Energy Sector

[Gregmal]

Everyone has said that when a giant experiment is conducted you are in unchartered territory. Over the last few years, from COVID to GameStop to negative oil, we ve seen things never before seen or probably thought possible. What you see going on in certain asset classes right now is following a specific pattern. The pattern is obvious. You just don’t know what you’re going to see that will shock the shit out of you. Which is why it’s a great idea to be chasing those tails. What happens if the futures market gets overrun with speculators the same way GME call options overwhelmed the financial world? $200 crude calls? Speculators breed more speculators. Position yourself as you sit fit, and then sit back and wait to see some shit you’ve never seen before.

[james22]

The Left has long wished for higher energy prices.

 

What did they imagine the consumer response to be? You'd think they'd be prepared.

[Gregmal]

Does anyone know how to access trading in securities of Burisma? I heard the US is excluding them from sanctions and securities halts.

[Spekulatius]

12 hours ago, james22 said:

The Left has long wished for higher energy prices.

 

What did they imagine the consumer response to be? You'd think they'd be prepared.

Less usage. It's what higher prices do.

[Gregmal]

4 minutes ago, Spekulatius said:

Less usage. It's what higher prices do.

Nah. Only less usage by some. Guess who? This is why theyre losing their voting base. 

[cubsfan]

12 hours ago, james22 said:

The Left has long wished for higher energy prices.

 

What did they imagine the consumer response to be? You'd think they'd be prepared.

It's their way of unintentionally punishing the middle class  - who they can't stand anyway.

Live in your mansion, ride in your Tesla or private jet - you can easily afford it - and fuck Joe & Mary Sixpack.

Just look at Pete Buttigieg - ride your bike to work for your daily photo-op.... whilst your 3 SUV security detail follows you.

 

They're enlighten, but you aren't...

 

Don't be fooled by these hypocrites.

Edited March 7, 2022 by cubsfan

[Spekulatius]

25 minutes ago, Gregmal said:

Nah. Only less usage by some. Guess who? This is why theyre losing their voting base. 

Less usage by some is still less usage. You will see the biggest reduction in usage in emerging markets, imo.

 

Anyways, drilling in the US has very little impact on energy prices, it's more impacted by prices than any political posturing or ESG.  US oil production is about 11m BRL and was down ~800K in 2020, during the Trump presidency. That had nothing to do with politics too, it was due to low prices and lack of demand. US production is rising again and we may get back to peak production levels  from  2019 this year.

 

All those changes are tiny compared to the Russian oil production of 11M brl/day which may  get off market if sanctions work and is roughly equal to US production. Simple math.

 

I actually agree that canceling the pipelines is a mistake. However, i don't think it has a major impact on US oil production. These pipes would take years to build anyways, so earliest impact would have been in 2024 or thereabouts even in the best case scenario.

Edited March 7, 2022 by Spekulatius

[cubsfan]

^^ The administration's energy policy has everything to do with high prices. 
When you cancel drilling and fracking on federal land, you punish US oil producers.

This administration is so committed to the hoax of man made global warming, they've 

created a complete debacle.

 

They've sacrificed US energy independence, destroyed thousands of good jobs,

and now we're gonna pay $1B / month to Russia for oil.

 

The environmental wackos and clueless woke politicians are going to destroy this economy.

 

You got a President, at the State of the Union, claims his Climate Change bill is

ANTI-inflationary - and is going to save citizens $500/year!!   He just forgot to

mention inflation is costing the same citizens $5000/year!

 

 

Edited March 7, 2022 by cubsfan

[mcliu]

13 minutes ago, Spekulatius said:

Anyways, drilling in the US has very little impact on energy prices, it's more impacted by prices than any political posturing or ESG

Why is that? I thought the 2015 crash was due to US production growth?

 

[jfan]

How valid is this Eric Nutall claim --> demand destruction occurs ~ 5-6% of global GDP which suggests WTI of $130-140/bbl?

