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The Price of Oil Is About to Blow a Hole in Corporate Accounting

bloomberg.com

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Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#11

Post by matt4077 »

iwwr wrote: post #7

I take it no serious investor makes any decision based on that arbitrary number, do they? So then, why require it?

Investors, suppliers, the taxman: everybody makes decisions on a company's balance sheet. Accounting like this is done for everything. Oil, cars, computers, cash, bonds, buildings etc. No analyst has the resources to hunt down all these numbers and even if they would, it's often quite hard to decide what a 'fair' value for a given asset should be. A lot of that information probably isn't even public.

It's also done for legal and tax reasons. If your assets lose value, you may run into insolvency (net assets < debt). Your balance sheet should reflect reality and the result can be that you have to shut down the business even though you have money in the bank.

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#12

Post by WallWextra »

matt4077 wrote: post #8
aaron_m04 wrote: post #3

Isn't the price being held at an unsustainably low price by OPEC? If so, then any accounting problems would be short lived. Once OPEC cuts supply, the prices will bounce back to ~$100/barrel, I would expect.

There's a lot of speculation on OPEC's motives and power. They could be trying to shut down exploration in the US. The Saudis could be doing the US a favour by trying to destabilise russia. They could be trying to sabotage green energy for a while. Their coalition might just be powerless because everyone needs to pump out as much oil as possible, especially at these price levels. Regarding future price levels the eff…

The reasons I've heard were to kill US oil exploration, and also to teach the high-cost producers (Venezuela, etc) in OPEC a lesson. It's common for these countries to "accidentally" pump over quota to make some extra cash. So Saudi just refused to cut the quota this time around. The Saudis could also be interested in messing with Iran, which has much higher production costs.

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#13

Post by aikah »

matt4077 wrote: post #8
aaron_m04 wrote: post #3

Isn't the price being held at an unsustainably low price by OPEC? If so, then any accounting problems would be short lived. Once OPEC cuts supply, the prices will bounce back to ~$100/barrel, I would expect.

There's a lot of speculation on OPEC's motives and power. They could be trying to shut down exploration in the US. The Saudis could be doing the US a favour by trying to destabilise russia. They could be trying to sabotage green energy for a while. Their coalition might just be powerless because everyone needs to pump out as much oil as possible, especially at these price levels. Regarding future price levels the eff…

I read a lot about the subject and couldn't come up with a satisfying answer as to why the Saudis are doing that. All I know is they are playing a very dangerous game and Washington is letting them do it.

People say,there will be no consequences for USA,but oil prices will go up again sooner or later. What then ? I don't believe shale oil is an explanation.

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#14

Post by imaginenore »

jerf wrote: post #9

Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not all that many…

You don't know that.

The world is really on the way of getting rid of oil.

Electric cars, bioplastics, solar panels getting exponentially cheap.

From my point of view the only thing that stops us all from switching to electric cars is the battery technology.

When it comes to the industrial use of solar energy, we already have the technology of storing energy - flywheel (google Beacon Power).

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#15

Post by TTPrograms »

jerf wrote: post #9

Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not all that many…

Current P/Book values for oil companies now seem to reflect that the market is pricing them with oil reserves at current prices, not reported prices. If it bumps lower around Q1 and Q2 as actual oil price filters into the books then that would be pretty irrational, and likely reflects opportunity.

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#16

Post by peteretep »

TTPrograms wrote: post #15
jerf wrote: post #9

Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not all that many…

Current P/Book values for oil companies now seem to reflect that the market is pricing them with oil reserves at current prices, not reported prices. If it bumps lower around Q1 and Q2 as actual oil price filters into the books then that would be pretty irrational, and likely reflects opportunity.

Right? The whole article seems to be based on the premise that the markets are too stupid to have done the maths, and will need to have it spelled out to them, but somehow this Bloomberg journalist has discovered a huge secret

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#17

Post by matt4077 »

jerf wrote: post #9

Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not all that many…

The efficient market hypothesis wants to have a word with you.

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#18

Post by SixSigma »

imaginenore wrote: post #14
jerf wrote: post #9

Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not all that many…

You don't know that. The world is really on the way of getting rid of oil. Electric cars, bioplastics, solar panels getting exponentially cheap. From my point of view the only thing that stops us all from switching to electric cars is the battery technology. When it comes to the industrial use of solar energy, we already have the technology of storing energy - flywheel (google Beacon Power).

> exponentially cheap

Solar is following an exponential fall, but the tail has long been wagged

http://io9.com/solar-powers-epic-price-drop-visualized-51044...

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#19

Post by hristov »

iwwr wrote: post #7

I take it no serious investor makes any decision based on that arbitrary number, do they? So then, why require it?

Most serious investors consider this number very important when making decisions. By this number i mean the amount of reserves. Yes, some of the methods of calculating it are a little arbitrary but it is the best information investors have as to the value of a company's reserves. Thus, it is very important.

And it is not completely arbitrary. For example the rules are the same for all oil companies at the same time. So the number is by no means random. And while the results depend on the price of oil on particular days, everyone knows the price of oil and what the key days are. So if some investors believe oil will climb back up, they can do some math and arrive with a number that better suits their view of the future.

Re: The Price of Oil Is About to Blow a Hole in Corporate Accounting

#20

Post by x0x0 »

jerf wrote: post #9

Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not all that many…

You should look at the graph [1: the article, 2: a hotlink] labeled "Welcome to the Terrordome..." showing the prices of various oil sources vs solar over time. If the fantastic decline in solar prices continue, many oil sources will soon be not economical. And yes, I know there's storage problems and energy density problems for mobile vehicles, but oil is still a riskier bet than I think you portray.

[1] http://www.bloomberg.com/news/articles/2014-10-29/while-you-...

[2] http://media.gotraffic.net/images/iQYuKSosjb3U/v16/-1x-1.jpg

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