For Chesdel and Perdomo (Mylocalview as well)
- Thread starter BlueTea
- Start date
Ikey - the things you say about Coke are all true, However, the strong dollar's impact on their bottom line also was a significant factor. Any US company that does a significant part of their business in countries with currencies that are weak versus the dollar have take a bottom line profit hit when revenues generated in the weak currency are converted to a stronger dollar. There are a few consumer product companies the self-described experts are concerned about because of Coke. I am too.
Global oil is something I follow very closely. While OPEC (actually Saudia Arabia) used to be able to significantly impact the price of global oil because they are swing producers ( able to quickly produce more oil to export than they consume) I don't think any country really "controls" the price of oil anymore. There are factors beyond any countries control that move prices everyday......a lot of it is the size and fluidity of the futures market.....the impact of geo political events that could cause a disruption in global supply. and the resulting fear factor that moves the futures market...there is lot more oil stored across the world by investors looking to sell high...many other things.
I think we could see 70 a barrel or lower like your link suggests.......US fracking has brought about 2 million Barels a day in incremental production and we are - by far - the largest consumer of oil. At the same time Lybya and Iraq are bringing more to market than anyone expected so soon and EVERY country that can produce is churning out as much as they can because their economies are so compromised. At the same time, global demand is tepid Eurpoe is near recession and China is slowing down. Our oil demand has inched up a bit but hopefully will never get close to 22 mbd like it was before the great recession.
There is a ton of oil that can be fracked globally and the US is leading the way. However, there is great debate about how much the US will ultimately produce. Fracked wells deplete very quickly. Many drop by 50% after one year and to keep current production levels, something akin to 7,800 new wells must be drilled every year. At the same time, about 70% of the small company's fracking are losing money. Presently, they finance operations by issuing very risky junk bonds that people are buying up because they cannot get good yield without taking the risk.
If oil goes to $70/bbl, industry people say a lot of company's will stop fracking because they will,not make money - the oil is no longer financially recoverable . Deep water wells generally have even higher breakeven points. Some will drop out before that depending on their break even point. Many people seem to have trouble understanding that just because oil is technically recoverable, companies will not recover it if they lose money.
That is right. But they generally die completely much faster than other "traditional" wells which can last 20 years or more. The article I linked is short and indicative of my point. The article suggests an incremental 6,000 wells a year must be drilled to maintain production levels in effect at that time. I;ve read later articles that put the incremental number at 7,800 or more. I always note that the people taking the more bullish view are frackers themselves -- who have a continued need to generate investor money. It's good we have this, but in my opionion we should use it as a bridge until we getter better at high mileage cars, mass transit and alternate forms of energy. It is not good for 5% of the world to consume 20% of global production. Also --- the price of oil is actually artifically low because there are numerous costs associated with its use that are not reflected in current prices (contribution to climate change, detrimental health effects from pollution, gasoline taxes that are 2 low to pay for infrastructure repair, effects on economy from price swings, maintaining a military presence in the middle east to ensure the flow of global oil, impact on international bargaining positions caused by our need for lots of oil etc). Flip side, the costs savings from alternate energy sources are not reflected in its price and it is artificially high. The market is not pricing oil efficiently and a minimum we should put a price on carbon emission that will direct venture capital to more sustainable options. Of course, it is hard to do this as the world recovers from the worse global financial crisis in 80 years.
Regarding my comments on the risk from the junk bonds that fuel a lot of fracking ...... this is indicative of that... http://www.businessweek.com/articles/2014-05-01/junk-bonds-fuel-the-shale-gas-boom
http://www.businessweek.com/articles/2013-10-10/u-dot-s-dot-shale-oil-boom-may-not-last-as-fracking-wells-lack-staying-power
True that is. I know we beat this to death but I will post one more thing. The company I used to work for (Colgate) does over 80% of its business in foreign countries. They announced 3rd quarter results today and the bottom line effects of a strong dollar were a hot topic.....take a glance if you are curious
https://finance.yahoo.com/news/colgate-profit-down-weak-brazil-123052951.html
