Energy Sector

[Gregmal]

Yea. If I can read that $4 gas won't cause folks too much pain, so will the politicians. So of course, like the scum they are, they'll push the envelope until there is real pain, and some of us will get fed a plate of food we didnt ask for courtesy of the 51%. So yea, probably still some room to go higher. Even short term. 

[Ulti]

Off topic

https://www.bloomberg.com/news/articles/2022-03-08/china-considers-buying-stakes-in-russian-energy-commodity-firms?srnd=premium

[Kupotea]

25 minutes ago, Gregmal said:

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?

 

I think it pulled prices forward but shouldn't have a meaningful impact on how high the price of oil eventually runs. The overall thesis was once spare capacity becomes non-existent then the only offset to demand is higher prices until a recession is triggered. Similar to 2008 you don't actually need to run out of oil for it to go parabolic just the expectation that spare capacity won't be sufficient to cover demand.

 

I do think the easy money has been made on this trade though as there's no real way to know how high it will go or when it will turn against you. If you believe that oil will continue to spike you're better off buying puts on whatever the market still considers safe (Apple, Bank Stocks, etc.).

 

[cubsfan]

For the record, the US imports 700,000 BPD of Russian crude and unfinished petroleum products,

not insignificant.  

[meiroy]

Now the Admin can say prices went up thanks to their ban, which was put in place for security/freedom reasons. Taxes and price caps could follow. Better hold brent/wti futures directly. 

 

 

[Gregmal]

Exactly, that’s been the US angle all along. $150 oil cuz war is better than $90 oil cuz of our stupidity. Here’s hoping American voters are as dumb about this as they were about COVID. 

[cubsfan]

^^ Yup, no reason to loosen restrictions to pump more US oil. We'll just go to Iran or Venezuela !

 

Gotta keep that Green New Deal alive.

[mcliu]

Don't higher energy prices benefit Republican states and harms Democrat states? US politics is interesting.

 

I did some back-of-envelope on FCF for the O&G stocks on my list. If you've done this also, would love to compare #s incase mine are way off. Thanks!

[KJP]

26 minutes ago, mcliu said:

Don't higher energy prices benefit Republican states and harms Democrat states? US politics is interesting.

 

 

There is a high dispersion of effects in those states.  For those directly involved in O&G it's great.  But the further away you are from that industry, the more you just get the downside, which can be particularly acute if you live in, for example, a rural (and thus likely largely Republican) area in which driving relative long distances is required.  To give a specific comparison, think about how high O&G prices affect an oilfield worker or someone who sells trucks in the oil patch versus a teacher, police officer, or mailman.

[LearningMachine]

44 minutes ago, mcliu said:

Don't higher energy prices benefit Republican states and harms Democrat states? US politics is interesting.

 

I did some back-of-envelope on FCF for the O&G stocks on my list. If you've done this also, would love to compare #s incase mine are way off. Thanks!

 

For OXY, looks like you have debt at $40B because you're counting $29.5B debt as of Dec 2021 and $10.5B to cash out preferred some day? 

[Spekulatius]

16 minutes ago, KJP said:

 

There is a high dispersion of effects in those states.  For those directly involved in O&G it's great.  But the further away you are from that industry, the more you just get the downside, which can be particularly acute if you live in, for example, a rural (and thus likely largely Republican) area in which driving relative long distances is required.  To give a specific comparison, think about how high O&G prices affect an oilfield worker or someone who sells trucks in the oil patch versus a teacher, police officer, or mailman.

High energy prices hit low income people living in rural areas the most. They consume more energy and have less disposable income than a city dweller if you need to use cliché's.

 

Even Texas as a whole does not benefit any more from high energy prices. Certainly most people living in Texas won't.

[james22]

ESG May Be an Antitrust Violation

 

The biggest antitrust violation in history may be in plain sight. Wall Street banks and money managers are bragging about their coordinated efforts to choke off investment in energy. It’s nearly impossible to raise money to explore for oil and gas right now, and we may all be experiencing rising energy costs because of this market manipulation. Russian and Chinese aggression overseas also is exacerbating inflation.

 

Here’s what is happening: The biggest banks and money managers seek to implement a political agenda, such as compliance with the Paris Climate Accord. Then a group mobilizes: Climate Action 100+, for example, comprised of hundreds of big banks and money managers that together manage $60 trillion. The group uses its coordinated influence to compel companies to shut down coal and natural-gas plants. The activism can include pushing climate goals at shareholder meetings and voting against directors and proposals that don’t comport with the agenda, even if other decisions may benefit investors.

 

Firms report their plan to carry out these activities back to Climate Action 100+ headquarters. This helps ensure maximum coordinated effort toward the common goal of overhauling the energy industry. Money managers wield influence over these companies because they represent investors who are shareholders, often through their 401(k)s or pension plans. In other words, your retirement funds are likely helping facilitate these political campaigns to advance far-left policy goals, with consumers bearing the costs of increased energy prices.

 

Climate Action 100+ is one of many activist groups that operate like this, with a significant impact on critical investments in America’s energy infrastructure. Decarbonization of capital expenditures is one of their major goals. Investment in oil and gas exploration and production in 2021 was nearly 25% below 2019 levels. One private-equity CEO described trying to raise wide-scale capital for drilling oil as almost impossible.

 

An axiom of economics is that if you produce less, the cost will go up. The price of Brent crude hit $114 a barrel last week, an eight-year high, amid tensions over the Russian-Ukraine war. This hurts the pocketbook of all Americans, especially lower-wage workers, who spend a greater percentage of income on fuel.

 

While climate activists believe they know best, the U.S. can’t maintain its security while depending on foreign dictators and oligarchs to supply its energy. Current economic trends and international tensions heighten the need for domestic companies to maximize efficiency and productivity. Proper corporate governance is good not only for shareholders but for the stability of America and the world.

