Energy Sector

[Gregmal]

My wife the other day was like “isn’t this awful. How high do you think things go?”. And I just thought “not if you own call options”. As we blast through a family road trip encompassing the entire southeast and meander back to NJ. Probably did 3,000 miles of driving the past couple months. Cheap hotels were like $350 a night and in some areas triple that. Inflation made it cost way more than the year before. But “spend” as a percentage of worth declined significantly. And that’s the thing, writings been on the wall long enough for people to murder this trade. If you’re not even benefitting from higher energy and inflation you’re doing it wrong. 

[SharperDingaan]

We used to be mocked by those in love with their Ford 150, 250, etc. - primarily because we prefer the zip of the Mini (Baby BMW), and now the hybrid. Many of the folks who own those 150's, also own variable mortgages, and their overall costs (inflation) are  now escalating by at least $100/month - each and every month. 

 

They knew they were taking a risk, but the money was good! and the risk? ... far away, and remote! But if enough people were 'wrong' at the same time, it really wasn't going to be 'their' problem anymore - it was going to be 'ours'. Welcome to poor mans moral hazard !

 

Obviously, if you took precautions, you're going to do very well; whereas those 'others' ... not so much.

Just keep in mind that it's not a lot of fun when you're making a killing, and your neighbors are losing their homes to their new inability to make ends meet. 

 

Everyone has to live somewhere, but to keep your wealth - others have to allow it.

'Gated Community' is just the pretty word for 'compound' ... otherwise known as a 'gilded cage'

 

SD   

[mcliu]

[Gregmal]

LOL 

in tandem, move over covid, the call options on XLE and the like are the new "exponential growth"...

[Simba]

11 hours ago, JRM said:

And who says politics and investing don't mix?  Energy and metals have been one of the best setups going into 2022 because of half-baked policies, ESG virtue signaling, and general ignorance by the "smart money".  What's going on in Russia just pulled things forward a bit.  It was an inevitability.

 

I often question whether or not I have any business investing my own money, then I read some of the takes on twitter by the "smart money" and think, holy s&*t, these guys have no idea.

 

And no, I don't hate the environment.  Banning plastic straws and driving $100k golf carts isn't going to save us.

 

Eric Nutall can tell you how long he's waited for this day. I think any oil bull was shot dead. Like 5x over. 

 

Testament to how unpredictable markets can be, and that cycles often repeat.

 

We went from oil at negative dollars, to now > $100. Incredible. 

[cubsfan]

1 hour ago, Simba said:

 

 

We went from oil at negative dollars, to now > $100. Incredible. 

Yeah, boy when you think about it that way - it's fucking amazing.

[Gregmal]

Those are the ingredients for a super cycle. Real estate did the same thing during COVID. Some of the safest and most desirable assets briefly became viewed as the most undesirable. Everyone got washed out, which then makes everyone a future incremental buyer. Wouldn’t be shocked if XOM is a trillion dollar market cap company in a few years.

[Spekulatius]

US production will be back to pre pandemic levels in 2022:

https://www.cnbc.com/2021/12/30/us-oil-production-to-increase-further-in-2022-oil-expert-dan-yergin.html

 

Venezuela doubled oil production in 2021:

https://www.aljazeera.com/economy/2021/12/27/how-venezuela-this-year-almost-doubled-its-oil-output

 

Edited March 5, 2022 by Spekulatius

[hasilp89]

IIRC someone recently posted an interview with the PXD ceo where he was bullish $100-$120 and demand would suffer after that. Could be misremembering.  
 

any way interview here stating:

-blocking russian oil would mean $150-$200 easy. Replacing this would require a global coordinated effort

- although US has the resources - US investors don’t necessarily have the appetite to just drill baby drill

- US production growth ain’t happening this year. They’re committed to 5% prod growth. Takes 6-8 months to get rigs online etc

 

https://on.ft.com/3KgN9UB

 

nothing folks here don’t know. Interesting to hear it from him though. Initial thought has always been supply meets demand but even then it takes time to catch up.

 

@Gregmal I’m gonna go ahead and ask the layman’s question. You may have answered it elsewhere. I know you’ve mentioned buying oil calls, for those who don’t have broker accounts that have commodities/futures whats the best way to get levered $ for $ exposure to crude? 

