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General Category => General Discussion => Topic started by: james22 on January 09, 2020, 05:34:15 AM

Title: Energy Sector
Post by: james22 on January 09, 2020, 05:34:15 AM
You've recently been writing some very bullish thoughts on the oil and energy sector. What's your case there?

When people get excited about this ongoing cyclical trade, they should look at oil as the ultimate distressed value asset out there. To me, oil stocks are incredibly cheap.

There are technical reasons for that, because of the large passive investment flows, and oil is a smaller and smaller part of the index. Also, there are more and more institutional investors who can’t buy oil stocks anymore because of ESG limitations.

On the other side, there is no sign that oil demand is weakening. Consumption in emerging markets continues to grow, while conventional oil investments have been reduced significantly, precisely because of all this talk that the fossil fuel era is ending.

So in your view, energy the one remaining cheap sector out there?

Yes, without a doubt. But I will freely admit that there are all sorts of technical issues because as I said many investors can’t buy oil stocks anymore. We have this bizarre situation where people can’t buy oil stocks, but people continue to consume oil.


https://themarket.ch/interview/oil-stocks-are-incredibly-cheap-ld.1384

Anyone else see an opportunity?

I'm thinking of making Energy (VGELX) a 5% position.
Title: Re: Energy Sector
Post by: lnofeisone on January 09, 2020, 06:20:02 AM
I have been slowly accumulating energy in the form of VGELX + select names + prefs. + debt and very much overweight in the sector.

My valuations cap oil at 75 (on WTI). My rationale is that outside of a really major disruption (Saudi field bombing, Iran flare-up are meaningless in today's world) it's just too easy to get the spigot going. Because of this, I think E&P companies (especially 2nd and 3rd tier) are not going to do well as they will pump with every price pop just to cover drilling + debt. Though their stock might be much more volatile and can probably outperform...or go to 0 (e.g., Sanchez). My other reasons, in no particular order, are:
1) I love the fact that ESGs are getting rid of their stocks (though don't really alter their energy use behavior).
2) Across the board, there is a super disgruntled and pessimistic shareholder base. Performance, MLP structure, MLP conversions, GP take unders, take your pick.
2) Demand is still growing.
3) Couple that with newfound religion of debt paydown by many energy companies (e.g., KMI) and stricter capital allocation. Markets are also not very kind to companies trying to raise debt.
4) Trash assets are being idled or being severely discounted (there is a reason why SMLP is trading where it is). This is a net positive for opportunistic buyers.

Edited for grammar.
Title: Re: Energy Sector
Post by: Sullivcd on January 09, 2020, 06:37:21 AM
Care to share any of your specific name valuations? I would love to grab some exposure here but can't get a handle on what any of these companies are actually worth.
Title: Re: Energy Sector
Post by: JRM on January 09, 2020, 03:05:10 PM
I've been focussing on the natural gas segment and specifically pipeline companies.  I think there are some incredibly cheap companies paying very high (and safe) dividend yields that have a feasible growth trajectory.  I've been in Kinder Morgan (KMI) for about a 20% gain, but I think it easily should have another 50% in it over the next year or two.  I also like Williams (WMB) with good natural gas exposure.  Worldwide natural gas consumption is expected to grow until around 2050 according to EIA.  I keep hearing 50% growth in worldwide consumption from 2020 to 2030.  Kinder Morgan is my largest position.  Rich Kinder is still somewhat involved and heavily invested in the company personally.  Listening to him talk I get the impression he knows what he is talking about.

I recently sold Cheniere (LNG) for a decent return because the situation was getting too complicated for me, but there is probably opportunity in LNG exporting.  I'm going after the LNG shippers.

Risk in natural gas pipelines is primarily counter-party risk as we saw in the last downturn.  The new integrity regulations aren't too burdensome.  Another risk that I'm heavily discounting is that Elizabeth Warren bans fracking.  Doesn't seem possible to me.
Title: Re: Energy Sector
Post by: lnofeisone on January 09, 2020, 03:37:55 PM
Care to share any of your specific name valuations? I would love to grab some exposure here but can't get a handle on what any of these companies are actually worth.

In the pipeline space I rotated into EPD (great management, interests align with Duncan family), ET (amazing assets that trade at Kelcy Warren discount), WMB (amazing assets at good price...and eventually NY will figure out that they need to expand their pipelines), and tiny bit of AM. I think all these names can trade up 30-50%. I like selling KMI puts when it dips to 20s. Wouldn't mind getting some shares assigned to me. I like CNXM but don't love the price.

For prefs. I have TGPpA (this one is a shipper so I generally don't buy common but it's worth a look) and CEQPp. For debt I bought some Sanchez bonds when they were trading at 5 cents on the dollar (mostly learning/entertainment value of going through BK). Currently they are trading at 3.75 cents on the dollar  ;D.
Title: Re: Energy Sector
Post by: james22 on January 09, 2020, 08:29:13 PM
Morningstar:

The energy sector is the most undervalued heading into the new year: The median stock in our coverage universe trades at a 10% discount to fair value, says director David Meats in his quarterly wrap-up. Oilfield-services stocks look particularly attractive, trading at a 16% discount to fair value. But we see buying opportunities among all industries.

https://www.morningstar.com/articles/961514/33-undervalued-stocks-for-2020

https://www.morningstar.com/articles/961161/energy-most-undervalued-sector-heading-into-the-quarter

They like Cheniere, Unbridle, and Schlumberger.
Title: Re: Energy Sector
Post by: james22 on January 09, 2020, 08:47:48 PM
Reason number one to be bullish on energy stocks is their relative cheapness. The sector looks extremely undervalued as institutional investors have abandoned their positions in energy stocks and systematic funds are shorting oil.

https://www.investopedia.com/5-reasons-energy-stocks-could-surge-4772280

Craig Johnson, senior technical research analyst and managing director at Piper Jaffray, said Thursday he had “no question” that now was the time to do a “bottom-fishing exercise.”

“Talking to all these institutional accounts, they do not like energy. They don’t want to touch energy. They’ve been burnt in energy for so long. And fundamentally, they’re going to point out all the problems with it,” Johnson said on CNBC’s “Trading Nation.” “But, as a guy that likes to look at charts, these stocks tend to lead the market six to nine months ahead of time.”


https://www.cnbc.com/2019/11/22/energy-stocks-to-invest-in-as-worst-performing-sp-500-sector-turns-up.html
Title: Re: Energy Sector
Post by: Palantir on January 19, 2020, 04:55:00 PM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?
Title: Re: Energy Sector
Post by: DooDiligence on January 19, 2020, 05:59:08 PM
Institutional interests wax & wane over time & across sectors.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/dataarchived.html#corpgov

It seems like just yesterday that we were going to run out of oil soon,
and then we were awash in the stuff.

Predicting supply & demand is like predicting hurricane tracks.
Better to just say there will be hurricanes.

Energy will go down & it will go up, and down & up, and down & up...

I like my chances with VDE.
I was an idiot for buying CLB.
Title: Re: Energy Sector
Post by: Spekulatius on January 19, 2020, 06:51:39 PM
RDS is an oiled major that seems to become more like an utility over time. At least that’s the ghost I am getting from the management presentations. The bull case is probably that it is way cheaper than any utility one can buy, with a dividend yield of ~6%+ and improving financial performance, I can see the stock retreating over time.
Title: Re: Energy Sector
Post by: james22 on January 20, 2020, 01:29:15 AM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?

...economic theory suggests the share prices of “sin” businesses will become depressed if a large enough proportion of investors choose to avoid them.

Such stocks would have a higher cost of capital because they would trade at a lower price-to-earnings (P/E) ratio, thus providing investors with higher expected returns.

...as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase...


https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1
Title: Re: Energy Sector
Post by: tede02 on January 20, 2020, 07:28:23 AM
I was just looking at a company that has usecured bonds, maturing in 2021, trading at $0.55. Although I know hardly anything about energy, the deep discount and the fact that an investor I highly respect holds the bonds made me look into it. The company is generating free cash flow and has been gradually paying down its highly leverage balance sheet the last few years. Upon closer look, as much as 60% of the long-term debt comes due in 2021. Obviously the company will have to refinance a huge amount of debt for the bonds, which only represent 2% of the debt, to be paid at par. I don't think I'll touch this because I just don't really understand all the dynamics. But I may follow it to conclusion out of curiosity. At the end of the day, it seems like the question is how likely is it the company is able to refinance.

The energy patch in general confuses me. I'm generalizing, but most of the companies generate no profit or cash-flow for shareholders. All the capital is just plowed back into the ground. From a stockholder's perspective, it's like, what's the point in expending all this energy (no pun intended), on companies that make no money. Is Fed policy (low rates) the driving reason why banks and the bond market continue to lend?
Title: Re: Energy Sector
Post by: Jurgis on January 20, 2020, 10:23:53 AM
All the capital is just plowed back into the ground. From a stockholder's perspective, it's like, what's the point in expending all this energy (no pun intended), on companies that make no money.

A company that produces no money can still be very valuable.

The trivial example is a company that acquires appreciating asset that does not throw off cash. Its value still rises as the asset's value rises.

Coming closer to E&Ps, if a company acquires land with potential oil reservoir, drills couple wells and discovers the oil, they have not made any money, but they are worth more than before they discovered the oil.

Now, the real life is more complicated. No company just acquires the land, drills for oil, discovers the oil and sells itself. Usually it starts producing the oil - so producing some cash - but then plowing it into discovering more oil. If done well, the FCF still might be zero - "All the capital is just plowed back into the ground" like you say - but the company's value might be rising as it has more reserves. OTOH, due to capex, low oil prices, etc., it's possible that the value of the company actually drops even as it discovers more oil. Practically every E&P CEO expects (or at least pretends to expect) that plowing money into the ground is gonna grow the company. Depending on exploration results, oil prices, etc., these expectations might be right or totally wrong.

Anyway, yes, E&Ps are usually not FCF gushers and are not valued per FCF.

This is all very simplified.
Title: Re: Energy Sector
Post by: BG2008 on January 20, 2020, 11:03:55 AM
Guys,

I think there are enough Midstreams that are trading at distressed prices.  If you are looking at Energy, look for ways to get paid in the interim.  Many of these MLPs used to be valued at 4-6% yield.  Now they are high quality one that are valued at 7-10% and the more trailer types paying mid teens.  You get the distribution and an optionality that it re-rates to a 6% yield.  If oil goes to $100, you probably do better owning the E&P.  IMHO, E&P are uninvestable, yes, likely "famous last words."  But I have never owned an E&P ever.  That rule has applied for the last decade of my investing.   
Title: Re: Energy Sector
Post by: TwoCitiesCapital on January 21, 2020, 05:48:13 PM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?

...economic theory suggests the share prices of “sin” businesses will become depressed if a large enough proportion of investors choose to avoid them.

Such stocks would have a higher cost of capital because they would trade at a lower price-to-earnings (P/E) ratio, thus providing investors with higher expected returns.

...as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase...


https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1

+1

If you're holding for the long-term, you don't need a re-rating if you have a low multiple and you, or the company, can reinvest those earnings at a sufficiently high return.

If you're getting a 20% return per annum by buying a company at 5x it's earnings - you don't need it to relate relative to it's book or earnings. Just that those earnings continue to be retained and redeployed at attractive returns OR paid out as a dividend for you to reinvest for more shares.

No turnover. No transaction charges. Few taxes. And 20+% compounded pending how well you/company did on reinvesting the earnings.

The problem is precisely when it DOES re-rate and then you need to pay to sell it, pay the taxes on it, and find another opportunity worthy of the capital.
Title: Re: Energy Sector
Post by: John Hjorth on January 29, 2020, 03:14:05 PM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?

...economic theory suggests the share prices of “sin” businesses will become depressed if a large enough proportion of investors choose to avoid them.

Such stocks would have a higher cost of capital because they would trade at a lower price-to-earnings (P/E) ratio, thus providing investors with higher expected returns.

...as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase...


https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1 (https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1)

+1

If you're holding for the long-term, you don't need a re-rating if you have a low multiple and you, or the company, can reinvest those earnings at a sufficiently high return.

If you're getting a 20% return per annum by buying a company at 5x it's earnings - you don't need it to relate relative to it's book or earnings. Just that those earnings continue to be retained and redeployed at attractive returns OR paid out as a dividend for you to reinvest for more shares.

No turnover. No transaction charges. Few taxes. And 20+% compounded pending how well you/company did on reinvesting the earnings.

The problem is precisely when it DOES re-rate and then you need to pay to sell it, pay the taxes on it, and find another opportunity worthy of the capital.

I agree totally with TwoCitiesCapital here. If you have a high reported ROE combined with a low P/E at the point in time of purchase, you don't really need some kind of rerating, nor even expected/projected growth in the investment, to get good returns. If you actually can see growth, more icing on the cake.

The issue at hand is, that the combination of a high ROE and low P/E for an investment almost always imply, that there is "some hair" on the investment, that one has to relate to. There are not two persons who have the same limit for start puking for "hair", on individual "hairy" investments, nor the identical ability to stomach total amount of "hair" on total portfolio level. That part of it is about individual position sizing.
Title: Re: Energy Sector
Post by: Foreign Tuffett on January 30, 2020, 11:05:40 AM
Guys,

I think there are enough Midstreams that are trading at distressed prices.  If you are looking at Energy, look for ways to get paid in the interim.  Many of these MLPs used to be valued at 4-6% yield.  Now they are high quality one that are valued at 7-10% and the more trailer types paying mid teens.  You get the distribution and an optionality that it re-rates to a 6% yield.  If oil goes to $100, you probably do better owning the E&P.  IMHO, E&P are uninvestable, yes, likely "famous last words."  But I have never owned an E&P ever.  That rule has applied for the last decade of my investing.   

I agree about shale E&Ps being almost a hard pass for anyone without near-expert level knowledge about factors like lateral length, EURs, acerage quality, downspacing, etc. A few quick reasons why:

1) Price takers for both inputs (oilfield services like drilling and completions, pipeline capacity) and outputs (literally commodities)

2) Rarely have the balance sheet strength or investor base to invest counter cyclically. This means they more-or-less all move in the same direction at the same time, thus doing the reverse of value investing.

To give you an idea what I mean by this, XOM is intentionally outspending operating cash flow in an attempt to increase its upstream production by ~25% over the next four or five years. Whatever you think about XOM as an investment, it is at least attempting to invest counter cyclically by spending more when competitors are spending less.

E&Ps can rarely, if ever, do this. Peyto is the only one I am aware of that, historically, invested counter cyclically to lock in lower service costs, but lower for longer Canadian NG prices + debt blew up its business model.
Title: Re: Energy Sector
Post by: james22 on February 01, 2020, 07:58:06 AM
"They're Done": CNBC's Jim Cramer Says Fossil Fuel Industry "In the Death Knell Phase"

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer.

Climate campaigners drew attention to CNBC's Jim Cramer's comments Friday that he's "done with fossil fuels" because they're "in the death knell phase."

Cramer added that "the world's turned on" the industry as they did with tobacco.

"They're done," Cramer said of fossil fuels on the network's "Squawk Box." "We're starting to see divestment all over the world. We're starting to see... big pension funds saying, 'We not going to own them anymore."

"The world's changed," Cramer continued. While companies like BP still mark profits, "nobody cares," because "new money managers want to appease younger people who believe that you can't ever make a fossil fuel company sustainable."

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer. "You're seeing divestiture by a lot of different funds. It's going to be a parade... that says look, 'These are tobacco, and we're not going to own them.'"


https://www.commondreams.org/news/2020/01/31/theyre-done-cnbcs-jim-cramer-says-fossil-fuel-industry-death-knell-phase

https://www.cnbc.com/video/2020/01/31/jim-cramer-fossil-fuels-oil-energy-squawk-box.html
Title: Re: Energy Sector
Post by: DooDiligence on February 01, 2020, 10:20:08 AM
"They're Done": CNBC's Jim Cramer Says Fossil Fuel Industry "In the Death Knell Phase"

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer.

Climate campaigners drew attention to CNBC's Jim Cramer's comments Friday that he's "done with fossil fuels" because they're "in the death knell phase."

Cramer added that "the world's turned on" the industry as they did with tobacco.

"They're done," Cramer said of fossil fuels on the network's "Squawk Box." "We're starting to see divestment all over the world. We're starting to see... big pension funds saying, 'We not going to own them anymore."

"The world's changed," Cramer continued. While companies like BP still mark profits, "nobody cares," because "new money managers want to appease younger people who believe that you can't ever make a fossil fuel company sustainable."

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer. "You're seeing divestiture by a lot of different funds. It's going to be a parade... that says look, 'These are tobacco, and we're not going to own them.'"


https://www.commondreams.org/news/2020/01/31/theyre-done-cnbcs-jim-cramer-says-fossil-fuel-industry-death-knell-phase

https://www.cnbc.com/video/2020/01/31/jim-cramer-fossil-fuels-oil-energy-squawk-box.html

Right or wrong, I'm feeling energy too.

I'm not capable of meaningful analysis so I simply added to VDE this week.

Cramer's a putz. He'll shift to shilling energy co's when the wind starts blowing that direction again.
Title: Re: Energy Sector
Post by: stahleyp on February 01, 2020, 10:48:47 AM
As Twain said, "the past doesn't repeat itself but it does rhyme."

https://www.nytimes.com/2000/10/29/business/investing-diary-calpers-puts-tobacco-behind-it.html

https://www.ai-cio.com/news/calpers-decision-divest-tobacco-costly/
Title: Re: Energy Sector
Post by: Gregmal on February 01, 2020, 11:29:20 AM
I dont buy Cramer's argument. It is valid, but meaningless IMO. Wall Street is filled with money obsessed whores. Add to the list the plethora of underperforming hedge funds and money managers who preach a "value investing" style. If there's money to be made in energy, they'll go there. Just look at the activity on sites like this with the tobacco stocks and lately even stuff like XOM.

While its admirable on the surface(but also more a manipulative look at me Im woke or whatever move by the pension funds and such) it won't hold. If its green, buyers will go there. If, over the long run, pension fund managers underperform they'll face pressure and ultimately start letting the things that matter dictate their investments. Its just easy right now when you can buy Tesla and claim to be a socially responsible fund.
Title: Re: Energy Sector
Post by: rb on February 01, 2020, 04:43:54 PM
Yeah, I think that Cramer's wrong on all counts (as usual?). He's mainly talking about E&P majours being cheap and making this bizarre, no testable thesis about snowflakiness of wall street types (really?) that's affecting the sector.

Well I've looked quite a bit lately at the sector and I don't buy it. Yes, the E&P majours have made great strides in financial discipline. They actually have real free cash flow now. All the money isn't going "back into the ground anymore". Koodos for them. But by any normal company standard they're not anywhere close to a bargain. Let's not forget that what we're talking here is really a commodity - so supply and demand dominates. The demand, while a tad weaker has been there. Yea you can talk about Tesla and the electric revolution, blah blah, but Tesla's vehicle count is in the hundreds of thousands - TOTAL! while Detroit 3 pump out say 10 million trucks a year. Meanwhile all over the world people are switching from their Toyota Corollas and Volkswagen Golfs to crossovers which use more gas. So that's about for the demand side.

Now let's look at supply. Over the past decade essentially Iran and Venezuela have dropped off the oil map. These are/were 2 of the largest producers of oil with some of the largest reserves on the planet. Oil prices did what? They went down! This summer you had the attack on Aramco facilities. At any point in the past 30 years this would have been a majour event. This time it was basically a global yawn. All of this points to a very, very well supplied market of oil. So I think tat E&Ps are in a very tight spot right now.

MID STREAM

In my view this is where it's at.

They call mid stream energy. I have no idea why since it looks very different than up stream. People buy trucks and crossovers, but do you see any new refineries popping up? There's a massive switch from coal to nat gas. Yea you can frack the hell of of the soil and bring the price of nat gas to naught.  But there's only one way to bring nat gas to a nat gas power plant.

Then you have the infinite wisdom of index funds. Where you direct capital flow by sector and a nat gas regulated mainline is the same thing as an E&P and they get dumped at the same rate. I mean, you just gotta love these guys!

Out of the whole bunch what I find most interesting is EPD followed by PSX. EPD being more pure play. The only reason why I haven't backed the truck on EPD is that I'm still doing research to understand their recent profitability spike and whether it can be reversed or it's here to stay. But it sure looks that most of mid stream is undervalued to some degree. And that's actually saing something in a time when it's hard to find anything that's undervalued.
Title: Re: Energy Sector
Post by: mcliu on February 01, 2020, 05:00:44 PM
Isn’t Cramer usually a contrarian indicator?
Title: Re: Energy Sector
Post by: Spekulatius on February 01, 2020, 05:22:11 PM

MID STREAM

In my view this is where it's at.

They call mid stream energy. I have no idea why since it looks very different than up stream. People buy trucks and crossovers, but do you see any new refineries popping up? There's a massive switch from coal to nat gas. Yea you can frack the hell of of the soil and bring the price of nat gas to naught.  But there's only one way to bring nat gas to a nat gas power plant.

Then you have the infinite wisdom of index funds. Where you direct capital flow by sector and a nat gas regulated mainline is the same thing as an E&P and they get dumped at the same rate. I mean, you just gotta love these guys!

Out of the whole bunch what I find most interesting is EPD followed by PSX. EPD being more pure play. The only reason why I haven't backed the truck on EPD is that I'm still doing research to understand their recent profitability spike and whether it can be reversed or it's here to stay. But it sure looks that most of mid stream is undervalued to some degree. And that's actually saing something in a time when it's hard to find anything that's undervalued.

I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Title: Re: Energy Sector
Post by: SharperDingaan on February 02, 2020, 05:04:27 AM
You might want to keep in mind that location and investment horizon matters.
If you're US based, and just trading, it's hard to see past the pending shale BKs, falling nat gas prices, and the various reporting 'spins'. To you, the whole industry is sh1te, and getting worse - because you're trading headlines, not fundamentals. And you do so as you've no intent in holding long enough for changing fundamentals to matter.

Nothing wrong in that. But you're the gambler in the casino, and addicted to 'the trade'.
Not a good combination.

SD

 
Title: Re: Energy Sector
Post by: rb on February 02, 2020, 06:52:52 AM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?
Title: Re: Energy Sector
Post by: Spekulatius on February 02, 2020, 07:26:57 AM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.
Title: Re: Energy Sector
Post by: DooDiligence on February 02, 2020, 07:57:11 AM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

Are you forced to sell & pay the taxes in a C corp conversion?

Why would they consider such a move?
Title: Re: Energy Sector
Post by: Lance on February 03, 2020, 02:38:01 PM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

Are you forced to sell & pay the taxes in a C corp conversion?

Why would they consider such a move?


Changes to the tax code and a broader base of potential investors (some investors can't invest in MLPs).

Thanks
Lance
Title: Re: Energy Sector
Post by: james22 on February 03, 2020, 02:46:16 PM
Bought a little VGELX today.
Title: Re: Energy Sector
Post by: thepupil on February 03, 2020, 04:25:47 PM
Tempted to buy some MMP. I unwittingly made a spectacular stock pick when I suggested my parents buy this in 2010 or so. The pitch was “these MLP thing seem cool. , sell side says this one is high quality”. I sold it in 2013 at a sub 4% (maybe even sub 3% yield) and a huge gain and a huge tax bill. After going nowhere stock wise for 7 years but raising distro’s It’s almost at a 7% yield with 1.25x coverage , very low cost and long term debt.

No IDR’s, pretty much self funded through its history, some long term secular concerns (refined products pipeline), not at a discount to space or relatively cheap though.

I bought a dumb money starter position in XOM to start my “i kind of don’t want to have 0% energy” allocation, may buy similar dumb money starters in DMLP and BSM as my “ooo cool royalties down a lot but no idea how to value this” allocation
Title: Re: Energy Sector
Post by: Spekulatius on February 03, 2020, 07:01:40 PM
I bought some PSX today. My rationale is that this is really a diversified midstream, basics chemical , marketing and refining company that is trading for a refining business multiple. The glut in NG and crude supplies is a headwind rather than a tailwind for them. Strong FCF supports a rising dividend and share buybacks. since the spinoff from COP, they reduced sharecount from ~630M shares to 445M shares now, so it is a cannibal as well.

They had a weak quarter and missed earnings due to more refinery turnarounds and weaker chemical business earnings. I think next quarter will be stronger at least for refining earnings.
Title: Re: Energy Sector
Post by: sbalsam on February 04, 2020, 09:15:50 PM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

I know you were focused on midstream and not the royalty sector but since you are talking MLPs, I wanted to point out that DMLP has structured its business so that it can be owned by a non-taxable account such as an IRA. DMLP is a partnership but its income is not considered UBTI (it is UBTI that causes a problem for non-taxable investors). It avoids UBTI because (i) it has no debt and (ii) it has structured its mineral interests as royalties so that it is not considered to be actively operating a business. DMLP commits to continue to avoid UBTI.
Steve
Title: Re: Energy Sector
Post by: james22 on February 11, 2020, 01:04:18 AM
Energy vs Tech could be the monster mean reversion of a lifetime

https://thereformedbroker.com/2020/02/05/energy-vs-tech-could-be-the-monster-mean-reversion-of-a-lifetime/

Energy Stocks Might Finally Have Hit Bottom. It’s Time for Investors to Get In.

https://www.barrons.com/articles/energy-stocks-might-finally-have-hit-bottom-51581114825
Title: Re: Energy Sector
Post by: JRM on February 11, 2020, 04:56:48 AM
My gut is telling me the turning point will be when there are more bankruptcies, reorganizations, and re-consolidation in the E&P space.  I don't we're at the inflection point yet.  Maybe we are.
Title: Re: Energy Sector
Post by: lnofeisone on February 11, 2020, 06:44:21 AM
My gut is telling me the turning point will be when there are more bankruptcies, reorganizations, and re-consolidation in the E&P space.  I don't we're at the inflection point yet.  Maybe we are.

I think the mean reversion argument based on charts is flawed. I agree that there will be few BKs in E&P but it will be localized to mostly small E&P. My position is that energy will start turning around in 2021 or so. My rationale is that many of the CAPEX programs are funded through 2020-2021 and debt markets are basically off limits/very expensive for anything energy. This will force major E&P, mid-stream, etc. to focus on internal funding. As this happens, stocks will rerate. KMI is an example of what the playbook will look like. The trick is to discern quality players (e.g., WMB, MPLX, etc. vs. SMLP) vs. those that are too constrained by debt. You do get paid decent (largely sustainable) dividends/distributions while waiting.

I'm a bit overweight (compared to the rest of my holdings) in energy and (very) slowly adding.
Title: Re: Energy Sector
Post by: Jurgis on February 18, 2020, 09:10:15 AM
What do people think about GPOR 2023-2026 bonds? Trading at ~22% YTM ($65 on 2023s).
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C639579&symbol=GPOR4303427

Cashflows for GPOR don't seem to be horrible although they are spending most of CF to acquire additional properties. A big question is whether they are forced to acquire or are doing it opportunistically. Is the company really as distressed as bonds seem to imply?

Edit: it's pretty clear that the panic is due to natgas pricing falling to floor and expectations that it will be given away for free in foreseeable future. GPOR production is almost purely natgas, so there's that.

Any other ideas for energy sector bonds?
Title: Re: Energy Sector
Post by: Foreign Tuffett on February 27, 2020, 11:24:02 AM
In Jan. 2015 the S&P Oil & Gas Exploration & Production ETF (XOP) was at ~$46. Now it's $15.10. That's a huge, huge loss over a ~5 year time frame. There may be some more pain ahead given that XOP still holds OAS, WLL, CRC, and CHK, all of which are probably headed for bankruptcy.
Title: Re: Energy Sector
Post by: Foreign Tuffett on February 27, 2020, 11:35:49 AM
XOP actually peaked in early 2014 at a little over $80, so it has actually performed even worse than my previous post outlined. Incredible.
Title: Re: Energy Sector
Post by: mcliu on February 27, 2020, 11:42:10 AM
Pretty crazy sector. Apparently production is still going up even as everyone's going bankrupt?!
Title: Re: Energy Sector
Post by: rb on February 27, 2020, 11:48:52 AM
I just don't understand why midstream is getting hit so hard.
Title: Re: Energy Sector
Post by: KJP on February 27, 2020, 12:50:12 PM
I just don't understand why midstream is getting hit so hard.

I've also been intrigued by this.  Enterprise Products and Magellan Midstream, for example, are approaching 8% current distribution yields (and higher DCF yields).  And, needless to say, spreads between midstream MLPs and Treasuries are getting quite wide.

What midstreams, in particular, most interest you now?
Title: Re: Energy Sector
Post by: kab60 on February 27, 2020, 01:18:27 PM
I think WMB looks most interesting. Transco is great, and they take advantage of public vs private discrepanies. Seems close to sell a chunk of gathering pipes for 5b or probably around/plus 10xebitda while they trade below and the total company due to transco should be worth more. They should sell 49 pct of all their gathering pipes, get leverage down to their target and buyback shares.
Title: Re: Energy Sector
Post by: james22 on February 27, 2020, 10:58:52 PM
Bought a little VGELX today.

Lucky I limped in (only because I was without the cash to take a larger position):

VGELX -7% since then, -17% since the beginning of this thread.

A little bothered that Howard Marks believes energy isn't a bargain (unlike healthcare, he believes it has an uncertain future), but still looking to take a larger position.
Title: Re: Energy Sector
Post by: RadMan24 on March 02, 2020, 06:05:07 PM
MLPs may be getting hit hard because there are a lot of concerns of Capex cuts, and demand drops (China for example shutdown, if US and travel shuts down oil demand falls). MLPs need oil and gas to flow. If it flows less, they get paid less. It's the worst case for MLPs.

That said, ever since Peter Lynch mentioned energy services and oil were interesting industries in Barron's a month ago or so, It's been looking even better of late. Oil has dropped like a rock, but if you buy the big names or ETFs, 2-3 years from now, the situation will work itself out. SLB is also working on the biggest shale formation in Saudi Arabia for gas, so the demand for energy services and technical know-how is key longer term.

If you buy the weaker names, you would need a stronger and quicker recovery. It's like the banks after the crisis, a double dip would have killed the small ones, but the big ones would have come out okay. But since there was no double dip, smaller banks did tremendously well (and big ones did well too).

Title: Re: Energy Sector
Post by: lnofeisone on March 04, 2020, 05:44:14 AM
Bought a little VGELX today.

Lucky I limped in (only because I was without the cash to take a larger position):

VGELX -7% since then, -17% since the beginning of this thread.

A little bothered that Howard Marks believes energy isn't a bargain (unlike healthcare, he believes it has an uncertain future), but still looking to take a larger position.

The beatdown isn't pleasant but I'm continuing to (slowly and selectively) add. CAPEX cuts and restricted cash access will continue to forcing MLPs to focus on balance sheets. I'm watching the demand side and for now cautiously optimistic.
Title: Re: Energy Sector
Post by: rb on March 06, 2020, 09:47:51 AM
The selloff in some of the midstream names has been relentless. Is the coronavirus really going to render pipelines obsolete?
Title: Re: Energy Sector
Post by: JRM on March 06, 2020, 02:36:29 PM
Most of the pipelines have been in service for over 50 years, and I expect many to be in service for at least another 50.
Title: Re: Energy Sector
Post by: opihiman2 on March 06, 2020, 05:13:25 PM
This board seems to be a glutton for punishment when it comes to energy / oil investments.  I thought people here would have learned their lesson by now with Sanridge Energy.  Oil has and will be in a multi-year bear market.  Until the shale producers get completely wiped out, there's going to be a ton more pain.  I've talked to and read a lot of stories from oil/gas workers in the patch, and everyone is saying it's absolutely brutal out there.

Oil is heading to the 30's.  NG is being given away for free.  And they are still pumping the oil out of the ground like there is no tomorrow.  The industry has a dumb habit of drilling and producing at all costs.  It's like the snake that eats its own tail.
Title: Re: Energy Sector
Post by: SharperDingaan on March 06, 2020, 06:59:25 PM
Most investors hold their investments for < 1 year. 
Trading, that is largely based on anticipated results, catalysts, etc. over the next 1-2 quarters at best. Hence o/g is terrible, getting worse, and how does anyone just not get this. And totally ignores the fact that an investor can SIMULTANEOUSLY have both a SEGMENTED short AND long term view, on the same sector, at the SAME time. HUh? :o

US shale is in truly sh1te shape. Production is rapidly declining as capital discipline is being imposed, drill target quality declines, and the water/gas cuts rise. Can't produce without producing gas, can't flare the gas, hence little choice but to dump it in the pipelines; driving gas prices to record lows that go lower every day. When gas proceeds no longer cover transportation costs, or pipelines reduce volumes due to reduced demand (corona virus), the wells shut in; and for many it will be permanent.

Then there's Alberta. Just as video was supposed to kill the radio star, oil prices were supposed to kill the oil sands mega-projects. The latest being the proposed Frontier mine, along with roughly 19 other proposals. However oil sands isn't dead, it's now stronger. Now, if you want to play in the space you have to do it via an expansion of an existing player, raising the market value of all existing mega-projects, reducing the financial risks of any existing party, and creating an oligopoly over the flow of any new oil sands production above existing levels. But unlike the US, that rising gas cut from Alberta's shale has a nearby market, as oil sands is a hungry beast.     

Same industry, same timeframe. Night and day difference.
But over the long term the Canadian pipelines eventually will get built; permanently improving both egress, and value for the product. US shale has nowhere to go but down.

SD

   
Title: Re: Energy Sector
Post by: JRM on March 07, 2020, 05:28:09 AM
Older generation combustion turbine generator plants can run in non-peaking situations now with low natural gas prices.  I was told years ago that these plants only ran when prices were over $100/MW.  That number stuck in my head, and it wasn't until I talked to an operator a few months ago that the break even price is now around $38/MW.  They run a lot more than I thought.

The newer generation combined cycle plants will continue to be built with the better economics of cheap gas.

I guess my point is low prices encourage more consumption of natural gas.
Title: Re: Energy Sector
Post by: opihiman2 on March 07, 2020, 04:23:12 PM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!
Title: Re: Energy Sector
Post by: DooDiligence on March 07, 2020, 08:35:06 PM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

All aboard the fear train.
Title: Re: Energy Sector
Post by: scorpioncapital on March 08, 2020, 01:55:32 AM
I feel commerical real estate and oil both have very pronounced boom bust cycles but oil is more political and global , with sources only in some places and not others. Real estate on the other hand is more local and less dramatic I think. I guess oil is for those who love extreme volatility.
Title: Re: Energy Sector
Post by: JRM on March 08, 2020, 06:43:02 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Good.  I hope this flushes out some of the nonsense in the oil sector.  Just to be clear, natural gas is not the same thing as oil.  As long as there is demand for NG then the midstream companies will be in business.  Contracts may be renegotiated, but companies like KMI and WMB appear to have operational flexibility to withstand some short term pain.
Title: Re: Energy Sector
Post by: SharperDingaan on March 08, 2020, 06:58:05 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Consolidation is not a bad thing, particularly in NA, and US shale.
Thousands of analysts will disagree but the reality is, that at the margin, prices have long been driven more by politics than by change in supply/demand. Nobody makes money at these levels, so we will not be here for long. However, MbS is the royal who drove the failed Aramco IPO, the royal who ordered the botched Khashoggi killing, the royal who botched today's OPEC+ price support, and the royal driving the Yemen thing. It would be a lot better for literally everyone if the Saudi/Iran conflict ceased, and MbS has just put down what he thought was a US backed coup d'etat - including putting 3 more very senior royals (including his brother) in the Hilton.

