eurasia (Russia, Georgia, Kazakhstan, Turkmenistan, Azerbaijan, Iran etc) Steve LeVine (got his name wrong previously) has been saying this since at least mid 2007. I’m pretty sure (too lazy to check), that big oil stock took a big dip before the recent run up on crude prices. The reason was professional investors were getting wise to big oil’s low bookable reserves.
Of course, oil sovereigns were flexing their muscle when prices were closer to $140 a barrel. Could the leverage switch back to oil multinationals now that as oil has fallen? I don’t know, but I wouldn’t bet on it.
I am curious how one can long oil without buying oil multinationals. I imagine the timing of oil futures to be very risky (can individual investors even buy oil futures for 2015 right now?)
Does that mean longing big oil stocks is a bad move? Hell if I know. I just want to alert piggies to issues big oil faces.
