Can STO survive, page-829

@croasian,

The points you make in support of a higher oil price all appear to me to be perfectly valid.
But, then, they are as valid at the current oil price as they were at an oil price 20% or 30% higher. Or 20% or 30% lower, for that matter.

And I recall very similar arguments being made during the halcyon days of plus-$120/bbl, as the reasons why oil was headed to $200/bbl.

Just as I saw similarly lucid and seemingly-cogent arguments being made in 1998 - when the oil price was $10/bbl to $15/bbl - for the oil price to go $5/bbl.
Where it would remain for a generation.

So, "Infinite Oil" became "Peak Oil" within a decade.

Today, 10 years later again, and while we don't exactly have market sentiment of "Infinite Oil", we seem to have, at least, something along the lines of "Plentiful Oil" or, at a minimum, "More-Than-Sufficient Oil".

For an industry that is so observable and that is characterised by very long lead times, the market has a very poor record of getting this oil price forecasting thing right.

So, I ask myself, if the really clever guys can't get it right, what chance does little old me have, with my limited resources and expertise?

For me to invest in this kind of commodity business, I would need to be able to have more than a half-decent feel for where the oil price might go.

And my problem is that the oil price ranges very widely, from $15/bbl to $120/bbl.

Even if one analyses a distribution [*] of oil prices over time and one derives the inter-quartile range (in order to isolate the statistical outliers), the IQR is still circa $29/bbl to $84/bbl.

[*] For the purists, the distribution is bi-modal, with clustering at $20/bbl - $30/bbl and $90/bbl -$100/bbl, with a pronounced negative skew.

Distributions with those sorts of characteristics , i.e., with modes occurring close to the range limits, are not very reliable as aids for forecasting future data points.

I think I would be only truly happy to take a statistical punt on the sector if the primary driver of its share prices, was significantly outside of the lower quartile of the IQR.

But it isn't; it is still some 50% above it.

This is why I am always wary of "breakeven cost of production" arguments, because, in my experience, industry cost curves are not at all rigid; rather, they have significant ability to flex up or down depending on market conditions.

So when you say $50/bbl to $60/bbl is the real breakeven point, you might be technically correct (I wouldn't know), but if that is the case then it is not all that reliable a metric for predicting oil prices given that the median oil price over time is $57/bbl, meaning that oil markets spend as much time below that breakeven level as they do above it.

So either that $50/bbl to $60/bbl "breakven" figure you quote is able to be adjusted downwards by the industry, or the global oil industry is capable of spending reasonably long periods of time in an unprofitable state.

I suspect its a bit of both.

I remember the in the mid-1990s reading articles that spoke about $20/bbl being a critical tipping for the global oil industry under which the industry would become unprofitable and at which no re-investment in industry capacity could be justified.

Well, the oil price fell below $20/bbl in June 1997, and it only regained that level again more than 2 years later, having spent most of that intervening period closer to $10/bbl than $20/bbl.

So that the oil price is today below what you might describe as some sort of "breakeven" level is not all that remarkable, I don't believe, and is not enough of an inducement for me to invest in oil stocks.

Because, based on statistical precedent, one can't rule out the possibility of the oil price remaining at current levels or, indeed, falling further.

STO certainly looks bombed out, so I can understand people wanting to buy it, for that reason alone.

But then again, it was looking bombed out at $6, $5 and $4, too.

Commodity stocks I am only happy to buy when I hear the screams of intolerable pain.
And STO - along the oil and gas industry in general - is not nearly at that point yet.