To a great many in the NA industry, fracking has to go. It has severely disrupted the economics of literally trillions in capital investment, and severely damaged landholder relations throughout the industry. The only positive is that shale fields are really GAS fields that happen to CURRENTLY produce light oil/liquids; manage the current flow in a consolidated fashion, and you get decades of production of cheap, land-based, largely local, and clean gas as the dividend. In the US that means either kill shale via legislation (new president), or via bankruptcy and consolidation. Again, politics being the major driver.

Obviously, depending on your risk tolerance, volatility is either your friend or foe.
Hence, o/g, commodities, etc. is not for everyone.

SD

       
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 07:47:49 AM
The thing about energy hydrocarbon markets is that prices are very sensitive to supply. You're a little under supplied and prices skyrocket - the 2000s. You're a little oversupplied and prices plummet - the 2010s.

I don't see why the midstream systems have to be affected much by what's going on upstream. You only have to cut production by a little in order to balance the market so volumes won't be greatly affected. The locations of production will still stay the same. So if you have gas coming out of field A and you have power plant B that needs that gas and I am midstream guy C that has a pipe from A to B then why should I cut my tolls??

These midstream businesses also have chemical operations which would appear to be more volatile. But to me look like NGL export businesses. US NGLs are cheap and the world wants it and it's it's cheaper and safer to ship polyethylene and polypropylene than the NGLs themselves. So you process the NGLs over here. If there's a demand shock I suspect that the low cost producer (the US) will be ok.

This is basically how i look at it. I welcome people that know more about the space to tell me why I am wrong.

Title: Re: Energy Sector
Post by: Spekulatius on March 08, 2020, 07:50:13 AM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 08:44:18 AM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
I disagree that it has to do with the relatives. It looks like he wants to punish Russia for not going along with the cut. The biggest discount is for NW Europe - Russia's market.

The question is if MBS can actually do it. It didn't work very well the first time he tried it. NA producers have proven to be very resilient. Who would have thought back in 2015 when he tried to pull this sort of crap that it was going to be the Saudis that are going to back off and not crappy producers from Oklahoma? I certainly didn't.

So I don't think that we can have a protracted period of 20 and 30 dollar oil. As you say the whole system just doesn't work at that level. So the system re balances itself either through an OPEC+ cut, or bankruptcies in NA or both. My guess is that it's gonna be OPEC+ cuts because it seems that they have less of a stomach for those kind of prices than NA producers.

But I think at the end of all of it you're gonna have hydrocarbons coming out from exactly the same basins that are coming out of today.
Title: Re: Energy Sector
Post by: DooDiligence on March 08, 2020, 09:18:15 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Consolidation is not a bad thing, particularly in NA, and US shale.
Thousands of analysts will disagree but the reality is, that at the margin, prices have long been driven more by politics than by change in supply/demand. Nobody makes money at these levels, so we will not be here for long. However, MbS is the royal who drove the failed Aramco IPO, the royal who ordered the botched Khashoggi killing, the royal who botched today's OPEC+ price support, and the royal driving the Yemen thing. It would be a lot better for literally everyone if the Saudi/Iran conflict ceased, and MbS has just put down what he thought was a US backed coup d'etat - including putting 3 more very senior royals (including his brother) in the Hilton.

To a great many in the NA industry, fracking has to go. It has severely disrupted the economics of literally trillions in capital investment, and severely damaged landholder relations throughout the industry. The only positive is that shale fields are really GAS fields that happen to CURRENTLY produce light oil/liquids; manage the current flow in a consolidated fashion, and you get decades of production of cheap, land-based, largely local, and clean gas as the dividend. In the US that means either kill shale via legislation (new president), or via bankruptcy and consolidation. Again, politics being the major driver.

Obviously, depending on your risk tolerance, volatility is either your friend or foe.
Hence, o/g, commodities, etc. is not for everyone.

SD

     

Interesting points.
Title: Re: Energy Sector
Post by: opihiman2 on March 08, 2020, 10:13:32 AM
I feel like oil will be in a long sideways bear market.  You have to trade it.  But, if oil heads into the $20's, I'm a buyer. 

I've posted about it in the past around 2015 when oil tanked to $30/bbl, and I think everyone on here said the best way to get exposure to oil prices is via the majors and mid streams.  Is that still the consensus?  All the oil futures based ETF's have sucked ass in getting direct exposure to oil prices.
Title: Re: Energy Sector
Post by: Spekulatius on March 08, 2020, 11:22:57 AM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
I disagree that it has to do with the relatives. It looks like he wants to punish Russia for not going along with the cut. The biggest discount is for NW Europe - Russia's market.

The question is if MBS can actually do it. It didn't work very well the first time he tried it. NA producers have proven to be very resilient. Who would have thought back in 2015 when he tried to pull this sort of crap that it was going to be the Saudis that are going to back off and not crappy producers from Oklahoma? I certainly didn't.

So I don't think that we can have a protracted period of 20 and 30 dollar oil. As you say the whole system just doesn't work at that level. So the system re balances itself either through an OPEC+ cut, or bankruptcies in NA or both. My guess is that it's gonna be OPEC+ cuts because it seems that they have less of a stomach for those kind of prices than NA producers.

But I think at the end of all of it you're gonna have hydrocarbons coming out from exactly the same basins that are coming out of today.

I think the issue with killing shale is that it’s like trying to kill weed. You can kill it temporarily, but once you stop weeding, it grows back very quickly. It is different thank Killing offshore oil, if you kill of an deep water oil project, it may take up to 10 years to get it up and running again. Shale will probably be back in 12 month or so.

However all the above does not prevent equity to be wiped out in shale E&P’s. Where I could be wrong is  NG. NG is partly depressed because Ng is produced as a byproduct of oil production, depressing prices. if oil production goes away, the associated NG production will as well and that may actually boost gas prices.

Then on the other hand we have LNG which competes with oil and Russian pipeline gas. It may become roadkill too, especially if NG in NA rises and oil prices world wide fall, thr spread will be reu Ed and many will become uneconomic.

Interesting times. I will stay away from E&P’s, but I am rebuy WMB and possibly buy EPD for the first time. I have no idea who this plays out other than it will be messy and most likely a bloodbath for shale E&P equity

There could be interesting opportunities in midstream credit. I was able to buy some 10% bonds in 2015 (OKE, BB+ rating and they were money good), I look forward to similar opportunities. I don’t think I will mess with E&P credit, the FCF to service debt just isn’t there, because of the decline rates.
Title: Re: Energy Sector
Post by: ValueArb on March 08, 2020, 12:34:51 PM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
I disagree that it has to do with the relatives. It looks like he wants to punish Russia for not going along with the cut. The biggest discount is for NW Europe - Russia's market.

The question is if MBS can actually do it. It didn't work very well the first time he tried it. NA producers have proven to be very resilient. Who would have thought back in 2015 when he tried to pull this sort of crap that it was going to be the Saudis that are going to back off and not crappy producers from Oklahoma? I certainly didn't.

So I don't think that we can have a protracted period of 20 and 30 dollar oil. As you say the whole system just doesn't work at that level. So the system re balances itself either through an OPEC+ cut, or bankruptcies in NA or both. My guess is that it's gonna be OPEC+ cuts because it seems that they have less of a stomach for those kind of prices than NA producers.

But I think at the end of all of it you're gonna have hydrocarbons coming out from exactly the same basins that are coming out of today.

Doesn't lower prices mostly just hurt (or delay) additional investment in the fields? Exploration and development are typically the expensive parts, when prices drop existing fields are mostly still going to pump and process similar amounts of oil, gas and shale.

I think this is just Mr. Market running around in a tizzy begging us to buy his half of the business. The Saudi's can't run their country, let alone a war, on $20 oil without massive spending cuts. Putin needs higher oil prices to prop up his regime.

In interests of full disclosure, I have zero track record in predicting the future, but I can't see lower prices lasting long. Months sure, but not years. 
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 12:49:14 PM
I agree with spek on most of what he said above. I think that upstream will be a shit show for a long time.

As I wrote above, I don't think that you can have production at $30 bbl. So I don't think we'll be there or below for a long time. If we do get there I'm just gonna do what I should have done last time. Buy physical oil futures. Not mess around with ETF but the actual futures.

In the future after a protracted unfavourable price environment you may see consolidation in the industry. But the oilman is a special breed. And the oilmen of today are not just gonna become accountants they're gonna shuffle around in the industry. So there'll still be the same guys there after consolidation. So what will the do when they see $60 a barrel prices? Drill Baby Drill!! Then prices get bonked again.

The only way you see significant money upstream is through supply and demand shocks. The 80s were great because of the decline in the conventional Texas oil fields (supply). The 90s sucked because OPEC decided to stop being a dick (or perhaps they got tired of tomahawk missile showers). The noughts were great because of India and China came alive (demand). But right now we're out of Indias and we're out of Chinas. It doesn't seem that field depletion is an issue, and at $80 you can get your fill of oil sands barrels and boy there's a lot of that stuff. So there's no demand or supply shocks as far as the eye can see.

But we still need lots of oil and NG (especially) for the foreseeable future. To me that's why midstream is interesting. I see it like owning a bridge. You want to get from A to B? Well you'll have to use my bridge. The only negative that anyone has brought about midstream seems to be along the lines of "you can't do well if your customers are hurting". But there have been businesses that have been making tons of money off of poor people for years. For example credit card companies (I know, not a perfect analogy).

Now taking the bridge analogy further. The only way the bridge is not a good investment is if you pay too much money for the bridge. The opportunity and folly comes from categorizing these companies as "energy" companies. So their prices are correlated with prices for pure play and integrated producers. Lately with indexing and ETFs this is probably more so. But they're not energy companies, they're infrastructure companies. You wouldn't link the price of a bridge with the price of GM stock, would you? So the opportunity and folly comes from this correlation. When energy is doing well these companies become really expensive relative to their economics. But you can pick them up cheap when energy is doing poorly - such as today.

Or I don't understand the space, these aren't bridges and i'm whistling Dixie out of my ass.
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 01:05:10 PM
Doesn't lower prices mostly just hurt (or delay) additional investment in the fields? Exploration and development are typically the expensive parts, when prices drop existing fields are mostly still going to pump and process similar amounts of oil, gas and shale.
The way I understand it is that in the world we are today with shale you have to do more drilling because a fracked well has a shorter life than a conventional well. So you have to continuously invest in drilling to be able to fracture new wells. If you don't the production of the field declines.

So you can't drill because you're broke and the capital markets are telling you to buzz off then you should see production declines.
Title: Re: Energy Sector
Post by: Viking on March 08, 2020, 01:36:01 PM
Perhaps we will see capitulation in energy shares if we see oil fall to the low 30’s. i have owned Suncor in the past and will continue to follow. Canadian $ futures are trading down 1%...

Is shale an important part of the American economy? Need to brush up on what happened in 2014-2016...

Saudi Arabia flooding market with oil, prompting predictions of further decline Monday
- https://www.washingtonpost.com/business/2020/03/08/saudi-arabia-flooding-market-with-oil-prompting-predictions-further-decline-monday/

Saudi Arabia is making a 180 degree turn and moving to flood a market depressed by the coronavirus with hundreds of thousands of barrels of additional oil per day. And it is offering steep discounts to refineries around the world.

It’s the beginning of an oil price war between the Saudis and Russia – but it’s going to put a tight squeeze on American shale oil producers, as prices are expected to head sharply downward. While it lasts, of course, that’s good news for oil consumers but a concern in areas of the country that rely on jobs in the energy sector.

West Texas International crude, one of the industry’s price benchmarks, fell 10 percent Friday before the Saudi announcement, closing at $41.28 a barrel. Analysts expect it to fall into the $30’s – perhaps deeply into the $30’s – when markets open Monday. The last time West Texas Intermediate fell below $40 was in August 2016.
Title: Re: Energy Sector
Post by: Gamecock-YT on March 08, 2020, 04:58:15 PM
WTI $32

Brent $36


Face-ripper
Title: Re: Energy Sector
Post by: SharperDingaan on March 08, 2020, 05:00:17 PM
This isn't going to last long.

Nobody makes enough money at this level, and it isn't going to bankrupt US shale unless it goes on for at least 4-6 months. All it does is allow the refineries to max out their on-land and at-sea storage, while borrow costs and storage are dirt cheap. Then as/when prices rise it will be on diminished volume until the storage is worked off. Friends helping friends, ensuring lots of cheap gasoline is available just before the US election?

However, Aramco is down 19% since issue, and continuing to fall. At some point Aramco is going to buy the issue back, and the lower the price, the better. It'll be a very profitable swing trade, and will go some way to offsetting the opportunity cost of flooding the market. The Russians either do as asked, when asked, or take the opportunity loss; which do you think is the more likely? 

SD
Title: Re: Energy Sector
Post by: cherzeca on March 08, 2020, 05:05:54 PM
these oil prices are [cue crazy Eddie] insane!!!!!
Title: Re: Energy Sector
Post by: meiroy on March 08, 2020, 05:28:31 PM
With the current administration, why is it expected that they -- foreign governments -- be allowed to destroy local industries? 

Who knows what's going to happen but it seems to me, as reasonable speculation, to assume a proactive action to protect and support local shale/oil companies.

(I'm completely clueless about the energy sector, just looking at the macro)
Title: Re: Energy Sector
Post by: Spekulatius on March 08, 2020, 05:55:51 PM
With the current administration, why is it expected that they -- foreign governments -- be allowed to destroy local industries? 

Who knows what's going to happen but it seems to me, as reasonable speculation, to assume a proactive action to protect and support local shale/oil companies.

(I'm completely clueless about the energy sector, just looking at the macro)

If he protects the energy industry with higher prices, he will destroy related industries like chemicals, refineries, as they become uncompetitive. So I don’t think the energy industry can be saved via higher prices in the US only. It is also not fair to let the consumer bear the costs. Tough to know how long it lasts. In 1998, crude went to <$10/brl for a short time. Also note that the OPEC is basically a cartel and has tried to fix prices for a long time. So maybe  what we are seeing now are true market prices, if such a thing even exists with the energy markets.

I think the sector just needs to dramatically shrink. The interesting question is what happened to NG, which still is more or less landlocked, except form LNG export capacity. It could benefit from less NG being produced as a byproduct. That on the other hand creates a problem for the US chemical industries since they have benefited for a long time from cheap NG compared to crude input. With that advantage gone, This industry could get squeezed.

Glad to be watching this from the sidelines for now.
Title: Re: Energy Sector
Post by: mcliu on March 08, 2020, 06:09:32 PM
Low oil prices are probably a net positive for US economy, so bailout seems unlikely..
The strongest players will survive, consolidate and probably be better positioned for next upturn.
Maybe a new cartel will form, Middle East+Russia+US.
Title: Re: Energy Sector
Post by: Gregmal on March 08, 2020, 06:15:40 PM
I am hardly an energy expert and have avoided the sector like the plague, but I would agree lower oil prices are a net positive for consumers. Its also probably relief for airlines, who right now could use every break they can get. At least the ones who dont hedge/modestly hedge.
Title: Re: Energy Sector
Post by: thepupil on March 08, 2020, 06:20:13 PM
https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD

I will likely add to my “I’m dumb and don’t want zero energy” basket tomorrow (XOM,MMP, BSM)

If we stay down here in the $30’s my biggest fear is the political instability, not the <5% in energy stocks I’ll have.

Title: Re: Energy Sector
Post by: meiroy on March 08, 2020, 06:51:06 PM
Low oil prices are probably a net positive for US economy, so bailout seems unlikely..


This rationale cannot be applied to the current administration based on its previous actions.
Title: Re: Energy Sector
Post by: SharperDingaan on March 08, 2020, 07:41:16 PM
As at 10:31 pm EST the Apr price for WTI futures is USD 30.65, down USD 10.54, or 25% !!!
And the pre-market DOW futures is down 1,254 points, or 4.86%
https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html
https://money.cnn.com/data/afterhours/

Good luck to us all.

SD

Title: Re: Energy Sector
Post by: RadMan24 on March 08, 2020, 09:40:22 PM
Well, if you invested in the stronger energy names, you have nothing to worry about.

In fact, tomorrow is likely to be a great buying opportunity for stronger energy names 2-3 years from now.

Energy services will get hit, but those companies that are able to survive the next 1-2 years will have flourishing business going forward.
Title: Re: Energy Sector
Post by: mcliu on March 08, 2020, 09:57:16 PM
Gg. It’s gonna be a bloodbath tmr. I’ve somewhat lucked out with only a 5% position in mostly integrated, but it still sucks.
Title: Re: Energy Sector
Post by: KJP on March 09, 2020, 06:16:02 AM
I'm fairly dumb when it comes to energy, but I would think low oil prices have little to no effect on businesses that primarily transport non-associated gas.  Moreover, low gas prices may help them by increasing demand for gas, and thus volume of it that needs to be transported.  On the other hand, I assume a natural gas transmission company could be hurt if it has invested in gathering associated gas.  And, of course, a slowdown in economic activity could affect volumes.

So, what natural gas midstream company is least exposed to a potential decline in associated gas? Is it Williams, despite some of its gathering assets?
Title: Re: Energy Sector
Post by: opihiman2 on March 09, 2020, 07:15:57 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

WTI crude traded down to $28 today.  Wow. 
Title: Re: Energy Sector
Post by: james22 on March 09, 2020, 11:24:28 AM
I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Maximum pessimism?
Title: Re: Energy Sector
Post by: rb on March 09, 2020, 11:55:05 AM
Maybe the Saudis will stat giving the stuff away for free lol
Title: Re: Energy Sector
Post by: SharperDingaan on March 09, 2020, 01:14:23 PM
The obvious solution is to make the US part of OPEC+, and settle on both a price and a supply quota agreement. Maybe USD 60/bbl. so that everyone who supplies makes some money, and those that don’t, go out of business.

It seems pretty clear that Russia is concerned about gas market share, and that OPEC is concerned about the volume of light liquids. Shut in some of the US shale, and both go down in a big way. More importantly, the remaining US shale consolidates under the majors, and ongoing production stays down as long as the USD 60/bbl. is maintained.

Until the end of the month, there is still 1.7M bbl/d of supply being held off the market. OPEC claim they need an additional cut of 1.5M bbl/d, however the market believes that the entire 3.2M bbl/d plus surplus is already in the market, hence the contango. Negotiate an agreement between now and the end of the month, and we’re going back up.

If you want to get re-elected in November … you are going to negotiate. 

SD
Title: Re: Energy Sector
Post by: Castanza on March 09, 2020, 01:25:08 PM
The obvious solution is to make the US part of OPEC+, and settle on both a price and a supply quota agreement. Maybe USD 60/bbl. so that everyone who supplies makes some money, and those that don’t, go out business.

It seems pretty clear that Russia is concerned about gas market share, and that OPEC is concerned about the volume of light liquids. Shut in some of the US shale, and both go down in a big way. More importantly, the remaining US shale consolidates under the majors, and ongoing production stays down as long as the USD 60/bbl. is maintained.

Until the end of the month, there is still 1.7M bbl/d of supply being held off the market. OPEC claim they need an additional cut of 1.5M bbl/d, however the market believes that the entire 3.2M bbl/d plus surplus is already in the market, hence the contango. Negotiate an agreement between now and the end of the month, and we’re going back up.

If you want to get re-elected in November … you are going to negotiate. 

SD

Good thing we have the Negotiator in Chief!  ;D
Title: Re: Energy Sector
Post by: Spekulatius on March 09, 2020, 01:39:08 PM
Between Trump, hacksaw MBS, and “dick” Putin, comrade Maduro they should be able hammer away a nice deal . Maybe invite the Ayatollah to the table and call it the “chosen five”.
Title: Re: Energy Sector
Post by: Gregmal on March 09, 2020, 02:08:46 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!
Title: Re: Energy Sector
Post by: DooDiligence on March 09, 2020, 02:12:04 PM
Between Trump, hacksaw MBS, and “dick” Putin, comrade Maduro they should be able hammer away a nice deal . Maybe invite the Ayatollah to the table and call it the “chosen five”.

Has the world ever been run by a bigger bunch of assholes?
Title: Re: Energy Sector
Post by: Spekulatius on March 09, 2020, 03:24:27 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.
Title: Re: Energy Sector
Post by: Gregmal on March 09, 2020, 03:30:53 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.

I had a costly mistake in this sector(now almost a decade ago) that stays with me to this day. You can get 99/100 things right with these and still just get blasted. Way to many moving parts and things out of the control of management/company. The toll collectors sounded like a solid idea as well, but often the capital structures just made them too much of a pain. I fuckin hate energy. Drill, baby, drill, should be explained to the shareholder as kill, baby, kill. Cuz thats what happens with your capital. That, and the cyclical nature of many, almost guarantee repurchases or dividends are done peak cycle...not appealing.
Title: Re: Energy Sector
Post by: Spekulatius on March 09, 2020, 04:55:54 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.

I had a costly mistake in this sector(now almost a decade ago) that stays with me to this day. You can get 99/100 things right with these and still just get blasted. Way to many moving parts and things out of the control of management/company. The toll collectors sounded like a solid idea as well, but often the capital structures just made them too much of a pain. I fuckin hate energy. Drill, baby, drill, should be explained to the shareholder as kill, baby, kill. Cuz thats what happens with your capital. That, and the cyclical nature of many, almost guarantee repurchases or dividends are done peak cycle...not appealing.

I have been investing (if you wan to cal, it that ) in midstream since 2008. The issue is capital structure as you mentioned which makes the sector vulnerable to stress in credit markets (seen in 2008 and 2016j, but it is wrong or right correlated with energy prices. For the most part, it doesn’t really make sense, because the midstream are toll keepers, but to some extend they are tied to the mast , so to speak. If shale really goes to hell, a lot (but not all) midstream will go to hell with it, because E&P  bankruptcies will impact the midstream as well.

WMB has two sides of the coin - the Transco/Northwest piper , which is basically and utility and demand driven, but they also own G&P assets (which tie into Transco and Northwest pipes). If the producers will go bankrupt, one can see that the economic of the G&P asserts will be impacted to some extend. While it is correct, that the  G&P contract is third to the land, not the E&P entity it could still occur that the next owner drills much less and hence pays much less for G&P toll fees.

What we are seeing now is most likely an overreaction in midstream, but I think we are seeing  looking at an extremely unfavorable newsflow with some economic impact on the midstream said too. Maybe it is priced in,  but in my experience those things are nice priced in before they actually happen. For example, CHK looks quite distressed and they own many NG producing asset that feed into WMB pipes in the Northwest (WMB actually bought them from CHK a couple of years ago). What will happen when CHK inevitably raises the white flag and declares bankruptcy? There is no way they can survive with the current capital structure.
Title: Re: Energy Sector
Post by: opihiman2 on March 09, 2020, 09:45:08 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.

I had a costly mistake in this sector(now almost a decade ago) that stays with me to this day. You can get 99/100 things right with these and still just get blasted. Way to many moving parts and things out of the control of management/company. The toll collectors sounded like a solid idea as well, but often the capital structures just made them too much of a pain. I fuckin hate energy. Drill, baby, drill, should be explained to the shareholder as kill, baby, kill. Cuz thats what happens with your capital. That, and the cyclical nature of many, almost guarantee repurchases or dividends are done peak cycle...not appealing.

Exactly. Drill baby drill no matter what is what will kill the industry.  This board should sticky the Sandridge Energy thread as the poster child of how these non-sense multi year value analysis can end up, especially in the energy sector.  B&M retail and energy are two sectors value investors should just avoid from now on.
Title: Re: Energy Sector
Post by: rb on March 10, 2020, 07:24:33 AM
I'm less of an alarmist that Spek here. I don't think that shale is going anywhere anytime soon. A little rationalization sure, but nowhere close to extinction.

The way I see it the system is very complex and has a lot of inertia. A lot of money and time has been invested to use shale production. Think of the Houston petochemical complex. That used to be fed by shipbourne oil. Now a lot of it is fed by shale product and Canadian stuff. So they actually need the shale. I don't see that complex flipping back to shipbourne feed stock.

In the case of CHK/WMB that speck was talking about. CHK may very well go bankrupt. But CHK's customers are not gonna stop needing gas. Are they gonna use Quatar LNG? No they're still gonna use gas from the same old field, coming through the existing pipe that they have.

Then there's also the political aspect of all of this. There are a lot of jobs in shale. These are well paying jobs too and you don't need a university degree for it. Good high paying jobs for regular folk. The kind that politicians hate to loose. And they're in red states and blue states. This basically means that there is zero political will to let the sector die. Especially is said death comes from a dick measuring contest between Russia and Saudi Arabia.

Now whether the names of the companies that own the fields will be the same or different remains to be seen. But those fields will pump. Whether the ones doing the pumping will make money, that's another matter. But think of it another way. For most of its existence air travel has been an uneconomic endeavour (I'm not sure it still isn't). Yet we still had planes, and airports, and airlines, and we didn't stop flying.
Title: Re: Energy Sector
Post by: SharperDingaan on March 10, 2020, 12:32:24 PM
The obvious solution is to make the US part of OPEC+, and settle on both a price and a supply quota agreement. Maybe USD 60/bbl. so that everyone who supplies makes some money, and those that don’t, go out of business.

It seems pretty clear that Russia is concerned about gas market share, and that OPEC is concerned about the volume of light liquids. Shut in some of the US shale, and both go down in a big way. More importantly, the remaining US shale consolidates under the majors, and ongoing production stays down as long as the USD 60/bbl. is maintained.

Until the end of the month, there is still 1.7M bbl/d of supply being held off the market. OPEC claim they need an additional cut of 1.5M bbl/d, however the market believes that the entire 3.2M bbl/d plus surplus is already in the market, hence the contango. Negotiate an agreement between now and the end of the month, and we’re going back up.

If you want to get re-elected in November … you are going to negotiate. 

SD

And today we have this .....
White House likely to pursue federal aid for shale companies hit by oil shock, coronavirus downturn
https://www.washingtonpost.com/business/2020/03/10/trump-oil-bailout/

Money talks. You do what your biggest donors tell you to do. Exxon, etc.
What are the odds the message is to 'negotiate' a stable price, and lend them the money, to consolidate the industry. There will be some employment loss, but everybody goes back to making money, and Trump can be the hero.

Campaign contributions are for a reason, and its collection time.

SD
Title: Re: Energy Sector
Post by: DooDiligence on March 10, 2020, 01:34:27 PM
I'm less of an alarmist that Spek here. I don't think that shale is going anywhere anytime soon. A little rationalization sure, but nowhere close to extinction.

The way I see it the system is very complex and has a lot of inertia. A lot of money and time has been invested to use shale production. Think of the Houston petochemical complex. That used to be fed by shipbourne oil. Now a lot of it is fed by shale product and Canadian stuff. So they actually need the shale. I don't see that complex flipping back to shipbourne feed stock.

In the case of CHK/WMB that speck was talking about. CHK may very well go bankrupt. But CHK's customers are not gonna stop needing gas. Are they gonna use Quatar LNG? No they're still gonna use gas from the same old field, coming through the existing pipe that they have.

Then there's also the political aspect of all of this. There are a lot of jobs in shale. These are well paying jobs too and you don't need a university degree for it. Good high paying jobs for regular folk. The kind that politicians hate to loose. And they're in red states and blue states. This basically means that there is zero political will to let the sector die. Especially is said death comes from a dick measuring contest between Russia and Saudi Arabia.

Now whether the names of the companies that own the fields will be the same or different remains to be seen. But those fields will pump. Whether the ones doing the pumping will make money, that's another matter. But think of it another way. For most of its existence air travel has been an uneconomic endeavour (I'm not sure it still isn't). Yet we still had planes, and airports, and airlines, and we didn't stop flying.

Lucid.
Title: Re: Energy Sector
Post by: TwoCitiesCapital on March 10, 2020, 05:04:07 PM
I'm less of an alarmist that Spek here. I don't think that shale is going anywhere anytime soon. A little rationalization sure, but nowhere close to extinction.

The way I see it the system is very complex and has a lot of inertia. A lot of money and time has been invested to use shale production. Think of the Houston petochemical complex. That used to be fed by shipbourne oil. Now a lot of it is fed by shale product and Canadian stuff. So they actually need the shale. I don't see that complex flipping back to shipbourne feed stock.

In the case of CHK/WMB that speck was talking about. CHK may very well go bankrupt. But CHK's customers are not gonna stop needing gas. Are they gonna use Quatar LNG? No they're still gonna use gas from the same old field, coming through the existing pipe that they have.

Then there's also the political aspect of all of this. There are a lot of jobs in shale. These are well paying jobs too and you don't need a university degree for it. Good high paying jobs for regular folk. The kind that politicians hate to loose. And they're in red states and blue states. This basically means that there is zero political will to let the sector die. Especially is said death comes from a dick measuring contest between Russia and Saudi Arabia.

Now whether the names of the companies that own the fields will be the same or different remains to be seen. But those fields will pump. Whether the ones doing the pumping will make money, that's another matter. But think of it another way. For most of its existence air travel has been an uneconomic endeavour (I'm not sure it still isn't). Yet we still had planes, and airports, and airlines, and we didn't stop flying.

Lucid.

Agreed. Very interesting perspective and comparison to airlines. I'll have to chew on that one.
Title: Re: Energy Sector
Post by: opihiman2 on March 16, 2020, 12:08:35 PM
HOLY SHIT WTI AT $28! 
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 08:08:10 AM
Keeps going down.  Below $25 / bbl.  We'll be seeing $20.  When does this turn around?  I don't think we're going to see oil turn around until coronavirus is over or Russia / SA burn Texas to the ground.  And if neither are over, oil is going to go below $20 / bbl.  Man, never ever thought I would see this in my lifetime: oil back to the Gulf War prices.  Holy shit.
Title: Re: Energy Sector
Post by: james22 on March 18, 2020, 08:42:02 AM
Anyone else see an opportunity?

Nailed it!
Title: Re: Energy Sector
Post by: whiterose on March 18, 2020, 08:45:29 AM
Crazy valuations.. are the pipelines a going concern(?)
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 08:47:36 AM
Crazy valuations.. are the pipelines a going concern(?)

Which ones?  A pipeline that transports Marcellus gas to a power plant in New York versus a gathering system geared to oil.
Title: Re: Energy Sector
Post by: whiterose on March 18, 2020, 09:27:52 AM
KMI got cut in half, am I missing something?
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 09:38:30 AM
KMI got cut in half, am I missing something?

I was just responding to your specific question.  I agree that all midstream appears to have collapsed, regardless of whether it directly or indirectly relies on domestic oil production.  I don't believe we'll be shutting down power plants or no longer heating our homes in the winter.  So, I expect natural gas to continue to flow, such as it did in the aftermath of the GFC.  So, what's going on with natural gas pipelines? 

Perhaps try to invert this, what would have to be true if the market price is correct?  That's what I'm trying to think through.  Can't roll debt?  Don't get paid even if pipes are used? 
Title: Re: Energy Sector
Post by: JRM on March 18, 2020, 09:45:17 AM
Both KMI and WMB have flexibility.  It's not like they on the edge of insolvency.  At this point they should cut the dividend, stop buybacks, and delay any review growth cap ex.  They should preserve cash and wait to see what happens.  I've been trying to stress test the balance sheets of each company and I have a hard time killing either company.  I am asking the same question, what am I missing.   
Title: Re: Energy Sector
Post by: Spekulatius on March 18, 2020, 10:47:54 AM
WMB is mostly demand driven as far as Transco and Northwest pipes are concerned . I think that’s about 55% of their operating earnings. The iffy part is the G&P in the Marcellus and Wyoming that are feeding in Transco and Northwest respectively. A lot of NG producers there are close to bankruptcy, but shutting of NG that is produced as byproduct of crude production might actually help them.

In any case, even if producers go down, the demand for NG is still there, minus some from LNG facilities and such perhaps.
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 10:55:08 AM
Holy SHIT!  I was expecting $20 by this summer.  WOW!  $20 WTI today!!  Some MLP pipelines are being priced like they're going out of business: PAA is down 30+% today.

This is pure insanity.  Once in a hundred year black swan event: global / US recession was looming late 2018, mass pandemic, and on top of that, an oil price war between three countries with one over-levered one. 

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+% 
Title: Re: Energy Sector
Post by: SharperDingaan on March 18, 2020, 11:21:37 AM
Think about this the other way

If you had naked puts on some of these companies, your gains are currently so big; that there is a real possibility that counter-parties are not going to be able to make good on them. And in many industries, if you are a wise C-suite manager; you WILL have naked puts on the major competitors in your industry. If you manage to keep your company afloat, via a combination of laying off people and cutting back - how are you going to deal with the fortune you've just made? Can't exactly spend it, even if you had to send friends in low places around to collect  :(

SD
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 04:32:21 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml
Title: Re: Energy Sector
Post by: Spekulatius on March 18, 2020, 04:47:32 PM
Holy SHIT!  I was expecting $20 by this summer.  WOW!  $20 WTI today!!  Some MLP pipelines are being priced like they're going out of business: PAA is down 30+% today.

This is pure insanity.  Once in a hundred year black swan event: global / US recession was looming late 2018, mass pandemic, and on top of that, an oil price war between three countries with one over-levered one. 

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

It seems likes Great Depression, but we had sub $10/brl (might have been as low as $8 ) for a brief time in 1998 and it wasn’t a Depression.

 https://www.macrotrends.net/1369/crude-oil-price-history-chart (https://www.macrotrends.net/1369/crude-oil-price-history-chart)
Title: Re: Energy Sector
Post by: rb on March 18, 2020, 05:23:10 PM
It's not gonna be the great depression, but it definitely matters more now. In the 90s low oil prices were good because the US profited from that. But now, they produce a lot of the stuff. So the balance has shifted. It's labour intensive, so it employs a lot of people with good wages. Moreover, these jobs are in some shithole places in the country. If oil wasn't there these guys would be lucky to get a job at Dennys.

So it matters more than before. But not anywhere any depression level stuff.
Title: Re: Energy Sector
Post by: petec on March 18, 2020, 05:32:41 PM
Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

You can’t have a depression in a fiat money system unless politicians and central bankers choose to have one. We are far more likely to have an inflation.
Title: Re: Energy Sector
Post by: rb on March 18, 2020, 05:58:54 PM
Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

You can’t have a depression in a fiat money system unless politicians and central bankers choose to have one. We are far more likely to have an inflation.
You are correct in your premise, but wrong in your interpretation. You CAN have a depression if your politicians and central bankers are dumb enough. Have you looked around lately....?