 

As attorney general of Arizona, I have a responsibility to protect consumers from artificial restrictions on production. That’s why I’ve launched an investigation into this potentially unlawful market manipulation.

 

https://www.wsj.com/articles/esg-may-be-an-antitrust-violation-climate-activism-energy-prices-401k-retirement-investment-political-agenda-coordinated-influence-11646594807

[mcliu]

6 minutes ago, LearningMachine said:

 

For OXY, looks like you have debt at $40B because you're counting $29.5B debt as of Dec 2021 and $10.5B to cash out preferred some day? 

Thanks, yes the 40 includes the BRK preferred.

[Spekulatius]

2 hours ago, Kupotea said:

 

I think it pulled prices forward but shouldn't have a meaningful impact on how high the price of oil eventually runs. The overall thesis was once spare capacity becomes non-existent then the only offset to demand is higher prices until a recession is triggered. Similar to 2008 you don't actually need to run out of oil for it to go parabolic just the expectation that spare capacity won't be sufficient to cover demand.

 

I do think the easy money has been made on this trade though as there's no real way to know how high it will go or when it will turn against you. If you believe that oil will continue to spike you're better off buying puts on whatever the market still considers safe (Apple, Bank Stocks, etc.).

 

I still think the future markets got this wrong. Crude oil should not move because US does not buy Russian oil any more, but purchases the same amount of oil from some place else.  This is just a a ring around Rosie  and I think the price spike will likely reverse. Now if Europe would decide likewise and ban Russian oil (they likely won't) this would affect a few million barrel daily and cause a major imbalance and that would push prices higher.

[Kupotea]

46 minutes ago, Spekulatius said:

I still think the future markets got this wrong. Crude oil should not move because US does not buy Russian oil any more, but purchases the same amount of oil from some place else.  This is just a a ring around Rosie  and I think the price spike will likely reverse. Now if Europe would decide likewise and ban Russian oil (they likely won't) this would affect a few million barrel daily and cause a major imbalance and that would push prices higher.

Agreed. While there are short term impacts as traders figure out how to buy and sell barrels without SWIFT ultimately there’s enough buyers out there to cover what Russia is producing. This does all tie back to a lack of spare capacity. If OPEC was holding 5+ million barrels in additional capacity this would be a nothing burger. When people are already concerned we may run out of capacity before the end of the year these geopolitical events take on significant meaning. I don’t think prices go back below $100 as long as the possibility of escalation remains. Putin is the more likely one to cut off supply to the EU in my opinion than the EU refusing to buy.

[JRM]

I meant to sell some covered calls on my XLE position today, but I accidentally bought some weeklies instead.  I thought about undoing the trade, then decided I actually like the added position.  My subconscious is looking out for me.

Edited March 8, 2022 by JRM

[Ulti]

https://www.reuters.com/business/energy/us-lng-exporters-emerge-big-winners-europe-natgas-crisis-2022-03-09/

[nafregnum]

I wish I knew a lot more about the oil hedging that airlines and oil producers do.  

 

About 12 months ago oil was $20 and now it's around $120. 

 

During the lows you'd hope all the airlines locked in some extremely cheap gas hedges.

 

And now oil producers are going to to lock in at these highs.

 

Is this the kind of wild volatility that ends up bankrupting the insurers (is this all done with derivatives?), or are these financiers making money hand over fist and loving every minute of it?  

 

[KJP]

7 minutes ago, nafregnum said:

And now oil producers are going to to lock in at these highs.

 

 

Not sure how much a producer can lock in.  Oil curve is quite backwardated, so if you have oil for delivery in, say, December you can't lock in $120 for that oil today.

[Gregmal]

Man, someone called it. Brandons War creates higher energy prices and now its the result of corporate greed so of course we need to have Pocahontas or Bernie introduce a windfall tax.....my god these clowns are predictable. 

[LearningMachine]

22 minutes ago, Gregmal said:

windfall tax.....predictable. 

 

History repeats.  Canadian oil companies might be a good way to avoid the significant probability of windfall tax if crude goes really high. 

Edited March 9, 2022 by LearningMachine

[KJP]

33 minutes ago, LearningMachine said:

 

History repeats.  Canadian oil companies might be a good way to avoid the significant probability of windfall tax if crude goes really high. 

 

Coal is also through the roof.  Is Manchin (necessary to pass anything in the Senate) going to agree to a windfall profits tax on fossil fuels?  How about Casey from Pennsylvania (Marcellus)?

 

[Gregmal]

How bout some Venezuelan oilers? I chuckle at the logic being used; of destroying the Russian people and economy to punish a guy with 3 different billion dollar mansions and small city sized bunkers... by enriching dictators in Iran and Venezuela, all while we have oodles of oil and gas.....right here at home! Yes, people voted for that. 

[Gregmal]

Right on cue...

 

https://nypost.com/2022/03/09/psaki-predicts-even-worse-inflation-report-after-40-year-high/

 

These things were a big problem prior to Ukraine. But now its because of Putin. White House got what it wanted from Ukraine. 

[meiroy]

Well that's not an enjoyable drop.

 

Regarding OPEC+, quite a few members can't even produce for current quota, UAE might have spare but why should other members agree?

 

COVID reopening (umm, even though there's a new wave beginning)

 

ESG obsession => less investments for years now etc.

 

Thesis still stands.

 

Even if Ukraine and Russia is resolved, the commodities macro remains.

 

Uranium just melted the f up. So at least something went right.

 

Until QE is back, I'd bet on short equity rallies and then lower lows but that's just for fun, what do I know.

 

Is Manchin going to stand up to Warren?

 

I'm wondering if I'm rationalizing it with this list.

 

Edited March 10, 2022 by meiroy