Energy Sector

[Sweet]

27 minutes ago, Mephistopheles said:

I still have my November CL futures, now at $78. Day after day, more barrels are taken away from the world.

 

The other thought I've had is that the uncertainty about timing probably has a negative affect on capex (bullish for price). Everything in the short to medium term hinges on the strait and war, which may all resolve in the next day or the next month, nobody knows. So what is the incentive here for growth capex when there is no clarity on the supply shock?

On the US oil side?  These guys have historically grown production when they can, even when it didn’t make sense to do so.  Many of these oil companies are terribly ran and don’t give a crap about shareholder return.  Not saying they will this time just that historically they haven’t always been rational. 

[rogermunibond]

[SharperDingaan]

52 minutes ago, Mephistopheles said:

So what is the incentive here for growth capex when there is no clarity on the supply shock?

 

You don't drill; you acquire, and sell off what you don't want 

 

SD

 

[Sweet]

29 minutes ago, rogermunibond said:

If you zoom out and overlay US oil production you can see that they don’t always trend together.

[rogermunibond]

@Sweet there was a mammoth DUC count that's come down substantially over the last 5 years, wouldn't count on that relationship going forward.

[KPO]

5 hours ago, rogermunibond said:

In another life I was in IR and also created nonsensical charts like this that look dramatic unless you actually pay attention to the Y-axis.  That said, I’ve always held more than enough oil exposure to hedge out my personal risk should prices go parabolic, so I actually don’t care what happens here. 

[Spekulatius]

6 hours ago, Sweet said:

If you zoom out and overlay US oil production you can see that they don’t always trend together.

Drilling gets vastly more efficient over time.

[Sweet]

14 hours ago, rogermunibond said:

@Sweet there was a mammoth DUC count that's come down substantially over the last 5 years, wouldn't count on that relationship going forward.

If DUCs have bottom out you might finally have some discipline, and prices might start to trend more closely with rigs.

[Sweet]

8 hours ago, Spekulatius said:

Drilling gets vastly more efficient over time.

Yeh, they are more efficient now, but they were also drilling so many wells years ago and leaving them uncompleted so they could be tapped later date.

[rogermunibond]

Much of the best acreage in the Midland and Delaware basins is already drilled.

 

[SharperDingaan]

34 minutes ago, rogermunibond said:

Much of the best acreage in the Midland and Delaware basins is already drilled.

 

A big part of why acquire and consolidate is now preferred.

At 25% depletion/yr; after 5 years on-line .... oil production is down to 24% of what it once was [100*(1-.25)^5], and the gas cut is now around 40%. The shale has primarily become a reliable gas field, favouring economies of scale ... hence consolidation; with oil production now the by product.

 

Known tier 1 and 2 land that is primarily oil producing, farmed out to new drillers where the interest is primarily oil production vs gas, and the lessor can take the gas. Lot less risky, and more reliable, than trying to drill unknown tier 3 lands and praying on hitting a jackpot.

 

SD 

 

[rogermunibond]

https://giftarticle.ft.com/giftarticle/actions/redeem/db5811a9-2c7c-4349-8148-2ffe4eb54f84

 

[SharperDingaan]

2 hours ago, rogermunibond said:

https://giftarticle.ft.com/giftarticle/actions/redeem/db5811a9-2c7c-4349-8148-2ffe4eb54f84

 

 

The US is primarily exposed to refined product shortages on the east and gulf coasts ... as refining has increasingly been outsourced to Asia. All that the US need do is swap outbound Asian crude cargoes for inbound refined product, at the prices of the day.

 

The obvious longer term solution is state of the art new refining capacity in NA. The obvious location being the WCSB, gulf state financing, and new pipe in all 4 directions. East coast LNG out of Churchill, Saint John, Halifax; in quantity, from WCSB gas ..... a game changer.

 

Europe never again captive to the gulf ... and the cost of pipe also part of Canada's 5%/yr NATO commitment.

 

SD

 

 

Edited April 14 by SharperDingaan

[rogermunibond]

Gulf coast refined product shortages?  Don't you mean west coast?

 

Good luck getting any new refinery built.

[KPO]

7 minutes ago, rogermunibond said:

Gulf coast refined product shortages?  Don't you mean west coast?

 

Good luck getting any new refinery built.

If the current refined fuel prices persist it be interesting to see if the state of California comes back to PSX hat in hand. 

[gfp]

16 minutes ago, rogermunibond said:

Gulf coast refined product shortages?  Don't you mean west coast?

 

Good luck getting any new refinery built.

 

As a resident of the US Gulf Coast I can confirm that refined products are abundant and considerably cheaper than the rest of the country.  Our consolation prize for living in 'cancer alley' ...

