You're definitely smoking some good herb dude, can I get some of that? I'll bet you're a Bernie Sanders supporter.
I see today's big rally drove Stone Energy up an incredible SEVEN CENTS on well below-average volume. Yup, you sure called that one. So, tell us oh great one, what should the "rational" price of oil be right now? You DO understand Stone needs $50 oil to keep the lights on after 2017, right? May $50 is a rational price.
I'm just pointing out to you, that with all the heavy short positions in the energy sector, even a slight temporary pop in the price of oil will AUTOMATICALLY trigger massive short covering (i.e., buy-to-close). The price of oil and other key industrial commodities figure prominently in trading algorithms; just one hedge fund can automatically generate a thousand trades in less time than it takes for you press the "enter" button on your keyboard (3 to 5 milliseconds). Investing has nothing to do with it.
There's no such thing as "irrational pricing" in a free market, it is what it is. Irrational as compared to what? Markets are driven by supply and demand; right now the supply is too high and the demand has weakened due to a huge slowdown in China (GDP from a high of 12% to the current 5%). Europe is struggling and an anemic U.S. economy is generating lots of concern about a major global recession.
You define "irrational" pricing as country not getting the price they "need" for the things they sell. Kelly Blue Book says my car is worth $5,000, but I NEED to sell it for $10,000 -- $3,000 to pay off my bookie and $7,000 to pay off the bank loan. According to your twisted logic, Kelly Blue Book has priced my car irrationally!
Huge volume, most of it after the "big" announcement, but it still closed lower on the day. How is that possible given all that volume, everyone should be buying hand-over-fists, right? Every energy stock had virtually the SAME pattern -- that's programmed institutional trading , folks-- robo-trading. We had nearly 90 minutes before the market closed for XLE to go deep into the green, but it did not, why?
BECAUSE IT WAS ALL COMPUTERIZED KNEE-JERK SHORT COVERING based on a rumor -- not real institutional buying. If this continues at the open, look for churning as bag-holders & quick-profit day-traders rush for the exits.
SGY is a sick company with oil under $50. Even if oil goes up $10 next week, that ain't going to be enough.
From Reuters article published 12 hrs ago in the Qatar Tribune on-line:
"OPEC now forecasts supply from NON-MEMBER producers will decline by 700,000 bpd in 2016, led by the United States. Last month, OPEC predicted a drop of 660,000 bpd." [caps added]
"The monthly report from the Organization of the Petroleum Exporting Countries indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report."
"Supply from OPEC could rise further due to the lifting of sanctions on Iran. Tehran is aiming to increase output by 500,000 bpd, which would fill most of the hole left by non-OPEC members."
Re. latest rumor, from USA Today, 3:18 p.m. 11-FEB:
" In fact, OPEC increased production in January by 280,000 barrels per day to 32.6 million, according to an International Energy Agency report released Tuesday."
This "announcement" came from the UAE energy minister and only says OPEC " ... are ready to cooperate on a cut." Since when does the energy minister of the UAE speak for OPEC? This ain't coming from the Saudis, folks. Even at that, the guy simply said they're ready to "cooperate" on a cut. What does that mean? What kind of cut, how much?
Given that OPEC INCREASED production last month, this whole thing sounds like a pump & dump scheme to me -- it's happened six times before.
Tid-bits from Feb. IEA report:
"OPEC is unlikely to agree to cut output, so the global oil glut will worsen ... hard to see how oil prices can rise significantly in the short term."
"Iraq is pumping at record levels, Iran has ramped up production, and the Saudis are boosting shipments."
"Oil will go UP because it's irrationally priced."
I believe chocolate-covered donuts are irrationally priced, but that doesn't stop people from buying them. Every time I go to the local Duknin' Donuts, they have big trays of these things setting in the display cases, people lining up to buy more chocolate-covered donuts regardless of the price.
Cigarettes are irrationally priced at $5 / pack but people will claw the skin off your back to buy them.
"You have a asset (Rig) and a liability (loan)..not two liabilities"
Dude, suggest you never borrow money from the mob, typing with two broken thumbs may be difficult. I hear they go after your kneecaps after missing the second payment.
You have to make PAYMENTS on that loan, that's a cost, most of which is interest payment. To offset that cost, you have to keep the rig working; if the rig is pumping, you're just contributing to the over-supply problem, as is virtually every driller in the U.S. and Canada.
The big boys can cut production because many LEASE their rigs, they don't own them, or they pay little guys like Stone to do the drilling for them. They simply don't renew their drilling / pumping contracts, reduce their work force and sit out the over-supply situation.
Cheer leaders don't win football games.
Buyers not motivated? Gosh-oh-roody I wonder why? Don't they know now is the time to accumulate?
You sound like a degenerate gambler with an addiction problem. Just one more pull at the slot machine, you just KNOW the big payoff is coming.
Re. short positions: the shorts aren't stupid, they knew 6-months ago oil was heading to $20. Have you seen any serious attempts at covering? You should get a job at Zacks, I see they're out there pumping RIG today, LOL!!
" ... the best thing to stimulate the global economies is some inflation. Oil can do that."
Oh really?? Oil is an industrial commodity, the global commodity complex jumped off the cliff last summer and has yet to splat on the ground. What makes you think OIL is going up when things like iron ore and copper are at ten year lows? The nearest gas station just posted regular-unleaded @ $1.44 per gallon today, that's a 20-cent drop in less than a month.
This ain't 2008, Bunky. Get your head around it.
" If one were to convert a loan into a rig, would you not call the rig "capital"?"
