Energy Sector

[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.

 

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.

Those were just guesses hence why I said pure speculation I just don't know why this hasn't been priced in yet and don't worry I don't feel picked on I actually appreciate when people can help me destroy my ideas, it helps me find my blind spots!

[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.

 

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.

 

Thanks I will I made this a small bet as I see high reward but higher risk than I am usually comfortable with however with some being at NAV I don't see much downside. Heads I win tails I don't lose.

[SharperDingaan]

'Energy Independence' just means reduced price volatility.

A business environment that is predictable enough to enable investment in long-term infrastructure, that's it. The benefit being that when you really need that oil/gas, you have some. It's a put on the downside, there's a cost to do that, and 'we the people' pay it because its the most practical solution.

 

As has already been pointed out, the issue isn't just supply, it's the massive inventory.

The smartest solution is to just shut everything in for 3 months, pay people to stay home, and meet the demand from inventory. In the West, with Corona everywhere, we are already paying people to stay home - and for months. The ME and Russia is not going to shut-in unless forced, the NA tariff wall is just the club. There will be shut-in production in NA as well, but we'll just get the higher tariff price, and the business stability to permit the mega-projects to go forward. Everybody benefits.

 

Sure there's lots of screaming. So do your kids, when you take away the TV.

 

SD

 

 

[rb]

Kids don't get to vote.

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2020-04-04/saudi-arabia-says-putin-s-comments-on-opec-deal-is-incorrect?srnd=premium&sref=MIJkHqWM

 

The OPEC+ meeting to try to end the oil price war is unlikely to go ahead on Monday as previously expected, as Riyadh and Moscow trade barbs about who’s to blame for the collapse in oil prices.

 

The OPEC+ alliance needs more time for negotiations, a delegate familiar with the matter said, noting the gathering may still happen a few days later next week. Beyond the alliance, Saudi Arabia and Russia have indicated they want other oil countries to join in any output cuts, complicating efforts to call a meeting, the delegate said, asking not to be named discussing diplomatic matters.

 

Well, guess Trump's phone calls didn't work out the way he wanted...

 

This whole thing reeks of game theory dynamics--prisoner's dilemma. If one producer reduces to help the whole, it's meaningless if no one else partakes.

 

What do you assign the odds of a group consisting of SA, Russia, Iran, Venezuela, etc coming together and *trusting* each other to meet reductions in a time like this when everyone is desperate for revenue? And you think Trump has power to tell U.S. producers to cut? Think they'll all listen to him?

 

Russia and SA probably looking to end shale producers as well, they just need to string Trump along for a while until it happens. Too bad that even in Chapter 11, those wells keep running, and post-bankruptcy, their break even crude prices will be lower so they can start drilling again when crude rises a bit more.

[SharperDingaan]

Gaming is just gain optimization, within a fixed 'internal' set of parameters (the 'game'), even Nash recognized that. But Nash also recognized that you could game 'external' disruption, by changing game parameters (game 'changing', and game 'setting'). NA is game 'changing', SA/Russia are game 'optimizing'. Who you think wins, depends on who is funding your POV.

 

Whatever the opinion, the reality is that everybody needs higher prices, and asap.

In the near-term, simply stop flooding (Opec+). In the long term, enable a stable planning environment (US Shale). The existing 'game'.

The game 'changer' is a viable NA tariff wall, and the game 'set' is more discipline in the shale patch. New 'game'.

 

Lots of mystery, and high stakes, for all involved - but 'do nothing', is not an option. 'More time', is just back channel 'communication'. Iran (under sanctions) and Iraq are still producing, as are the rest of the Gulf states. How much existing inventory, goes into new 'strategic reserves', who's are they, and where?   

 

In today's climate, most would expect some kind of 'proof of commitment'.

So if there's no 'special meeting' next week ... and no cuts ...

 

SD

 

 

 

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2020-04-04/russia-can-reduce-its-oil-output-by-10-if-the-u-s-joins-cuts

 

Russia would target a 1 million barrel-a-day cut in any new deal with other key oil producers, on condition the U.S. joins cuts, according to four people familiar with the sentiment in the industry.

 

The country’s President Vladimir Putin, who said that a reduction in global oil production of about 10 million barrels a days is possible and the nation is ready to participate in this “on a partnership” basis, won’t agree for Russia to take more than one-tenth of the global cuts, according to one of the people, who spoke on condition of anonymity because the matter isn’t yet public.

 

Putin playing hardball. Let's see if POTUS can finally leverage all his hard work in cultivating a beautiful relationship with Putin where they say "nice things" about each other into something tangible.

 

 

[alwaysdrawing]

https://www.bloomberg.com/news/articles/2020-04-04/russia-can-reduce-its-oil-output-by-10-if-the-u-s-joins-cuts

 

Russia would target a 1 million barrel-a-day cut in any new deal with other key oil producers, on condition the U.S. joins cuts, according to four people familiar with the sentiment in the industry.

 

The country’s President Vladimir Putin, who said that a reduction in global oil production of about 10 million barrels a days is possible and the nation is ready to participate in this “on a partnership” basis, won’t agree for Russia to take more than one-tenth of the global cuts, according to one of the people, who spoke on condition of anonymity because the matter isn’t yet public.