Though i agree unless there was something seriously wrong with the economy that was papered over (not impossible, I have certain doubts). There is no depression to come.
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 06:05:20 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now. 
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 06:12:30 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into. 
Title: Re: Energy Sector
Post by: TwoCitiesCapital on March 18, 2020, 06:35:28 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

What's crazy about the mREITs that they basically are 5-7x leveraged versions of govt bonds. Even before today they were trading @ 20-30% discounts to NAV and then were down another 30% today!!!! NLY is down 50% from its recent highs.

To compare w/ 2008 (which was a crisis in their investment product of mortgages), they were up significantly depending on where you start and end you observation. But flat to plus 50% is still significantly better than the minus 50 we're seeing now :/
Title: Re: Energy Sector
Post by: compoundinglife on March 18, 2020, 07:10:59 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

The Goldman levered MLP CEFs disclosed on March 9th that they were going to zero leverage. The one If I am remembering correctly, the one I looked at had 70m of leverage on a 100m portfolio.
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 09:57:29 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into.

You should read this paper:

https://necsi.edu/the-stock-market-has-grown-unstable-since-february-2018

It basically says that the markets were primed for huge price swings.  It didn't predict that swings would happen.  It just said that if there is a crisis (like coronavirus and oil war), the markets will swing wildly like we see now.  It doesn't provide an explanation, though.  Although, maybe having more leveraged ETF's than before is likely causing this issue.  Vehicles like 3x bull / bear ETF's weren't really around pre 2008.
Title: Re: Energy Sector
Post by: KJP on March 19, 2020, 05:45:44 AM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into.

You should read this paper:

https://necsi.edu/the-stock-market-has-grown-unstable-since-february-2018

It basically says that the markets were primed for huge price swings.  It didn't predict that swings would happen.  It just said that if there is a crisis (like coronavirus and oil war), the markets will swing wildly like we see now.  It doesn't provide an explanation, though.  Although, maybe having more leveraged ETF's than before is likely causing this issue.  Vehicles like 3x bull / bear ETF's weren't really around pre 2008.

I took a look at the paper.  As you note, it's hard to glean anything from it, but your hypothesis about one of the potential factors makes sense:  The more leveraged investors are, the more forced selling there will be.
Title: Re: Energy Sector
Post by: KJP on March 19, 2020, 07:14:51 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Here's another levered midstream CEF:  https://kaynefunds.com/wp-content/uploads/KYN-20-02-29-NAV-Press-Release.pdf

It's down about 80% so far in 2020. 

And another:  https://www.leggmason.com/en-us/products/closed-end-funds/clearbridge-energy-midstream-opportunity-fund-inc.html

It's down 90% YTD. 

And why not, here's one more:  https://www.leggmason.com/content/dam/legg-mason/documents/en/product-literature/fact-sheet/fact-sheet-cbi-energy-mlp.pdf

These funds are now selling at big discounts to NAV, which is no surprise given the recent performance.
Title: Re: Energy Sector
Post by: KJP on March 20, 2020, 02:28:00 PM
  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936
Title: Re: Energy Sector
Post by: opihiman2 on March 20, 2020, 05:47:40 PM
  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

This is a tough call.  If they agree to cuts and Russia is on board, I think oil pumps up a bit.  But the demand side of the equation.  It's anyone's guess at this point.  I'm still thinking WTI tanks below $20, and Brent goes to about $20.  At that point, I'm starting to buy the majors and some midstreams.  10% of the portfolio goes into this.
Title: Re: Energy Sector
Post by: Viking on March 20, 2020, 06:09:42 PM
  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

This is a tough call.  If they agree to cuts and Russia is on board, I think oil pumps up a bit.  But the demand side of the equation.  It's anyone's guess at this point.  I'm still thinking WTI tanks below $20, and Brent goes to about $20.  At that point, I'm starting to buy the majors and some midstreams.  10% of the portfolio goes into this.

Is the news article essentially saying the US is going to join OPEC? Wow. Amazing how fast the world can change.
Title: Re: Energy Sector
Post by: opihiman2 on March 21, 2020, 10:31:00 AM
The more I think about it, I think this is all just wishful thinking: US, SA, and Russia forming an alliance and a truce, cut back on production, and bam, we're back to $50 oil.

Knowing Russia, they have no qualms with destroying US shale.  I mean, think about it.  Why would Russia HELP US shale recover?  They recover, the mexican beer virus is gone, demand is back up, and Russia is back in the same bullshit as it was a few years ago.  No, this time, they're going to take the pain to crush U.S. oil.  Putin has said many times he think US shale tech  is barbaric.  The timing is absolutely perfect.  Probably 1 in a 100 year event just unfolded, and there's not going to be another oppty for Russia to finally take a deep stab into the heart of US oil. 

This is likely going to be a long drawn out battle.  Still, below $20 on brent, I'm starting to buy the oil majors and some mid streams.
Title: Re: Energy Sector
Post by: Xerxes on March 21, 2020, 10:46:41 AM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.
Title: Re: Energy Sector
Post by: kab60 on March 21, 2020, 10:58:33 AM
Why not just go with a pipeline operator like Williams which is mostly demand driven from utilities and NG? Decent ROIC, irreplacable assets, fat yield. If rates stay low, essential infrastructure should do pretty great. Otherwise I like the idea of betting on oil by going long the ruble - perhaps through something like Sberbank. Doesn't have to constantly drill holes to keep status quo.
Title: Re: Energy Sector
Post by: opihiman2 on March 21, 2020, 11:58:02 AM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.

That's a very interesting take, and the ruble trade is something I haven't considered.  In fact, I just watched a CNBC video this morning talking about the Russia / SA price war, and they mentioned that the ruble has been tanking.  I compared it to other petro related currencies like CAD, and it's down about 20 to 25%.  Looking longer term from the oil bust after GFC till $60+ oil, it looks like Ruble is down against both CAD and USD.

I'll probably just go long oil via the majors.  I'm thinking refinery operations will recover the fastest.  VLO and CVX look good.  I like BP and Shell based on their cash balance sheets. 

This Daniel Yergin book sounds interesting.  Care to provide a TL;DR? 

Title: Re: Energy Sector
Post by: opihiman2 on March 21, 2020, 12:05:15 PM
Why not just go with a pipeline operator like Williams which is mostly demand driven from utilities and NG? Decent ROIC, irreplacable assets, fat yield. If rates stay low, essential infrastructure should do pretty great. Otherwise I like the idea of betting on oil by going long the ruble - perhaps through something like Sberbank. Doesn't have to constantly drill holes to keep status quo.

WMB is looking interesting, but I still think it's overpriced given the market dynamics.  Even in post GFC and 2016 when oil briefly tanked to 30's, WMB was a bit lower then than it is now.  But, you're right.  WMB is looking more and more interesting.  But, I still think it goes lower.  Not buying until it hits single digits.  My bet is the dividend gets cut or suspended.
Title: Re: Energy Sector
Post by: Spekulatius on March 21, 2020, 01:30:29 PM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.

That's a very interesting take, and the ruble trade is something I haven't considered.  In fact, I just watched a CNBC video this morning talking about the Russia / SA price war, and they mentioned that the ruble has been tanking.  I compared it to other petro related currencies like CAD, and it's down about 20 to 25%.  Looking longer term from the oil bust after GFC till $60+ oil, it looks like Ruble is down against both CAD and USD.

I'll probably just go long oil via the majors.  I'm thinking refinery operations will recover the fastest.  VLO and CVX look good.  I like BP and Shell based on their cash balance sheets. 

This Daniel Yergin book sounds interesting.  Care to provide a TL;DR?

Pretty much any foreign currency has been taking against the USD, but oil related currencies like MXN or NOk and RUB have done the worst. MXN and NOK are down 20% compared to the USD.
Title: Re: Energy Sector
Post by: Xerxes on March 21, 2020, 02:36:45 PM
His earlier book The Prize finished in the 90s.
He had a subsequent book called The Quest that I actually enjoyed less than The Prize.

But in the past year, he has been hinting on Bloomberg TV that he is working on something.
No title nor any release date. I imagine the news flow keeps adding to to that story.
Title: Re: Energy Sector
Post by: Mephistopheles on March 21, 2020, 04:42:36 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.
Title: Re: Energy Sector
Post by: finetrader on March 21, 2020, 05:06:44 PM
It’s a commodity
Title: Re: Energy Sector
Post by: Spekulatius on March 21, 2020, 05:14:38 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.
Title: Re: Energy Sector
Post by: NewValueinvestor on March 21, 2020, 05:31:56 PM
yes but you still need to understand the dynamics of energy companies, the more you read the better your prepared.

A MLP or pipeline company is quite different from say, a natural gas exploration company.
Here's blog I found useful as a start:

https://www.canadianvalueinvestors.com/oil-and-gas-investing-101

My understanding is that there are 3 main sections in crude oil:

Upstream - Oil exploration, drilling, service providers

Midstream - Refiners, pipelines, chemical facilities, etc.

Downstream - Oil & Gas distribution, marketing of petrochemicals, gas stations, jet fuel sales, etc.

Depending how the energy company operates you need value each one a little differently, like Enbridge would be a little different than say range resources. For integrated majors, supermajors, I think it's a good idea to value their main separate segments listed above then do sum of the parts and add it together.

I could be very wrong, but this is how I'm approaching looking at energy companies.
Title: Re: Energy Sector
Post by: Mephistopheles on March 22, 2020, 03:55:50 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

Well how else to learn about competitive dynamics for instance? Not only between horizontal competitors but between upstream, mid, and downstream players. I'm sure I can buy a basket of shale producers and if oil shoots back up I can make a killing but I'd rather be able to understand nuances between different companies.
Title: Re: Energy Sector
Post by: Spekulatius on March 22, 2020, 05:03:32 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

Well how else to learn about competitive dynamics for instance? Not only between horizontal competitors but between upstream, mid, and downstream players. I'm sure I can buy a basket of shale producers and if oil shoots back up I can make a killing but I'd rather be able to understand nuances between different companies.

I would avoid shalers altogether. If you do invest in upstream at all, stick with majors or those with long live resources like the Canadian oils Sand plays CNQ and SU or perhaps CVE if you like an option like play.

The reason why long live resources can survive longer is because they don’t have to reinvest as much once the resources is operating, except for maintenance capital. Shale is a short live resource and thy constantly nerf to drill or the resources are going to run dry.

But in a way, that is also obvious through the cash flow statement, if you dig enough, hence my remark. Midstream is similar in this way as are refineries. All of them are better than shale E&P‘s imo.
Title: Re: Energy Sector
Post by: opihiman2 on March 22, 2020, 06:57:13 PM
Damn, I think I might have been too optimistic on oil, and I'm now backing out of going long oil under $20.  This damn thing is heading under $10.
Title: Re: Energy Sector
Post by: samwise on March 25, 2020, 09:06:09 PM
Question for those who follow refiners. Does the crack spread get affected by crude prices? I would have thought it shouldn’t.

Why are refiners down so much more than the market then ? Is it just an anticipation of lower demand and capacity utilization. Or is something else .

Thanks in advance.
Title: Re: Energy Sector
Post by: shhughes1116 on March 26, 2020, 05:00:17 AM
Question for those who follow refiners. Does the crack spread get affected by crude prices? I would have thought it shouldn’t.

Why are refiners down so much more than the market then ? Is it just an anticipation of lower demand and capacity utilization. Or is something else .

Thanks in advance.

It is most definitely affected by crude prices.  The crack spread represents the difference between the incoming cost of crude (usually a function of the cost of crude from a particular basin that is accessible to the refinery), and the value of the outbound products (e.g. gasoline, diesel, jet fuel, asphalt).  Light crude and heavy crude produce a different ratio of outputs, and that ratio depends on the complexity of the refinery (e.g. presence of absence of a hydrocracker).

Anyways, the cost of crude is falling, and it looks like the value of the outputs is falling as fast, if not faster.  Hence, crack spreads are tightening, which is negative for refiners.   
Title: Re: Energy Sector
Post by: opihiman2 on March 27, 2020, 11:50:03 PM
I haven't heard about Kupperman in a LONG time.  I thought Praetorian Capital was doing pretty bad with that whole weird real estate thesis in Mongolia.  Like, what the hell were they thinking?  But, this sounds like a pretty good idea:

https://moiglobal.com/crisis20-harris-kupperman/?utm_source=rss&utm_medium=rss&utm_campaign=crisis20-harris-kupperman

I haven't looked at bulk shippers since the BDI blew up many years ago and people lost their shirts on companies like DRYS.  But, thoughts on this?  VLCC companies might be getting some huge tailwinds soon.
Title: Re: Energy Sector
Post by: sleepydragon on March 28, 2020, 06:38:40 AM
Is OXY a good buy here?
Title: Re: Energy Sector
Post by: opihiman2 on March 28, 2020, 11:12:01 AM
Is OXY a good buy here?

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.
Title: Re: Energy Sector
Post by: Stuart D on March 28, 2020, 05:44:23 PM
Is OXY a good buy here?

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

Might be worth looking at the bonds ranking ahead of BRK’s $10b preferred stock. From memory I think the debt maturing 2022 was selling for 60c.
Title: Re: Energy Sector
Post by: sleepydragon on March 29, 2020, 06:16:06 AM
Is OXY a good buy here?

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

But over longer term this price is not sustainable. Saudi and Russia will have to work out something so everyone can win. If OXY issue more equity, they might be able to survive. Or now Icahn is on the board, they may sell it to a bigger company— maybe Berkshire?

I am a newbie in this. Not much insights.
I bought some OXY but it’s not a big conviction holding.

Might be worth looking at the bonds ranking ahead of BRK’s $10b preferred stock. From memory I think the debt maturing 2022 was selling for 60c.
Title: Re: Energy Sector
Post by: SharperDingaan on March 29, 2020, 06:42:14 AM
For those who know squat. TTEN on the TSX
If you think you can do better than this basket, for the same risk, then good on you.

SD
Title: Re: Energy Sector
Post by: opihiman2 on March 29, 2020, 01:09:49 PM
https://www.youtube.com/watch?v=DSBl70-3euY

Also, Canadian crude is now cheaper than a fucking pint of beer.  Why the fuck would you go long on Canadian oil?  I wouldn't start making bets on energy / oil until we see some kind of direction from OPEC+.  Anything else is just pure gambling at this point. 

I would advise any newbies on here to read the insanely STUPID Sandridge Energy and CHK threads on this forum.  You pretty much could have bypassed the idiocy with one simple question: If these companies can't make money near $100 oil, how the hell are they going to make money at $50 and less?  It was a stupidly long discussion and a big waste of time.  Even Goldman was calling for $200 oil back then.  Fucking retarded.
Title: Re: Energy Sector
Post by: montizzle on March 29, 2020, 10:01:36 PM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.


If I follow this right, would it be fair to say Canada is in a similar position as russia, where CAD tanks with the price of oil lowering the cost base of oil sands players?
Title: Re: Energy Sector
Post by: ratiman on March 29, 2020, 11:39:37 PM
Something like 5% of global production will be permanently shut-in and oil declines by 5%+ per year so there are some serious shortages ahead, plus there haven't been any big fields discovered in a long time. Canada with it's non-shale production should be in a good position to provide that supply if it can manage to survive. I know that sounds stupid after a six year bear market in oil but it's not going to last forever.
Title: Re: Energy Sector
Post by: opihiman2 on April 01, 2020, 08:27:14 AM
I believe this:

https://www.rigzone.com/news/april_to_be_one_of_toughest_months_in_oil_history-01-apr-2020-161597-article/?utm_source=SOCIAL&utm_medium=REDDIT&utm_campaign=ANDREAS

Even if Russia and SA cut production massively, oil is going to be oversupplied by the coronavirus.  Estimates are something like by 85% due to demand drop. 

Also, we're seeing the beginnings of the bankruptcies:

https://www.marketwatch.com/story/whiting-petroleum-files-for-bankruptcy-has-enough-liquidity-to-keep-operating-its-business-2020-04-01

Physical crude is already below $10.  It's just a matter of time before WTI / Brent prices reflect reality.  Damn, never thought I would ever see single digit crude again in my lifetime.  Saw it during the Gulf War, and now this.  Holy shit.  Life is nuts.
Title: Re: Energy Sector
Post by: BG2008 on April 01, 2020, 08:52:36 AM
Something like 5% of global production will be permanently shut-in and oil declines by 5%+ per year so there are some serious shortages ahead, plus there haven't been any big fields discovered in a long time. Canada with it's non-shale production should be in a good position to provide that supply if it can manage to survive. I know that sounds stupid after a six year bear market in oil but it's not going to last forever.

Everytime I think oil is cheap, it finds a way to impress me on the downside. 
Title: Re: Energy Sector
Post by: SharperDingaan on April 01, 2020, 09:09:12 AM
I believe this:

https://www.rigzone.com/news/april_to_be_one_of_toughest_months_in_oil_history-01-apr-2020-161597-article/?utm_source=SOCIAL&utm_medium=REDDIT&utm_campaign=ANDREAS

Even if Russia and SA cut production massively, oil is going to be oversupplied by the coronavirus.  Estimates are something like by 85% due to demand drop. 

Also, we're seeing the beginnings of the bankruptcies:

https://www.marketwatch.com/story/whiting-petroleum-files-for-bankruptcy-has-enough-liquidity-to-keep-operating-its-business-2020-04-01

Physical crude is already below $10.  It's just a matter of time before WTI / Brent prices reflect reality.  Damn, never thought I would ever see single digit crude again in my lifetime.  Saw it during the Gulf War, and now this.  Holy shit.  Life is nuts.

The US, Canada, and Mexico make up roughly 24% of global oil consumption. The EU is another 15%.
Net the two regions together, and they are largely self-sufficient in the supply of oil/gas.

Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

We live in interesting times.

SD

 
Title: Re: Energy Sector
Post by: james22 on April 01, 2020, 09:53:34 AM
Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

Would you buy in anticipation of such a tariff, SD?
Title: Re: Energy Sector
Post by: SharperDingaan on April 01, 2020, 10:26:14 AM
Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

Would you buy in anticipation of such a tariff, SD?

Already have.

Not to talk the book but look at WCP, IPL, MTL, etc. on the TSX.
WCP has cut its dividend 50%, cut its capex spend, pays monthly, and has a cash yield of 17%+. Tariff wall goes up, the dividend gets restored, and its 35%. Nothing else happens and you double your money in 2 yrs.

SD


Title: Re: Energy Sector
Post by: opihiman2 on April 01, 2020, 11:03:26 AM
I believe this:

https://www.rigzone.com/news/april_to_be_one_of_toughest_months_in_oil_history-01-apr-2020-161597-article/?utm_source=SOCIAL&utm_medium=REDDIT&utm_campaign=ANDREAS

Even if Russia and SA cut production massively, oil is going to be oversupplied by the coronavirus.  Estimates are something like by 85% due to demand drop. 

Also, we're seeing the beginnings of the bankruptcies:

https://www.marketwatch.com/story/whiting-petroleum-files-for-bankruptcy-has-enough-liquidity-to-keep-operating-its-business-2020-04-01

Physical crude is already below $10.  It's just a matter of time before WTI / Brent prices reflect reality.  Damn, never thought I would ever see single digit crude again in my lifetime.  Saw it during the Gulf War, and now this.  Holy shit.  Life is nuts.

The US, Canada, and Mexico make up roughly 24% of global oil consumption. The EU is another 15%.
Net the two regions together, and they are largely self-sufficient in the supply of oil/gas.

Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

We live in interesting times.

SD

This is about the dumbest thing I've ever heard, and it even pisses me off in many ways.  I don't think there's going to be a tariff on oil, but who knows. Trump has done so much asinine shit it wouldn't surprise me.  What a way to tax Americans even more.  Fucking retarded.
Title: Re: Energy Sector
Post by: james22 on April 01, 2020, 11:42:45 AM
An Oilman’s Plea To President Trump

What I’m saying is you need to fix the price of oil, maybe basin by basin, or one price for all. Set it at $62/bbl if one price for all. All imported oil would be subject to a tariff. This includes all the Sulphur-rich, low-quality oil the Saudi’s are sending into their state-owned Motiva refinery in Port Arthur, Texas, along with all the other heavy crudes shipped into our ports. Of course, they’re going to cry and moan, but so do my kids when I tell them no more TV.

Now, this is putting a simpleton’s spin on it, but no bailout money would be required for the US oil and gas sector, plus you’d be sitting on those tariff dollars.


https://oilprice.com/Energy/Energy-General/An-Oilmans-Plea-To-President-Trump.html
Title: Re: Energy Sector
Post by: james22 on April 01, 2020, 11:44:42 AM
Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

Would you buy in anticipation of such a tariff, SD?

Already have.

Not to talk the book but look at WCP, IPL, MTL, etc. on the TSX.
WCP has cut its dividend 50%, cut its capex spend, pays monthly, and has a cash yield of 17%+. Tariff wall goes up, the dividend gets restored, and its 35%. Nothing else happens and you double your money in 2 yrs.

SD

Thanks.
Title: Re: Energy Sector
Post by: Liberty on April 01, 2020, 12:01:45 PM
https://www.cnbc.com/2020/04/01/us-oil-industry-pumps-near-record-volumes-even-as-demand-and-prices-collapse.html

"U.S. oil production held at near record highs in the past week even as demand for gasoline falls."
Title: Re: Energy Sector
Post by: james22 on April 01, 2020, 12:02:13 PM
Today, the Domestic Energy Producers Alliance (“DEPA”) announced the association’s support for an American anti-dumping action petition to be filed with the United States Department of Commerce and the United States International Trade Commission requesting the initiation of an antidumping and/or countervailing duty investigation regarding crude oil price manipulation by Saudi Arabia, Russia, and perhaps others.

The petition will seek a determination that the recent actions taken by Saudi Arabia, Russia, and others to unreasonably increase their supply of crude oil at prices below market value will result in material injury to the U.S. domestic crude oil industry.

DEPA Chairman, Harold Hamm said, “This is a direct attack on U.S. oil and gas producers. They are taking advantage of this corona virus pandemic that is sweeping the world to focus on this industry and to devastate it. These actions warrant the imposition of antidumping and/or countervailing duties on crude oil imported into the US from these countries. Saudi Arabia’s and Russia’s actions have already, and will continue to, harm U.S domestic crude oil producers and industry.”

The petition seeks to protect the U.S. domestic crude oil industry, U.S. energy security, and the U.S. economy.  DEPA is moving expeditiously to investigate and potentially to prepare a filing.


https://depausa.org/depa-announces-anti-dumping-investigation/

https://www.theamericanconservative.com/articles/time-to-slap-a-tariff-on-oil-imports/


Trump to meet at White House with oil CEOs
Goal is to talk potential aid to the industry, including tariffs on oil imports from Saudi Arabia...


https://twitter.com/TimPuko/status/1245411721281523712
Title: Re: Energy Sector
Post by: matts on April 01, 2020, 12:04:42 PM
An Oilman’s Plea To President Trump

What I’m saying is you need to fix the price of oil, maybe basin by basin, or one price for all. Set it at $62/bbl if one price for all. All imported oil would be subject to a tariff. This includes all the Sulphur-rich, low-quality oil the Saudi’s are sending into their state-owned Motiva refinery in Port Arthur, Texas, along with all the other heavy crudes shipped into our ports. Of course, they’re going to cry and moan, but so do my kids when I tell them no more TV.

Now, this is putting a simpleton’s spin on it, but no bailout money would be required for the US oil and gas sector, plus you’d be sitting on those tariff dollars.


https://oilprice.com/Energy/Energy-General/An-Oilmans-Plea-To-President-Trump.html

That really is a simpleton's spin on it. He forgot to mention gasoline and diesel prices would rocket back up for everyone while helping the oil workers.
Title: Re: Energy Sector
Post by: james22 on April 01, 2020, 12:12:30 PM
An Oilman’s Plea To President Trump

What I’m saying is you need to fix the price of oil, maybe basin by basin, or one price for all. Set it at $62/bbl if one price for all. All imported oil would be subject to a tariff. This includes all the Sulphur-rich, low-quality oil the Saudi’s are sending into their state-owned Motiva refinery in Port Arthur, Texas, along with all the other heavy crudes shipped into our ports. Of course, they’re going to cry and moan, but so do my kids when I tell them no more TV.

Now, this is putting a simpleton’s spin on it, but no bailout money would be required for the US oil and gas sector, plus you’d be sitting on those tariff dollars.


https://oilprice.com/Energy/Energy-General/An-Oilmans-Plea-To-President-Trump.html

That really is a simpleton's spin on it. He forgot to mention gasoline and diesel prices would rocket back up for everyone while helping the oil workers.

Could do something like the AC link suggested:

If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.
Title: Re: Energy Sector
Post by: SharperDingaan on April 01, 2020, 12:15:17 PM
An Oilman’s Plea To President Trump

What I’m saying is you need to fix the price of oil, maybe basin by basin, or one price for all. Set it at $62/bbl if one price for all. All imported oil would be subject to a tariff. This includes all the Sulphur-rich, low-quality oil the Saudi’s are sending into their state-owned Motiva refinery in Port Arthur, Texas, along with all the other heavy crudes shipped into our ports. Of course, they’re going to cry and moan, but so do my kids when I tell them no more TV.

Now, this is putting a simpleton’s spin on it, but no bailout money would be required for the US oil and gas sector, plus you’d be sitting on those tariff dollars.


https://oilprice.com/Energy/Energy-General/An-Oilmans-Plea-To-President-Trump.html

That's the one.

Other interesting bits ...

If the Coronavirus has taught us anything, it’s that supply chains essential to life in America should not be outsourced. Move energy and pharmaceuticals and all other essentials back home. We’re safer that way. You’ll be creating homegrown jobs and we won’t have to kiss anyone’s backside.

Not mentioned is the shale industry bail-out being discussed.
The domestic o/g supply chain will be controlled by the majors, via bankruptcy buy-outs funded through QE dollars. Leases pass into more disciplined hands, and the oil gets bled off responsibly - to leave the underlying gas fields.

SD

Title: Re: Energy Sector
Post by: Spekulatius on April 01, 2020, 03:34:30 PM
Today, the Domestic Energy Producers Alliance (“DEPA”) announced the association’s support for an American anti-dumping action petition to be filed with the United States Department of Commerce and the United States International Trade Commission requesting the initiation of an antidumping and/or countervailing duty investigation regarding crude oil price manipulation by Saudi Arabia, Russia, and perhaps others.

The petition will seek a determination that the recent actions taken by Saudi Arabia, Russia, and others to unreasonably increase their supply of crude oil at prices below market value will result in material injury to the U.S. domestic crude oil industry.

DEPA Chairman, Harold Hamm said, “This is a direct attack on U.S. oil and gas producers. They are taking advantage of this corona virus pandemic that is sweeping the world to focus on this industry and to devastate it. These actions warrant the imposition of antidumping and/or countervailing duties on crude oil imported into the US from these countries. Saudi Arabia’s and Russia’s actions have already, and will continue to, harm U.S domestic crude oil producers and industry.”

The petition seeks to protect the U.S. domestic crude oil industry, U.S. energy security, and the U.S. economy.  DEPA is moving expeditiously to investigate and potentially to prepare a filing.


https://depausa.org/depa-announces-anti-dumping-investigation/

https://www.theamericanconservative.com/articles/time-to-slap-a-tariff-on-oil-imports/


Trump to meet at White House with oil CEOs
Goal is to talk potential aid to the industry, including tariffs on oil imports from Saudi Arabia...


https://twitter.com/TimPuko/status/1245411721281523712

It’s not anti dumping be sure the Saudis and the Russians still make a profit.

Anyways, the tariff would just be a tax on consumers since the US also exports crude. Adjacent industries (petrochemicals, refineries) probably would need to close because they are not cost competitive.
Title: Re: Energy Sector
Post by: matts on April 02, 2020, 03:00:51 AM
Today, the Domestic Energy Producers Alliance (“DEPA”) announced the association’s support for an American anti-dumping action petition to be filed with the United States Department of Commerce and the United States International Trade Commission requesting the initiation of an antidumping and/or countervailing duty investigation regarding crude oil price manipulation by Saudi Arabia, Russia, and perhaps others.

The petition will seek a determination that the recent actions taken by Saudi Arabia, Russia, and others to unreasonably increase their supply of crude oil at prices below market value will result in material injury to the U.S. domestic crude oil industry.

DEPA Chairman, Harold Hamm said, “This is a direct attack on U.S. oil and gas producers. They are taking advantage of this corona virus pandemic that is sweeping the world to focus on this industry and to devastate it. These actions warrant the imposition of antidumping and/or countervailing duties on crude oil imported into the US from these countries. Saudi Arabia’s and Russia’s actions have already, and will continue to, harm U.S domestic crude oil producers and industry.”

The petition seeks to protect the U.S. domestic crude oil industry, U.S. energy security, and the U.S. economy.  DEPA is moving expeditiously to investigate and potentially to prepare a filing.


https://depausa.org/depa-announces-anti-dumping-investigation/

https://www.theamericanconservative.com/articles/time-to-slap-a-tariff-on-oil-imports/


Trump to meet at White House with oil CEOs
Goal is to talk potential aid to the industry, including tariffs on oil imports from Saudi Arabia...


https://twitter.com/TimPuko/status/1245411721281523712

It’s not anti dumping be sure the Saudis and the Russians still make a profit.

Anyways, the tariff would just be a tax on consumers since the US also exports crude. Adjacent industries (petrochemicals, refineries) probably would need to close because they are not cost competitive.

The more i think about it the more i think it's likely Trump does agree to a temporary tariff on foreign crude. It's just his style. You said that refineries will close...they are already closing. The adjacent industries work at $40 oil during normal times. Right now they don't work at any price, so why not do the temporary tariff until demand comes back? trump can say he saved millions of energy jobs.

I don't want to get into a political discussion about whether it's the right thing to do, but instead, discuss how likely Trump is to make that decision.

If it does happen, what are the second-order effects? What happens to all the oil coming out of Saudi Arabia? Does the spot price in Asia also jump? what about tanker demand?


Title: Re: Energy Sector
Post by: SharperDingaan on April 02, 2020, 06:16:51 AM
Just to throw some things out ...

The WH meeting with the heads of the oil majors, is no different to when Bernanke met with the heads of US banks.
It's 'here's what we're going to do' ... not a discussion. Our own thoughts are tariffs by the end of April.

It's probably the opening round of muscular 'negotiation'.
Do versus talk, and stability until the economy is back to what it was. 12 months+
People are being paid to stay home anyway, with $QE, so most realized 2nd order effects will be external.

The game changer is India. Covid-19 is now starting to bite, and much of their in-sourced production is reversing. As China did, their oil consumption is going to collapse. China's consumption isn't going back to what it was, while NA/Europe is dealing with Covid. Take out NA consumption, and the external price must drop like a brick. But nice and cosy, 'inside' the tarif wall.

No point to storage, and this strands whatever external storage is already there, if the external price is going lower.               
And it WILL go lower - as nothing prevents the NA block from dumping into the external market. Swing production is a bitch.

Allow the EU into the circle, and the US/Europe can leave the ME.
Done being policeman, and don't need to, as we're now largely self-sufficient. And for a very long time.

So, gentlemen .... let's negotiate.

SD

 
Title: Re: Energy Sector
Post by: matts on April 02, 2020, 06:33:24 AM
Just to throw some things out ...

The WH meeting with the heads of the oil majors, is no different to when Bernanke met with the heads of US banks.
It's 'here's what we're going to do' ... not a discussion. Our own thoughts are tariffs by the end of April.

It's probably the opening round of muscular 'negotiation'.
Do versus talk, and stability until the economy is back to what it was. 12 months+
People are being paid to stay home anyway, with $QE, so most realized 2nd order effects will be external.

The game changer is India. Covid-19 is now starting to bite, and much of their in-sourced production is reversing. As China did, their oil consumption is going to collapse. China's consumption isn't going back to what it was, while NA/Europe is dealing with Covid. Take out NA consumption, and the external price must drop like a brick. But nice and cosy, 'inside' the tarif wall.

No point to storage, and this strands whatever external storage is already there, if the external price is going lower.               
And it WILL go lower - as nothing prevents the NA block from dumping into the external market. Swing production is a bitch.

Allow the EU into the circle, and the US/Europe can leave the ME.
Done being policeman, and don't need to, as we're now largely self-sufficient. And for a very long time.

So, gentlemen .... let's negotiate.

SD

 

If you take out NA demand you also have to take out NA supply. US won't be exporting anything at 20 bucks a barrel. so I'm not sure if the price would collapse. US would just disappear from both the supply and demand side. I do realize I'm oversimplifying because certain refineries are geared towards certain types of crude. But big picture, I don't follow that the global Brent price has to collapse in a US tariff scenario.


Title: Re: Energy Sector
Post by: SharperDingaan on April 02, 2020, 07:34:12 AM
Just to throw some things out ...

The WH meeting with the heads of the oil majors, is no different to when Bernanke met with the heads of US banks.
It's 'here's what we're going to do' ... not a discussion. Our own thoughts are tariffs by the end of April.

It's probably the opening round of muscular 'negotiation'.
Do versus talk, and stability until the economy is back to what it was. 12 months+
People are being paid to stay home anyway, with $QE, so most realized 2nd order effects will be external.

The game changer is India. Covid-19 is now starting to bite, and much of their in-sourced production is reversing. As China did, their oil consumption is going to collapse. China's consumption isn't going back to what it was, while NA/Europe is dealing with Covid. Take out NA consumption, and the external price must drop like a brick. But nice and cosy, 'inside' the tarif wall.

No point to storage, and this strands whatever external storage is already there, if the external price is going lower.               
And it WILL go lower - as nothing prevents the NA block from dumping into the external market. Swing production is a bitch.

Allow the EU into the circle, and the US/Europe can leave the ME.
Done being policeman, and don't need to, as we're now largely self-sufficient. And for a very long time.

So, gentlemen .... let's negotiate.

SD

 

If you take out NA demand you also have to take out NA supply. US won't be exporting anything at 20 bucks a barrel. so I'm not sure if the price would collapse. US would just disappear from both the supply and demand side. I do realize I'm oversimplifying because certain refineries are geared towards certain types of crude. But big picture, I don't follow that the global Brent price has to collapse in a US tariff scenario.

Big picture is China, India, and EU on the consumption side. Russia, ME, Others on the supply. Storage is full. Demand has collapsed, so either supply cuts back < demand, or the margins go to zero. SA/Russia unlikely to cooperate, so EU/Brent production shuts in. EU joins the NA tariff wall, that is now 40% of consumption. EU/Brent production restarts, and stability.

SA/Russia fight it out for the remaining demand. US/EU protection looks the other way, and just maintains its arms agreements. How long do you think those SA facilities remain in one piece, should rivals and neighbours gang up? And when selling replacement weapons is just good business?