 

https://financialpost.com/commodities/energy/oil-gas/eric-nuttall-making-the-case-for-an-oil-bull-market-that-lasts-five-or-six-more-years#:~:text=What then of,become a problem.

 

[Spekulatius]

@mcliu yes rising US production was  factor but there were several more - prices were relatively high to begin with (Crimean incident) and then Saudi Arabia decided to fight back for market share and opened the spigot. That was really what trashed prices all of a sudden. Iran also had reduced exports before and came back in 2014/2015.

 

In other words, it was more the Opecs doing than the US, although Opec's moves were triggered by the increased US production to some extend.

 

FWIW, demand destruction is not a binary thing that sets in at a specific price. It is a gradual thing that slowly kicks in when prices move higher. Same with supplies.

Edited March 7, 2022 by Spekulatius

[JRM]

1 hour ago, Gregmal said:

Does anyone know how to access trading in securities of Burisma? I heard the US is excluding them from sanctions and securities halts.

Maybe check with Hunter Biden?

 

1 hour ago, Spekulatius said:

Anyways, drilling in the US has very little impact on energy prices, it's more impacted by prices than any political posturing or ESG.  US oil production is about 11m BRL and was down ~800K in 2020, during the Trump presidency. That had nothing to do with politics too, it was due to low prices and lack of demand. US production is rising again and we may get back to peak production levels  from  2019 this year.

 

Aside from banning fracking on federal lands, congressional mandates have made it even more difficult for new pipeline projects and expansion projects.  Existing pipelines are invaluable for the next 10-15 years.

[Kupotea]

19 minutes ago, Spekulatius said:

@mcliu yes rising US production was  factor but there were several more - prices were relatively high to begin with (Crimean incident) and then Saudi Arabia decided to fight back for market share and opened the spigot. That was really what trashed prices all of a sudden. Iran also had reduced exports before and came back in 2014/2015.

 

In other words, it was more the Opecs doing than the US, although Opec's moves were triggered by the increased US production to some extend.

 

FWIW, demand destruction is not a binary thing that sets in at a specific price. It is a gradual thing that slowly kicks in when prices move higher. Same with supplies.

Going to have to disagree with this take. OPEC opened the spigots precisely because US oil production was growing 2 million barrels YoY. They couldn’t feasibly continue to cut supply to make room for US production so they started a price war. Marginal supply vs demand is what ultimately dictates the price of any commodity over longer periods of time and US shale production was that new marginal supply. 

[Gregmal]

More virtue signaling.

 

https://www.cnbc.com/2022/03/07/nj-gov-phil-murphy-mulls-state-action-on-russia-linked-lukoil-gas-stations.html

 

still “mulling it” even though he acknowledges the businesses are operated by NJ residents. But it’s cool. Phil worked at Goldman so he s got money. Fuck the peasants filling up at those stations or the people working the pumps. 

[cubsfan]

^^^ Geez - anything for a photo op...

[Spekulatius]

20 hours ago, Kupotea said:

Going to have to disagree with this take. OPEC opened the spigots precisely because US oil production was growing 2 million barrels YoY. They couldn’t feasibly continue to cut supply to make room for US production so they started a price war. Marginal supply vs demand is what ultimately dictates the price of any commodity over longer periods of time and US shale production was that new marginal supply. 

This does not contradict anything I have been saying. It was a deliberate decision by the Saudis to fight back for market share. Nobody forced them to do so, and prices were healthy before they did. It was a colossal mistake for them too and when shale production came back a few years later, they didn’t repeat this mistake.

Edited March 8, 2022 by Spekulatius

[Gregmal]

So last week or maybe the one prior there was talk about the stupidity of banning Russia oil and it’s effects on gas prices at home. It was said Russia is only a small amount of the supply and so it wouldn’t matter. How does this parse with the price movements in anticipation of the ban and even price movements on the ban? 

[meiroy]

The anticipation that perhaps the EU will follow at some point? Or, that it's not over until it's over? That is, more to come.

