Energy Sector

[mattee2264]

I'm also trying to decide how to play it. 

 

I think the fundamentals are very good. OK there is a global recession underway but demand for oil is pretty inelastic and OPEC know the world is in recession which will make output cuts easy to agree and supply is very tight. Energy companies are also flush with cash and using it to buy back stock and pay dividends etc. 

 

Obviously traders can push the oil price well above (e.g. earlier this year) and well below (e.g. COVID lows) a reasonable value. But I think that at least for the foreseeable future oil prices can average above $80 and that makes energy stocks look very cheap unless you are expecting a very fast energy transition/punitive regulation and legislation etc. 

[Spekulatius]

2 hours ago, mattee2264 said:

I'm also trying to decide how to play it. 

 

I think the fundamentals are very good. OK there is a global recession underway but demand for oil is pretty inelastic and OPEC know the world is in recession which will make output cuts easy to agree and supply is very tight. Energy companies are also flush with cash and using it to buy back stock and pay dividends etc. 

 

Obviously traders can push the oil price well above (e.g. earlier this year) and well below (e.g. COVID lows) a reasonable value. But I think that at least for the foreseeable future oil prices can average above $80 and that makes energy stocks look very cheap unless you are expecting a very fast energy transition/punitive regulation and legislation etc. 

I agree on this. The Opec cutting production is obviously bullish for energy but I also think some bulls may be underestimate the demand destruction from third world countries and China. China may well have structurally lower demand for oil going forward.

[Gamecock-YT]

Isn't the easiest way to play to wait until China inches toward re-opening. Not going to happen until after middle of this month at least. Isn't the next for sure catalyst for oil prices? 

 

Which I saw something on the singapore news this morning that it was a big deal Xi and the politburo had photos of a meeting taken without them wearing masks. Taiwan and Japan are both reopening this month. Seems like it's got to be getting close.

Edited October 3, 2022 by Gamecock-YT

[SharperDingaan]

The enterprising lad would be looking to a swing trade.

Sell 1/2 a position into the returning open. Buy it back again after the November rate hike. Reinvest in additional shares for sale into the traditional Xmas 'Santa Claus' rally 

 

SD

[james22]

The rapid economic collapse that Britain is facing is simply an accelerated version of what the whole of Europe is about to go through; unsustainable borrowing to fund the gap between high energy prices and what households can actually afford. With the sabotage of the Nord Stream pipeline, there is now no feasible way back. Europe can no longer physically import Russian gas – prices will remain high until Europe builds more energy capacity, which could take years.

 

What is likely to come of this? High energy prices will render European manufacturing uncompetitive. European manufacturers will be forced to pass through the higher energy costs in the form of higher prices and consumers will find it cheaper to buy products from countries with normal energy prices. 

 

https://www.spectator.co.uk/article/europe-s-descent-into-deindustrialisation

[50centdollars]

5 minutes ago, james22 said:

The rapid economic collapse that Britain is facing is simply an accelerated version of what the whole of Europe is about to go through; unsustainable borrowing to fund the gap between high energy prices and what households can actually afford. With the sabotage of the Nord Stream pipeline, there is now no feasible way back. Europe can no longer physically import Russian gas – prices will remain high until Europe builds more energy capacity, which could take years.

 

What is likely to come of this? High energy prices will render European manufacturing uncompetitive. European manufacturers will be forced to pass through the higher energy costs in the form of higher prices and consumers will find it cheaper to buy products from countries with normal energy prices. 

 

https://www.spectator.co.uk/article/europe-s-descent-into-deindustrialisation

Or the European manufacturing move operations to the US and export the products back to Europe. This is what I think will happen. 

[Spekulatius]

7 minutes ago, 50centdollars said:

Or the European manufacturing move operations to the US and export the products back to Europe. This is what I think will happen. 

This not cost competitive. The USD strength has eliminated any advantage from lower cost energy and then some, except maybe some petrochemical products and similar basic materials that require a lot of energy inputs.

[mattee2264]

Quite a lot of speculation about a 2M a day OPEC output cut. Looks like the market made the same mistake of pricing in a recession and forgetting that the inevitability of a global recession strengthens OPEC's desire to cooperate and agree large output cuts. Saw this playbook in autumn 2020 when everyone realized the winter wave of COVID was going to be very bad. 