NA also doesn't have to produce the oil that it dumps. It just sells ME paper oil at today's prices, and closes out by taking tomorrows spot rate physical delivery at the specialized on-shore refineries. And it's not even 'dumping' because NA didn't produce it  ;D

SD


Title: Re: Energy Sector
Post by: james22 on April 02, 2020, 07:49:31 AM
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

https://twitter.com/realDonaldTrump/status/1245720677660925952

VDE +11%
Title: Re: Energy Sector
Post by: Foreign Tuffett on April 02, 2020, 08:38:33 AM
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

https://twitter.com/realDonaldTrump/status/1245720677660925952

VDE +11%

10 MBOPD OPEC + Russia cut isn't going to happen. That is around the same amount Saudi Arabia typically produces!
Title: Re: Energy Sector
Post by: SharperDingaan on April 02, 2020, 08:40:13 AM
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

https://twitter.com/realDonaldTrump/status/1245720677660925952

VDE +11%

The number being discussed is 15M bbl/day ... and this is before Fridays WH oil major discussion.
WCP +23%

SD
Title: Re: Energy Sector
Post by: SharperDingaan on April 02, 2020, 08:47:55 AM
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

https://twitter.com/realDonaldTrump/status/1245720677660925952

VDE +11%

10 MBOPD OPEC + Russia cut isn't going to happen. That is around the same amount Saudi Arabia typically produces!

They both have covid-19. Shut in almost entirely for 2-3 months, and sell from storage.

SD
Title: Re: Energy Sector
Post by: opihiman2 on April 02, 2020, 08:55:52 AM
Well, we finally got some direction from opec+, that's a plus.  However:

1) Will they actually cut?  That's the problem with these cartels.  No one trusts each other to cut.
2) Will it matter?  No.  They could shut down entire production and the demand destruction from Covid is still something like 85% of the market.
3) Oil prices are just bouncing.  I think we see a retest of the lows as economic #'s are coming in.

Finally, if there's anything that should be learned from all of this is that there is a TON of oil out there.  In retrospect, peak oil was the dumbest idea floated.  There is so much oil, and with new extraction technologies, I think we will see enough oil to last centuries at this point.  Especially with the start to electrify autos.  Deep Basin Capital has said that there will be a large cap on oil prices going forward.  I think so too.  It will be a multi decade bear market in oil prices where prices bounce around a range. 

That is of course we have something insanely ridiculous like a oil tariff wall around North America. 
Title: Re: Energy Sector
Post by: james22 on April 02, 2020, 09:09:31 AM
Anyone believe Trump could ask for a 50% production cut without threatening a tariff?
Title: Re: Energy Sector
Post by: Foreign Tuffett on April 02, 2020, 09:14:32 AM
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!

https://twitter.com/realDonaldTrump/status/1245720677660925952

VDE +11%

10 MBOPD OPEC + Russia cut isn't going to happen. That is around the same amount Saudi Arabia typically produces!

What might happen is that Russia might use legacy stripper well production that is in the process of being shut in as a bargaining chip. So a Russian 1 MBOPD "cut" could be entirely composed of production shut in due to low prices.
Title: Re: Energy Sector
Post by: opihiman2 on April 02, 2020, 10:09:28 AM
Geezus, I've been bamboozled by the media!  Looks like Trump's tweet might be bullshit:

https://oilprice.com/Energy/Energy-General/Russia-Oil-Producing-Countries-Not-Discussing-Any-New-Deal.html

https://oilprice.com/Energy/Energy-General/Why-A-15-Million-Bpd-Cut-Will-Never-Happen.html

Yeah, it doesn't make sense to me why Russia would cooperate with fucking USA to subsidize their bullshit, inefficient oil production.  We'll see.  I'll believe all of this when production #'s come down outside of the US. in the next IEA report.
Title: Re: Energy Sector
Post by: Liberty on April 02, 2020, 11:16:16 AM
Kasparov:

https://twitter.com/Kasparov63/status/1245767368250400772?s=20

Quote
Had a whistleblower leaked to the media that Trump, Putin, and bin Salman were conspiring to raise the price of oil & gas to prop up the industry, it would be a huge scandal. Instead, Trump tweets it.

Trump should be working with Congress and every US institution to help the American people, including those who work in the energy sector. Instead, he's working with two brutal dictatorships to prop up their regimes & put more money in their pockets.
Title: Re: Energy Sector
Post by: SharperDingaan on April 02, 2020, 11:18:42 AM
Trump just puts the tariff up, and then talks. The opening ante is a 12.5 million bbl/d cut, for a couple of months.
Don't care how you do it.

SD
Title: Re: Energy Sector
Post by: opihiman2 on April 02, 2020, 11:43:29 AM
How the hell does Kasparov know anything worth a shit when it comes to oil? 

From the IEA:

https://www.iea.org/articles/the-global-oil-industry-is-experiencing-shock-like-no-other-in-its-history

and not some rando's on the Internet!  We'll see tomorrow whether Trump is full of shit or not. 
Title: Re: Energy Sector
Post by: rb on April 02, 2020, 11:52:38 AM
A tariff on oil has got to be the dumbest thing one can possibly come up with.

If people have to pay to keep these guys in business then why not nationalize the oil industry? Texas can go cry in a beer.
Title: Re: Energy Sector
Post by: Jurgis on April 02, 2020, 11:55:17 AM
A tariff on oil has got to be the dumbest thing one can possibly come up with.

Then it's certain to be enacted.
Title: Re: Energy Sector
Post by: DooDiligence on April 02, 2020, 01:46:34 PM
How the hell does Kasparov know anything worth a shit when it comes to oil? 

From the IEA:

https://www.iea.org/articles/the-global-oil-industry-is-experiencing-shock-like-no-other-in-its-history

and not some rando's on the Internet!  We'll see tomorrow whether Trump is full of shit or not.

Trumps understanding of oil is perfect :o
and he's full of shit 24/7.
Title: Re: Energy Sector
Post by: Foreign Tuffett on April 02, 2020, 03:51:21 PM
Kasparov:

https://twitter.com/Kasparov63/status/1245767368250400772?s=20

Quote
Had a whistleblower leaked to the media that Trump, Putin, and bin Salman were conspiring to raise the price of oil & gas to prop up the industry, it would be a huge scandal. Instead, Trump tweets it.

Trump should be working with Congress and every US institution to help the American people, including those who work in the energy sector. Instead, he's working with two brutal dictatorships to prop up their regimes & put more money in their pockets.

Kasparov couldn't be more wrong. OPEC+ is a cartel. Everyone knows that OPEC+ is a cartel.

Trump's tweet is nonsense and ill-advised, but there isn't anything criminal about the US President asking the largest OPEC+ members to reduce oil production in the face of a worldwide glut and historically weak demand.
Title: Re: Energy Sector
Post by: opihiman2 on April 02, 2020, 04:31:00 PM
This is all stupid.  After thinking about it some more.  WTF would Russia cut production to 5+ mpd when the US is trucking along at 12 mpd???  Russia is denying now and SA just went silent.

This is bullshit.  Oil is going to tank back to $20.
Title: Re: Energy Sector
Post by: SharperDingaan on April 02, 2020, 04:40:15 PM
This is all stupid.  After thinking about it some more.  WTF would Russia cut production to 5+ mpd when the US is trucking along at 12 mpd???  Russia is denying now and SA just went silent.

This is bullshit.  Oil is going to tank back to $20.

Everyone, together, either cuts back 10-15M bbl/d (& maintains it), or a NA tariff goes up.
The US may accept some cut-back, but not a lot, as they have the tarif wall to fall back on.
Muscular negotiation.

SD

Title: Re: Energy Sector
Post by: Spekulatius on April 02, 2020, 04:54:39 PM
Kasparov:

https://twitter.com/Kasparov63/status/1245767368250400772?s=20

Quote
Had a whistleblower leaked to the media that Trump, Putin, and bin Salman were conspiring to raise the price of oil & gas to prop up the industry, it would be a huge scandal. Instead, Trump tweets it.

Trump should be working with Congress and every US institution to help the American people, including those who work in the energy sector. Instead, he's working with two brutal dictatorships to prop up their regimes & put more money in their pockets.

Kasparov couldn't be more wrong. OPEC+ is a cartel. Everyone knows that OPEC+ is a cartel.

Trump's tweet is nonsense and ill-advised, but there isn't anything criminal about the US President asking the largest OPEC+ members to reduce oil production in the face of a worldwide glut and historically weak demand.

It‘s Ok to ask, but does anyone believe what Trump tweeted is actually real? He has duped the markets before...
Title: Re: Energy Sector
Post by: Casey on April 02, 2020, 07:39:05 PM
Kasparov:

https://twitter.com/Kasparov63/status/1245767368250400772?s=20

Quote
Had a whistleblower leaked to the media that Trump, Putin, and bin Salman were conspiring to raise the price of oil & gas to prop up the industry, it would be a huge scandal. Instead, Trump tweets it.

Trump should be working with Congress and every US institution to help the American people, including those who work in the energy sector. Instead, he's working with two brutal dictatorships to prop up their regimes & put more money in their pockets.

Kasparov couldn't be more wrong. OPEC+ is a cartel. Everyone knows that OPEC+ is a cartel.

Trump's tweet is nonsense and ill-advised, but there isn't anything criminal about the US President asking the largest OPEC+ members to reduce oil production in the face of a worldwide glut and historically weak demand.

It‘s Ok to ask, but does anyone believe what Trump tweeted is actually real? He has duped the markets before...

I would read it similar to 'Funding secured.' They talked about oil. Words were spoken. Numbers were thrown around. Trump tweeted some of them. There is zero agreement, but Trump would like the price of oil to go up.
Title: Re: Energy Sector
Post by: Gregmal on April 02, 2020, 07:53:58 PM
I would agree with you guys on principle but possibly diverge if you look further into it. Funding secured is a correct comp. Donny heard some jubilant things and spouted off when it was likely an overreaction. At the same time, should we believe that certain types of nations rigged things in favor of Trump, wouldn't it also make sense that they may take some actions to help him stay in power? Especially right now where it appears he may lose re-election?
Title: Re: Energy Sector
Post by: rb on April 03, 2020, 04:06:50 AM
I would agree with you guys on principle but possibly diverge if you look further into it. Funding secured is a correct comp. Donny heard some jubilant things and spouted off when it was likely an overreaction. At the same time, should we believe that certain types of nations rigged things in favor of Trump, wouldn't it also make sense that they may take some actions to help him stay in power? Especially right now where it appears he may lose re-election?
Sure, it may make some sense. But I'm willing to bet that cutting their oil production in half when oil production is their main production ain't it.

On the other hand will cutting a deal to increase the price of oil be beneficial from an electoral standpoint? I seem to recall back in 2012 that Obama was getting slammed for how much a gallon of gas costs. Maybe times have changes idk. One thing to keep in mind is that EVERYONE hates the oil companies.
Title: Re: Energy Sector
Post by: james22 on April 03, 2020, 04:23:58 AM
One thing to keep in mind is that EVERYONE hates the oil companies.

Do you know how I know you don't live in Texas?
Title: Re: Energy Sector
Post by: rb on April 03, 2020, 04:42:04 AM
One thing to keep in mind is that EVERYONE hates the oil companies.

Do you know how I know you don't live in Texas?
Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%.
Title: Re: Energy Sector
Post by: james22 on April 03, 2020, 09:08:25 AM
One thing to keep in mind is that EVERYONE hates the oil companies.

Do you know how I know you don't live in Texas?
Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%.

Maybe even higher in Austin...

But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus.

I believe a tariff would be pretty well received.
Title: Re: Energy Sector
Post by: SharperDingaan on April 03, 2020, 09:24:15 AM
Keep in mind too, that the price behind the tariff can be periodically changed as well.
Most would be OK with a minimum price enabling NA security of supply, and world price for anything above that.

SD
Title: Re: Energy Sector
Post by: KJP on April 03, 2020, 09:33:14 AM
One thing to keep in mind is that EVERYONE hates the oil companies.

Do you know how I know you don't live in Texas?
Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%.

Maybe even higher in Austin...

But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus.

I believe a tariff would be pretty well received.

Do you think most people value long-term intangible things like "energy independence" over higher prices at the pump?  Will tariff revenues be used to offset a cut in the gasoline tax?  (I assume tariffs would also be imposed on refined products.)

More broadly, if a large percentage of oil production in the US were shut-in (and new drilling went essentially to zero), how long would it take to restart that shut-in production and how much damage would there be to reservoirs?  It seems to me that we'd do more to preserve our energy independence by leaving it easily accessible in the ground and taking advantage of foreign sellers willing to sell us oil at very low prices. 
Title: Re: Energy Sector
Post by: rb on April 03, 2020, 09:49:42 AM
But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus.

I believe a tariff would be pretty well received.
See how I know you're from Texas?

When oil prices were high people had to pay the oil companies because it's a global market and the price is set globally. Now when oil prices are low, people still have to pay the oil companies, only this time they do it "for their country".

Not only are people not gonna go for it. You're gonna be able to hear the laughter from space. It will be so loud it will defy the laws of physics.
Title: Re: Energy Sector
Post by: matts on April 03, 2020, 09:54:54 AM
One thing to keep in mind is that EVERYONE hates the oil companies.

Do you know how I know you don't live in Texas?
Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%.

Maybe even higher in Austin...

But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus.

I believe a tariff would be pretty well received.

Do you think most people value long-term intangible things like "energy independence" over higher prices at the pump?  Will tariff revenues be used to offset a cut in the gasoline tax?  (I assume tariffs would also be imposed on refined products.)

More broadly, if a large percentage of oil production in the US were shut-in (and new drilling went essentially to zero), how long would it take to restart that shut-in production and how much damage would there be to reservoirs?  It seems to me that we'd do more to preserve our energy independence by leaving it easily accessible in the ground and taking advantage of foreign sellers willing to sell us oil at very low prices.

How many times have you been to the pump last couple of weeks? This tariff would not be forever. For right now, I think it will make a lot of sense to trump (not necessarily make sense to many of us).
Title: Re: Energy Sector
Post by: KJP on April 03, 2020, 10:01:11 AM
One thing to keep in mind is that EVERYONE hates the oil companies.

Do you know how I know you don't live in Texas?
Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%.

Maybe even higher in Austin...

But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus.

I believe a tariff would be pretty well received.

Do you think most people value long-term intangible things like "energy independence" over higher prices at the pump?  Will tariff revenues be used to offset a cut in the gasoline tax?  (I assume tariffs would also be imposed on refined products.)

More broadly, if a large percentage of oil production in the US were shut-in (and new drilling went essentially to zero), how long would it take to restart that shut-in production and how much damage would there be to reservoirs?  It seems to me that we'd do more to preserve our energy independence by leaving it easily accessible in the ground and taking advantage of foreign sellers willing to sell us oil at very low prices.

How many times have you been to the pump last couple of weeks? This tariff would not be forever. For right now, I think it will make a lot of sense to trump (not necessarily make sense to many of us).

My comment was directed at the validity of the reference to "energy independence," not whether or not Trump will actually impose a tariff.  As you imply, there are other reasons that Trump might favor a tariff, such as protecting big donors from the oil patch.

I suspect the claim of "energy independence" will be used to sell any such action to the public.  But is that claim factually valid?  That's what I'm trying to get at.
Title: Re: Energy Sector
Post by: ValuePadawan on April 03, 2020, 10:03:05 AM
Even if a deal was reached tomorrow and I highly doubt it. There are still hundreds of VLCCs on their way to deliver oil to places around the world for at least a month because thats how long those deliveries take. Not to mention all the tankers docked storing oil waiting for higher prices.

The Russian's oil comes from extremely swampy areas of Siberia where if you shut-in those wells there is a high risk of well damage, then they have to wait for the winter freeze to come before they can re-drill. Last year when Russia "cut production" it was actually just some seasonal maintenance which means the bulk of cuts will have to come from the U.S and OPEC.

A lot of US producers are 60% hedged for this year and with credit being free they have some breathing room and unless OPEC wants to lose massive market share they must keep pumping. The Saudis are filling every ship they can and docking them off the coast of all the places Russian pipelines deliver to trying to create such a surge in those local markets that the Russians won't be able to get their oil out of the pipes leading to a back-up and the Russians forced to shut their wells or risk just dousing Siberia in lakes of crude. If the Russians have to shut their wells and re-drill them all, the Saudis could knock out Russian oil infrastructure for a couple years while they re drill it all.

If a cut was instituted OPEC would be taking the brunt of it, maybe some non-OPEC players would join in (Alberta, Azerbaijan etc) and they would have to cut at least 15 Million barrels to even start to normalize the glut in the world. I rate that possibility as very low and expect this glut to persist for quite a while.

During a lockdown or quarantine or whatever you want to call it road traffic drops by 2/3 and road transportation is 2/3 of oil use in the major economies. So lets say oil demand drops during that period by 30%. Italy started their quarantine on March 9 and they are finally getting control of their situation. They have said it will last until at least April 13th. Lets say the Major oil consuming nations of the world spend a month with a 30% demand drop of oil. That's 70 million barrels of demand for 30 days while producing 100 million barrels a day. Thats a surplus of 900 million barrels.

Incidentally B of A thinks the world has 900 million barrels of land storage, Goldman thinks there is about a billion so the number is probably in that ballpark.

So we should be fine then right? Wrong. While the initial quarantine could create excess of around a billion barrels of oil, countries do not go back to 100% oil demand overnight. It will probably take at least another month before oil gets back to normal and that could be another 30 days with 10-15 million barrel surplus. That's anywhere from 300-450 million barrels that will have to be stored on tankers and in railcars and anywhere people can find storage.

Using VLCC and ULCC tankers for storage could take 100-200 tankers out of a fleet of around 770. Tanker charter rates have already jumped to anywhere from $250,000-$300,000 a day. Tankers make money when rates are over $25,000/day so they are making a boatload of money right now (sorry for the pun I couldn't help it). With a surplus of 1.3-1.4 billion barrels how long will that take to burn through? If Opec the Russians and the Americans all cut a total of 10 million barrels and demand goes to 100million a day with supply at 90 million it would take 130 days to get throught the stockpile thats at least four months of low oil prices and charter rates being extraordinarily high. I think the tankers are going to be printing presses this year.

The CEO of Frontline made a bet in a conversation (https://soundcloud.com/dnb_podcast/tanker-market-outlook-with-frontline-ceo-robert-hvide-macleod) with a shipping analyst that if charter rates in the third quarter stay above the January charter rates the analyst has to buy the Frontline management dinner. But if the analyst was right and charter rates fall back down to regular levels in the third quarter the CEO would walk from Oslo to Bergen which is nearly 500km! Sounds like he has no intention of losing that bet.

Disclosure I own some tanker companies.
Title: Re: Energy Sector
Post by: Gregmal on April 03, 2020, 10:09:51 AM
I want to and have flirted with the tanker trade for a while, but too many moving parts for me and frankly, too many things that dont make sense. Most obviously, the primary one being, why TF are the stocks getting annihilated with $200k day rates?
Title: Re: Energy Sector
Post by: matts on April 03, 2020, 10:15:00 AM
Even if a deal was reached tomorrow and I highly doubt it. There are still hundreds of VLCCs on their way to deliver oil to places around the world for at least a month because thats how long those deliveries take. Not to mention all the tankers docked storing oil waiting for higher prices.

The Russian's oil comes from extremely swampy areas of Siberia where if you shut-in those wells there is a high risk of well damage, then they have to wait for the winter freeze to come before they can re-drill. Last year when Russia "cut production" it was actually just some seasonal maintenance which means the bulk of cuts will have to come from the U.S and OPEC.

A lot of US producers are 60% hedged for this year and with credit being free they have some breathing room and unless OPEC wants to lose massive market share they must keep pumping. The Saudis are filling every ship they can and docking them off the coast of all the places Russian pipelines deliver to trying to create such a surge in those local markets that the Russians won't be able to get their oil out of the pipes leading to a back-up and the Russians forced to shut their wells or risk just dousing Siberia in lakes of crude. If the Russians have to shut their wells and re-drill them all, the Saudis could knock out Russian oil infrastructure for a couple years while they re drill it all.

If a cut was instituted OPEC would be taking the brunt of it, maybe some non-OPEC players would join in (Alberta, Azerbaijan etc) and they would have to cut at least 15 Million barrels to even start to normalize the glut in the world. I rate that possibility as very low and expect this glut to persist for quite a while.

During a lockdown or quarantine or whatever you want to call it road traffic drops by 2/3 and road transportation is 2/3 of oil use in the major economies. So lets say oil demand drops during that period by 30%. Italy started their quarantine on March 9 and they are finally getting control of their situation. They have said it will last until at least April 13th. Lets say the Major oil consuming nations of the world spend a month with a 30% demand drop of oil. That's 70 million barrels of demand for 30 days while producing 100 million barrels a day. Thats a surplus of 900 million barrels.

Incidentally B of A thinks the world has 900 million barrels of land storage, Goldman thinks there is about a billion so the number is probably in that ballpark.

So we should be fine then right? Wrong. While the initial quarantine could create excess of around a billion barrels of oil, countries do not go back to 100% oil demand overnight. It will probably take at least another month before oil gets back to normal and that could be another 30 days with 10-15 million barrel surplus. That's anywhere from 300-450 million barrels that will have to be stored on tankers and in railcars and anywhere people can find storage.

Using VLCC and ULCC tankers for storage could take 100-200 tankers out of a fleet of around 770. Tanker charter rates have already jumped to anywhere from $250,000-$300,000 a day. Tankers make money when rates are over $25,000/day so they are making a boatload of money right now (sorry for the pun I couldn't help it). With a surplus of 1.3-1.4 billion barrels how long will that take to burn through? If Opec the Russians and the Americans all cut a total of 10 million barrels and demand goes to 100million a day with supply at 90 million it would take 130 days to get throught the stockpile thats at least four months of low oil prices and charter rates being extraordinarily high. I think the tankers are going to be printing presses this year.

The CEO of Frontline made a bet in a conversation (https://soundcloud.com/dnb_podcast/tanker-market-outlook-with-frontline-ceo-robert-hvide-macleod) with a shipping analyst that if charter rates in the third quarter stay above the January charter rates the analyst has to buy the Frontline management dinner. But if the analyst was right and charter rates fall back down to regular levels in the third quarter the CEO would walk from Oslo to Bergen which is nearly 500km! Sounds like he has no intention of losing that bet.

Disclosure I own some tanker companies.

What's the 6-month brent contango right now? you can calculate the breakeven daily rate for a VLCC in order to make any money on storage (add some margin for the trader, insurance etc). The numbers made sense last week, but they don't make sense today anywhere near where day rates were a couple of days ago. day rates are likely coming down hard unless the contango move back up to where they were before trump opened his mouth. 

Title: Re: Energy Sector
Post by: ValuePadawan on April 03, 2020, 10:21:27 AM
Even if a deal was reached tomorrow and I highly doubt it. There are still hundreds of VLCCs on their way to deliver oil to places around the world for at least a month because thats how long those deliveries take. Not to mention all the tankers docked storing oil waiting for higher prices.

The Russian's oil comes from extremely swampy areas of Siberia where if you shut-in those wells there is a high risk of well damage, then they have to wait for the winter freeze to come before they can re-drill. Last year when Russia "cut production" it was actually just some seasonal maintenance which means the bulk of cuts will have to come from the U.S and OPEC.

A lot of US producers are 60% hedged for this year and with credit being free they have some breathing room and unless OPEC wants to lose massive market share they must keep pumping. The Saudis are filling every ship they can and docking them off the coast of all the places Russian pipelines deliver to trying to create such a surge in those local markets that the Russians won't be able to get their oil out of the pipes leading to a back-up and the Russians forced to shut their wells or risk just dousing Siberia in lakes of crude. If the Russians have to shut their wells and re-drill them all, the Saudis could knock out Russian oil infrastructure for a couple years while they re drill it all.

If a cut was instituted OPEC would be taking the brunt of it, maybe some non-OPEC players would join in (Alberta, Azerbaijan etc) and they would have to cut at least 15 Million barrels to even start to normalize the glut in the world. I rate that possibility as very low and expect this glut to persist for quite a while.

During a lockdown or quarantine or whatever you want to call it road traffic drops by 2/3 and road transportation is 2/3 of oil use in the major economies. So lets say oil demand drops during that period by 30%. Italy started their quarantine on March 9 and they are finally getting control of their situation. They have said it will last until at least April 13th. Lets say the Major oil consuming nations of the world spend a month with a 30% demand drop of oil. That's 70 million barrels of demand for 30 days while producing 100 million barrels a day. Thats a surplus of 900 million barrels.

Incidentally B of A thinks the world has 900 million barrels of land storage, Goldman thinks there is about a billion so the number is probably in that ballpark.

So we should be fine then right? Wrong. While the initial quarantine could create excess of around a billion barrels of oil, countries do not go back to 100% oil demand overnight. It will probably take at least another month before oil gets back to normal and that could be another 30 days with 10-15 million barrel surplus. That's anywhere from 300-450 million barrels that will have to be stored on tankers and in railcars and anywhere people can find storage.

Using VLCC and ULCC tankers for storage could take 100-200 tankers out of a fleet of around 770. Tanker charter rates have already jumped to anywhere from $250,000-$300,000 a day. Tankers make money when rates are over $25,000/day so they are making a boatload of money right now (sorry for the pun I couldn't help it). With a surplus of 1.3-1.4 billion barrels how long will that take to burn through? If Opec the Russians and the Americans all cut a total of 10 million barrels and demand goes to 100million a day with supply at 90 million it would take 130 days to get throught the stockpile thats at least four months of low oil prices and charter rates being extraordinarily high. I think the tankers are going to be printing presses this year.

The CEO of Frontline made a bet in a conversation (https://soundcloud.com/dnb_podcast/tanker-market-outlook-with-frontline-ceo-robert-hvide-macleod) with a shipping analyst that if charter rates in the third quarter stay above the January charter rates the analyst has to buy the Frontline management dinner. But if the analyst was right and charter rates fall back down to regular levels in the third quarter the CEO would walk from Oslo to Bergen which is nearly 500km! Sounds like he has no intention of losing that bet.

Disclosure I own some tanker companies.

What's the 6-month brent contango right now? you can calculate the breakeven daily rate for a VLCC in order to make any money on storage (add some margin for the trader, insurance etc). The numbers made sense last week, but they don't make sense today anywhere near where day rates were a couple of days ago. day rates are likely coming down hard unless the contango move back up to where they were before trump opened his mouth.

Trump mentioned a 10 million cut and prices went up 30% on pure speculation https://www.bloomberg.com/news/articles/2020-04-03/opec-to-hold-virtual-meeting-monday-as-trump-pushes-for-cut I'm fully expecting oil prices to drop when the world realizes even if a 10 million cut happens it doesn't matter when 30 million less are being consumed. When oil prices go back down the contango gets steep again and tanker make money hand over fist at least through q3.
Title: Re: Energy Sector
Post by: ValuePadawan on April 03, 2020, 10:22:22 AM
I want to and have flirted with the tanker trade for a while, but too many moving parts for me and frankly, too many things that dont make sense. Most obviously, the primary one being, why TF are the stocks getting annihilated with $200k day rates?
They are in energy ETFs which people are selling hand over fist? Throwing the baby out with the bathwater? Pure speculation because I honestly don't know.
Title: Re: Energy Sector
Post by: matts on April 03, 2020, 10:28:52 AM
I want to and have flirted with the tanker trade for a while, but too many moving parts for me and frankly, too many things that dont make sense. Most obviously, the primary one being, why TF are the stocks getting annihilated with $200k day rates?
They are in energy ETFs which people are selling hand over fist? Throwing the baby out with the bathwater? Pure speculation because I honestly don't know.

sorry, not trying to pick on you, but are you sure that's correct?

https://etfdailynews.com/stock/DHT/

https://etfdailynews.com/stock/TNK/

I don't see the major energy etfs on those lists.
Title: Re: Energy Sector
Post by: Gregmal on April 03, 2020, 10:31:11 AM
I want to and have flirted with the tanker trade for a while, but too many moving parts for me and frankly, too many things that dont make sense. Most obviously, the primary one being, why TF are the stocks getting annihilated with $200k day rates?
They are in energy ETFs which people are selling hand over fist? Throwing the baby out with the bathwater? Pure speculation because I honestly don't know.

Yea Im not too proud to admit, me neither. No clue. I ve just found it prudent to ignore the urge to be full blown value investor and revert to "price is what you pay, value is what you get" in the face of price action that continually, and for long extended periods of time, has flown smack in the face of what conventional wisdom tells you. Look at some energy stocks a half decade ago, auto stocks basically the entire decade, even some of the financials....when you're supposedly gushing cash but the market rewards you nil, or negatively, something is off. If there arent effective levers or shareholder actions to take to correct this, tread carefully. The saying, much like with the autos, was that theyre in the penalty box for good reason, but in much healthier shape and will hold up better through the next cycle.... yea... about that.... So with tankers, uhhh, tread carefully I guess.
Title: Re: Energy Sector
Post by: ValuePadawan on April 03, 2020, 10:31:54 AM
I want to and have flirted with the tanker trade for a while, but too many moving parts for me and frankly, too many things that dont make sense. Most obviously, the primary one being, why TF are the stocks getting annihilated with $200k day rates?
They are in energy ETFs which people are selling hand over fist? Throwing the baby out with the bathwater? Pure speculation because I honestly don't know.

sorry, not trying to pick on you, but are you sure that's correct?

https://etfdailynews.com/stock/DHT/

https://etfdailynews.com/stock/TNK/

I don't see the major energy etfs on those lists.
Those were just guesses hence why I said pure speculation I just don't know why this hasn't been priced in yet and don't worry I don't feel picked on I actually appreciate when people can help me destroy my ideas, it helps me find my blind spots!
Title: Re: Energy Sector
Post by: ValuePadawan on April 03, 2020, 10:34:15 AM
I want to and have flirted with the tanker trade for a while, but too many moving parts for me and frankly, too many things that dont make sense. Most obviously, the primary one being, why TF are the stocks getting annihilated with $200k day rates?
They are in energy ETFs which people are selling hand over fist? Throwing the baby out with the bathwater? Pure speculation because I honestly don't know.

Yea Im not too proud to admit, me neither. No clue. I ve just found it prudent to ignore the urge to be full blown value investor and revert to "price is what you pay, value is what you get" in the face of price action that continually, and for long extended periods of time, has flown smack in the face of what conventional wisdom tells you. Look at some energy stocks a half decade ago, auto stocks basically the entire decade, even some of the financials....when you're supposedly gushing cash but the market rewards you nil, or negatively, something is off. If there arent effective levers or shareholder actions to take to correct this, tread carefully. The saying, much like with the autos, was that theyre in the penalty box for good reason, but in much healthier shape and will hold up better through the next cycle.... yea... about that.... So with tankers, uhhh, tread carefully I guess.

Thanks I will I made this a small bet as I see high reward but higher risk than I am usually comfortable with however with some being at NAV I don't see much downside. Heads I win tails I don't lose.
Title: Re: Energy Sector
Post by: SharperDingaan on April 03, 2020, 10:40:49 AM
'Energy Independence' just means reduced price volatility.
A business environment that is predictable enough to enable investment in long-term infrastructure, that's it. The benefit being that when you really need that oil/gas, you have some. It's a put on the downside, there's a cost to do that, and 'we the people' pay it because its the most practical solution.

As has already been pointed out, the issue isn't just supply, it's the massive inventory.
The smartest solution is to just shut everything in for 3 months, pay people to stay home, and meet the demand from inventory. In the West, with Corona everywhere, we are already paying people to stay home - and for months. The ME and Russia is not going to shut-in unless forced, the NA tariff wall is just the club. There will be shut-in production in NA as well, but we'll just get the higher tariff price, and the business stability to permit the mega-projects to go forward. Everybody benefits.

Sure there's lots of screaming. So do your kids, when you take away the TV.

SD

Title: Re: Energy Sector
Post by: rb on April 03, 2020, 11:11:23 AM
Kids don't get to vote.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 04, 2020, 05:06:08 AM
https://www.bloomberg.com/news/articles/2020-04-04/saudi-arabia-says-putin-s-comments-on-opec-deal-is-incorrect?srnd=premium&sref=MIJkHqWM

Quote
The OPEC+ meeting to try to end the oil price war is unlikely to go ahead on Monday as previously expected, as Riyadh and Moscow trade barbs about who’s to blame for the collapse in oil prices.

The OPEC+ alliance needs more time for negotiations, a delegate familiar with the matter said, noting the gathering may still happen a few days later next week. Beyond the alliance, Saudi Arabia and Russia have indicated they want other oil countries to join in any output cuts, complicating efforts to call a meeting, the delegate said, asking not to be named discussing diplomatic matters.

Well, guess Trump's phone calls didn't work out the way he wanted...

This whole thing reeks of game theory dynamics--prisoner's dilemma. If one producer reduces to help the whole, it's meaningless if no one else partakes.

What do you assign the odds of a group consisting of SA, Russia, Iran, Venezuela, etc coming together and *trusting* each other to meet reductions in a time like this when everyone is desperate for revenue? And you think Trump has power to tell U.S. producers to cut? Think they'll all listen to him?

Russia and SA probably looking to end shale producers as well, they just need to string Trump along for a while until it happens. Too bad that even in Chapter 11, those wells keep running, and post-bankruptcy, their break even crude prices will be lower so they can start drilling again when crude rises a bit more.
Title: Re: Energy Sector
Post by: SharperDingaan on April 04, 2020, 06:42:17 AM
Gaming is just gain optimization, within a fixed 'internal' set of parameters (the 'game'), even Nash recognized that. But Nash also recognized that you could game 'external' disruption, by changing game parameters (game 'changing', and game 'setting'). NA is game 'changing', SA/Russia are game 'optimizing'. Who you think wins, depends on who is funding your POV.

Whatever the opinion, the reality is that everybody needs higher prices, and asap.
In the near-term, simply stop flooding (Opec+). In the long term, enable a stable planning environment (US Shale). The existing 'game'.
The game 'changer' is a viable NA tariff wall, and the game 'set' is more discipline in the shale patch. New 'game'.

Lots of mystery, and high stakes, for all involved - but 'do nothing', is not an option. 'More time', is just back channel 'communication'. Iran (under sanctions) and Iraq are still producing, as are the rest of the Gulf states. How much existing inventory, goes into new 'strategic reserves', who's are they, and where?     

In today's climate, most would expect some kind of 'proof of commitment'.
So if there's no 'special meeting' next week ... and no cuts ...

SD


Title: Re: Energy Sector
Post by: Dalal.Holdings on April 04, 2020, 07:11:13 AM
https://www.bloomberg.com/news/articles/2020-04-04/russia-can-reduce-its-oil-output-by-10-if-the-u-s-joins-cuts

Quote
Russia would target a 1 million barrel-a-day cut in any new deal with other key oil producers, on condition the U.S. joins cuts, according to four people familiar with the sentiment in the industry.