[Spekulatius]

14 minutes ago, Gregmal said:

So last week or maybe the one prior there was talk about the stupidity of banning Russia oil and it’s effects on gas prices at home. It was said Russia is only a small amount of the supply and so it wouldn’t matter. How does this parse with the price movements in anticipation of the ban and even price movements on the ban? 

The US can easily ban Russian oil because it barely buys any Russian oil (just 3% of total, which would be a little more than 300k brl). This is different in Europe, where I think about 40% comes from Russia. For prices it won't matter because oil is fungible - it will go up in price everywhere - US and Russia.

 

Olaf Scholz , the German chancellor,. said already that banning Russian oil can't be done in the short term. if just the US bans Russian oil it would be little more than virtue signaling, but Europe needs time to wean themselves off Russian oil and gas.

 

Germany will start the expedited build of 2 LNG plants on German shores which was announced the day after the invasion. I am hearing stuff targeted at reducing gas consumption with mandatory and subsidized heat pumps and solar cells on pretty much every house. All this will take time.

 

Coal plants will not be sunset (Germany is self sufficient on lignite coal) and possibly the  nuclear plants as well. Stuff seems to be getting done, but this isn't something that will happen in 14 days or even 6 month for that matter. It will take years.

 

One thing I can say is that Olaf Scholz is a pretty welcome change from Merkel. It's ironical because he was voted in the office as a "green chancellor" for the Social democrats while Merkel was head of the conservative party.

 

Now, he is called the "war chancellor" and as far as I can tell, he is doing a pretty good job in the difficult position he finds himself in.

[meiroy]

Off topic:

Peacetime CEO/Wartime CEO:

https://future.a16z.com/peacetime-ceo-wartime-ceo/

[Gregmal]

So do folks think with a Russia ban US oil should be $130?

 

im all for the thesis and think it’s got legs…it did at the beginning of the year before Russia was even a story. But did this pull a bunch forward, alpha wise, from the oil spike thesis in a good way, a bad way, or neither?

[meiroy]

I slept 4 hours last night thinking about this. 

 

Still holding.

 

The world does not seem to be in a good place right now.

 

EDIT: ok to add some minimal value to this post:

If EU had put some ban, then it's 150 to 200 in no time.

But, they didn't. And heating oil and whatnot is actually being limited now in Germany.

 

Maybe Putin decides to cut-off Nord 1. Then what?

 

Edit 2: nag-gas, right now, is down 5%. So it's not some broad market speculation going on.

Edited March 8, 2022 by meiroy

[JAK]

I've been in the room during simulations, when officials are asked to theorise what would happen if country X stopped exporting for one reason or another. You would be surprised how many spout out the typical, first order, response of oh,  that wouldn't affect us, as we buy from country Y... The whole idea that there is arbitrage / fungibility, and that there might suddenly be competition for country Y's exports seems to go over some people's heads.

 

I doubt the EU would join a ban, it would be a bridge too far to suddenly remove 13% of global net exports from the global market. 

Also, in general, people/voters are idiots. The same person who virtue signals about Ukraine on Twitter/FB today, will go out tomorrow and burn an effigy of Macron at a yellow vest protest because of high fuel prices. So on the one hand, you might have French people pushing Macron to ban Russian oil, but on the other hand, rural voters might actually vote for pro-Putin Marine Le Pen, if fuel prices go up. 

Edited March 8, 2022 by JAK

[Gregmal]

Yea just like the 4-5% mortgage rate killing housing is BS, the consumer IMO is not going to be bothered much by $4 oil. But there is a tipping point. Then the roller coaster starts moving the other way. The key with all these types of trades is to grab and reallocate as much as you can. You dont have to call the top you just have to walk away with a satisfactory reward for your time. Which often means holding portions past the peak. So Im just spitballing the gauge. For instance, XLE ATM calls are 7x from less than a year ago. Shit like that. The problem is that outside of stuff Im already pretty overweight, Im not seeing too much suitable on the replacement side. 

[meiroy]

If the situation in Ukraine deteriorates significantly there will most likely be a European ban, or, Putin stops the flow and the price outcome is similar, at least for awhile.