[Viking]

So what did we learn today? 
1.) we are in a new geopolitical world. And the middle east is either neutral (and simply looking out for its own interests) or aligned more closely with the pro-authoritarian block (Russia/China) than the West. Biden’s calling out of the Saudi prince is having serious economic consequences. Not a surprise. 
2.) OPEC wants $100 oil (average). I think it will get it. And as we come out of this economic ‘gully’ and the global economy expands, $150 oil is looking pretty likely to me. (Also because Western governments/ESG will not allow supply to increase materially.)

3.) as oil prices stick at $100, and move higher on signs of economic strength ($150), inflation will continue to remain elevated. 
4.) central banks will need to keep interest rates higher for longer.
—————-
I am starting to drink the Kool-Aid that high inflation (4-5% on average) might be with us for years. With lots of volatility. Up to 8% (now). Maybe down to 3 or 4% in a year (mild recession). And than back up to 5 or 6% in 2024 (as the global economy picks up). I think the Fed’s target of 2% is a pipe-dream right now - unless we get a severe global recession. 
—————-

Fed seems committed to positive real interest rates across the curve. If inflation stays elevated for years then interest rates likely also remain elevated for years. The question is how does all that cheap debt get rolled over at much higher rates (US government i am looking at you)?

—————-

Persistently high inflation. And historically high debt to GDP levels in most Western countries. Financial repression like we saw in the late 1940’s? Not what the Fed is saying today… The super interesting thing today is how out of step the Fed is from other Western central banks (Europe, Japan, Australia) where i think they view financial repression as the preferred policy option (let high inflation rip and keep interest rates low for as long as it takes to bring real debt to GDP levels into line).

Edited October 5, 2022 by Viking

[Sweet]

The West’s approach to weaning itself off fossil fuels forces Middle Eastern oil producers to look for alternative partners.

 

Biden in particular has had scant regard for the interests or concerns of the Saudis and at one point discussed the withholding of important defensive missile systems.  Saudis view it as a one sided relationship that can’t be depended on.

 

Biden and his team should have been a bit smarter about this. Saudis are our friends, and it makes sense to have them as allies, even if their leadership is authoritarian.  They have until recently worked in a partnership with the West but no more.

 

From a Saudi point of view the cuts today make sense.

[Mephistopheles]

I for the life of me can’t understand why the West, regardless of party, can’t make friends with Iran. The enemy of my enemy is my friend. Both the Saudis and Iranians are big oil producers. Make friends with both, use it to your advantage. I wouldn’t be surprised if Biden goes for a new Iran deal to bring oil prices down.

Edited October 6, 2022 by Mephistopheles

[Spekulatius]

The enemy of my enemy is not my friend. It’s seems like Iran likes to be enemies with everyone including it’s own people.

I think it was a mistake that Trump cancelled the Iran nuclear deal because I think they followed the letters of the deal at that time (but I am not 100% sure about that).

 

However thy did and continue everything to destabilize whatever they can -Lebanon, Syria, state sponsored terrorism against Israel, selling drones to Russia (Shahed suicide drones). They do whatever they can to destabilize and hurt Israel or the US and even other Arab nations. They have made themselves a pariah.

If they had some smart leadership, they would make piece with Israel and the rest would follow. They don’t even have a border with Israel, so it just seems like they need an enemy for deflect from their own failures and make it easier to stay in power.

 

It is such a shame for a country with such a rich history and a fairly educated populace (middle and upper class). The Khomeini regime is designed to perpetuate the same thing over and over and the mystery. People need to get rid of these and despite efforts (like currently), I think they have a lot of backing from the masses. Sort of like Russia.

[Mephistopheles]

16 minutes ago, Spekulatius said:

The enemy of my enemy is not my friend. It’s seems like Iran likes to be enemies with everyone including it’s own people.

I think it was a mistake that Trump cancelled the Iran nuclear deal because I think they followed the letters of the deal at that time (but I am not 100% sure about that).

 

However thy did and continue everything to destabilize whatever they can -Lebanon, Syria, state sponsored terrorism against Israel, selling drones to Russia (Shahed suicide drones). They do whatever they can to destabilize and hurt Israel or the US and even other Arab nations. They have made themselves a pariah.

If they had some smart leadership, they would make piece with Israel and the rest would follow. They don’t even have a border with Israel, so it just seems like they need an enemy for deflect from their own failures and make it easier to stay in power.