The country’s President Vladimir Putin, who said that a reduction in global oil production of about 10 million barrels a days is possible and the nation is ready to participate in this “on a partnership” basis, won’t agree for Russia to take more than one-tenth of the global cuts, according to one of the people, who spoke on condition of anonymity because the matter isn’t yet public.

Putin playing hardball. Let's see if POTUS can finally leverage all his hard work in cultivating a beautiful relationship with Putin where they say "nice things" about each other into something tangible.

Title: Re: Energy Sector
Post by: alwaysdrawing on April 04, 2020, 07:23:24 AM
https://www.bloomberg.com/news/articles/2020-04-04/russia-can-reduce-its-oil-output-by-10-if-the-u-s-joins-cuts

Quote
Russia would target a 1 million barrel-a-day cut in any new deal with other key oil producers, on condition the U.S. joins cuts, according to four people familiar with the sentiment in the industry.

The country’s President Vladimir Putin, who said that a reduction in global oil production of about 10 million barrels a days is possible and the nation is ready to participate in this “on a partnership” basis, won’t agree for Russia to take more than one-tenth of the global cuts, according to one of the people, who spoke on condition of anonymity because the matter isn’t yet public.

Putin playing hardball. Let's see if POTUS can finally leverage all his hard work in cultivating a beautiful relationship with Putin where they say "nice things" about each other into something tangible.

Even if that happened, it wouldn't be enough to fix the 30 mbpd oversupply.

Any it won't happen, because everyone needs as many dollars as possible from their oil.  They can't afford to cut production, and they can't afford to cut and have the rest of the cartel cheat.

Title: Re: Energy Sector
Post by: rb on April 04, 2020, 07:54:30 AM
So Russia is saying they'll maybe kida/sorta cut 10% of their production with a deal blah, blah, blah. Global production is what? Around 80 million bpd. To get a 10 mbpd cut that would mean a 12% production cut everywhere. How likely do you think that is?
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 04, 2020, 07:58:43 AM
So Russia is saying they'll maybe kida/sorta cut 10% of their production with a deal blah, blah, blah. Global production is what? Around 80 million bpd. To get a 10 mbpd cut that would mean a 12% production cut everywhere. How likely do you think that is?

Yah, and then you have to *have faith* that SA, Russia, Iran, Venezuela, individual U.S. producers are sticking to the reductions in output. If you are one of the countries involved, how do u know you can trust everyone else? A prisoner's dilemma for sure.
Title: Re: Energy Sector
Post by: opihiman2 on April 04, 2020, 10:41:07 AM
https://www.cnbc.com/2020/04/04/oil-set-to-crater-monday-as-opec-meeting-delayed-tensions-flare-between-saudi-arabia-and-russia.html

Oil is going to crater next week. 

Even with large oil production cuts:

https://www.reuters.com/article/us-global-oil-iea/deep-opec-cuts-wont-be-enough-to-prevent-oil-inventory-build-iea-head-idUSKBN21L222?rpc=401&
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 04, 2020, 10:55:13 AM
https://www.cnbc.com/2020/04/04/oil-set-to-crater-monday-as-opec-meeting-delayed-tensions-flare-between-saudi-arabia-and-russia.html

Oil is going to crater next week. 

Even with large oil production cuts:

https://www.reuters.com/article/us-global-oil-iea/deep-opec-cuts-wont-be-enough-to-prevent-oil-inventory-build-iea-head-idUSKBN21L222?rpc=401&

Clearly our POTUS and Republican leaders need to get together urgently with oil execs to engage in "free market" tactics like price fixing and collusion. Perhaps some protectionist tariffs are in order.

Meanwhile, we need to be wary of the moral hazard of extending unemployment insurance for laid off restaurant workers. The Moral hazard of handouts for lazy workers! The agony!!
Title: Re: Energy Sector
Post by: rb on April 04, 2020, 02:34:50 PM
These guys can't even agree to hold a meeting. I'm sure they'll agree to a 15 million barrel cut.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 05:17:10 AM
https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

Quote
President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

Will WTI trade at a wide premium to Brent and will refiners get hosed?

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?
Title: Re: Energy Sector
Post by: Spekulatius on April 05, 2020, 05:54:08 AM
https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

Quote
President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

Will WTI trade at a wide premium to Brent and will refiners get hosed?

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

US refineries right now export a lot of gasoline and other products and they would certainly get hosed. They probably would have to reduce throughput and certainly the increased input cost would be passed on the consumer for gasoline, diesel, heating oil as well as chemical products. To avoid influx of crude byproducts he would need to add tariffs for those as well or probably destroy these industries that use/produce them.
Title: Re: Energy Sector
Post by: matts on April 05, 2020, 05:58:11 AM
https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

Quote
President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

Will WTI trade at a wide premium to Brent and will refiners get hosed?

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

why do people keep saying this? How many times have you been to the pump last 2 weeks? Yes, some businesses will have higher costs, but they, along with individual people are getting loans to offset the higher costs and more. More oil worker voters than truck company owner voters (many of whom just pass on the gas cost to their corporate customers anyway). The demand for transport will still be there. We still need things to get to the store and to us. Not as much as before, but higher oil prices won't kill transportation companies.

As soon as most of the country goes back to driving regularly Trump would dump the tariff. At least I assume that's what he's thinking. I don't think it's healthy, just trying to think like he thinks.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 06:07:47 AM
https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

Quote
President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

Will WTI trade at a wide premium to Brent and will refiners get hosed?

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

US refineries right now export a lot of gasoline and other products and they would certainly get hosed. They probably would have to reduce throughput and certainly the increased input cost would be passed on the consumer for gasoline, diesel, heating oil as well as chemical products. To avoid influx of crude byproducts he would need to add tariffs for those as well or probably destroy these industries that use/produce them.

Useful way to think about this. IMO, tariffs will not do much overall to WTI (without inflicting lots of damage on others in the chain) and Donnie knows he's pretty much powerless. He'd better hope all the nice things he's said about Putin and MBS pay him dividends when he needs it.

Demand has cratered (not due to the price of oil), but tariffs would pass the cost onto U.S. consumers who, though getting some loans/assistance, would not necessarily tolerate increased gas prices in an election year.

Transparent what he is doing trying to prevent losing votes in the shale patch. Almost like he's focused on this problem and relegated some of the virus related tasks to his VP/staff/daughter/son-in-law. A POTUS who spent a lifetime operating purely out of self interest gonna operate out of self interest.
Title: Re: Energy Sector
Post by: rb on April 05, 2020, 06:15:15 AM
https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

Quote
President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

Will WTI trade at a wide premium to Brent and will refiners get hosed?

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?
Wow, you guys keep coming up with ways to totally destroy the US-Canada relationship eh?

Well first off, the US is not energy independent. It normally uses up about 20 mbpd and lately production was around 13 mbpd. Around this time though 13 mbpd should probably be enough though.

But this stuff is not the same and refineries are highly geared to the grades of oil they receive. PADD 2 is highly dependent on Canadian crude. So if you shut down imports you probably get a glut in PADD 3 and have a serious shortage of product in PADD 2. Well done. Now the price skyrockets and you have gasoline shortages in the mid west. There will be other distortions but that is probably the biggest.

Economically the import ban would work like a tariff. Basically the consumers subsidizing the oil companies by paying more for product. WTI will trade at a serious premium to Brent of course.  The's probably gonna be derivative bombs that go off on balance sheets, though who knows where.

Socially a tariff or import ban is gonna be a shit show also. Picture Bernie sanders on coke in front of every microphone he can find looking like he's gonna pop a vein. Canada is probably gonna go ahead with a national energy program. Trudeau the second finishes what daddy couldn't. Might even join OPEC 🤯. OPEC membership is surely to increase for that matter as producers are gonna look to better coordinate in case of events like these. None of it is good really.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 06:38:27 AM
https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

Quote
President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

Will WTI trade at a wide premium to Brent and will refiners get hosed?

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?
Wow, you guys keep coming up with ways to totally destroy the US-Canada relationship eh?

Well first off, the US is not energy independent. It normally uses up about 20 mbpd and lately production was around 13 mbpd. Around this time though 13 mbpd should probably be enough though.

But this stuff is not the same and refineries are highly geared to the grades of oil they receive. PADD 2 is highly dependent on Canadian crude. So if you shut down imports you probably get a glut in PADD 3 and have a serious shortage of product in PADD 2. Well done. Now the price skyrockets and you have gasoline shortages in the mid west. There will be other distortions but that is probably the biggest.

Economically the import ban would work like a tariff. Basically the consumers subsidizing the oil companies by paying more for product. WTI will trade at a serious premium to Brent of course.  The's probably gonna be derivative bombs that go off on balance sheets, though who knows where.

Socially a tariff or import ban is gonna be a shit show also. Picture Bernie sanders on coke in front of every microphone he can find looking like he's gonna pop a vein. Canada is probably gonna go ahead with a national energy program. Trudeau the second finishes what daddy couldn't. Might even join OPEC 🤯. OPEC membership is surely to increase for that matter as producers are gonna look to better coordinate in case of events like these. None of it is good really.

Yeah agree--a lot of hidden second or third order effects--"bombs" as you note--that could cause a tariff/import ban to be very harmful.

That being said, never underestimate the likelihood of this guy doing whatever it takes to boost his chances even if it means hurting other nations/industries/individuals who don't matter for his reelection and destroying longstanding norms. And why blame him? It's all in the self-interest Ayn Rand playbook that we all cherish. We want a POTUS who puts self first. Period.
Title: Re: Energy Sector
Post by: SharperDingaan on April 05, 2020, 07:54:33 AM
There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

'Proof of commitment'. Show us the walk, not the talk.
The Twitter finger is getting itchy.   

SD

Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 08:18:33 AM
There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

'Proof of commitment'. Show us the walk, not the talk.
The Twitter finger is getting itchy.   

SD

Excuse me if I misunderstand your post--always takes me a few reads of your posts and even then I'm not 100% sure...lol

Trump has already exercised his "heads up" announcement and tweets and it moved oil up substantially. What more can he do with tweets/announcements that doesn't shatter whatever shred of credibility he may have left?

Aside from the oil industry colluding like a cartel to take a hit and all cut production (and actually abide by it), what else is going to fill the 20-30 million barrel/day hole?

And Russia says they'll only cut if U.S. cuts, but:

The thing about U.S. producers is it is a capitalist system unlike many others and colluding/price fixing *like a cartel* is not legal. Furthermore, if U.S. drillers go bankrupt, their wells do not stop pumping--they keep pumping for the creditors and/or shareholders in bankruptcy and they will keep pumping after CH 11 because now the breakeven cost of that well is lower. Drilling may stop, but the existing wells will likely keep producing.

I don't see how U.S. cuts production...Trump (in addition to crude imports) would have to ban/tariff refined product exports to achieve this? But lots of second/third order negative effects from doing so.
Title: Re: Energy Sector
Post by: Spekulatius on April 05, 2020, 08:54:41 AM
There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

'Proof of commitment'. Show us the walk, not the talk.
The Twitter finger is getting itchy.   

SD

The last one maybe the key sentence. Doing nothin is nothin Trump’s vein, good or bad he feels the urge to do something, whether it works or not is a different question.
Title: Re: Energy Sector
Post by: Gregmal on April 05, 2020, 09:00:51 AM
Isn't a lot of this missing the point that while $5 gas isn't healthy, neither is $1 gas.. There is a happy medium "range" which allows consumers to function and the energy industry to employ millions of folks. At $5 they can employ many more millions, but the net effect would be millions of losses elsewhere. At $15 a barrel hundreds of thousands, if not millions will lose jobs.
Title: Re: Energy Sector
Post by: rb on April 05, 2020, 09:03:32 AM
Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 09:12:55 AM
Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

Nah, they want us to have capitalism when times are good and socialism (bail out, subsidies, handouts) only when times are bad. Who would've predicted that a commoditized, cyclical industry would experience times of pain? Then later they can go back to moaning about food stamps and welfare when things normalize for them.

And don't get them started on renewable energy subsidies, socialist pig!
Title: Re: Energy Sector
Post by: Gregmal on April 05, 2020, 09:29:00 AM
Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

They already do much of the same with utilities. So there’s steps that can be taken without completely turning everything upside down. Berkshire, the ultimate capitalist company, finds this setup compelling enough to represent a significant portion of their business portfolio. Bottom line is O&G is and has been a shit show for sometime. It’s volatile, for many actually massively value destructive, and probably outside of auto, run by the worst types of people.

I don’t invest in this space for much of these reasons, but I mean to at the least, be able to understand why certain measures are currently being taken to protect things(irrespective of agreeing or disagreeing with the action) is not hard. But of course, here’s Dalal again with his Trump conspiracies and loudmouth rambling, foaming at the mouth just waiting to accuse all others of the same things.

Governments, especially in times of crisis, have demonstrated they will do whatever is necessary to prop up the country. Yes, bailouts, subsidies, money printing, etc. You don’t have to like it, but you’re a fool if you don’t understand that this is what they do. Pretty much every time. Energy is on the brink, so expect them doing and saying whatever it takes.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 09:47:32 AM
Agree guys, clearly this is a thread about "Energy Sector" and Trump has nothing to do with going ons of energy sector these days so please stop discussing conspiracy theories and let's talk about something more relevant like Hunter Biden and Burisma or her e-mails.

Energy is "on the brink" and we must save it -- all those junk bond creditors are worth saving for the sake of America. We all know oil industry cannot survive Chapter 11. After all, bankruptcy will erase all those wells and drills and we'll have to start anew. They must be bailed out, it's all a natural part of the American capitalistic process.
Title: Re: Energy Sector
Post by: SharperDingaan on April 05, 2020, 10:02:37 AM
There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

'Proof of commitment'. Show us the walk, not the talk.
The Twitter finger is getting itchy.   

SD

Excuse me if I misunderstand your post--always takes me a few reads of your posts and even then I'm not 100% sure...lol

Trump has already exercised his "heads up" announcement and tweets and it moved oil up substantially. What more can he do with tweets/announcements that doesn't shatter whatever shred of credibility he may have left?

He's just started on the selective tweeting of 'behind closed door' discussion. 'Leaks' to selective media, to move a discussion along, is a long-standing diplomatic process. Trump just does it by Twitter, but same objective.

Aside from the oil industry colluding like a cartel to take a hit and all cut production (and actually abide by it), what else is going to fill the 20-30 million barrel/day hole?

The global production cut IS ALREADY THERE. We just don't see it yet because producers are eating the cost (MC>MR) to maintain market share. Stop eating the loss, shut-in instead, and a magical production cut appears.

And Russia says they'll only cut if U.S. cuts, but:

The thing about U.S. producers is it is a capitalist system unlike many others and colluding/price fixing *like a cartel* is not legal. Furthermore, if U.S. drillers go bankrupt, their wells do not stop pumping--they keep pumping for the creditors and/or shareholders in bankruptcy and they will keep pumping after CH 11 because now the breakeven cost of that well is lower. Drilling may stop, but the existing wells will likely keep producing.

Our sandbox, our rules, we change as we want. Put the shale leases in the hands of the majors (via $QE funded asset purchases out of BK), and the production stops. There will still be some, but now it'll be a responsible bleed off.

I don't see how U.S. cuts production...Trump (in addition to crude imports) would have to ban/tariff refined product exports to achieve this? But lots of second/third order negative effects from doing so.

NA can export whatever it wants, the exports just get world price (lower). Exporters to the US pay the tariff difference, & there's still a profit as long as long as the product is not available in NA. Tariff $ collected pay towards offsetting affects. It's just terrifying to many, because it's unpredictable change. We have markets for that.


Replies are in red.
The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it.

SD
Title: Re: Energy Sector
Post by: Gregmal on April 05, 2020, 10:03:59 AM
These are just politics inspired assumptions you’ve made. Should bailouts happen? The answer varies depending on ones beliefs. Will they happen? Absolutely. And if you can’t acknowledge that, or that it has little to do with who is in office, then there’s not much else to say.

With bankruptcies and junk bonds tied to E&Ps, they should all be wiped out. But this obviously conflates Wall Street problems and normal every day normal person problems. There’s ways to wipe out one without the other, but often there is overlap. It’s just odd you can’t comprehend this. Trump really does seem to occupy quite a lot of space in your head and elicit some pretty severe expressions of those feelings. Let it go. If nothing else but for your own wellbeing. My life was good under Trump and good under Obama. I cant imagine running around fueled with such constant animosity over something that really isn’t in your control or worth festering over...
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 10:06:03 AM

Replies are in red.
The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it.

SD

Thanks--agree it's a reset mode, but think it's just the beginning. The resetting will be painful for the industry for a long while and IMO Trump cannot stop it. I'm sure the super majors are hoping to pick at the carcasses of all those shale firms down the road as well. Only after wide consolidation may more "rational production" take hold out of U.S. oil output, but will take time.
Title: Re: Energy Sector
Post by: rb on April 05, 2020, 10:17:57 AM
Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

They already do much of the same with utilities. So there’s steps that can be taken without completely turning everything upside down. Berkshire, the ultimate capitalist company, finds this setup compelling enough to represent a significant portion of their business portfolio. Bottom line is O&G is and has been a shit show for sometime. It’s volatile, for many actually massively value destructive, and probably outside of auto, run by the worst types of people.

I don’t invest in this space for much of these reasons, but I mean to at the least, be able to understand why certain measures are currently being taken to protect things(irrespective of agreeing or disagreeing with the action) is not hard. But of course, here’s Dalal again with his Trump conspiracies and loudmouth rambling, foaming at the mouth just waiting to accuse all others of the same things.

Governments, especially in times of crisis, have demonstrated they will do whatever is necessary to prop up the country. Yes, bailouts, subsidies, money printing, etc. You don’t have to like it, but you’re a fool if you don’t understand that this is what they do. Pretty much every time. Energy is on the brink, so expect them doing and saying whatever it takes.
Except they're not talking about any of that. They're talking about a tariff. Which is direct financing from the consumer to the oil companies without any responsibility. It's the ultimate money grab for these guys.

If you get a $20/bbl tariff tomorrow there will be so much green on O&G equity and credit it'll look like Ireland on St. Patrick's day. Where did that money come from? From the pocket of the consumer. Who gets nothing for generating so much value for these guys.

You see it's not that the sector shouldn't be helped. It's that they don't want to pay anything. Even the banks had to pay. This is basically the most corrupt bullshit I've seen and I've seen a lot.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 10:27:39 AM
You see it's not that the sector shouldn't be helped. It's that they don't want to pay anything. Even the banks had to pay. This is basically the most corrupt bullshit I've seen and I've seen a lot.

It is bullshit and amusing at the same time how rapidly "free market" principles are (temporarily) thrown out by their most ardent proponents. They'll be back to talking about free market principles and personal accountability once things are better.

Trump looking to bail out his core voters--does not have any principles, and only motivated by self interest.
Title: Re: Energy Sector
Post by: james22 on April 05, 2020, 10:32:12 AM
Where did that money come from? From the pocket of the consumer. Who gets nothing for generating so much value for these guys.

Well, some of those consumers will keep their Energy sector and related jobs of course.

And did this not register at all?

If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 10:36:50 AM
If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.
That is a form of nationalization and will never happen and you know it. The GOP, whenever in power (good times will keep on going brah), will always erode any government intervention/taxes/share of the profits (e.g. Trump tax cuts during growing economy).

So over the long term you end up with capitalism for the upside, socialism for the downside.
Title: Re: Energy Sector
Post by: ValuePadawan on April 05, 2020, 10:44:08 AM
I don't understand why the gov't can't just take small equity stakes in companies that will be struggling in the short term but will be successful in the long term. The equity would be without voting rights totally passive and rolled into a sovereign wealth fund for the people to profit off of when the world gets back to normal.

Good companies get liquidity.

The public gets the value of providing capital when it is badly needed.

Win-win
Title: Re: Energy Sector
Post by: minten on April 05, 2020, 11:11:55 AM
I don't understand why the gov't can't just take small equity stakes in companies that will be struggling in the short term but will be successful in the long term. The equity would be without voting rights totally passive and rolled into a sovereign wealth fund for the people to profit off of when the world gets back to normal.

Good companies get liquidity.

The public gets the value of providing capital when it is badly needed.

Win-win

and who decides what companies that struggle short term will be succesful long term? i see huge potential for nepotism here.

also, a structure like this would become a self-fulfilling prophecy, with the market trusting companies that get the government on-board, and distrusting those that don't, regardless of fundamentals. 
Title: Re: Energy Sector
Post by: RichardGibbons on April 05, 2020, 11:12:31 AM
I'm perplexed as to why anyone other than an oil worker or politician would see any benefit to bailing out the oil industry (or even the aviation industry, for that matter). They're not like the banks, where multiple failures can potentially break the economy.

The productive physical assets will still be there after bankruptcy. So, let the companies die, and give the next guy a go. (I think this is probably true for almost any industry that derives its production primarily from physical assets.)
Title: Re: Energy Sector
Post by: minten on April 05, 2020, 11:17:49 AM
For me the biggest bullish indicator for oil last week was not an OPEC+ meeting, but that Trump seems to want the oil price up at all. I wasn't too sure if he really wanted too, as he'd been pretty silent on the topic and always insisted in the past he actually wanted a low oil price.

And I personally think Trump is an idiot, but he's also very simplistic in always wanting to win something he considers to be a battle, and he's completely unpredictable. By throwing his weight at oil, sending off random tweets that proved to be false, speculating about tariffs, he will no doubt scare everyone around him. Because god knows what moronic destructive course of action Trump might take, just to win a fight he has now picked. Basically this forces everyone around him to have to walk on their toes, because they know the guy sitting on the other end of the negotiation table is a mad-man. It is kind of brilliant actually if it was on purpose.
Title: Re: Energy Sector
Post by: SharperDingaan on April 05, 2020, 11:24:21 AM

Replies are in red.
The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it.

SD

Thanks--agree it's a reset mode, but think it's just the beginning. The resetting will be painful for the industry for a long while and IMO Trump cannot stop it. I'm sure the super majors are hoping to pick at the carcasses of all those shale firms down the road as well. Only after wide consolidation may more "rational production" take hold out of U.S. oil output, but will take time.

Once lit, this will happen rapidly, 3-6 months at most.
Assume the only buyers are those on the WH conference call, and funded with 0% long-term $QE. Debt bought from the banks at X cents in the dollar, swapped into majority equity interests, and the wells shut-in. Moratorium on squeezing out the minority interests, for Y years. Bails the banks out, the oil industry out, delivers the promised cuts, executes rapidly, and everybody can plan again.

Phaze 2, a NA/EU tariff wall to ensure security of supply. Cooperate, and we do it after the elections.
Fcuk with us, and we do it now. Demonstrate your 'proof of commitment'  by announcing cuts, we'll demonstrate ours by NOT announcing a tariff.

SD
 
Title: Re: Energy Sector
Post by: opihiman2 on April 05, 2020, 11:31:37 AM
I find another forum I often visit much more insightful that this one when it comes to discussion of the oil/gas industry.  I think this is pretty appropriate to the discussion of tariffs:

"I struggle to see how import tariffs will have any impact on WTI pricing. What we import and what we produce are essentially two different products, even though we call them both crude oil.

US refiners are already using as much light sweet crude as possible. They're tooled up to run primarily heavy sour crude. That's why we export so much crude. So an import tariff doesn't mean the refiners will be more inclined to run more domestic oil to help the shale producers.

Tariffs on imported crude will just raise the price of gasoline, not WTI... We live in a world where the international markets are going to weigh heavily on the price of WTI, in part due to large volumes of exports. Trump's tariff does nothing to alter international pricing. As long as OPEC keeps flooding the international market, WTI is along for the ride. Saddle up boys..."

As an aside, I didn't know this, but apparently Trump didn't know semi's run off of diesel:

https://www.businessinsider.com/trump-trucking-shortage-elds-leaked-audio-2020-1

Anyways, I think this thread has completely derailed.  I don't think I or anyone else on here has any real edge in oil investments.  I've looked at Deep Basin Capital's recent filings, and even these guys have been making pretty bad bets on the sector.  But what I do know is this:

1) There's a shit ton of oil out there -- peak oil was stupid
2) For the next few years, oil demand is going to stay low
3) NA oil / gas production will likely be decimated
4) The only real long term bet is integrated majors and some midstreams.  But, even refiners will have a hard time.  Midstream MLP's will likely get wiped out or their dividends will get crushed.

My bets are going to be: BP, RDS, CVX, VLO, and maybe PSX.  Shorting all things shale related.
Title: Re: Energy Sector
Post by: KJP on April 05, 2020, 12:07:43 PM
I find another forum I often visit much more insightful that this one when it comes to discussion of the oil/gas industry.  I think this is pretty appropriate to the discussion of tariffs:

"I struggle to see how import tariffs will have any impact on WTI pricing. What we import and what we produce are essentially two different products, even though we call them both crude oil.

US refiners are already using as much light sweet crude as possible. They're tooled up to run primarily heavy sour crude. That's why we export so much crude. So an import tariff doesn't mean the refiners will be more inclined to run more domestic oil to help the shale producers.

Tariffs on imported crude will just raise the price of gasoline, not WTI... We live in a world where the international markets are going to weigh heavily on the price of WTI, in part due to large volumes of exports. Trump's tariff does nothing to alter international pricing. As long as OPEC keeps flooding the international market, WTI is along for the ride. Saddle up boys..."

As an aside, I didn't know this, but apparently Trump didn't know semi's run off of diesel:

https://www.businessinsider.com/trump-trucking-shortage-elds-leaked-audio-2020-1

Anyways, I think this thread has completely derailed.  I don't think I or anyone else on here has any real edge in oil investments.  I've looked at Deep Basin Capital's recent filings, and even these guys have been making pretty bad bets on the sector.  But what I do know is this:

1) There's a shit ton of oil out there -- peak oil was stupid
2) For the next few years, oil demand is going to stay low
3) NA oil / gas production will likely be decimated
4) The only real long term bet is integrated majors and some midstreams.  But, even refiners will have a hard time.  Midstream MLP's will likely get wiped out or their dividends will get crushed.

My bets are going to be: BP, RDS, CVX, VLO, and maybe PSX.  Shorting all things shale related.

You don't predict that natural gas demand will crater.   So, regarding (3), why is gas production going to get hit?  I understand why associated gas may decrease and potentially decrease substantially.  But the US has plenty of high-quality areas for gas-directed drilling, and won't those areas be helped by a decline in associated gas? 
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 05, 2020, 01:03:14 PM
https://www.ft.com/content/c4121d80-0815-4d7d-b43f-582f55ad2892

Quote
Some of the world's largest oil companies  have raised more than $32B in recent weeks to ensure they have the cash to deal with the economic effects of the coronavirus while preserving dividends, the Financial Times reports.

LOL! Let's bail these guys out, hit consumers/refiners with tariffs that raise the price of WTI/gas so these companies can keep paying their shareholders divis! No moral hazard here.

Daddy Trump to the rescue!
Title: Re: Energy Sector
Post by: Spekulatius on April 05, 2020, 02:27:39 PM
Capitalism on the upside, socialism on the downside sounds like a great company slogan.

Personally, I absolute think we should save our crude, not the E&P industry for later. If the latter goes broke, the rocks with shale oil will still be there in the future. No reason to exploit them when crude is plentiful.

But I am not running the country and I think Trump will do something. It’s just his nature to meddle in stuff.
Title: Re: Energy Sector
Post by: rb on April 05, 2020, 03:10:06 PM
Where did that money come from? From the pocket of the consumer. Who gets nothing for generating so much value for these guys.

Well, some of those consumers will keep their Energy sector and related jobs of course.

And did this not register at all?

If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.

Well very few of those consumers will keep their energy jobs.

Your quote about what should happen when prices rise is also bullshit.

1. Nobody is talking about that except guy on the internet. Right now it's straight tariff. Straight subsidy.

2. You notice how there is full backstop when oil prices are low, but only progressive taxation when oil prices are high. Why progressive? Why not progressive backstop when shit hits the fan.

3. Even if something like that were to be implemented it will be bullshit. Because after x amount of years you'll have a Republican administration that will come in (invariably when oil prices are higher) and remove it because it's "socialism". Of course that will last until oil prices crater again and they'll need a little more sacrifice from the consumer in order to save jobs. If you need more proof look at Dodd-Frank. You bail out the banks. Huger protests, Tea Party movement. We put in Dodd-Frank to prevent banks fro doing that shit again. Republican administration comes in. What do those Tea Party dudes do? Vote en-mass to weaken Dodd-Frank.

4. The oil companies will never go for it or work to weaken it the moment they don't need it (see 3). What is described around here is roughly the equivalent of Canada's National Energy Program way back when. These days of course the oil companies would benefit greatly from a National Energy Program and would love to have one in place. Back the Alberta's (Canada's Texas) answer to the NEP was "Let the Eastern Bastards Freeze in the Dark". That about summarizes the goodwill of the energy producers.

5. It's been amazing for me for this past couple of weeks to discover this new species. The bleeding heart Conservative. Socialism is horrible. That is until oil companies are loosing money. At that point we must put away our differences and work together to save hard working oil patch jobs. But aside from that, special attention should be paid to the  extremely vulnerable high yield-bond holders, oil investors, and oil executives. After all they're also someone's mommy and daddy.
Title: Re: Energy Sector
Post by: Gregmal on April 05, 2020, 10:20:14 PM
IDK, fuck the energy investors. For the most part, sure its anecdotal, but they're get rich quick fools. And Lee Cooperman.

Stupid liberals get rich quick in penny stock biotechs, conservatives try with penny stock e&p's.
Title: Re: Energy Sector
Post by: SharperDingaan on April 06, 2020, 10:28:19 AM
4. The oil companies will never go for it or work to weaken it the moment they don't need it (see 3). What is described around here is roughly the equivalent of Canada's National Energy Program way back when. These days of course the oil companies would benefit greatly from a National Energy Program and would love to have one in place. Back the Alberta's (Canada's Texas) answer to the NEP was "Let the Eastern Bastards Freeze in the Dark". That about summarizes the goodwill of the energy producers.

Seem to recall that it was a little different .....
https://en.wikipedia.org/wiki/National_Energy_Program
The bitch was two-fold 1) those Eastern Bastards were nationalizing 50% of 'our' well-head production, and making 'us' pay for it!, and 2) those Eastern Bastards were smarter and bigger bastards than we were!! Lot of drama, but ultimately it came down to our patch, our rules, we can change them whenever we want, and have done so.

"The main elements of the program included:

(a) a blended or 'made-in-Canada' price of oil, an average of the costs of imported and domestic oil, which will rise gradually and predictably but will remain well below world prices and will never be more than 85 per cent of the lower of the price of imported oil or of oil in the US, and which will be financed by a Petroleum Compensation Charge levied on refiners...;

(c) a petroleum and gas revenue tax of 8 per cent applied to net operating revenues before royalty and other expense deductions on all production of oil and natural gas in Canada...;

(e) a federal share of petroleum production income at the wellhead which will rise from about 10 per cent in recent years to 24 per cent over the 1980-83 period, with the share of the producing provinces falling from 45 to 43 per cent and that of the industry falling from 45 to 33 per cent over the same period;

(g) a Canadian ownership levy to assist in financing the acquisition of the Canadian operations of one or more multinational oil companies, with the objective of achieving at least 50 per cent Canadian ownership of oil and gas production by 1990, Canadian control of a significant number of the major oil and gas corporations, and an early increase in the share of the oil and gas sector owned by the Government of Canada."

SD
Title: Re: Energy Sector
Post by: LC on April 06, 2020, 10:52:43 AM
Stupid liberals get rich quick in penny stock biotechs, conservatives try with penny stock e&p's.

Don't forget weed stocks - they're the great equalizer  ;D
Title: Re: Energy Sector
Post by: Xerxes on April 08, 2020, 07:13:15 PM
Saudis Take Big Stakes in European Oil Companies
Looks like PIF is finally able to put money to work on tangible assets at depressed prices as oppose to Masa Son's intangible

https://www.wsj.com/articles/saudis-take-big-stakes-european-oil-companies-11586382353?mod=hp_lista_pos1

Title: Re: Energy Sector
Post by: james22 on April 08, 2020, 09:17:37 PM
So much for diversifying their oil industry risk.
Title: Re: Energy Sector
Post by: ValuePadawan on April 09, 2020, 07:27:12 AM
Smells like insider trading to me but for a whole nation.

Step 1 Pump as much oil as possible dropping oil prices and oil stocks

Step 2 Cut production and get the upside when the stocks rebound
Title: Re: Energy Sector
Post by: Xerxes on April 09, 2020, 07:30:41 AM
So much for diversifying their oil industry risk.

Agreed. I think though it more of an opportunistic buy on an asset class they know well. Small bet though.
The whole bet is at $1 billion on the four o&g companies. In contrast, they gave about $45 billion to Masa Son's vision fund through equity and pref equity.   

On a different note, interestingly Norway sovereign fund, in contrast to 2018 where it was buying the dip, as been off loading its equity to fulfill its obligation with its government.
Title: Re: Energy Sector
Post by: james22 on April 09, 2020, 08:24:51 AM
So much for diversifying their oil industry risk.

Agreed. I think though it more of an opportunistic buy on an asset class they know well. Small bet though.
The whole bet is at $1 billion on the four o&g companies. In contrast, they gave about $45 billion to Masa Son's vision fund through equity and pref equity.   

On a different note, interestingly Norway sovereign fund, in contrast to 2018 where it was buying the dip, as been off loading its equity to fulfill its obligation with its government.

I agree it was smart. It'll always be a temptation to trade the asset class they know (and can manipulate).

Maybe nothing wrong with that, but wonder if they've only recently come to the realization?
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 09, 2020, 09:25:18 AM
Smells like insider trading to me but for a whole nation.

Step 1 Pump as much oil as possible dropping oil prices and oil stocks

Step 2 Cut production and get the upside when the stocks rebound

That’s why price fixing and collusion are not allowed in places like U.S...the problem arises when you also produce a commodity that is produced by a cartel in other places.
Title: Re: Energy Sector
Post by: SharperDingaan on April 09, 2020, 11:34:42 AM
It also tells you that the cuts are expected to go a lot higher than 10M bbl/d, and that these companies are probably amongst the major beneficiaries. Look at where their major production is from, and what those production costs are  ::)

SD
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 09, 2020, 04:29:04 PM
https://www.bnnbloomberg.ca/occidental-seeking-federal-lifeline-for-u-s-oil-industry-1.1419703

Quote
Occidental Petroleum Corp. wants U.S. government financial aid for the oil industry even as the biggest producer of Permian Basin crude urges Texas regulators not to interfere with market forces.

Welcome to the new "free market" economic model: where bankruptcies are a thing of the past!