 

 

 

Edited March 5, 2022 by hasilp89

[Gregmal]

2 hours ago, hasilp89 said:

IIRC someone recently posted an interview with the PXD ceo where he was bullish $100-$120 and demand would suffer after that. Could be misremembering.  
 

any way interview here stating:

-blocking russian oil would mean $150-$200 easy. Replacing this would require a global coordinated effort

- although US has the resources - US investors don’t necessarily have the appetite to just drill baby drill

- US production growth ain’t happening this year. They’re committed to 5% prod growth. Takes 6-8 months to get rigs online etc

 

https://on.ft.com/3KgN9UB

 

nothing folks here don’t know. Interesting to hear it from him though. Initial thought has always been supply meets demand but even then it takes time to catch up.

 

@Gregmal I’m gonna go ahead and ask the layman’s question. You may have answered it elsewhere. I know you’ve mentioned buying oil calls, for those who don’t have broker accounts that have commodities/futures whats the best way to get levered $ for $ exposure to crude? 

 

 

 

Just look for established big name industry leaders and then stagger ATM and OTM leaps. If you still don’t trust yourself look for ETFs. Oil is easy but there’s plenty else on the periodic table you can apply this too. Even XLE you could get leaps on last year for $2-5. Those already 5-10 bagged. 

[Spekulatius]

I think a lot of Russian oil will make it to the market, western boycott or not. It will be funneled through Chinese or other sources who buy it at a deep discount most likely. I think we will see Supply reduction from Russia, but it is not like the whole production is just going to disappear.

 

Anyways, Russia oil production is ~11M barrel and consumption is ~3.6 M barrel (daily), so the export gap is ~7.4M , but I think large part of this will make it to the market.

I also think that due to sanctions, it is likely that Russian oil production is going to shrink in the longer run.

 

For comparison, the US oil production in 2021 was about the same ~11M barrel.

[SharperDingaan]

The primary end buyers of black market oil are India and China. In simplified terms, the oil sanctions discussion is remove Iranian sanctions, and impose Russian ones; China and India sell their Iranian purchases into Europe, buy the replacement crude from Russia, and keep the price difference. Temporary demand/supply imbalances met from SPR releases and new drilling.

 

The US clearly sees new drilling/infrastructure repair as primarily coming from Iran/Iraq, not the US/Canada. The risks are relatively small, the increments very large, and egress already established. However, not what many from US oil want to hear.  

 

It would appear that the tool of choice to tame inflation pressure is going to be higher oil prices versus higher interest rates. Oil prices were already going to rise as Covid related recovery demand came to bear. However, it will rise a lot higher when Russian export terminals suddenly experience ongoing 'accidents', shutting in production. 

 

While Russia may take the Ukraine, sanctions are unlikely to stop until Putin is gone.

High crude prices for at least another 12 months.

 

SD  

Edited March 5, 2022 by SharperDingaan

[JRM]

13 minutes ago, SharperDingaan said:

The primary end buyers of black market oil are India and China. In simplified terms, the oil sanctions discussion is remove Iranian sanctions, and impose Russian ones; China and India sell their Iranian purchases into Europe, buy the replacement crude from Russia, and keep the price difference. Temporary demand/supply imbalances met from SPR releases and new drilling.

 

The US clearly sees new drilling/infrastructure repair as primarily coming from Iran/Iraq, not the US/Canada. The risks are relatively small, the increments very large, and egress already established. However, not what many from US oil want to hear.  

 

It would appear that the tool of choice to tame inflation pressure is going to be higher oil prices versus higher interest rates. Oil prices were already going to rise as Covid related recovery demand came to bear. However, it will rise a lot higher when Russian export terminals suddenly experience ongoing 'accidents', shutting in production. 

 

While Russia may take the Ukraine, sanctions are unlikely to stop until Putin is gone.

High crude prices for at least another 12 months.

 

SD  

 

The real risk is that Russia\China\India and probably others don't want to exchange petro for dollars.  Why would they need the USD?  The Ukraine situation would make more sense if this is the end game.

[Spekulatius]

Interesting. Shell buying crude for….$28.5/ brl from the Russians including delivery.

https://finance.yahoo.com/news/shell-buys-russia-flagship-urals-161930283.html

 

I don’t think the Chinese and North Koreans will pay more. If this continues, they are sooo screwed.

Edited March 5, 2022 by Spekulatius

[SharperDingaan]

2 hours ago, JRM said:

 

The real risk is that Russia\China\India and probably others don't want to exchange petro for dollars.  Why would they need the USD?  The Ukraine situation would make more sense if this is the end game.

 

Not a big risk. Russia already has weapons, and still needs USD/Euro to pay for what it needs - can't easily do that with Yuan. In the near term there is no real reserve currency alternative, in the long term it just accelerates replacement with a functional digital currency equivalent. All good. 