 

It is such a shame for a country with such a rich history and a fairly educated populace (middle and upper class). The Khomeini regime is designed to perpetuate the same thing over and over and the mystery. People need to get rid of these and despite efforts (like currently), I think they have a lot of backing from the masses. Sort of like Russia.

 
yea they are pariahs. The Saudis are pariahs too. Point is that both are very powerful oil rich nations. If we want cheap oil , it would be better to be friends with both, as to at least make it a  bit more competitive amongst them. Even Iran and Saudi Arabia both get the power of oil, thus both play on the same team being OPEC even though they are enemies. The Russians, Chinese, Indians are friends with both. We should do the same.

[Gamecock-YT]

So Biden is going to keep the tap on the SPR until at least November. If Europe doesn't have gas until at least April. What happens when the USA turns off the taps, runs out, or needs to be refilled and the artificial surplus suddenly disappears?

 

Then throw in a re-opening China.

 

 

How do you lose in this set up? A giant recession that kills demand? The supply side is still going to be an issue. 

 

[Sweet]

11 hours ago, Mephistopheles said:

I for the life of me can’t understand why the West, regardless of party, can’t make friends with Iran. The enemy of my enemy is my friend. Both the Saudis and Iranians are big oil producers. Make friends with both, use it to your advantage. I wouldn’t be surprised if Biden goes for a new Iran deal to bring oil prices down.

They want to destroy a key Middle Eastern ally - Israel.

 

They have attacked our allies in the region - Saudis - and support rebels in Yemen to attack them.

 

They support and funds a wide range of paramilitary and terrorist grouped which have launched attacks on the West I.e. they are state sponsors of terrorism.

 

Got their noses in Lebanon and Syria and have destabilised those countries.

 

And you can’t understand and why we can’t be friends?  Lol

 

 

 

 

[Sweet]

11 hours ago, Mephistopheles said:

 
yea they are pariahs. The Saudis are pariahs too. Point is that both are very powerful oil rich nations. If we want cheap oil , it would be better to be friends with both, as to at least make it a  bit more competitive amongst them. Even Iran and Saudi Arabia both get the power of oil, thus both play on the same team being OPEC even though they are enemies. The Russians, Chinese, Indians are friends with both. We should do the same.

One is a friendly pariah state generally, and largest cooperative and responsive to Western interests.  One is not and actively seeks to undermine it.

[james22]

 

[Spekulatius]

1 hour ago, Sweet said:

They want to destroy a key Middle Eastern ally - Israel.

 

They have attacked our allies in the region - Saudis - and support rebels in Yemen to attack them.

 

They support and funds a wide range of paramilitary and terrorist grouped which have launched attacks on the West I.e. they are state sponsors of terrorism.

 

Got their noses in Lebanon and Syria and have destabilised those countries.

 

And you can’t understand and why we can’t be friends?  Lol

 

 

 

 

The Saudis are not our friend either. At this point they are just a force that seems to act somewhat rational (unless they chop people to bits and behead people in parking lots) and that we can deal with. They sort of made piece with Israel at this point. Iran could easily do the same thing, but they stubbornly choose not to. It makes no sense unless you just think they need Israel as an enemy to hold their radical ideological carpet together.

 

The enemy of your enemy is rarely your friend. Just use the school court analogy. If you don't like a guy and see this guy getting a his teeth kicked in from another guy in a fight, is this "other guy" your friend? I think this other guy is just a guy who kicks other peoples teeth in and I wouldn't assume he is my friend at all.

[Mephistopheles]

2 hours ago, Sweet said:

They want to destroy a key Middle Eastern ally - Israel.

 

They have attacked our allies in the region - Saudis - and support rebels in Yemen to attack them.

 

They support and funds a wide range of paramilitary and terrorist grouped which have launched attacks on the West I.e. they are state sponsors of terrorism.

 

Got their noses in Lebanon and Syria and have destabilised those countries.

 

And you can’t understand and why we can’t be friends?  Lol

 

 

 

 

 

It's funny how Israel remains neutral in the Ukraine-Russia war. And the West bends over backwards to show its love for Israel by punishing Iran. It seems like a one sided love affair if you ask me.

 

Re: terrorism - I guess we can forget that 9/11 hijackers were mostly Saudi. And the destabilization of Yemen. And the murder of Jamal Khashoggi. lol

 

I'm not saying make friends in the literal sense. Just saying strategically it's good to not suppress a major oil producer. I'd say its a win to do business with both Saudi and Iran.  