Uh, no, the bank owns that rig. And how do you plan on making those loan payments? You have to get that rig working, you have to pump oil /gas like crazy in a deflationary environment, that adds to the supply glut, which suppresses prices even more, so you have to pump more, which drive prices even lower. Pretty soon it's costing you more to pump the oil than what it's worth.
BUT YOU CAN'T STOP! You gotta keep pumpin' even @ $10 cuz you got the banks breathing down your neck, you gotta meet those monthly payments! The banks aren't stupid like you, they'll cut your credit line, maybe close it altogether, keep you from borrowing even more.
At some point (pretty soon now), you'll default on your loans, can't make interest payments to your bond holders or can't payback bond holders at maturity. Not to worry, long before that happens, you'll be forced into bankruptcy. Your REAL assets will be sold off to pay your creditors and bond holders.
'tutes holding only 26% float as of 15-JAN. Shorts have piled on this thing to the tune of 28%! They almost NEVER pile on a stock like that unless there's blood in the water. When I last checked last Fall, it was around the 12% area, I think. THAT'S how bad things have gotten for SGY, this company is on life support.
This is NOT 2009, oil is NOT going back up. Supply is NOT going down any time soon because too many companies have to keep pumping more and more just to generate enough cash to keep the lights on and service their debt obligations. When 30-50% of these small-cap producers finally go under, the drilling comes to a halt, supply starts to drop and the normal supply / demand market forces take over. The Saudis are just a distraction, ignore them, they'll be overrun by ISIS in a few years anyway.
Global oil demand is NOT going to grow because China is out of the picture and Europe ain't far behind; both are economic houses of cards about to collapse. Check out what's happening to Germany's Deutsch Bank -- we could be on the verge of another global credit freeze, the Eurozone can't print more money to keep these big banks afloat; no one will want to lend to them. Look at the risk ratings on their bonds, especially over the past couple of years.
Everyone is seriously considering negative interest rates, even our own Fed is sending up trial weather balloons just to see if anyone would shoot them down. Why would they even consider something like that let alone make a public announcement that they're exploring the idea? I'll tell you why, because the FED has it's back against the wall with no place to run, they're all out of options for trying to prop up the markets.
"they have access to capital"
No, they have access to their line of credit -- that's "debt". Debt is not cash, debt is not capital. Capital comes from profits or stock offerings. OBTW: the bank can significantly reduce the LOC should they have any doubts about Stone's ability to pay it back.
" ... you might want to rethink your position."
I did precisely that back in early-May -- bought @ $15 sold @ $14 & change a couple of weeks later for about a 6% loss. How well have YOU done since then?
"Canaccord Genuity reissued a “buy” rating and issued a $3.50 target price on shares of Stone Energy in a report on Wednesday, November 11th." On 11-NOV SGY closed @ $6.62.
"KLR Group dropped their target price on Stone Energy from $13.00 to $9.00 in a report on Thursday, October 15th. " On 15-OCT, SGY closed @ $6.96.
"FBR & Co. reissued an “outperform” rating and issued a $14.00 target price (up previously from $9.00) on shares of Stone Energy in a report on Monday, November 2nd. " On 2-NOV, SGY closed @ $5.61.
Do you seriously believe these guys are still holding on to SGY? This is a perfect example of why 90% of all mutual funds consistently fail to beat the S&P year after year.
FYI: Five years ago the California State Teachers Retirement System was designated state auditors as being "high risk". Will experience major pension shortfalls in the future, out of money before 2030. Today, ALL of California's state pension funds are essentially illiquid or nearly so.
Re. hedging: Hedges cost money and they have a nasty habit of expiring
Debt-soaked small energy companies have to keep drilling just to get enough $$ to meet their payments, THIS is what's pushing oil supply way above actual demand. Equity-driven companies with low debt profiles can afford the risk of scaling back production until supply starts to shrink, debt-driven companies can't do that.
Suggest you read recent 8-FEB Yahoo / Business Insider article, "Oil prices are being driven down by debt", lays out the sad inescapable facts for you.
From recent article published on Seeking Alpha (20-JAN, Robison Roacho):
"At the same time, salaries and G&A expenses rose by $3.5 million for Q3 2015 compared to Q3 2014. This is a huge red flag for investors because for the first time, the company spends more to sell its products than what it receives for them. This is a recipe for disaster. Therefore, if Stone Energy wants to have a shot at survival, the management must find a way to cut expenses or to increase the crude oil production to cover overhead expenses."
SGY is fundamentally a different company today than it was back in '09. Sorry, but you're comparing apples to oranges here. The main problem with them today is all the new debt they took on this past year -- a ticking time bomb IMHO, virtually ALL of the small-cap producers are having the same problem. Suggest you read recent Seeking Alpha article by Robinson Roacho, 20-JAN, "Stone Energy - Abandon Ship":
"The company spends more to sell its products than what it receives for them."
"The company will not be able to repay its senior notes in March 2017"
As a stock, SGY is going nowhere because serious money is avoiding this basket case. SGY needs $50 oil NOW if it's to survive another year. Anyone believing this stock will magically climb back to $7-$10 by this time next year is smoking some seriously bad weed.
Maybe ok for short-term trading, kinda risky even for that IMO. Long term? Penny stock. Too many of these small-cap producers are propped up with junk-bond debt containing strict performance covenants. In current energy environment, SGY headed towards $3, easily. Company may outlast many of its competitors but handwriting on the wall.
Meanwhile: Majors falling like rocks but will survive, THAT'S where you put your money if (when?) the turnaround comes.
PDS is pink sheet junk stock, that's IF they can stay in business. Don't even think about buying any of these small-cap energy companies whose prices are propped up with junk bond debt -- shakeout coming. Big-caps dropping like rocks but will survive, THAT'S the place to put your mad-money when, or if, the turnaround comes.