 

Today the sanctions are primarily banking, tomorrow it would seem that oil will be added, the day after - the illegal drug trade selling into the West? When the troops coming back from the Ukraine start talking about what they saw/did, 'external' news feeds cannot be totally kept out, and ruthless rich men become poor - what do you think happens? 

 

Putin in a box, and we all go back to being friends again. He pushes the button, we all lose.

Go back to being a gang level street punk, or take care of the problem?

 

SD

 

 

Edited March 5, 2022 by SharperDingaan

[james22]

Buffet buying big can only encourage speculation, I'd think.

[Gregmal]

26 minutes ago, james22 said:

Buffet buying big can only encourage speculation, I'd think.

That’s what a lot of people miss in the equation. It’s not just supply and demand in a traditional sense, it’s money flow and speculation. That’s where you get the alpha. Trade of the week next week is probably shorting weekly OTM puts on stuff like OXY. Premiums should be glorious 

[nafregnum]

5 hours ago, Spekulatius said:

Interesting. Shell buying crude for….$28.5/ brl from the Russians including delivery.

https://finance.yahoo.com/news/shell-buys-russia-flagship-urals-161930283.html

 

I don’t think the Chinese and North Koreans will pay more. If this continues, they are sooo screwed.

 

Clarification: It was $28.50 below benchmark Brent crude price, not $28.50 per barrel.

 

https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-03-04/card/shell-buys-russian-oil-at-bargain-price-2ZljvO2HQlmPm5d5aAgG

 

Shell bought 100,000 metric tons of Russia’s flagship Urals crude on Friday, according to people familiar with the transaction. It paid $28.50 a barrel below the price of international benchmark Brent crude, the widest discount on record.

[Spekulatius]

2 hours ago, nafregnum said:

 

Clarification: It was $28.50 below benchmark Brent crude price, not $28.50 per barrel.

 

https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-03-04/card/shell-buys-russian-oil-at-bargain-price-2ZljvO2HQlmPm5d5aAgG

 

Shell bought 100,000 metric tons of Russia’s flagship Urals crude on Friday, according to people familiar with the transaction. It paid $28.50 a barrel below the price of international benchmark Brent crude, the widest discount on record.

@nafregnum Thanks, I missed that. Very important distinction.

[nafregnum]

17 hours ago, Spekulatius said:

@nafregnum Thanks, I missed that. Very important distinction.

 

I think Shell came under some heavy criticism.  I just read that they've announced all profits from that purchase will go to Ukraine aid.  It feels like poetic justice for profits from Russian oil sales to be flowing into Ukraine.  At a minimum, there's  t $28.50/barrel in profits because of the way it was sold.

 

At 7 barrels per metric ton, and 100,000 metric tons, that's 700,000 * 28.50 = $19,950,000 that Shell would need to pay out.

[Ulti]

https://warontherocks.com/2022/03/from-pledges-to-action-europes-move-away-from-russian-fossil-fuels/

[Gregmal]

Printing $125. 
 

What’s hilarious is the end catalyst was unclear but if you know the game it was evident. Brandon and friends were fucked. Cancelling drilling permits and closing pipelines to virtue signal was already creating a disastrous message in the markets. It’s why in one year things went from 55-90. But you know how the politics game is played. They needed an excuse. Someone to blame. And damn well they tell us they care and will fix it but you KNOW they rather have oil at $150 and a war to blame than have it at $90 with no one to blame. Thankfully, the American people are largely short term and stupid. They blamed Trump for a virus and war be damned, democrats are going to pay BIG this November unless this gets reeled in ASAP. Except, supply and demand. No way oil trades back down to $70/80s ANYTIME soon. RIP 

[mcliu]

Can someone please explain the logic of cancelling Keystone but trying to increase Venezuela & Iran production?

[SharperDingaan]

2 minutes ago, mcliu said:

Can someone please explain the logic of cancelling Keystone but trying to increase Venezuela & Iran production?

 

US/Canadian production is to be held down, and put under ESG controls. Iran/Iraq/ME production increased to supply Europe and displace Russian oil.

 

They can supply a lot more o/g and quicker than the US/Canada can, and the more they do the less extreme the price spike will be. 'Cause after this is over, we're all going to driving electric, and all those US/Canadian investments need to have already been paid off.  It's just being smart.

 

SD

  

[cubsfan]

21 minutes ago, mcliu said:

Can someone please explain the logic of cancelling Keystone but trying to increase Venezuela & Iran production?

You would call it virtue signaling to appease the LEFT and the Squad.  Reap what you sow.