[Dinar]

25 minutes ago, Mephistopheles said:

 

It's funny how Israel remains neutral in the Ukraine-Russia war. And the West bends over backwards to show its love for Israel by punishing Iran. It seems like a one sided love affair if you ask me.

 

Re: terrorism - I guess we can forget that 9/11 hijackers were mostly Saudi. And the destabilization of Yemen. And the murder of Jamal Khashoggi. lol

 

I'm not saying make friends in the literal sense. Just saying strategically it's good to not suppress a major oil producer. I'd say its a win to do business with both Saudi and Iran.  

You have forgotten numerous terrorist acts committed by Iranians, as well as its support for Al-Queda, and Hezbollah's attacks on US interests.

[Gregmal]

Why do people act like you need to be friends with a counter party? This is asinine. We should be buying all the Russian and Saudi and Iranian oil we can. Or start doing more at home, but that would create jobs, and jobs are apparently bad.

[Mephistopheles]

Exactly. All that Russian oil is going to India and China at huge discounts. China is refining it and selling the product back to the West at big profits. Same with gas. They are taking LNG shipments from Russia and then rerouting them to the West and profiting off the arbitrage. 

[Gregmal]

Yea it’s 100% a foolproof way to constantly end up massively overpaying. Imagine approaching the stock market like that? Or buying a house? Hmmm, I ran a Google search on that guy and didn’t really like what I found so I don’t think I’ll be proceeding with my home purchase sir. Then add in all the money we are giving away to Ukraine and it’s like gee, hurray government spending. Let’s bust inflation!

Edited October 6, 2022 by Gregmal

[Sweet]

2 hours ago, Mephistopheles said:

 

It's funny how Israel remains neutral in the Ukraine-Russia war. And the West bends over backwards to show its love for Israel by punishing Iran. It seems like a one sided love affair if you ask me.

 

Re: terrorism - I guess we can forget that 9/11 hijackers were mostly Saudi. And the destabilization of Yemen. And the murder of Jamal Khashoggi. lol

 

I'm not saying make friends in the literal sense. Just saying strategically it's good to not suppress a major oil producer. I'd say its a win to do business with both Saudi and Iran.  

 

Many of the 9/11 guys were Saudis, but it was not backed by the Saudi government.  Important distinction.  

 

Those hijackers were sheltered and aided by the Taliban in Afghanistan.  Al Qaeda had an agreement with the Taliban, and received support from Iran in the 90s.

 

The US State Department has Iran as a state sponsor or terrorism and has several publications available online documenting their global terrorist networks and their activities through the middle east and indeed plots on US soil.

 

Contrast that with the Saudis, who have a long-standing relationship with the US to provide energy in return for security.  I wouldn't say the Saudis are allies in the same way that the US and UK are, but there has been long standing cooperation there that is meaningful.

 

It doesn't make sense to compare Iran and Saudi Arabia as being similar.  They aren't.  One is a hostile foreign power with global terrorist networks, the other is not.

[Sweet]

2 hours ago, Gregmal said:

Why do people act like you need to be friends with a counter party? This is asinine. We should be buying all the Russian and Saudi and Iranian oil we can. Or start doing more at home, but that would create jobs, and jobs are apparently bad.

 

It's not about being friends though. 

 

It's about shovelling money into the pockets of rivals, or in the case of Russia an enemy (I'm European).  Russia then turns around and uses that money to buy weapons to fund wars and undermine Europe.

 

It's also about the ability the wage war, and to remove the leverage of Russia (for example) in controlling and influencing our political affairs. 

 

The West cannot have critical supply chains reliant on hostile foreign powers.

 

I've also long been against using China as the world's sweat shop for cheap goods.  In the West we have funded the rise of a geopolitical competitor unlike any other, that is authoritarian in nature, who not only doesn't share our values but actively undermines them.

 

 

  

2 hours ago, Gregmal said:

Yea it’s 100% a foolproof way to constantly end up massively overpaying. Imagine approaching the stock market like that? Or buying a house? Hmmm, I ran a Google search on that guy and didn’t really like what I found so I don’t think I’ll be proceeding with my home purchase sir. Then add in all the money we are giving away to Ukraine and it’s like gee, hurray government spending. Let’s bust inflation!

 

It's not about the money.

 

Cheap doesn't always mean good.  Economic, energy and military security come at a cost.

 

You are advocating that we bargain away strategic advantages for a few bucks.

 

Money isn't everything in life.  I personally have no interest in making money by investing in China or Russia.

 

Edited October 6, 2022 by Sweet