Clearly Oxy's horrid balance sheet is none of its own fault!
Title: Re: Energy Sector
Post by: Spekulatius on April 09, 2020, 04:31:12 PM
https://www.bnnbloomberg.ca/occidental-seeking-federal-lifeline-for-u-s-oil-industry-1.1419703

Quote
Occidental Petroleum Corp. wants U.S. government financial aid for the oil industry even as the biggest producer of Permian Basin crude urges Texas regulators not to interfere with market forces.

Welcome to the new "free market" economic model: where bankruptcies are a thing of the past!

They would be stupid not to to ask for it in the current environment. Has anyone asking for a bailout been rejected?
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 09, 2020, 04:34:10 PM
https://www.bnnbloomberg.ca/occidental-seeking-federal-lifeline-for-u-s-oil-industry-1.1419703

Quote
Occidental Petroleum Corp. wants U.S. government financial aid for the oil industry even as the biggest producer of Permian Basin crude urges Texas regulators not to interfere with market forces.

Welcome to the new "free market" economic model: where bankruptcies are a thing of the past!

They would be stupid not to to ask for it in the current environment. Has anyone asking for a bailout been rejected?

Nope, hence our new economic model. Anadarko was clearly worth every penny to Oxy...

Let's let every corporation know henceforth that the gov't will be there to backstop them if any "unforeseen" event takes place in the future. The government has become a giant insurance co that collects no premiums!

Edit: and the corporate debt purchases are only for bonds that were investment grade prior to March 22 (not Oxy), so yes—the gov’t has more or less said no to junk rated companies.
Title: Re: Energy Sector
Post by: SharperDingaan on April 09, 2020, 05:14:31 PM
https://www.bnnbloomberg.ca/occidental-seeking-federal-lifeline-for-u-s-oil-industry-1.1419703

Quote
Occidental Petroleum Corp. wants U.S. government financial aid for the oil industry even as the biggest producer of Permian Basin crude urges Texas regulators not to interfere with market forces.

Welcome to the new "free market" economic model: where bankruptcies are a thing of the past!

They would be stupid not to to ask for it in the current environment. Has anyone asking for a bailout been rejected?

They are just trying to do petro-dollar recycling.
Give us the money, to buy out the repo'd shale debt (re-cycle), that we'll swap into equity. We'll take the leases over, and shut the field in. Free market at work,

SD
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 11, 2020, 07:37:05 AM
https://www.bloomberg.com/news/articles/2020-04-10/the-unexpected-holdout-to-a-global-oil-production-deal

Quote
One of the most dramatic global oil production agreements in history has been left hanging on the approval of an unlikely character: Mexican President Andres Manuel Lopez Obrador....

AMLO’s position was also strengthened by its sovereign oil hedge, the largest of its kind, which protects the government’s budget against crude prices falling below $49 a barrel this year...

Still, the president called the production cuts “temporary” and said Pemex will continue extracting oil.
Title: Re: Energy Sector
Post by: JRM on April 11, 2020, 08:39:51 AM
This deal does not fix the demand crush due to the coronavirus.  I doubt we see $50 oil anytime soon, at least not for a sustained period.  Remember there is a ton of oil sitting in storage currently that must be worked through.
Title: Re: Energy Sector
Post by: Xerxes on April 11, 2020, 08:41:22 AM
So much for diversifying their oil industry risk.

Agreed. I think though it more of an opportunistic buy on an asset class they know well. Small bet though.
The whole bet is at $1 billion on the four o&g companies. In contrast, they gave about $45 billion to Masa Son's vision fund through equity and pref equity.   

On a different note, interestingly Norway sovereign fund, in contrast to 2018 where it was buying the dip, as been off loading its equity to fulfill its obligation with its government.

I agree it was smart. It'll always be a temptation to trade the asset class they know (and can manipulate).

Maybe nothing wrong with that, but wonder if they've only recently come to the realization?

There has been an internal tug of war I think within PIF, Aramco etc as to how best invest. With MBS pushing more for Unicorn investments (Vision fund, Uber and Tesla) and the old guard pushing for more earthly ideas.

I recall an article on WSJ from last year that was talking about how investments in solar energy had a lot of opposition from than Aramco chair (he lost his job mid-2019). Now with PIF selling out Tesla before its monster rally, abundance of bargains in the old economy  and not committing  to Vision Fund 2 to me that means the pendulum has swung back in favour of earthly ideas.

That said, I think they will keep Uber. I realize that Uber gets lots of flak as one of the larger unicorns. Personally I believe in Dara, the super app potential that Uber has and the portfolio of optionality it has.
Title: Re: Energy Sector
Post by: jmp8822 on April 11, 2020, 09:21:11 AM
Does anyone want to speculate on how many bankruptcies this will cause in the oil sector?  I'm trying to process through the probabilities of a handful of bankruptcies and dozens and dozens of bankruptcies. More specifically, I'm trying to solve how much midstream players will be effected and how many bankruptcies that could lead to in midstream.
Title: Re: Energy Sector
Post by: bizaro86 on April 11, 2020, 11:11:58 AM
Does anyone want to speculate on how many bankruptcies this will cause in the oil sector?  I'm trying to process through the probabilities of a handful of bankruptcies and dozens and dozens of bankruptcies. More specifically, I'm trying to solve how much midstream players will be effected and how many bankruptcies that could lead to in midstream.

The market definitely seems to be pricing in significant bankruptcies. Midstream valuations only make sense in that light. And I was able to buy CVE bonds at less than fifty cents on the dollar fairly recently. They're up to 65, but that isnt exactly a ringing endorsement.
Title: Re: Energy Sector
Post by: SHDL on April 11, 2020, 03:41:27 PM
The big US banks seem to be getting ready for it:

https://www.reuters.com/article/us-usa-banks-energy-assets-exclusive-idUSKCN21R3JI
Title: Re: Energy Sector
Post by: LC on April 12, 2020, 06:50:42 PM
https://www.reuters.com/article/us-global-oil-opec/opec-russia-approve-biggest-ever-oil-cut-to-support-prices-amid-coronavirus-pandemic-idUSKCN21U0J6

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1.
Title: Re: Energy Sector
Post by: Xerxes on April 13, 2020, 12:04:18 PM
https://www.reuters.com/article/us-global-oil-opec/opec-russia-approve-biggest-ever-oil-cut-to-support-prices-amid-coronavirus-pandemic-idUSKCN21U0J6

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1.

It should be clarified the voluntary actuals cuts are way below that number.
the rest of the so-called "cuts" are economically driven cuts by higher-cost producers that no longer have a viable option.

Bottom line I guess it doesn't matter, the Kingdom and Kremlin's intend was to have some supply-side destruction through economically driven cuts by higher-cost producers.

5 years down the line, I suspect the duo will be looking at a much larger, centralized U.S.-based oil and gas industry.

Title: Re: Energy Sector
Post by: plato1976 on April 13, 2020, 02:48:05 PM
why much larger?

https://www.reuters.com/article/us-global-oil-opec/opec-russia-approve-biggest-ever-oil-cut-to-support-prices-amid-coronavirus-pandemic-idUSKCN21U0J6

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1.

It should be clarified the voluntary actuals cuts are way below that number.
the rest of the so-called "cuts" are economically driven cuts by higher-cost producers that no longer have a viable option.

Bottom line I guess it doesn't matter, the Kingdom and Kremlin's intend was to have some supply-side destruction through economically driven cuts by higher-cost producers.

5 years down the line, I suspect the duo will be looking at a much larger, centralized U.S.-based oil and gas industry.
Title: Re: Energy Sector
Post by: Xerxes on April 13, 2020, 07:24:59 PM
why much larger?

https://www.reuters.com/article/us-global-oil-opec/opec-russia-approve-biggest-ever-oil-cut-to-support-prices-amid-coronavirus-pandemic-idUSKCN21U0J6

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1.

It should be clarified the voluntary actuals cuts are way below that number.
the rest of the so-called "cuts" are economically driven cuts by higher-cost producers that no longer have a viable option.

Bottom line I guess it doesn't matter, the Kingdom and Kremlin's intend was to have some supply-side destruction through economically driven cuts by higher-cost producers.

5 years down the line, I suspect the duo will be looking at a much larger, centralized U.S.-based oil and gas industry.

The resources in the Permian basin are there and wont disappear because the Saudi market share strategy; the small E&P players, companies themselves, holding those assets may go bankrupt being unable to utilize the assets, but those assets can easily move under a stronger name through consolidation. In time, the short term gain of wiping out smaller U.S. E&P players would mean a larger player consolidating on the other end.
Title: Re: Energy Sector
Post by: rb on April 14, 2020, 10:04:54 AM
WOW! You know shit really hit the fan when an oilman gets introspective.

Quote
No one wants to give us capital because we have all destroyed capital and created economic waste

https://twitter.com/russellgold/status/1250073087510556680

Title: Re: Energy Sector
Post by: TwoCitiesCapital on April 14, 2020, 05:20:34 PM
WOW! You know shit really hit the fan when an oilman gets introspective.

Quote
No one wants to give us capital because we have all destroyed capital and created economic waste

https://twitter.com/russellgold/status/1250073087510556680

Glad someone is being honest, but hadn't this obvious in the shale field?

Like it's been obvious that even at $60 most places weren't making enough for maintenance and new exploration to prove shale economic over the cycle.  This is in spite of efficiencies and cost cuts from 2015/2016 bust. 
Title: Re: Energy Sector
Post by: SharperDingaan on April 15, 2020, 05:39:19 AM
They've been taken behind the woodshed, and for many of them - it's to be put down.
Give them some space.

Their leases are in the process of transferring to the majors, and discipline WILL be imposed.
This is no different to consolidation in the gold, diamond, or oil fields of bygone eras. The little guys get snuffed, and the majors shut it in to protect their infrastructure investments elsewhere. Employment declines versus former levels, but significantly rises over current levels, and the displaced move on.

Gut wrenching, but the best long-term outcome.

SD
   
Title: Re: Energy Sector
Post by: opihiman2 on April 15, 2020, 10:19:20 AM
WTI back to $20.  Going to be a multi-decade bear market in oil.  XOM just took on a HUGE ton of debt, and I wouldn't be surprised if they start cutting dividends.
Title: Re: Energy Sector
Post by: lnofeisone on April 15, 2020, 09:00:44 PM
I don't even know what to say here.
https://www.bnnbloomberg.ca/u-s-weighs-paying-drillers-to-leave-oil-in-ground-amid-glut-1.1422060
Title: Re: Energy Sector
Post by: Jurgis on April 16, 2020, 07:16:27 AM
I don't even know what to say here.
https://www.bnnbloomberg.ca/u-s-weighs-paying-drillers-to-leave-oil-in-ground-amid-glut-1.1422060

Works for farmers, so why not!  ::)
Title: Re: Energy Sector
Post by: SharperDingaan on April 16, 2020, 08:17:50 AM
"The quicker solution would be to effectively reward drillers for taking a timeout. Under the approach being developed by the Energy Department, the agency would contract with companies to delay production of proven oil reserves for several years, if not indefinitely. When that crude is finally extracted and sold, the proceeds would go to the Treasury. Companies would be selected through an auction, with the government picking the lowest-price bidders."

It just indicates how clueless the administration leadership actually is.
We already have this process, it's called bankruptcy (market at work). The treasury just buys the leases out of bankruptcy, and sits on them indefinitely. No paying anybody, not to drill.

SD
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 16, 2020, 08:19:53 AM
"The quicker solution would be to effectively reward drillers for taking a timeout. Under the approach being developed by the Energy Department, the agency would contract with companies to delay production of proven oil reserves for several years, if not indefinitely. When that crude is finally extracted and sold, the proceeds would go to the Treasury. Companies would be selected through an auction, with the government picking the lowest-price bidders."

It just indicates how clueless the administration leadership actually is.
We already have this process, it's called bankruptcy (market at work). The treasury just buys the leases out of bankruptcy, and sits on them indefinitely. No paying anybody, not to drill.

SD

The shale patch and associated votes are worth a lot to this admin's reelection campaign. So are farmers. They will try whatever it takes to bail these sectors out.

Remember, as in 2016, you do not need to win the most votes (popular vote) to win the election, you just need to win votes that are in the right places.
Title: Re: Energy Sector
Post by: rb on April 16, 2020, 08:40:01 AM
The shale patch and associated votes are worth a lot to this admin's reelection campaign. So are farmers. They will try whatever it takes to bail these sectors out.

Remember, as in 2016, you do not need to win the most votes (popular vote) to win the election, you just need to win votes that are in the right places.
Do you really think that the oil ppl will under any circumstance vote D?

Also how is this helping shale patch voters? Last time I checked you don't need a lot of people to not drill.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 16, 2020, 08:52:46 AM
The shale patch and associated votes are worth a lot to this admin's reelection campaign. So are farmers. They will try whatever it takes to bail these sectors out.

Remember, as in 2016, you do not need to win the most votes (popular vote) to win the election, you just need to win votes that are in the right places.
Do you really think that the oil ppl will under any circumstance vote D?

Also how is this helping shale patch voters? Last time I checked you don't need a lot of people to not drill.

Margins on Pres elections in the U.S. is not very large. Even a low single digit swing either way can change the color of a state. All it takes is economic hardship from shale to trickle to other businesses in those areas to threaten the admin's security in those regions.

Farmers + oil folks are key constituents for R's. Even the appearance of doing something--like attempting to broker an OPEC agreement--goes a long way in helping secure votes (even if those attempts fail to stop job losses).
Title: Re: Energy Sector
Post by: SharperDingaan on April 16, 2020, 09:01:19 AM
Drilling companies have few employees, not the land owners, and those drilling companies are the problem.

The solution is a tariff, and a swap of industry debt for interest only federal debt, at terms of 5-years plus. Drill if the netback covers the interest and G&A. Set the tariff high enough to get the netback necessary. Employees keep their jobs, states keep earning royalties, and a grateful southern states votes for you.

SD
Title: Re: Energy Sector
Post by: Mephistopheles on April 16, 2020, 09:55:24 AM
Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?
Title: Re: Energy Sector
Post by: Spekulatius on April 16, 2020, 10:58:02 AM
Drilling companies have few employees, not the land owners, and those drilling companies are the problem.

The solution is a tariff, and a swap of industry debt for interest only federal debt, at terms of 5-years plus. Drill if the netback covers the interest and G&A. Set the tariff high enough to get the netback necessary. Employees keep their jobs, states keep earning royalties, and a grateful southern states votes for you.

SD

Just put them all on PPP and preserve the resource for future generations. It’s cheaper.
Title: Re: Energy Sector
Post by: LC on April 16, 2020, 01:48:44 PM
Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.
Title: Re: Energy Sector
Post by: TwoCitiesCapital on April 16, 2020, 04:00:32 PM
Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

I intend to do this once more bankruptcies hit the sector. No ideas what prices will do in the meantime, but would like more pessimism priced in and more clarity on who the consolidators will be BEFORE I buy.
Title: Re: Energy Sector
Post by: Spekulatius on April 16, 2020, 06:42:49 PM
Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)
Title: Re: Energy Sector
Post by: plato1976 on April 17, 2020, 01:22:36 PM
I don't even know how to value these big oils
what's the long term oil price should we assume? $40 ?

Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)
Title: Re: Energy Sector
Post by: LC on April 17, 2020, 02:06:12 PM
To be fair Spek, I took some profits today. My two big concerns are the high capex and potential dividend cut (they have not earned the dividend and doubt they will this year with prices the way they are).

Also to add onto this: energy is far, far out of my circle of competence. This is purely a trading bet and maybe describing it as a 5% position is too generous. More like a 2% position that I would hope grows into 5% position? I'm somewhat flying blind here if that wasn't apparent already :D
Title: Re: Energy Sector
Post by: Spekulatius on April 17, 2020, 04:28:18 PM
I don't even know how to value these big oils
what's the long term oil price should we assume? $40 ?

Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.
Title: Re: Energy Sector
Post by: plato1976 on April 17, 2020, 08:08:37 PM
what's the reason for the cost elasticity
?

I don't even know how to value these big oils
what's the long term oil price should we assume? $40 ?

Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.
Title: Re: Energy Sector
Post by: Spekulatius on April 17, 2020, 08:30:58 PM
what's the reason for the cost elasticity
?

I don't even know how to value these big oils
what's the long term oil price should we assume? $40 ?

Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.

Labor cost, day rate inflation. Marginal projects getting approved. It’s what happens in industries that like to play on the margin. Typically in the past there was a delay due to long project lead times, but when shale started to dominate, the costs and the prices track each other closer.
Title: Re: Energy Sector
Post by: plato1976 on April 17, 2020, 08:40:32 PM
In other words it's a financial discipline issue.
Is there any FCF focused energy company ?

what's the reason for the cost elasticity
?

I don't even know how to value these big oils
what's the long term oil price should we assume? $40 ?

Looking at this from 10,000 feet, I see three things
1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.
2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices
3. COVID Demand shock: This is what is keeping prices low for the time being

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.

Labor cost, day rate inflation. Marginal projects getting approved. It’s what happens in industries that like to play on the margin. Typically in the past there was a delay due to long project lead times, but when shale started to dominate, the costs and the prices track each other closer.
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 09:32:27 AM
Anybody else seeing CL1 trade with a $7 handle? Or am i starting to hallucinate from cabin fever?
Title: Re: Energy Sector
Post by: matts on April 20, 2020, 10:03:02 AM
Anybody else seeing CL1 trade with a $7 handle? Or am i starting to hallucinate from cabin fever?

CL1 expires this week. so anyone who didn't want to take physical delivery of oil had to sell/roll to next month. Shortly, CL1 will become June contract which is trading at 22.55. The 7 dollar oil is just fodder for the media. Although it makes me wonder how many people were trading these futures without understanding they needed to get out ahead of the crowd to avoid this kind of reverse squeeze.
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 10:12:03 AM
Anybody else seeing CL1 trade with a $7 handle? Or am i starting to hallucinate from cabin fever?

CL1 expires this week. so anyone who didn't want to take physical delivery of oil had to sell/roll to next month. Shortly, CL1 will become June contract which is trading at 22.55. The 7 dollar oil is just fodder for the media. Although it makes me wonder how many people were trading these futures without understanding they needed to get out ahead of the crowd to avoid this kind of reverse squeeze.
It's not just fodder for the media. It's at these levels because nobody wants to take these barrels. June contract @22 has more to do with price of storage rather than the price of oil.

Apparently the were some idiots that bought about 500.000 barrels of the may contract on Friday. Indicators point toward retail investors.
Title: Re: Energy Sector
Post by: ValuePadawan on April 20, 2020, 10:36:17 AM
I'm seeing WTI at $1 a barrel am I hallucinating or has the world gone mad?
Title: Re: Energy Sector
Post by: longlake95 on April 20, 2020, 10:37:55 AM
Brent oil is only down 5%. Someone is playing with WTI futures. July oil $27.
Title: Re: Energy Sector
Post by: KJP on April 20, 2020, 10:43:06 AM
Brent oil is only down 5%. Someone is playing with WTI futures. July oil $27.

If you can't take physical delivery, what are you going to do?
Title: Re: Energy Sector
Post by: Liberty on April 20, 2020, 10:46:49 AM
What a time to be alive. Oil down 93%
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 10:48:56 AM
I think brent already switched to the june contract.

But if you were a refinery and needed some barrels wouldn't you wanna buy here? Hell if you live around Cushing and have a swimming pool it may be worth it to fill it with WTI. Seems nobody is buying.

I think come tomorrow there's gonna be some pissed off brokerages that are gonna start looking into how they go about storing oil.
Title: Re: Energy Sector
Post by: Charlie on April 20, 2020, 10:50:04 AM
What is the best way to profit from this oil price?
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 10:50:36 AM
What is the best way to profit from this oil price?
Have a storage tank at Cushing.

Edit: An empty storage tank  ;D
Title: Re: Energy Sector
Post by: Spekulatius on April 20, 2020, 10:57:54 AM
I wonder if we see the day when they start to flare it.
Title: Re: Energy Sector
Post by: opihiman2 on April 20, 2020, 10:59:35 AM
Yeah, there's really no way to take advantage of this.  In a contango market, direct ETF exposure is a guaranteed money loser.  A lot of people don't get this and plow into funds like USO and USL without understanding how the get exposure to oil prices.  These current contract prices are getting closer to the actual spot price of oil, and unless you can take delivery of an ACTUAL barrel of oil, you're still going to lose money.  The only way to get exposure to oil prices without getting screwed by contango is going long equity in oil companies.  But, in the past two weeks, there's been a large disconnect between the two. 

Unless current spot of WTI goes above $30, even XOM will be financially impacted. 
Title: Re: Energy Sector
Post by: WneverLOSE on April 20, 2020, 11:04:22 AM
Dumb investor here, Can I buy oil futures using a discount broker ? what happens if I don't sell it ? will I get a barrel with my name on it in Cushing Oklahoma I can take home ? Why wouldn't everyone do it and store the oil in their back yard and flip it for 20$ next month for a 40x return in a month ?
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 11:08:32 AM
Dumb investor here, Can I buy oil futures using a discount broker ? what happens if I don't sell it ? will I get a barrel with my name on it in Cushing Oklahoma I can take home ? Why wouldn't everyone do it and store the oil in their back yard and flip it for 20$ next month for a 40x return in a month ?
Your discount broker will close your account because they don't have storage at Cushing and they will never talk to you again. Chances are good to receive hate mail from some VP at said broker.
Title: Re: Energy Sector
Post by: opihiman2 on April 20, 2020, 11:12:17 AM
This reminds me of an old article:

https://www.bloomberg.com/news/articles/2015-11-03/that-time-i-tried-to-buy-some-crude-oil
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 11:16:27 AM
If the price is negative are you buying or are you selling?
Title: Re: Energy Sector
Post by: Foreign Tuffett on April 20, 2020, 11:17:59 AM
Dumb investor here, Can I buy oil futures using a discount broker ? what happens if I don't sell it ? will I get a barrel with my name on it in Cushing Oklahoma I can take home ? Why wouldn't everyone do it and store the oil in their back yard and flip it for 20$ next month for a 40x return in a month ?

Yes, your broker will ship you a barrel of oil. Bury it in your backyard, and over time it will grow into a full size oil well. In 20 years you'll have a gusher!
Title: Re: Energy Sector
Post by: Liberty on April 20, 2020, 11:20:52 AM
Another example of the reverse-Midas touch:

https://twitter.com/ObsoleteDogma/status/1252299597801754624?s=20
Title: Re: Energy Sector
Post by: Spekulatius on April 20, 2020, 11:26:01 AM
(https://i.imgur.com/Mr2AQGc.jpg?1)
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 20, 2020, 11:27:37 AM
Another example of the reverse-Midas touch:

https://twitter.com/ObsoleteDogma/status/1252299597801754624?s=20

“The Art of the Deal” or how I got through all my bankruptcies
Title: Re: Energy Sector
Post by: alwaysdrawing on April 20, 2020, 11:32:09 AM
Oil is only down 140% today to -$8/barrel.

Title: Re: Energy Sector
Post by: alwaysdrawing on April 20, 2020, 11:33:37 AM
Oil is only down 140% today to -$8/barrel.

Sorry -$40/barrel
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 11:37:28 AM
Holy SHIT!
Title: Re: Energy Sector
Post by: alwaysdrawing on April 20, 2020, 11:38:31 AM
If you have storage, write the check out yourself.
Title: Re: Energy Sector
Post by: Charlie on April 20, 2020, 11:40:14 AM
https://www.barrons.com/articles/oil-futures-fall-below-1-for-first-time-ever-51587406408?siteid=yhoof2&yptr=yahoo
Title: Re: Energy Sector
Post by: LC on April 20, 2020, 11:45:14 AM
If you have storage, write the check out yourself.

Let's make this happen:

https://www.zillow.com/homedetails/212-214-W-Oak-St-Cushing-OK-74023/2084509578_zpid/
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 11:47:29 AM
If you have storage, write the check out yourself.

Let's make this happen:

https://www.zillow.com/homedetails/212-214-W-Oak-St-Cushing-OK-74023/2084509578_zpid/
Why buy? You can get an AirBnB on the cheap. Large pool - required amenity.
Title: Re: Energy Sector
Post by: LC on April 20, 2020, 11:50:12 AM
If you have storage, write the check out yourself.

Let's make this happen:

https://www.zillow.com/homedetails/212-214-W-Oak-St-Cushing-OK-74023/2084509578_zpid/
Why buy? You can get an AirBnB on the cheap. Large pool - required amenity.

Damn right! These 170 IQ ideas are why I frequent this forum  ;D ;D ;D
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 11:56:58 AM
Doesn't Berkshire own like a shitload of tank cars?
Title: Re: Energy Sector
Post by: Liberty on April 20, 2020, 12:05:19 PM
Doesn't Berkshire own like a shitload of tank cars?

Pretty sure they don't keep them empty waiting for a day like this and that they're mostly all in use already.
Title: Re: Energy Sector
Post by: SharperDingaan on April 20, 2020, 12:05:35 PM
This is where you discover the difference between a paper barrel, and a physical barrel.
And how poorly the futures markets are understood.

There is no storage, there will be no outstanding contracts, and the market will clear by cutting price.
And we will all be FINALLY forced to recognize that the paper price of a barrel, has little to do with the physical price. 

SD


Title: Re: Energy Sector
Post by: fareastwarriors on April 20, 2020, 12:11:40 PM
https://twitter.com/deitaone/status/1252311652772478976?s=21 (https://twitter.com/deitaone/status/1252311652772478976?s=21)
Title: Re: Energy Sector
Post by: Castanza on April 20, 2020, 12:19:46 PM
This is where you discover the difference between a paper barrel, and a physical barrel.
And how poorly the futures markets are understood.

There is no storage, there will be no outstanding contracts, and the market will clear by cutting price.
And we will all be FINALLY forced to recognize that the paper price of a barrel, has little to do with the physical price. 

SD

What's this say about other commodities?

Dumb investor here, Can I buy oil futures using a discount broker ? what happens if I don't sell it ? will I get a barrel with my name on it in Cushing Oklahoma I can take home ? Why wouldn't everyone do it and store the oil in their back yard and flip it for 20$ next month for a 40x return in a month ?

If you have an old beater you could try this.

https://www.youtube.com/watch?v=L99EybPORKk
Title: Re: Energy Sector
Post by: SharperDingaan on April 20, 2020, 12:53:01 PM
As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.
The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;
as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.
This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

SD

 
Title: Re: Energy Sector
Post by: Liberty on April 20, 2020, 01:04:10 PM
As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.
The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;
as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.
This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

SD

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8
Title: Re: Energy Sector
Post by: LC on April 20, 2020, 01:06:57 PM
Will be interesting to see how commodity desks react in the coming weeks/months.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 20, 2020, 01:10:06 PM
As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.
The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;
as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.
This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

SD

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.
Title: Re: Energy Sector
Post by: TwoCitiesCapital on April 20, 2020, 01:22:41 PM
As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.
The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;
as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.
This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

SD

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.[\b]

This. While the 90+% decline today, and negative oil prices, are being overly hyped b/c it's for front month delivery that no one wants, there is nothing stopping this from happening again in June when we get to May 20th and realize we still don't have any storage b/c demand is still 10% of what it was. 2-3 months of negative oil prices is likely all we need to shake out a lot of week hands (both investors and companies) who are in this field.

That will probably be the time to start buying the majors that will survive this. 
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 01:26:50 PM
As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.
The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;
as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.
This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

SD

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.
Well Liberty is not exactly right. USO had nothing to do with it. Guy in his link knows not what he is talking about. USO was all in the June contract already. See link below.

http://www.uscfinvestments.com/holdings/uso

So yea you have a problem with delivery. But when the thing went to minus 10. Why didn't some trader for a refinery go "Fuck it! at -10 I'll take some extra barrels and clear the market." It's because NOBODY wants those barrels. If it's a storage problem, do you think that there will be more storage or less storage available 30 days from now? If you have the same storage problem for June delivery and that contract will go negative then what is the fair value of that contract today?

Normally E&P close and roll their contracts over because there hasn't been any problem with delivery. Now if I'm an E&P guy with overproduction and I just saw spot go down to -35 cause nobody is taking delivery and I'm looking at the $20 june contract don't I just sell my production forward and force delivery on whatever fool was dumb enough to buy the contract?
Title: Re: Energy Sector
Post by: bonkers on April 20, 2020, 01:31:52 PM
I guess negative interest rates weren't crazy enough. Why should anything in this world have a positive price!?  8)
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 01:34:59 PM
This. While the 90+% decline today, and negative oil prices, are being overly hyped b/c it's for front month delivery that no one wants, there is nothing stopping this from happening again in June when we get to May 20th and realize we still don't have any storage b/c demand is still 10% of what it was. 2-3 months of negative oil prices is likely all we need to shake out a lot of week hands (both investors and companies) who are in this field.

That will probably be the time to start buying the majors that will survive this.
It'll be very interesting to see if the shippers get into the trade. They were probably not ready this go around cause it was so unexpected. But if I have a VLCC around and I buy oil at -20 and sell one month forward at 20 that can hugely profitable. Why just settle for paltry rents?

Btw, for shits and giggles the Texas RR commission is having another big meeting tomorrow. I bet it's gonna be EPIC. Usually these things are like the most boring thing on the planet. But could be fun seeing some Texas oilmen soil themselves tomorrow.
Title: Re: Energy Sector
Post by: longlake95 on April 20, 2020, 01:50:37 PM
I hope the SPR bought every contract they could handle.
Title: Re: Energy Sector
Post by: frank87 on April 20, 2020, 01:54:15 PM
I hope the SPR bought every contract they could handle.

Very limited liquidity for the May contract as far as I'm aware.
Title: Re: Energy Sector
Post by: opihiman2 on April 20, 2020, 01:57:48 PM
Looks like the VLCC tanker play is taking off today.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 20, 2020, 02:00:12 PM
Looks like the VLCC tanker play is taking off today.

Yep, now just up to these (sometimes questionable) managers to seize the opportunity.
Title: Re: Energy Sector
Post by: writser on April 20, 2020, 02:08:24 PM
That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

Gotta give the market a bit more credit than this, right? That should be priced in. Or you could just short the June futures now and make a few gazillion in a month when people figure out they can't take delivery. Again. "Damn, I'm selling my crude for minus $13 per barrel the last day of trading. Just like four weeks ago. And nothing has changed! Didn't see that coming".
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 20, 2020, 02:30:22 PM
That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

Gotta give the market a bit more credit than this, right? That should be priced in. Or you could just short the June futures now and make a few gazillion in a month when people figure out they can't take delivery. Again. "Damn, I'm selling my crude for minus $13 per barrel the last day of trading. Just like four weeks ago. And nothing has changed! Didn't see that coming".

Too many unknowns to price in. Do the OPEC+ cuts (starting May 1) do enough? Does demand return in 'V' shape as developed regions 'reopen'?

Just like with stocks, the price is a voting machine in the short run.
Title: Re: Energy Sector
Post by: LC on April 20, 2020, 02:32:41 PM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 20, 2020, 02:40:50 PM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

Agree, negative pricing changes the game: the downside becomes potentially limitless. Almost feels like CME made the decision on the fly.

And I wouldn't be surprised if we hear of a few trading firms going under in the days to come because of what happened today.
Title: Re: Energy Sector
Post by: writser on April 20, 2020, 02:42:21 PM
That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.

Gotta give the market a bit more credit than this, right? That should be priced in. Or you could just short the June futures now and make a few gazillion in a month when people figure out they can't take delivery. Again. "Damn, I'm selling my crude for minus $13 per barrel the last day of trading. Just like four weeks ago. And nothing has changed! Didn't see that coming".

Too many unknowns to price in. Do the OPEC+ cuts (starting May 1) do enough? Does demand return in 'V' shape as developed regions 'reopen'?

Just like with stocks, the price is a voting machine in the short run.

Yes, many unknowns, but a known fact is that the May crude future traded at a double-digit negative price one day before expiry (when liquidity has already disappeared) because apparently some speculators couldn't take delivery in Cushing. I'd be very, very, very surprised if nobody learns anything from that and it will be a repeat event that the front future drops from basically the spot price a month before settlement to minus $whatever a day before settlement each month. I'd happily take a decent sized bet that something similar won't happen again in 1/2/3/x months. If  you work at an oil trading firm and you are forced to sell front month futures at $-15 during a massive squeeze just before expiry your boss might say "don't fuck up again" if he's a nice guy. But three weeks later he'll be standing at your desk to warn you that you are fucking fired if you get into the same spot again.

As for what the spot oil price is in a month I agree: I have no clue.
Title: Re: Energy Sector
Post by: rb on April 20, 2020, 02:49:32 PM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

Agree, negative pricing changes the game: the downside becomes potentially limitless. Almost feels like CME made the decision on the fly.

And I wouldn't be surprised if we hear of a few trading firms going under in the days to come because of what happened today.
I think that the open interest in the May was enough to make any firm go under. Mad props to the CME for letting markets be markets. Though I kinda picture some guy over there just going like Fuck It! What's the worst that can happen.

In a separate thought, is anyone wondering how much of shit energy "formerly investment grade" bonds did the Fed buy? What happens when those things default? Does the Fed become an oil field operator? Is this how the US gets a national oil company? With the shittiest assets in the business to boot??
Title: Re: Energy Sector
Post by: Spekulatius on April 20, 2020, 03:04:07 PM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

Seems risky to trade this at all, unless you actually can take delivery, as these contracts are worse than hot potatoes. This will take liquidity from the crude future markets
Title: Re: Energy Sector
Post by: SharperDingaan on April 20, 2020, 03:05:13 PM
As at 4:09 pm EST: WTI is priced at MINUS USD 35.30.
The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so;
as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC.

The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone.
This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package.

SD

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery.

https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8

It matters, but Liberty is right.  This is small potatoes--most oil futures for May were already closed.  This just screws some people with open long contracts who cannot take physical delivery.

That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill.
Well Liberty is not exactly right. USO had nothing to do with it. Guy in his link knows not what he is talking about. USO was all in the June contract already. See link below.

http://www.uscfinvestments.com/holdings/uso

So yea you have a problem with delivery. But when the thing went to minus 10. Why didn't some trader for a refinery go "Fuck it! at -10 I'll take some extra barrels and clear the market." It's because NOBODY wants those barrels. If it's a storage problem, do you think that there will be more storage or less storage available 30 days from now? If you have the same storage problem for June delivery and that contract will go negative then what is the fair value of that contract today?

Normally E&P close and roll their contracts over because there hasn't been any problem with delivery. Now if I'm an E&P guy with overproduction and I just saw spot go down to -35 cause nobody is taking delivery and I'm looking at the $20 june contract don't I just sell my production forward and force delivery on whatever fool was dumb enough to buy the contract?

This is not just a storage problem.
Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.
We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

We live in interesting times.

SD
 
Title: Re: Energy Sector
Post by: alwaysdrawing on April 20, 2020, 03:27:35 PM
Robinhood shows USO, an ETF that holds oil futures contracts, was the biggest add today.  Retail investors don't know WTF they are buying, and are going to crash into contango.  I wouldn't be surprised if USO collapses in the next 30 days.  I see absolutely no reason why the June futures won't collapse like May causing massive losses for USO holders.

