Energy Sector

[rb]

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.

[Jurgis]

A tariff on oil has got to be the dumbest thing one can possibly come up with.

 

Then it's certain to be enacted.

[DooDiligence]

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.

[Foreign Tuffett]

Kasparov:

 

 

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.

[opihiman2]

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.

[SharperDingaan]

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

 

 

[Spekulatius]

Kasparov:

 

 

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...

[Casey]

Kasparov:

 

 

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.

[Gregmal]

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?

[rb]

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.

[james22]

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?

[rb]

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%.

[james22]

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.

[SharperDingaan]

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

[KJP]

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. 

 

[rb]

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.

[matts]

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).

[KJP]

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.

[ValuePadawan]

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 (

) 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.

[Gregmal]

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?

[matts]

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 (

) 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. 

 

 

[ValuePadawan]

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 (

) 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.

[ValuePadawan]

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.

[matts]

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.

[Gregmal]

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.