[SharperDingaan]

19 minutes ago, rogermunibond said:

Gulf coast refined product shortages?  Don't you mean west coast?

 

Good luck getting any new refinery built.

 

Gulf coast has had a few old refineries permanently close; there is still lots of product around, but not as much as they used to be. Hence, prices in the area remain cheap.

 

Economically, the California refinery should shutter in favour of imports, as Asia has the lowest refining costs in the world. Thing is; if NA is to be self sufficient in refined products, it really means a monster state-of-the-art refining facility somewhere in NA. Can't be leaning on China, when it's also supplying your gasoline. 

 

SD

[rogermunibond]

https://www.eia.gov/dnav/pet/pet_move_impcp_a2_r10_EPP0_IP0_mbbl_m.htm

 

Looking through the EIA database, I was surprised to see that PADD3 is a large importer of unfinished oils.  Guess that's to blend into the lighter US crude grades for refining runs.

[rogermunibond]

http://sherwood.news/markets/hsbc-ceo-cost-of-oil-has-hit-as-much-as-usd286-per-barrel/

 

HSBC Group’s CEO, Georges Elhedery, just broke down why end buyers of oil are facing prices way above what traders see on their screens.

During a fireside chat with Bloomberg TV’s David Ingles at HSBC’s Global Investment Summit, Elhedery explained why his “biggest worry about the global economy is the disruption that’s coming from the Strait of Hormuz closure, or quasi closure.”

While the ceasefire between the US and Iran was intended to improve the flow of oil through this key choke point, the subsequent announcement of a US blockade of the waterway threatens to do precisely the opposite.

And that’s potentially prolonging, or exacerbating, the pain for crude importers, as Elhedery unpacked:

“What worries me is not the headlines. I mean, oil headline is above $100, $110. Realistically, if you are now trying to get oil from the Middle East, you may be paying $140, $150.

Realistically, if you try to get oil from the Red Sea, you are paying more than $30, $40 for shipping. Insurance costs, which used to be 25 basis points, is more like 5%, and war insurance has been scrapped — you’re paying 5% without even the war insurance component.

So the barrel of oil door to door or the barrel of refined oil door to door is way above the headline price of oil. The highest I’ve seen, and I’m hoping we don’t see more of that, but the highest I’ve seen is $286 for a barrel of oil that reached Sri Lanka. This is not a country and an economy that can easily afford these kind of prices sustainably.”

In a separate interview with Bloomberg News, Elhedery warned that the continuation of these shipping disruptions would be felt not just in the price of energy, but also its availability.

Separately, the International Energy Agency updated its oil market outlook, with the Paris-based organization now forecasting a contraction in both supply and demand for oil, predicting an “80,000 bpd drop in demand growth this year, from a 640,000 bpd rise in its March report,” according to Reuters.

[SharperDingaan]

You might want to read up on the mechanics of what happens on an options expiry day. Opportunity 

 

SD

[SharperDingaan]

Physical settlement of options contracts is the most common form of settlement and involves the physical or actual delivery of the underlying security at settlement. Physical settlement of a long equity call option, for example, would be the purchase of 100 shares of the underlying security at the contract’s strike price. Physical settlement of a long equity put option would require selling 100 shares of the underlying security at the contract’s strike price. Options contracts that are physically settled tend to be American-style option contracts where early exercise is possible.

https://optionalpha.com/topics/options-settlement

 

All those empty tankers rushing to the US ... to physically settle on the forward contracts. At time of expiry, spot = the forward price on the front contract; quite a price difference, depending where you look 

 

SD

[Spekulatius]

@thepupil and others with Bloomberg access. According to the Odd lots podcast, there is a Bloomberg function to get  the ship traffic # through the straight of Hormuz. Your employer doesn’t pay 50k a year for nothing - you can look up the traffic numbers with a keystroke. Anyone uses it?

 

No reason to go to questionable sources on X.

[thepupil]

39 minutes ago, Spekulatius said:

@thepupil and others with Bloomberg access. According to the Odd lots podcast, there is a Bloomberg function to get  the ship traffic # through the straight of Hormuz. Your employer doesn’t pay 50k a year for nothing - you can look up the traffic numbers with a keystroke. Anyone uses it?

 

No reason to go to questionable sources on X.

 

this information is very likely not true. it shows 1. 

 

 

 

 

[frommi]

Does anybody think this thing ends this weekend, or do we see a major escalation again?
 

[bizaro86]

6 hours ago, thepupil said:

 

this information is very likely not true. it shows 1. 

 

 

 

Yeah, that's just a count of how many AIS transponders move through. If you were going through now you probably turned that off...