I bought a very small position in USO July $2 puts.  It's actually a similar situation to XIV during volmageddon, and would be 8-10 bags if the ETF liquidates at 0.  I don't think it would get to 0, but as seen today the market could get pretty crazy as people realize there is absolutely no storage for physical oil.
Title: Re: Energy Sector
Post by: capitalg on April 20, 2020, 04:48:23 PM
On Robinhood, where can you see the biggest adds or most popular stocks?
Title: Re: Energy Sector
Post by: TwoCitiesCapital on April 20, 2020, 04:50:37 PM
Robinhood shows USO, an ETF that holds oil futures contracts, was the biggest add today.  Retail investors don't know WTF they are buying, and are going to crash into contango.  I wouldn't be surprised if USO collapses in the next 30 days.  I see absolutely no reason why the June futures won't collapse like May causing massive losses for USO holders.

I bought a very small position in USO July $2 puts.  It's actually a similar situation to XIV during volmageddon, and would be 8-10 bags if the ETF liquidates at 0.  I don't think it would get to 0, but as seen today the market could get pretty crazy as people realize there is absolutely no storage for physical oil.

Was considering this myself today. Interesting times.
Title: Re: Energy Sector
Post by: fareastwarriors on April 20, 2020, 05:08:19 PM
On Robinhood, where can you see the biggest adds or most popular stocks?

I need some help there too!


Usually use IBKR but have Robinhood app for fun.

Title: Re: Energy Sector
Post by: alwaysdrawing on April 20, 2020, 05:10:33 PM
On Robinhood, where can you see the biggest adds or most popular stocks?

https://www.robintrack.net/
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 21, 2020, 04:13:33 AM
Well I guess the futures mkt is not that “efficient” after all...now the June contract also tumbles as people realize the same could happen a mo from now...
Title: Re: Energy Sector
Post by: rb on April 21, 2020, 05:13:19 AM
On Robinhood, where can you see the biggest adds or most popular stocks?

https://www.robintrack.net/
Their popularity change is like a list of what not to buy. Who are these people?
Title: Re: Energy Sector
Post by: rb on April 21, 2020, 05:15:25 AM
Well I guess the futures mkt is not that “efficient” after all...now the June contract also tumbles as people realize the same could happen a mo from now...
Have a look at the spot market. Holy shit! It looks like an oilman's rendition of the shining.
Title: Re: Energy Sector
Post by: wescobrk on April 21, 2020, 05:51:57 AM
I don't usually post political related posts but I couldn't resist this one.
AOC is loving this, too! She is cheering on the industry going up in flames (for other reasons, of course).
http://archive.is/oNYR7
Title: Re: Energy Sector
Post by: SHDL on April 21, 2020, 06:12:08 AM
USO halted!
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 21, 2020, 06:20:39 AM
https://www.reddit.com/r/dataisbeautiful/comments/g4m8gb/oc_top_countries_by_crude_oil_production_since/

Clearly shale industry didn't get the message from the slump ~6 years ago and instead dramatically expanded production. Looks like lots of pain to come...
Title: Re: Energy Sector
Post by: rkbabang on April 21, 2020, 06:20:50 AM
I just can't wait until I can drive around and search for which gas station will pay me the most to fill up my car.
Title: Re: Energy Sector
Post by: petec on April 21, 2020, 06:21:36 AM

This is not just a storage problem.
Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.
We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

We live in interesting times.

SD

This may be a really dumb question but if someone out there has a liquidity problem, how can they pay someone else to take the contract off them? I can understand how a liquidity crunch would drive a firesale at a low positive price. I can't understand how it would drive a negative price. Surely if you're f***ed for cash and the price goes negative you just go bust and stop worrying about the fact that you can't accept delivery?
Title: Re: Energy Sector
Post by: wescobrk on April 21, 2020, 06:29:22 AM
USO halted!
Are there any other etfs that is doing what USO is doing? I started to put a order on USO 30 seconds before the close yesterday but I didn't get it in before close.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 06:46:53 AM
USO halted!
Are there any other etfs that is doing what USO is doing? I started to put a order on USO 30 seconds before the close yesterday but I didn't get it in before close.

Do you want to buy or short?

USO is going to get crushed by the contango.  It is not a good ETF to speculate on the price of oil.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 06:50:16 AM

This is not just a storage problem.
Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.
We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

We live in interesting times.

SD

This may be a really dumb question but if someone out there has a liquidity problem, how can they pay someone else to take the contract off them? I can understand how a liquidity crunch would drive a firesale at a low positive price. I can't understand how it would drive a negative price. Surely if you're f***ed for cash and the price goes negative you just go bust and stop worrying about the fact that you can't accept delivery?

This is a real market for physical delivery, so if you own the contract you MUST take delivery or you are bankrupt, and your broker will have to handle it for you.

Oil is not like steel or copper or something else you can just take delivery of and drop off at a yard somewhere.  You can't dump it out on land or the ocean, you need to pay someone for storage, and that's what drives the negative prices, as those storage costs are non-trivial, and during a shortage like the present, there is simply nowhere to put the oil that must be delivered.
Title: Re: Energy Sector
Post by: petec on April 21, 2020, 06:56:35 AM

This is not just a storage problem.
Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.
We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

We live in interesting times.

SD

This may be a really dumb question but if someone out there has a liquidity problem, how can they pay someone else to take the contract off them? I can understand how a liquidity crunch would drive a firesale at a low positive price. I can't understand how it would drive a negative price. Surely if you're f***ed for cash and the price goes negative you just go bust and stop worrying about the fact that you can't accept delivery?

This is a real market for physical delivery, so if you own the contract you MUST take delivery or you are bankrupt, and your broker will have to handle it for you.

Oil is not like steel or copper or something else you can just take delivery of and drop off at a yard somewhere.  You can't dump it out on land or the ocean, you need to pay someone for storage, and that's what drives the negative prices, as those storage costs are non-trivial, and during a shortage like the present, there is simply nowhere to put the oil that must be delivered.

I know. But that doesn’t explain how (in SD’s scenario) a player that has no cash (liquidity crisis) can *pay* someone to take the contract. That’s what I’m asking.
Title: Re: Energy Sector
Post by: rb on April 21, 2020, 07:04:54 AM

This is not just a storage problem.
Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.
We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

We live in interesting times.

SD

This may be a really dumb question but if someone out there has a liquidity problem, how can they pay someone else to take the contract off them? I can understand how a liquidity crunch would drive a firesale at a low positive price. I can't understand how it would drive a negative price. Surely if you're f***ed for cash and the price goes negative you just go bust and stop worrying about the fact that you can't accept delivery?

This is a real market for physical delivery, so if you own the contract you MUST take delivery or you are bankrupt, and your broker will have to handle it for you.

Oil is not like steel or copper or something else you can just take delivery of and drop off at a yard somewhere.  You can't dump it out on land or the ocean, you need to pay someone for storage, and that's what drives the negative prices, as those storage costs are non-trivial, and during a shortage like the present, there is simply nowhere to put the oil that must be delivered.

I know. But that doesn’t explain how (in SD’s scenario) a player that has no cash (liquidity crisis) can *pay* someone to take the contract. That’s what I’m asking.
I think he's talking about market liquidity i.e. there are no buyers but the idiot long still has money.

There could also be some of this:
Quote
Dumb investor here, Can I buy oil futures using a discount broker ? what happens if I don't sell it ? will I get a barrel with my name on it in Cushing Oklahoma I can take home ? Why wouldn't everyone do it and store the oil in their back yard and flip it for 20$ next month for a 40x return in a month ?
This poster is not as dumb he thinks. He was smart enough to ask the question. I'm sure there were other dumber guys that didn't, their broker seized their contracts and dumped them.
Title: Re: Energy Sector
Post by: wescobrk on April 21, 2020, 07:08:31 AM
Robinhood shows USO, an ETF that holds oil futures contracts, was the biggest add today.  Retail investors don't know WTF they are buying, and are going to crash into contango.  I wouldn't be surprised if USO collapses in the next 30 days.  I see absolutely no reason why the June futures won't collapse like May causing massive losses for USO holders.

I bought a very small position in USO July $2 puts.  It's actually a similar situation to XIV during volmageddon, and would be 8-10 bags if the ETF liquidates at 0.  I don't think it would get to 0, but as seen today the market could get pretty crazy as people realize there is absolutely no storage for physical oil.
Article in FT today saying USO is taking (I believe) 20% of its fund and buying longer out futures contracts.
Does that change your conviction always drawing?
Title: Re: Energy Sector
Post by: petec on April 21, 2020, 07:16:56 AM
I think he's talking about market liquidity i.e. there are no buyers but the idiot long still has money.

No, he mentioned the market not wanting this hypothetical player as a counterparty.

Never mind!
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 07:19:26 AM
Robinhood shows USO, an ETF that holds oil futures contracts, was the biggest add today.  Retail investors don't know WTF they are buying, and are going to crash into contango.  I wouldn't be surprised if USO collapses in the next 30 days.  I see absolutely no reason why the June futures won't collapse like May causing massive losses for USO holders.

I bought a very small position in USO July $2 puts.  It's actually a similar situation to XIV during volmageddon, and would be 8-10 bags if the ETF liquidates at 0.  I don't think it would get to 0, but as seen today the market could get pretty crazy as people realize there is absolutely no storage for physical oil.
Article in FT today saying USO is taking (I believe) 20% of its fund and buying longer out futures contracts.
Does that change your conviction always drawing?

That was true as of a couple weeks ago, but the fund will continue to waste in contango.  It is unlikely to go to 0 because of the 20% in the second month, but it will lose a lot of value if spot drops big before the roll.  I think the pros will front run USO this go around, as USO has become a large % of the futures market.

The halt this morning was because they are suspending share creation, which makes sense as people pour money into the ETF they are indiscriminately buying a huge percentage of the futures market.

I don't have a large position, but I bought 75 July $2 USO puts for between 0.20 and 0.28 yesterday, and the current price is 0.50.  It's such a small position I'm inclined to let it ride, as I think the oil market is still profoundly oversupplied, and contango will persist.  I think the "safe" way to play that thesis is the tanker trade, which I have a much more significant position in.



Title: Re: Energy Sector
Post by: rb on April 21, 2020, 07:38:58 AM
https://twitter.com/realDonaldTrump/status/1252591306028785667

WTI is so fucked!
Title: Re: Energy Sector
Post by: Castanza on April 21, 2020, 07:45:30 AM
https://twitter.com/realDonaldTrump/status/1252591306028785667

WTI is so fucked!

Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 08:14:00 AM
So, the June contract just down 30% today. 

LOL....this market is wild
Title: Re: Energy Sector
Post by: Liberty on April 21, 2020, 08:20:24 AM
https://twitter.com/realDonaldTrump/status/1252591306028785667

WTI is so fucked!

It worked so well for the US coal and steel industries!
Title: Re: Energy Sector
Post by: Jurgis on April 21, 2020, 08:26:36 AM
https://twitter.com/realDonaldTrump/status/1252591306028785667

WTI is so fucked!

It worked so well for the US coal and steel industries!

Well, at least hotel and casino industry is doing great!
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 21, 2020, 08:34:50 AM
https://twitter.com/realDonaldTrump/status/1252591306028785667

WTI is so fucked!

It worked so well for the US coal and steel industries!

Well, at least hotel and casino industry is doing great!

Turns out bluster does not generate GDP output.
Title: Re: Energy Sector
Post by: DooDiligence on April 21, 2020, 08:42:04 AM
https://twitter.com/realDonaldTrump/status/1252591306028785667

WTI is so fucked!

It worked so well for the US coal and steel industries!

Well, at least hotel and casino industry is doing great!

Turns out bluster does not generate GDP output.

Who knew you could power a wind farm with agent orange?
Title: Re: Energy Sector
Post by: vikx01 on April 21, 2020, 09:01:20 AM
Just curious as to what explains the contango steepening even for brent. There is storage capacity shortage for brent too but this sharp a change this sudden. Am I missing something?
I have no position in the tankers. Just curious.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:03:30 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:18:30 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:23:16 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:28:32 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:31:14 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:33:24 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0

I actually think it's technically possible for USO to go negative if the June contract goes negative. 
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:34:24 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0

I actually think it's technically possible for USO to go negative if the June contract goes negative.

This might be the craziest trade of my life....
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:36:20 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0

I actually think it's technically possible for USO to go negative if the June contract goes negative.

This might be the craziest trade of my life....

USO is halted.

Title: Re: Energy Sector
Post by: rb on April 21, 2020, 09:37:14 AM


Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0
[/quote]

I actually think it's technically possible for USO to go negative if the June contract goes negative.
[/quote]

This might be the craziest trade of my life....
[/quote]
Yep, i think i'll buy some USO puts just to be able to say that I did it.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:41:26 AM
Yep, i think i'll buy some USO puts just to be able to say that I did it.

USO still at a 16% premium to NAV, but the only thing that matters is the underlying.

Watch the June contract...as that declines it could force USO into liquidation.
Title: Re: Energy Sector
Post by: rb on April 21, 2020, 09:49:56 AM
If USO liquidates, the June may go negative as well. USO is over 20% of June open interest. That's dumb money from Robinhood clients. There's no one to take their place.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 09:50:56 AM
If USO liquidates, the June may go negative as well. USO is over 20% of June open interest. That's dumb money from Robinhood clients. There's no one to take their place.

Yep
Title: Re: Energy Sector
Post by: wescobrk on April 21, 2020, 09:58:34 AM
thanks for the idea. I told someone about this only buying front contract back in 2009 and I forgot about it.
I was able to get a little in for my wife's account but I'm blocked to purchase or short or do options due to my current employer, ugh!
Title: Re: Energy Sector
Post by: vikx01 on April 21, 2020, 10:18:12 AM
Interesting take on what might have happened:
https://twitter.com/ErikSTownsend/status/1252574865397297152 (https://twitter.com/ErikSTownsend/status/1252574865397297152)


I took a tiny position short USO just for entertainment.


Thanks for the idea alwaysdrawing
Title: Re: Energy Sector
Post by: Castanza on April 21, 2020, 10:22:19 AM
I wish Ray Hudson would read the commentary between rb and alwaysdrawing  ;D

Took a small short position for entertainment as well. Thanks for the idea!
Title: Re: Energy Sector
Post by: writser on April 21, 2020, 10:23:46 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0

I actually think it's technically possible for USO to go negative if the June contract goes negative.

No, that is not possible .. USO interests are structured as a limited partnership. The GP is on the hook for any losses.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:27:17 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0

I actually think it's technically possible for USO to go negative if the June contract goes negative.

No, that is not possible .. USO interests are structured as a limited partnership. The GP is on the hook for any losses.

I don't mean for the ETF holders per se, but the underlying futures contracts could make NAV decline to less than 0.

I agree for long USO ETF holders, their max loss is 100%.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:30:15 AM
June continues to fall, I am buying more USO puts.  I think this could implode today if June goes down to the margin req.

I calculate NAV of USO to be 2.42, which means the premium to NAV is around 19%

I think it's likely we could see liquidation this week.  Buying some shorter term OOTM options.

Futures traders may press.  Watch for June to continue to fall

Buying a lot more Friday $1s

June under $12.....holy shit

USO NAV is 2.25.....I think they could hit 0

I actually think it's technically possible for USO to go negative if the June contract goes negative.

No, that is not possible .. USO interests are structured as a limited partnership. The GP is on the hook for any losses.

I don't mean for the ETF holders per se, but the underlying futures contracts could make NAV decline to less than 0.

I agree for long USO ETF holders, their max loss is 100%.

Margin req for CL is $7500, so if June futures get to around 7, I believe USO is a forced seller. 
Title: Re: Energy Sector
Post by: SharperDingaan on April 21, 2020, 10:38:36 AM

This is not just a storage problem.
Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day.

The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days.

There's lots of storage. Just keep the oil in the ground, and DON'T produce it.
We just don't have a mechanism yet - most would think that before the next expiry we very likely will have.

We live in interesting times.

SD

This may be a really dumb question but if someone out there has a liquidity problem, how can they pay someone else to take the contract off them? I can understand how a liquidity crunch would drive a firesale at a low positive price. I can't understand how it would drive a negative price. Surely if you're f***ed for cash and the price goes negative you just go bust and stop worrying about the fact that you can't accept delivery?

COLLECTIVELY:
There are a lot of open contracts to clear/roll
Market clearing at losses < margin release. Open positions declining, posted margin increasing.
Price volatility triggers posting of additional margin by time X. Margin call selling accelerates.
Price volatility, caps the maximum permissible posted margin?
Dump to get under the margin cap? market clearing at loss > margin release. 

In theory, if a counter-party fails, the exchange makes good against the margin posted; the posted letters of credit. In practice, the hope is that the issuers of those letters of credit … are NOT netting against other obligations of the failed counter-party. Liquidity crunch.

In practice, the open position also does NOT go to zero upon contract expiry.
Refiners may both want the physical, AND have a place to put it; delivery via a tank-to-tank swap at Cushing is not unheard of. Neither is delivering WTI via a tank swap, and replacing with a floating substitute delivered to a tide-water refinery. Those Saudi tankers bound for the US, are there for a reason.

As at 1:35 PM EST, the spot price of WTI is PLUS USD 11.18.
Yesterday, at 4:09 PM EST. the spot price of WTI was MINUS USD 35.30.
A history making USD 44.48+ one-day change in the spot price, yet nobody is taking about it?

SD
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:42:28 AM
June under 11.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:43:54 AM
NAV is 2...USO premium is widening
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:46:33 AM
June under 11.

Under 10....that was quick.

Think forced selling and liquidation is becoming more likely as it pushes toward margin req.  Everyone knows they are forced sellers.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:48:47 AM
June under 11.

Under 10....that was quick.

Think forced selling and liquidation is becoming more likely as it pushes toward margin req.  Everyone knows they are forced sellers.

Under 9....here we goooooooooooo
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:50:20 AM
June under 11.

Under 10....that was quick.

Think forced selling and liquidation is becoming more likely as it pushes toward margin req.  Everyone knows they are forced sellers.

Under 9....here we goooooooooooo

Under 7.  I believe USO is a 0.

Will be buying any possible put option
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:50:50 AM
June under 11.

Under 10....that was quick.

Think forced selling and liquidation is becoming more likely as it pushes toward margin req.  Everyone knows they are forced sellers.

Under 9....here we goooooooooooo

Under 7.  I believe USO is a 0.

Will be buying any possible put option

USO is halted and I believe they will not re-open due to margin call.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 10:57:53 AM
June under 11.

Under 10....that was quick.

Think forced selling and liquidation is becoming more likely as it pushes toward margin req.  Everyone knows they are forced sellers.

Under 9....here we goooooooooooo

Under 7.  I believe USO is a 0.

Will be buying any possible put option

USO is halted and I believe they will not re-open due to margin call.

They may have additional capacity from the next month 20% of the fund....still think it's possible for disorderly exit.

Will be watching for forced sales/negative prices.
Title: Re: Energy Sector
Post by: writser on April 21, 2020, 10:58:52 AM
I understand you are very excited (which is a bad frame of mind when trading, but whatever) but could you please bundle all your one-liners by editing your last post? Probably wise to take a step back and smoke a cigarette or whatever for a few minutes.
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 11:01:10 AM
I understand you are very excited (which is a bad frame of mind when trading, but whatever) but could you please bundle all your one-liners by editing your last post? Probably wise to take a step back and smoke a cigarette or whatever for a few minutes.

I'll just sign off...sorry for spamming
Title: Re: Energy Sector
Post by: rkbabang on April 21, 2020, 11:05:58 AM
Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.

"The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations"

--David Friedman, "The Machinery of Freedom (http://www.daviddfriedman.com/The_Machinery_of_Freedom_.pdf)".
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 21, 2020, 11:08:01 AM
Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.

"The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations"

--David Friedman, "The Machinery of Freedom (http://www.daviddfriedman.com/The_Machinery_of_Freedom_.pdf)".

Not only do we need to spend trillions to secure these resources, but we also need to prevent investment in renewables because that’s #socialism. Trump bailout for oil workers incoming in 3...2...
Title: Re: Energy Sector
Post by: fareastwarriors on April 21, 2020, 11:09:00 AM
Anything interesting going on oil-related names?
Too early?
Title: Re: Energy Sector
Post by: Castanza on April 21, 2020, 11:14:20 AM
Amazing to think we've been at war for 30+ years over oil. And here we are in an environment where you can't pay people to take it.

"The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations"

--David Friedman, "The Machinery of Freedom (http://www.daviddfriedman.com/The_Machinery_of_Freedom_.pdf)".

Not only do we need to spend trillions to secure these resources, but we also need to prevent investment in renewables because that’s #socialism. Trump bailout for oil workers incoming in 3...2...

Subsidies are prevalent on both sides of the energy aisle (GND comes to mind albeit a different flavor). I'm all for clean energy, and I think without all this lobbying, special interests, government intervention, etc. We could have been there a long time ago.

Anyways I don't want to derail the thread, but certainly interesting to see considering 100 years of wars have been fought over oil.

Always drawing keep the posts coming. Certainly entertaining!
Title: Re: Energy Sector
Post by: lnofeisone on April 21, 2020, 11:27:40 AM
Yesterday, at 4:09 PM EST. the spot price of WTI was MINUS USD 35.30.
A history making USD 44.48+ one-day change in the spot price, yet nobody is taking about it?

SD

This. Someone, somewhere is sitting on a massive loss. I doubt it's USO but USO is very much a forced seller here.
Title: Re: Energy Sector
Post by: writser on April 21, 2020, 11:29:16 AM
USO did the sensible thing and is deviating from their index strategy: https://www.sec.gov/Archives/edgar/data/1327068/000117120020000259/0001171200-20-000259-index.htm

Quote
Commencing on April 21, 2020, because of extraordinary market conditions in the crude oil markets, including super contango, USO has invested in other permitted investments, as described below and in its prospectus. In particular, on April 21, 2020, USO invested in approximately 40% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the June contract, approximately 55% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the July contract and approximately 5% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the August contract, except when the front month contract is within two weeks of expiration, in which case the futures contracts held by USO will be rolled into the July contract, August contract and September contract. In addition, commencing on April 22, 2020, USO in response to ongoing extraordinary market conditions in the crude oil markets, including super contango, may invest in the above described crude oil futures contracts on the NYMEX and ICE Futures in any month available or in varying percentages or invest in any other of the permitted investments described below and in its prospectus, without further disclosure. USO intends to attempt to continue tracking USO’s benchmark as closely as possible, however significant tracking deviations may occur above and beyond the differences described herein. USO’s portfolio holdings as of the end of the prior business day are posted each day on the website: www.uscfinvestments.com/uso.

Was the market trying to bust USO today? Or was the huge drop in June contracts caused by USO rolling half of its June futures to the next expiration? Fascinating stuff.

Liquidity doesn't seem too bad if they can roll half their position in a few hours.
Title: Re: Energy Sector
Post by: Viking on April 21, 2020, 11:31:55 AM
It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).
Title: Re: Energy Sector
Post by: alwaysdrawing on April 21, 2020, 11:34:44 AM
Just FYI, USO filed an 8-k, changing their holdings from 80% front month, 20% next to

40% front, 55% next, 5% two from now (eg, 40% June, 55% July, 5% August)

EDIT:  This makes the near term default risk minimal, as the longer dated futures contracts will not lose value so fast.

Short term puts will likely expire worthless, longer term will devalue as long as contango persists.

Difficult to calculate NAV right now, because USO was trading outside their prospectus and it's impossible to know the prices they paid.  Crazy situation all around.
Title: Re: Energy Sector
Post by: KJP on April 21, 2020, 11:54:28 AM
It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?
Title: Re: Energy Sector
Post by: Viking on April 21, 2020, 12:05:05 PM
It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.
Title: Re: Energy Sector
Post by: rb on April 21, 2020, 12:37:03 PM
LOOOL! R Senator from ND on Bloomberg right now:

"The current situation in the oil markets is mainly due to the super price war between Russa and KSA."

"Our companies are very good, very responsible companies".

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

https://tradingeconomics.com/saudi-arabia/crude-oil-production
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 21, 2020, 01:54:26 PM
https://seekingalpha.com/news/3562819-interactive-brokers-reports-margin-loss-on-crude-oil-contracts

Looks like IBKR took (relatively small) hit due to customer losses:

Quote
Interactive Brokers Group (NASDAQ:IBKR) recognizes an aggregate provisionary loss of ~$88M resulting from the price of New York Mercantile Exchange West Texas Intermediate May crude oil contract price dropping to negative $37.63.

Several Interactive Brokers LLC ("IBLLC") customers held long positions in these CME and ICE Europe contracts and, as a result, they incurred losses that exceeded the equity in their accounts.

What are the margin requirements for futures holders going to be going fwd?
Title: Re: Energy Sector
Post by: randomep on April 21, 2020, 02:34:54 PM

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.   So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?
Title: Re: Energy Sector
Post by: SharperDingaan on April 21, 2020, 03:27:27 PM
It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.

https://oilprice.com/Energy/Oil-Prices/EX-BP-CEO-Low-Oil-Prices-Are-Here-To-Stay.html
The reality is that it will take YEARS of demand > supply, to work off the existing above ground inventory, and because there's lots of inventory - prices will stay low during that entire time. Left to the market, that means widespread and long-standing shut-in/re-drilling across most production sectors, and largely state-only production. Hard on jobs.

More practical, is national energy policies, and 'in-country' prices [tariffs] high enough to sustain domestic production. Alternative energy incentives switch to pollution minimization incentives. In Canada, a made-in-Canada price, and more pollution saved by Tar Sands polluting less/carbon sequester, versus switching to EV. NEP 2.0, and rebuilt pipelines across Canada. We 'the people' pay more, but we get jobs, stability, and the ability to plan our futures.

Canada might even improve its Kyoto Accords performance!,
albeit not in the way intended.

SD



Title: Re: Energy Sector
Post by: Viking on April 21, 2020, 05:09:42 PM
It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus.

Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices.

The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation.

Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times...

i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days.  I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward.

Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts?  More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale?  I assume that's quite low.  So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff?

It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.

https://oilprice.com/Energy/Oil-Prices/EX-BP-CEO-Low-Oil-Prices-Are-Here-To-Stay.html
The reality is that it will take YEARS of demand > supply, to work off the existing above ground inventory, and because there's lots of inventory - prices will stay low during that entire time. Left to the market, that means widespread and long-standing shut-in/re-drilling across most production sectors, and largely state-only production. Hard on jobs.

More practical, is national energy policies, and 'in-country' prices [tariffs] high enough to sustain domestic production. Alternative energy incentives switch to pollution minimization incentives. In Canada, a made-in-Canada price, and more pollution saved by Tar Sands polluting less/carbon sequester, versus switching to EV. NEP 2.0, and rebuilt pipelines across Canada. We 'the people' pay more, but we get jobs, stability, and the ability to plan our futures.

Canada might even improve its Kyoto Accords performance!,
albeit not in the way intended.

SD

Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.
Title: Re: Energy Sector
Post by: lnofeisone on April 21, 2020, 07:41:45 PM

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.   So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

Edited to quote the question. Still getting used to the new format.
Title: Re: Energy Sector
Post by: randomep on April 21, 2020, 08:08:39 PM

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.   So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

Edited to quote the question. Still getting used to the new format.


Thanks for trying but you didn't answer my question.  Is someone going to take delivery at negative cost?  Or is that not a right question to ask?   

But I see the WTI spot price and it is normal around $20, so do we agree that the spot price of oil is around $20, it will never be negative?

Ok so I do trade Emini futures so I know how it settles everyday.  But what would prompt a person to sell oil at -$35.  I wouldn't.  Suppose I bought a future on a barrel for $40, then coronavirus hits us and I know I am hosed, ok I'll get out by selling $20.  But if it goes to $10 I won't sell, I know that one minute before expiry I can unload it for $20 (the above minimum price I gave).

Now I imagine maybe I really want to get rid of a barrel of oil, so I have the "original" contract.....  and no one has taken the other side of this contract.  I need to get rid of the oil cos I have no place to put it, so I am willing to take a loss on the barrel.  But if I just hold on to the oil, on expiry I know I can get $20 / barrel.  So in what scenario will a sane person sell oil at -$35?  Am I missing something? like a margin call? what?

please help!
Title: Re: Energy Sector
Post by: pocoapoco on April 21, 2020, 08:56:26 PM

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.   So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

Edited to quote the question. Still getting used to the new format.


Thanks for trying but you didn't answer my question.  Is someone going to take delivery at negative cost?  Or is that not a right question to ask?   

But I see the WTI spot price and it is normal around $20, so do we agree that the spot price of oil is around $20, it will never be negative?

Ok so I do trade Emini futures so I know how it settles everyday.  But what would prompt a person to sell oil at -$35.  I wouldn't.  Suppose I bought a future on a barrel for $40, then coronavirus hits us and I know I am hosed, ok I'll get out by selling $20.  But if it goes to $10 I won't sell, I know that one minute before expiry I can unload it for $20 (the above minimum price I gave).

Now I imagine maybe I really want to get rid of a barrel of oil, so I have the "original" contract.....  and no one has taken the other side of this contract.  I need to get rid of the oil cos I have no place to put it, so I am willing to take a loss on the barrel.  But if I just hold on to the oil, on expiry I know I can get $20 / barrel.  So in what scenario will a sane person sell oil at -$35?  Am I missing something? like a margin call? what?

please help!

I believe that the futures contract specify physical delivery.
It’s not cash settled like your Emini futures.
So come expiration, you don’t just get some dollar amount for the contract (like a $20 spot)
You get a barrel of oil (or however many the contract specifies)

If you do not have the ability to take delivery of the oil, and put it in storage, then you will be forced to close at market.  I’m guessing that you as an investor don’t have the ability to take delivery of physical oil.  That is why people roll the futures a day or two before expiration.

Liquidity is provided by those that can take delivery, store the oil and short a further out contract, pay the storage fees, and make the spread.  If there’s no storage available and storage costs skyrocket then the spread between the months blows out.
Title: Re: Energy Sector
Post by: lnofeisone on April 22, 2020, 05:02:24 AM

I have a basic question about oil futures. I have never traded oil future and don't intend to. But I do trade in SP500 Eminis so I know a bit about futures.   So the price of the future is going to converge to the spot price up to the expiry date.  So does that really mean on the date of expiry the oil company is actually going to pay people to take their oil at cushing?  And how long as the spot price been negative?

Very few futures are closed out with physical delivery. Even if there is physical delivery, all of the futures costs are settled daily (marked to market) so whoever bought the future basically paid up out of the required margin.

Edited to quote the question. Still getting used to the new format.


Thanks for trying but you didn't answer my question.  Is someone going to take delivery at negative cost?  Or is that not a right question to ask?   

But I see the WTI spot price and it is normal around $20, so do we agree that the spot price of oil is around $20, it will never be negative?

Ok so I do trade Emini futures so I know how it settles everyday.  But what would prompt a person to sell oil at -$35.  I wouldn't.  Suppose I bought a future on a barrel for $40, then coronavirus hits us and I know I am hosed, ok I'll get out by selling $20.  But if it goes to $10 I won't sell, I know that one minute before expiry I can unload it for $20 (the above minimum price I gave).

Now I imagine maybe I really want to get rid of a barrel of oil, so I have the "original" contract.....  and no one has taken the other side of this contract.  I need to get rid of the oil cos I have no place to put it, so I am willing to take a loss on the barrel.  But if I just hold on to the oil, on expiry I know I can get $20 / barrel.  So in what scenario will a sane person sell oil at -$35?  Am I missing something? like a margin call? what?

please help!

So few things here. Let's start with the mechanics and then do an actual example because there are some funny quirks. If you hold futures contract on oil into the expiration and go into a settlement (let's stick with light sweet) you have to take the delivery. At Cushing, the futures buyer needs to have storage access that is connected to either an EPD or ENB pipelines. Let's say you decided to take the delivery and the price is positive. At expiry (price is at spot), the exchange will take money from your account and deposit it into the seller's account. You get to Cushing and the seller will likely have oil storage in Cushing or will contract it from someone. That's the normal process for physical exchanges.

There are protections in place for everyone (this is important because I think this is what drove some entity to basically take any price). For example, if the futures seller fails to deliver, the exchange will find the oil or compensate the buyer. If the buyer fails to accept delivery, the exchange will debit the account to make sure seller gets paid. If the facility fails to load out, the exchange guarantees the buyer will get the full market value of content. You get the idea. Now if either party fails to live up to their obligation the exchange will consider it an act detrimental to the welfare of the exchange and penalties can be stiff (e.g., suspension or expulsion).

Now, onto the quirks. In reality, very few accounts are allowed to hold oil futures into expiration. If you hold futures, a few days prior to expiry you get a phone call from the exchange to either roll your futures or close out the position. If you are EPD or MPLX and have a business need you'll get questions but probably will be able to hold onto your position. If you are big and sophisticated players (le's say GS) you can probably figure out how to hold on. Small retail, no chance. This is one of those small differences between commodities and e-minis. The bigger difference (the one that doomed our hero) is that the e-minis (if they weren't financially settled) would deliver a basket of paper that is liquid while taking physical delivery of a commodity is a process that requires sophistication and infrastructure).

Next quirk. A few weeks ago this went out (https://www.bloomberg.com/news/articles/2020-03-28/pipelines-ask-u-s-oil-drillers-to-curb-output-as-tanks-fill-up). EPD basically now asking everyone to show that they have a destination for their oil (meaning that they have no storage to spare).

This is the part where I am guessing. Some sophisticated entity had a large position going into expiry. I say sophisticated because this is very close to expiry for someone like me to be holding oil futures. Exchange called this entity and asked to prove storage/destination or unwind. Failure to do so would result in not so great consequences. The entity was unable to find storage so the trading desk had to unwind at the insistence of risk officer. As prices started to come down, there were probably others in the market that started getting margin calls, and frenzy ensued. EPD/ENB and others with storage were probably buyers at negative prices. Hopefully, not too much because that oil isn't going anywhere for a while.

 
Title: Re: Energy Sector
Post by: meiroy on April 22, 2020, 05:30:16 AM
https://twitter.com/realDonaldTrump/status/1252932181447630848

"I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea."

Clever. "Go ahead, block it."
Title: Re: Energy Sector
Post by: SharperDingaan on April 22, 2020, 05:47:59 AM
Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.
Lack of money, has a wonderful way of concentrating the minds of everyone,

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

And perhaps one of the biggest lessons from Covid-19.
All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

Interesting times.

SD


Title: Re: Energy Sector
Post by: wescobrk on April 22, 2020, 06:49:51 AM
USO will have 8 to 1 reverse split on April 28th.
How will this affect puts and calls?
Title: Re: Energy Sector
Post by: LC on April 22, 2020, 07:22:24 AM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

FYI this lends more color here:
https://www.bloomberg.com/news/articles/2020-04-21/negative-oil-prices-are-literally-breaking-traders-risk-models

CME Group Inc. said late Tuesday that the clearing house will switch the options pricing and valuation model to Bachelier -- a model named after the famous French mathematician -- to accommodate negative prices in the underlying futures and allow for listing of options contracts with negative strikes for a certain set of crude oil and energy products. The change is effective Wednesday and will remain in place until further notice.

Title: Re: Energy Sector
Post by: Dalal.Holdings on April 22, 2020, 09:05:56 AM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

FYI this lends more color here:
https://www.bloomberg.com/news/articles/2020-04-21/negative-oil-prices-are-literally-breaking-traders-risk-models

CME Group Inc. said late Tuesday that the clearing house will switch the options pricing and valuation model to Bachelier -- a model named after the famous French mathematician -- to accommodate negative prices in the underlying futures and allow for listing of options contracts with negative strikes for a certain set of crude oil and energy products. The change is effective Wednesday and will remain in place until further notice.


Holy cow--negative strikes.
Title: Re: Energy Sector
Post by: Uccmal on April 22, 2020, 10:02:05 AM
Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.
Lack of money, has a wonderful way of concentrating the minds of everyone,

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

And perhaps one of the biggest lessons from Covid-19.
All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

Interesting times.

SD

What this says to me is that if you have pipe already, it will become increasingly valuable.  The repercussions for future supply are interesting to say the least. 

SA, And to a lessor degree the other large Mideast countries are going to be facing revolution if the oil price stays down for very long.  We saw what happened to Libya’s and Venezuela’s supplies when governments become unstable.  Simultaneously we have a virtual elimination of long tail projects by every major player in the world. 

The outcome is likely toppled regimes, and a massive price bounce back, down the road.  It may become more like railroads, with very few players making a lot of money. 

We could speed up the rebalance really quick by turning the gulf fields into glass.  China may take exception but I sure Moscow would be on board. 
Title: Re: Energy Sector
Post by: LC on April 22, 2020, 10:11:30 AM
The real unknown here is how various desks will price these assets going forward and the various implications of that (i.e. reduced volumes or higher collateral reqs). Many existing models (e.g. gabillon) do not allow for negative prices. Similarly to negative interest rates a few years back.

FYI this lends more color here:
https://www.bloomberg.com/news/articles/2020-04-21/negative-oil-prices-are-literally-breaking-traders-risk-models

CME Group Inc. said late Tuesday that the clearing house will switch the options pricing and valuation model to Bachelier -- a model named after the famous French mathematician -- to accommodate negative prices in the underlying futures and allow for listing of options contracts with negative strikes for a certain set of crude oil and energy products. The change is effective Wednesday and will remain in place until further notice.


Holy cow--negative strikes.
Bloomberg did some lazy reporting to only focus on BS/options pricing. The real problem is use of Gabillon model which is used as a commodities pricer, mainly for collateral purposes. It will throw collateral requirements out of whack.
Title: Re: Energy Sector
Post by: Castanza on April 22, 2020, 10:39:33 AM
How does this work for pricing below 0?

(I couldn't access the article)
Title: Re: Energy Sector
Post by: SharperDingaan on April 22, 2020, 11:38:16 AM
Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.
Lack of money, has a wonderful way of concentrating the minds of everyone,

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

And perhaps one of the biggest lessons from Covid-19.
All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

Interesting times.

SD

What this says to me is that if you have pipe already, it will become increasingly valuable.  The repercussions for future supply are interesting to say the least. 

SA, And to a lessor degree the other large Mideast countries are going to be facing revolution if the oil price stays down for very long.  We saw what happened to Libya’s and Venezuela’s supplies when governments become unstable.  Simultaneously we have a virtual elimination of long tail projects by every major player in the world. 

The outcome is likely toppled regimes, and a massive price bounce back, down the road.  It may become more like railroads, with very few players making a lot of money. 

We could speed up the rebalance really quick by turning the gulf fields into glass.  China may take exception but I sure Moscow would be on board.

Existing pipe will behave, on pain on nationalization. Keep renewing the social license, or lose it.
Most long-tail projects are now stranded, but regimes will continue to produce as they need the FX. Without tariffs, others will shut-in.
Agreed, regime change in most places unless they can collectively raise price, and keep the price up.

Game changers
Covid-19 demand destruction is enough to permanently shut-in sizeable global production.
Global agreement to lock up the global inventory, then bleed it out slowly.
Post Covid, demand rises, supply remains constrained, and price rises to some set-point [USD 62/bbl?]
Thereafter all incremental demand supplied from inventory.
Stability for a long while.

SD


Title: Re: Energy Sector
Post by: TwoCitiesCapital on April 22, 2020, 12:00:47 PM
USO will have 8 to 1 reverse split on April 28th.
How will this affect puts and calls?

It's my understanding the number of shares underlying each option contract will change to adjust the new share ratio  (i.e. 12.5 shares instead of 100).

So both your strikes and underlying # of shares per contract get adjusted, but you will own the same number of contracts.
Title: Re: Energy Sector
Post by: BG2008 on April 22, 2020, 06:40:18 PM
Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.
Lack of money, has a wonderful way of concentrating the minds of everyone,

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

And perhaps one of the biggest lessons from Covid-19.
All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

Interesting times.

SD

What this says to me is that if you have pipe already, it will become increasingly valuable.  The repercussions for future supply are interesting to say the least. 

SA, And to a lessor degree the other large Mideast countries are going to be facing revolution if the oil price stays down for very long.  We saw what happened to Libya’s and Venezuela’s supplies when governments become unstable.  Simultaneously we have a virtual elimination of long tail projects by every major player in the world. 

The outcome is likely toppled regimes, and a massive price bounce back, down the road.  It may become more like railroads, with very few players making a lot of money. 

We could speed up the rebalance really quick by turning the gulf fields into glass.  China may take exception but I sure Moscow would be on board.

Are you saying to Nuke the oil fields in the middle east?
Title: Re: Energy Sector
Post by: Jurgis on April 22, 2020, 10:06:01 PM
Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been.
Lack of money, has a wonderful way of concentrating the minds of everyone,

Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up)

The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy.

There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps.

And perhaps one of the biggest lessons from Covid-19.
All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down.

Interesting times.

SD

What this says to me is that if you have pipe already, it will become increasingly valuable.  The repercussions for future supply are interesting to say the least. 

SA, And to a lessor degree the other large Mideast countries are going to be facing revolution if the oil price stays down for very long.  We saw what happened to Libya’s and Venezuela’s supplies when governments become unstable.  Simultaneously we have a virtual elimination of long tail projects by every major player in the world. 

The outcome is likely toppled regimes, and a massive price bounce back, down the road.  It may become more like railroads, with very few players making a lot of money. 

We could speed up the rebalance really quick by turning the gulf fields into glass.  China may take exception but I sure Moscow would be on board.

Are you saying to Nuke the oil fields in the middle east?

Don't give this idea to Orangina in Oval Office.
Title: Re: Energy Sector
Post by: LC on April 24, 2020, 11:17:47 AM
How does this work for pricing below 0?

(I couldn't access the article)

It doesn't - what happens is most commodity derivative pricing models assume a lognormal distribution; when your spot price is negative it blows up this assumption. The short term fix is a parallel shift to a slightly-above-zero amount but this may violate the lognormality assumption.

Just to put it bluntly, a lognormal distribution is: e^(distribution). These values can only be positive, that is, e^(positive value) = positive value, and e^(negative value) = positive value
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 25, 2020, 04:12:39 AM
https://www.reuters.com/article/us-global-oil-usa/u-s-weighs-taking-stakes-in-u-s-energy-companies-other-options-mnuchin-idUSKCN2262TY?il=0

Quote
The U.S. government is considering taking equity stakes in U.S. energy companies as it seeks to help the nation’s oil and gas sector amid the coronavirus outbreak, Treasury Secretary Steven Mnuchin said on Friday.

It’s not socialism if it helps with the reelection campaign.

Drill baby drill!
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 25, 2020, 05:27:01 AM
It gets better and better...

Quote
President Donald Trump, speaking at a White House event with Mnuchin, said he wants to help industry and suggested the federal government could buy fuel for the country in advance as well as purchase airline tickets in advance.

“We’re looking at a whole bunch of alternatives,” Mnuchin said.

The oil sector has been hit hard by a dramatic drop in demand as the coronavirus has effectively shut down economies around the globe.

“The energy business is very important to me, and we’re going to build it up. This really hurt the energy business as much as any other business because it totally knocked out - the supply kept coming,” Trump said.

Airline tickets purchased by taxpayers for flights that are never taken--all for the oil industry. Who would have thought. Surely electing a guy incapable of acting beyond pure self interest to the Presidency would have no negative consequences!
Title: Re: Energy Sector
Post by: jmp8822 on April 25, 2020, 07:15:04 AM
Does anyone think that WTI futures will go negative again - this time on the June contract? Why or why not?
Title: Re: Energy Sector
Post by: TwoCitiesCapital on April 25, 2020, 07:18:40 AM
Does anyone think that WTI futures will go negative again - this time on the June contract? Why or why not?

I don't think investors will find themselves in the same squeeze again - so minus $40 off the table.

I do think that supply/storage issue hasn't been fixed, so watching the futures contract trend towards 0 near each expiration may be expected since it forces people to close the position or to take delivery and no one wants the latter.
Title: Re: Energy Sector
Post by: SharperDingaan on April 25, 2020, 07:38:24 AM
Does anyone think that WTI futures will go negative again - this time on the June contract? Why or why not?

I don't think investors will find themselves in the same squeeze again - so minute $40 off the table.

I do think that supply/storage issue hasn't been fixed, so watching the futures contract trend towards 0 near each expiration may be expected since it forces people to close the position or to take delivery and no one wants the latter.

Squeeze that's earlier, and not as severe. This time around, a trapped trader will be fired. Also incentive to have underfilled contracted Cushing storage on expiry day (reduce filling until expiry day).

SD
Title: Re: Energy Sector
Post by: DooDiligence on April 25, 2020, 09:41:36 AM
Sounds like a game of musical chairs with a scorching hot potato on every seat & most of the players are pants-less.
Title: Re: Energy Sector
Post by: bizaro86 on April 25, 2020, 09:50:05 AM
I'm wondering if one effect of this will be bigger than expected hedging gains for producers. I think it is likely that most producers had closed their May hedge book before prices went negative, but I bet someone was out there with a bunch of sold short May contracts that they closed at negative prices, while selling their physical crude production at positive spot prices.
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 27, 2020, 05:50:33 AM
Turns out it wasn't just U.S. based Robinhood users who bought WTI ETFs:

https://www.bloomberg.com/news/articles/2020-04-26/bank-of-china-clients-said-to-have-1-billion-losses-on-oil-bet

Quote
The losses stem from the bank settling May West Texas Intermediate contracts that underpinned its “Crude Oil Treasure” product on April 20 at minus $37.63 a barrel, leaving Bank of China customers caught in the middle of oil’s unprecedented collapse below zero. Hundreds have taken to the Internet to protest the lender’s handling of the contract rollover and to demand it shoulder some of the losses.

The investment vehicle had offered Chinese retail investors access to WTI oil futures without opening an offshore account and was pegged to the flat price of the front-month contract and settled in Chinese yuan. It requires 100% margin and doesn’t allow any leverage.

They're asking the lender to shoulder some of the losses...
Title: Re: Energy Sector
Post by: KCLarkin on April 27, 2020, 07:29:19 AM
I don't understand why these futures contracts are allowed to trade negative, especially the cash settled ones. I understand why the price of Oil might go negative. But why not set the floor at $0 for the exchange traded futures? Someone might get stuck with physical delivery of oil they don't want, but that's the risk in playing the game.

If you allow negative futures, brokers can't require adequate margin. If you want to buy a June contract at $12, what is a safe level of margin? 500%? Should brokers require $60 in cash to buy $12 of oil? Even $60 doesn't seem safe right now. Maybe $100 or $1000?
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 27, 2020, 07:47:49 AM
I don't understand why these futures contracts are allowed to trade negative, especially the cash settled ones. I understand why the price of Oil might go negative. But why not set the floor at $0 for the exchange traded futures? Someone might get stuck with physical delivery of oil they don't want, but that's the risk in playing the game.

If you allow negative futures, brokers can't require adequate margin. If you want to buy a June contract at $12, what is a safe level of margin? 500%? Should brokers require $60 in cash to buy $12 of oil? Even $60 doesn't seem safe right now. Maybe $100 or $1000?

If you don’t have access to storage, it will be in your interest to pay someone who does to take the contracts off your hands. Perhaps the negative floor for margin calculations should be the current cost of storage in Cushing.
Title: Re: Energy Sector
Post by: KCLarkin on April 27, 2020, 07:56:18 AM
If you don’t have access to storage, it will be in your interest to pay someone who does to take the contracts off your hands.

Yes, but the exchange doesn't need to facilitate that transaction.

And can I suggest that if you don't have access to storage, you shouldn't be allowed to trade physically-settled futures!
Title: Re: Energy Sector
Post by: Dalal.Holdings on April 27, 2020, 07:57:56 AM
And can I suggest that if you don't have access to storage, you shouldn't be allowed to trade physically-settled futures!

Haha—that would put a lot of traders out of work!
Title: Re: Energy Sector
Post by: randomep on April 27, 2020, 11:36:19 AM


I believe that the futures contract specify physical delivery.
It’s not cash settled like your Emini futures.
So come expiration, you don’t just get some dollar amount for the contract (like a $20 spot)
You get a barrel of oil (or however many the contract specifies)

If you do not have the ability to take delivery of the oil, and put it in storage, then you will be forced to close at market.  I’m guessing that you as an investor don’t have the ability to take delivery of physical oil.  That is why people roll the futures a day or two before expiration.

Liquidity is provided by those that can take delivery, store the oil and short a further out contract, pay the storage fees, and make the spread.  If there’s no storage available and storage costs skyrocket then the spread between the months blows out.

Hi thanks for the explanation. Since the negative oil price, there have been several articles explaining how that can happen.  It seems to be buyer side of the trade couldn't find storage, like you said.   I found the following explanation of how the contract actually works, it even describes how the oil should be physically moved from buyer to seller.   But the most interestnig thing is that the May contract expires on April 22, and the delivery must happen from May 1 to end of May.  So the buyer has no storage and also has no way of finding storage from April 22 to May 1 and so pays someone $35 take the oil off their hands.....

My other question is , is any oil sold at spot at Cushing? If so what is the ratio of spot transaction vs futures transaction on the physical delivery?

https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contract_specifications.html
Title: Re: Energy Sector
Post by: opihiman2 on April 30, 2020, 10:47:53 PM
https://www.reuters.com/article/us-chesapeake-enrgy-bankruptcy-exclusive/exclusive-chesapeake-energy-preparing-bankruptcy-filing-sources-idUSKBN22B31M

So it begins.  Looking forward to seeing another board favorite, Sandridge Energy head into Ch.11 as well.  What a stupid ride that was.
Title: Re: Energy Sector
Post by: JRM on May 01, 2020, 04:29:50 AM
A better question is which supermajors don't survive this, if any?  My guess is XOM.  $60 per barrel break even and maintaining the dividend? looks like GM circa 2006.
Title: Re: Energy Sector
Post by: SharperDingaan on May 01, 2020, 06:20:11 AM
A better question is which supermajors don't survive this, if any?  My guess is XOM.  $60 per barrel break even and maintaining the dividend? looks like GM circa 2006.

They will just cut dividends, take massive write-offs, and extend debt maturities - but they will survive.
The good news is that they are integral to the global economy, so after the cuts/write-offs/negative press ... they will be the ones to own. Mean reversion becomes your friend.

SD
Title: Re: Energy Sector
Post by: thepupil on May 01, 2020, 06:29:28 AM
A better question is which supermajors don't survive this, if any?  My guess is XOM.  $60 per barrel break even and maintaining the dividend? looks like GM circa 2006.

what is the source of your $60 breakeven?

I think that number is the revised (lower) breakeven at which they can maintain their dividend and invest aggressively without borrowing, not their breakeven on profitability/earnings. I think you're misinterpreting a quote from the recent bloomberg article.

Quote
On March 16, S&P again downgraded Exxon’s credit rating, to AA from AA+, and said it could happen again “if the company does not take adequate steps to improve cash flows and leverage.” A week later the stock closed at $31.45, the lowest since 2002. Investors started to wonder whether Exxon might end its string of 37 straight yearly increases in its dividend. To cover that $14.7 billion payment—third-highest among S&P 500 companies—along with its aggressive capital spending, Exxon needed crude to fetch about $77 a barrel, the highest breakeven among oil majors, according to RBC Capital Markets.
The stock began to recover in early April, but it was all too much. On April 7, Woods said Exxon would cut 2020 capital spending to $23 billion—a drop of an additional $10 billion, or 30%—and shave operating expenses by 15%. The bulk of the cuts would be aimed at the Permian. Exxon would defer some activities in its Guyana project while postponing investment decisions elsewhere. “They cried uncle,” says Rice University’s Medlock. With the cuts, the breakeven dropped to $60 a barrel, still tops among the biggest companies.

XOM is potentially overvalued (depending on one's view of long-term oil/gas prices, refining margins, and chemical demand/margins), but I think they will survive. they have ~$50 billion of debt at very low cost and very termed out.

 they may get downgraded, have to cut the divvy, or invest less aggressively, but I struggle to see them not surviving.

I'd also point out that XTO (the gas portions of XTO in Pennsylvania/Arkansas etc, not the permian oil/associated gas) should start earning a little more now, but I'm not super hopeful on that until we get a clearer picture of gas demand. Supply is obviously heading in that right direction if/when Permian production starts to really go down
Title: Re: Energy Sector
Post by: Jurgis on May 01, 2020, 07:01:47 AM
@thepupil - what do you think about OXY debt? I bought some close to the bottom, but not sure if it's worth holding as it has bounced to $80s. Still ~9% yield, but clearly not as attractive.

I also hold some GPOR debt, so there goes my any credibility in energy debt investing.
Title: Re: Energy Sector
Post by: thepupil on May 01, 2020, 07:11:40 AM
@thepupil - what do you think about OXY debt? I bought some close to the bottom, but not sure if it's worth holding as it has bounced to $80s. Still ~9% yield, but clearly not as attractive.

I also hold some GPOR debt, so there goes my any credibility in energy debt investing.

my goals with energy are

a) own more than 0% in it

b) position myself in securities that I don't think will be massively diluted or PRIMED. I think any OXY debt instrument has the potential to be primed by Berkshire or anyone else*

c) not be dependent on any one basin or geography

I know very little about energy. I own BSM,XOM, and MMP (though my MMP is temporarily swapped into ATMP and some XOM is temporarily swapped into PEO (both for tax loss generation purposes).
 
*EDIT: this may seem odd given that Berkshire is in the pref/common, but it would not be without precedent. For example, Loews owns 51% of Diamond Offshore and has a ton of cash and a good credit rating. they could have bailed out DO, but they just let DO file and the unsecured's are at 9.5 cents. So I think depending on the fact that you have an overcapitalized sponsor in a more junior instrument is not necessarily a good idea. Loews could continue to control DO but it may not necessarily be through the equity (they could be the DIP or something) or not necassilry in a way that benefits unsecured creditors.

 I don't like the idea of owning any credit in this environment of any issuer that may go through BK. I don't have the ability to buy loans/participate in DIPs or bankruptcy processes (if I did, I'd be 144A/QIB and be much more important than I am), so I'm very scared of getting screwed by distressed guys with more knowledge and capability. I think any thesis that involves retail schmucks buying debt to "create companies at X attractive price" is prone to bankruptcy/process risk, so to buy a bond you have to think company won't file and I think OXY [and MANY others] potentially needs to file or otherwise restructure its capital structure. 
Title: Re: Energy Sector
Post by: Jurgis on May 01, 2020, 07:14:26 AM
@thepupil - what do you think about OXY debt? I bought some close to the bottom, but not sure if it's worth holding as it has bounced to $80s. Still ~9% yield, but clearly not as attractive.

I also hold some GPOR debt, so there goes my any credibility in energy debt investing.

my goals with energy are

a) own more than 0% in it

b) position myself in securities that I don't think will be massively diluted or PRIMED. I think any OXY debt instrument has the potential to be primed by Berkshire or anyone else
...

Fair enough.
Title: Re: Energy Sector
Post by: opihiman2 on May 01, 2020, 08:39:15 AM
I wouldn't go long XOM anymore.  It's been in the doldrums for a long time, and they've made a bunch of strategic mis-steps that have hampered their balance sheet.  They're doing even worse things now like maintaining a dumb dividend and taking on massive amounts of debt to do so.  I would even go so far to say you should short XOM on any price strength.  It's going to be a loser in the next few years.

A few weeks ago, the play for me was short anything shale, go long super majors and vertically integrated E&P.  But, I'm stepping back from that, and will probably not go long any energy now except keep shorts on.  RDS had one of the best balance sheets out of the majors, and it just cut dividend big time to something like < 4% yields.  At this point, there's nothing attractive about these companies other than surviving the next few years and making a bet on WTI and Brent going and staying above $60 / bbl.  I don't think that happens for a long time. 

Title: Re: Energy Sector
Post by: JRM on May 01, 2020, 09:48:28 AM
That quote you posted is where I got the $60 breakeven from.  I understand that's fully loaded with the dividend, etc. I say it looks like GM because they debt is rising, capex is decreasing, and dividend is the sacred cow. 

In 2008 there were a lot of investors that stuck with GM because "it still pays a good dividend."  I'm betting a lot of XOM shareholders are telling themselves the same thing now based on some of the comments I'm seeing on SA.
Title: Re: Energy Sector
Post by: opihiman2 on May 01, 2020, 10:38:15 AM
Yep, I agree.  A few weeks ago, I was pretty naive about the super majors being able to weather the storm.  I think oil is going to be in a multi decade bear market.  Past decade was a huge bear market already.  The whole point of these oil majors were the dividend.  Now that's definitely in question.  I think XOM pays up till Q2.  I wouldn't be surprised if it cuts in the second half of the year.  I wouldn't be surprised if they completely suspend the dividend.  That would bring the year average to about 4%.  Seems to be the industry standard yield.

People are delusional.
Title: Re: Energy Sector
Post by: LC on May 01, 2020, 10:38:46 AM
That quote you posted is where I got the $60 breakeven from.  I understand that's fully loaded with the dividend, etc. I say it looks like GM because they debt is rising, capex is decreasing, and dividend is the sacred cow. 

In 2008 there were a lot of investors that stuck with GM because "it still pays a good dividend."  I'm betting a lot of XOM shareholders are telling themselves the same thing now based on some of the comments I'm seeing on SA.

That's why I purchased back in the $30/sh range. I've been selling in the 43-47 range, playing with house money now.
Title: Re: Energy Sector
Post by: Xerxes on May 06, 2020, 03:54:58 PM
i don't recall who asked me about Daniel Yergin's new book.
Looks like the title of the book is out. Out in Sept 2020. In true Yerganian fashion, it has over 500+ pages.


The New Map: Energy, Climate, and the Clash of Nations
Title: Re: Energy Sector
Post by: JRM on May 14, 2020, 06:50:28 AM
If you hate money and happen to be long to any oil exposure, buying puts on USO seems like a decent hedge.  This thing looks ready to explode if the futures market collapses again (not very likely?).  I'm thinking the retail Robinhood investors may exit this trade as soon as they see what happens with a month or two of contract rollovers.  Maybe I'm giving them too much credit.

I bought some Jan 21 $10 strike puts.

Anybody looking at similar setups with options?  Any better potential hedges out there? 
Title: Re: Energy Sector
Post by: lnofeisone on May 14, 2020, 08:56:00 AM
If you hate money and happen to be long to any oil exposure, buying puts on USO seems like a decent hedge.  This thing looks ready to explode if the futures market collapses again (not very likely?).  I'm thinking the retail Robinhood investors may exit this trade as soon as they see what happens with a month or two of contract rollovers.  Maybe I'm giving them too much credit.

I bought some Jan 21 $10 strike puts.

Anybody looking at similar setups with options?  Any better potential hedges out there?

I'm selling bear call spreads going out to Jan 21 with bottom leg anchored at 10. E.g., 10/16.5 today is selling at $5.10 so lose 1.40 to get $5.10 and you only need 25% decline to break even.
Title: Re: Energy Sector
Post by: Castanza on May 15, 2020, 12:04:28 PM
https://seekingalpha.com/article/4348066-global-oil-inventories-build-less-expected-supply-loss-surprises
Title: Re: Energy Sector
Post by: JRM on May 16, 2020, 06:50:43 AM
The website for the USO fund has giant red banners with a warning for investors to read the prospectus.  The prospectus is the biggest CYA I have ever seen.  http://www.uscfinvestments.com/uso-alerts (http://www.uscfinvestments.com/uso-alerts)
Title: Re: Energy Sector
Post by: SharperDingaan on May 16, 2020, 09:14:44 AM
Re USO ....

The disclaimer suggests they have received notice of pending legal action, and are doing everything they can to 'cap' their exposure period  to as of date X. Particularly as the prospectus does not, & still doesn't, limit the units to just 'sophisticated investors'  :)  All grandma's lawyer need prove is that grandma, who just knits for her grandkids, wasn't sophisticated enough to recognize that o/g futures are a risky investment ....

The prominence of the disclaimer also suggests that USO is desperate to raise new cash to offset redemptions, and hold positions.
Lose the confidence of the market this roll-over, and they will be a lot smaller, a lot quicker  ::)

To a lot of people, the market would be better off with USO dead.
Slaughter the pig; bring back version 2.0 (with a cherry-picked start date) in 3-4 months, once oil-demand evidences strong month-over-month improvement. New story, new gamblers, new 'experience'. Smart business.

We live in interesting times.

SD


Title: Re: Energy Sector
Post by: Libs on June 19, 2020, 01:00:56 PM
The decline in NA rig counts is stunning. 70-85% YOY.


https://rigcount.bakerhughes.com/rig-count-overview
Title: Re: Energy Sector
Post by: SharperDingaan on June 19, 2020, 02:33:51 PM
The decline in NA rig counts is stunning. 70-85% YOY.


https://rigcount.bakerhughes.com/rig-count-overview

Compare the current vs prior year numbers by location.
Of the 1,124 rigs dropped; 62% were from the US, 29% were international - but only 9% were from Canada. Very telling.

SD
Title: Re: Energy Sector
Post by: bizaro86 on June 19, 2020, 04:10:55 PM
The decline in NA rig counts is stunning. 70-85% YOY.


https://rigcount.bakerhughes.com/rig-count-overview

Compare the current vs prior year numbers by location.
Of the 1,124 rigs dropped; 62% were from the US, 29% were international - but only 9% were from Canada. Very telling.

SD

That's just because the US and International have larger numbers of rigs. The Canadian rig count is down 86% year over year. That is worse than the US, which was down only 72%.
Title: Re: Energy Sector
Post by: Libs on June 19, 2020, 04:46:27 PM
I know energy has been a graveyard, and I have zero expertise here, but are we not setting things up for a big move up in oil prices? Capex has been slashed, and massive numbers of wells shuttered. Can the spigot really be turned back on that fast when demand returns? Morgan Stanley issued a $190 price target a while ago for these very reasons.

Title: Re: Energy Sector
Post by: rb on June 19, 2020, 04:53:07 PM
I know energy has been a graveyard, and I have zero expertise here, but are we not setting things up for a big move up in oil prices? Capex has been slashed, and massive numbers of wells shuttered. Can the spigot really be turned back on that fast when demand returns? Morgan Stanley issued a $190 price target a while ago for these very reasons.
That while ago I think was 12 years ago. Maybe we can agree they were wrong.

Yes, spigots can be turned on fairly easily. There's a lot of supply out there. If you're not talking about a massive increase in demand oil is gonna suck.
Title: Re: Energy Sector
Post by: lnofeisone on June 20, 2020, 06:29:09 AM
I know energy has been a graveyard, and I have zero expertise here, but are we not setting things up for a big move up in oil prices? Capex has been slashed, and massive numbers of wells shuttered. Can the spigot really be turned back on that fast when demand returns? Morgan Stanley issued a $190 price target a while ago for these very reasons.

Demand will be key. As far as spigots go, I'd say in the US, 10-15% of wells will not come online. Restarting a well after a shut-in (which is a complicated thing to do) requires a lot of expertise and, dare I say, luck. This will be especially challenging for frackers. The other constraint will be the lack of money E&Ps will have access to. I'm watching cashflow and bond/equity issuance (especially of O&G operating in Permian as they are the most profitable and will have first-mover advantage) and so far nothing is pointing to elevation in CAPEX which will translate to lack of new wells and careful rationalization of the existing well portfolio. Ironically, O&G is being forced to cope with discipline and are probably learning for the first time in the long while what profits actually look like  ;D.
Title: Re: Energy Sector
Post by: SharperDingaan on June 20, 2020, 09:32:55 AM
Short-term, it's all about how rapidly demand returns, as the global economy recovers from Covid-19.
Sustainability depending upon how effectively, and for how long, capital discipline is imposed on US shale.

Medium term it's a crap shoot - largely dependent upon how long it takes to replace/update the global electric grid.
No upgraded distribution - no clean energy, no electric vehicles. However, under Covid-19, the medium term is probably a lot closer than it was - if only because grid section replacements are high-value (and nation-wide) infrastructure projects, that would hire a lot of people. And both China, and India, have strong incentive to get off oil demand as early as possible.

Existing o/g will be will remain with us for a long while yet, but the sun is starting to set on just burning the stuff.

SD


Title: Re: Energy Sector
Post by: TwoCitiesCapital on June 20, 2020, 09:36:14 PM
I know energy has been a graveyard, and I have zero expertise here, but are we not setting things up for a big move up in oil prices? Capex has been slashed, and massive numbers of wells shuttered. Can the spigot really be turned back on that fast when demand returns? Morgan Stanley issued a $190 price target a while ago for these very reasons.
That while ago I think was 12 years ago. Maybe we can agree they were wrong.

Yes, spigots can be turned on fairly easily. There's a lot of supply out there. If you're not talking about a massive increase in demand oil is gonna suck.

Can you elaborate as to why you say that there is a spigot that can be turned back on?

I listened to a podcast today with Art Berman today specifically saying this wasn't the case.

Basically was saying new technology means shale wells deplete MORE quickly/efficiently and that it takes ~10-12 months to get newly discovered wells producing. So if we're not currently exploring/drilling wells, it'll take some time to ramp up to meet that demand once it does normalize.
Title: Re: Energy Sector
Post by: bizaro86 on June 20, 2020, 11:09:16 PM
I know energy has been a graveyard, and I have zero expertise here, but are we not setting things up for a big move up in oil prices? Capex has been slashed, and massive numbers of wells shuttered. Can the spigot really be turned back on that fast when demand returns? Morgan Stanley issued a $190 price target a while ago for these very reasons.
That while ago I think was 12 years ago. Maybe we can agree they were wrong.

Yes, spigots can be turned on fairly easily. There's a lot of supply out there. If you're not talking about a massive increase in demand oil is gonna suck.

Can you elaborate as to why you say that there is a spigot that can be turned back on?

I listened to a podcast today with Art Berman today specifically saying this wasn't the case.

Basically was saying new technology means shale wells deplete MORE quickly/efficiently and that it takes ~10-12 months to get newly discovered wells producing. So if we're not currently exploring/drilling wells, it'll take some time to ramp up to meet that demand once it does normalize.

It definitely isnt a spigot, but I think 12 months is longer than it would take.

Shale wells are in low permeability rock. The hydrocarbons dont naturally flow. That is why they require frac'ing.

As an example, much of the Permian has permeability of say 10 mD. A hydraulic fracture has permeability much higher than that. It varies based in the size of the sand used and the closure pressure, but 10 D would be on the low side. So the permeability in the fracture is at least 1000 times greater.

Flow rate is directly proportional to permeability for a given pressure drop and viscosity (Darcy's law). So at the beginning of a shale well's life while it is governed by the fracture flow it is 1000x more productive. This is a simplification of course, but the assumptions behind it aren't drastically wrong. A shale well quickly and easily produces the fluids that are within the fracture porosity, and then very slowly produces the fluids from the matrix porosity.

So after a sharp initial decline you can expect low decline (at much lower rates) for a long time.

Drilling new wells is required to access the initial flush production again. And that flush production is the only reason US oil production has grown so rapidly. That can be done quickly if a firm has licenses ready to go, especially given current availability for equipment and services. I think a 12 month response is slower than it would take shale drillers to ramp up once they decided to do so. The technical work is fast, and probably mostly done already as those wells were planned. There is no exploring for new oil phase here, it's all development drilling.

What will slow things down is people deciding to drill (and fund drilling) again. They have been bitten so many times you'd think capital providers would have learned...
Title: Re: Energy Sector
Post by: SharperDingaan on June 21, 2020, 06:05:09 AM
Just to add to this ...

OLD shale wells are actually pretty good low decline rate assets - as long as the rock is porous.
Raise reservoir pressure (water, CO2 injection) and you both increase flow, and get paid to safely dispose of the toxics (frac water, CO2, etc) that you are injecting. But it's a very different business model, it works better when there are carbon caps (Kyoto Agreement) and CO2 trading (Canada), it's the long game, and it is not viable unless the old field can be bought at cents on the dollar (BK purchases).

Hated by many in industry, as the entire approach is contrary to the bulk of existing practice (lowest cost, immediate production). Increasingly embraced by regulators as the near-term infrastructure solution to new production (more pollution) while staying under the carbon cap (injection removing pollution).

SD


 
Title: Re: Energy Sector
Post by: JRM on June 21, 2020, 06:44:30 AM
Isn't it reasonable to think the U.S. needs to work through some of the 500+ million barrels of oil in storage before prices can normalize?  Especially since some of that storage is temporary in nature?
Title: Re: Energy Sector
Post by: SharperDingaan on June 21, 2020, 07:36:01 AM
Storage doesn't get used until the market goes into backwardation (spot > future price). Highest cost storage (floating) drawn down first, SPR last. How fast a draw down depends on the future-spot price, vs the cost of storage at that term.

For the most part, spot is driven by demand vs on-line supply; cut back on-line supply, and spot rises. The limitation is how much storage (additional supply) comes onto the market as the spot price rises, which algorithms are pretty good at predicting. Keep the on-line supply constrained, while demand rises - and spot either rises, or storage rapidly depletes (to meet the incremental demand).

Most would expect WTI spot to settle in the USD 45-50 range, and thereafter a near-term focus on reducing storage to historic levels.
Assuming ongoing capital discipline - too low a price for US shale to start back up.

SD


Title: Re: Energy Sector
Post by: bizaro86 on June 21, 2020, 08:31:17 AM
Isn't it reasonable to think the U.S. needs to work through some of the 500+ million barrels of oil in storage before prices can normalize?  Especially since some of that storage is temporary in nature?

Yes. Storage will sell into any near term strength whenever the front month gets close to or higher than the out months.