 

Putin playing hardball. Let's see if POTUS can finally leverage all his hard work in cultivating a beautiful relationship with Putin where they say "nice things" about each other into something tangible.

 

Even if that happened, it wouldn't be enough to fix the 30 mbpd oversupply.

 

Any it won't happen, because everyone needs as many dollars as possible from their oil.  They can't afford to cut production, and they can't afford to cut and have the rest of the cartel cheat.

 

 

[rb]

So Russia is saying they'll maybe kida/sorta cut 10% of their production with a deal blah, blah, blah. Global production is what? Around 80 million bpd. To get a 10 mbpd cut that would mean a 12% production cut everywhere. How likely do you think that is?

[Dalal.Holdings]

So Russia is saying they'll maybe kida/sorta cut 10% of their production with a deal blah, blah, blah. Global production is what? Around 80 million bpd. To get a 10 mbpd cut that would mean a 12% production cut everywhere. How likely do you think that is?

 

Yah, and then you have to *have faith* that SA, Russia, Iran, Venezuela, individual U.S. producers are sticking to the reductions in output. If you are one of the countries involved, how do u know you can trust everyone else? A prisoner's dilemma for sure.

[opihiman2]

https://www.cnbc.com/2020/04/04/oil-set-to-crater-monday-as-opec-meeting-delayed-tensions-flare-between-saudi-arabia-and-russia.html

 

Oil is going to crater next week. 

 

Even with large oil production cuts:

 

https://www.reuters.com/article/us-global-oil-iea/deep-opec-cuts-wont-be-enough-to-prevent-oil-inventory-build-iea-head-idUSKBN21L222?rpc=401&

[Dalal.Holdings]

https://www.cnbc.com/2020/04/04/oil-set-to-crater-monday-as-opec-meeting-delayed-tensions-flare-between-saudi-arabia-and-russia.html

 

Oil is going to crater next week. 

 

Even with large oil production cuts:

 

https://www.reuters.com/article/us-global-oil-iea/deep-opec-cuts-wont-be-enough-to-prevent-oil-inventory-build-iea-head-idUSKBN21L222?rpc=401&

 

Clearly our POTUS and Republican leaders need to get together urgently with oil execs to engage in "free market" tactics like price fixing and collusion. Perhaps some protectionist tariffs are in order.

 

Meanwhile, we need to be wary of the moral hazard of extending unemployment insurance for laid off restaurant workers. The Moral hazard of handouts for lazy workers! The agony!!

[rb]

These guys can't even agree to hold a meeting. I'm sure they'll agree to a 15 million barrel cut.

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

 

President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

 

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

 

Will WTI trade at a wide premium to Brent and will refiners get hosed?

 

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

[Spekulatius]

https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

 

President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

 

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

 

Will WTI trade at a wide premium to Brent and will refiners get hosed?

 

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

 

US refineries right now export a lot of gasoline and other products and they would certainly get hosed. They probably would have to reduce throughput and certainly the increased input cost would be passed on the consumer for gasoline, diesel, heating oil as well as chemical products. To avoid influx of crude byproducts he would need to add tariffs for those as well or probably destroy these industries that use/produce them.

 

[matts]

https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

 

President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

 

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

 

Will WTI trade at a wide premium to Brent and will refiners get hosed?

 

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

 

why do people keep saying this? How many times have you been to the pump last 2 weeks? Yes, some businesses will have higher costs, but they, along with individual people are getting loans to offset the higher costs and more. More oil worker voters than truck company owner voters (many of whom just pass on the gas cost to their corporate customers anyway). The demand for transport will still be there. We still need things to get to the store and to us. Not as much as before, but higher oil prices won't kill transportation companies.

 

As soon as most of the country goes back to driving regularly Trump would dump the tariff. At least I assume that's what he's thinking. I don't think it's healthy, just trying to think like he thinks.

 

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

 

President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

 

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

 

Will WTI trade at a wide premium to Brent and will refiners get hosed?

 

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

 

US refineries right now export a lot of gasoline and other products and they would certainly get hosed. They probably would have to reduce throughput and certainly the increased input cost would be passed on the consumer for gasoline, diesel, heating oil as well as chemical products. To avoid influx of crude byproducts he would need to add tariffs for those as well or probably destroy these industries that use/produce them.

 

Useful way to think about this. IMO, tariffs will not do much overall to WTI (without inflicting lots of damage on others in the chain) and Donnie knows he's pretty much powerless. He'd better hope all the nice things he's said about Putin and MBS pay him dividends when he needs it.

 

Demand has cratered (not due to the price of oil), but tariffs would pass the cost onto U.S. consumers who, though getting some loans/assistance, would not necessarily tolerate increased gas prices in an election year.

 

Transparent what he is doing trying to prevent losing votes in the shale patch. Almost like he's focused on this problem and relegated some of the virus related tasks to his VP/staff/daughter/son-in-law. A POTUS who spent a lifetime operating purely out of self interest gonna operate out of self interest.

[rb]

https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

 

President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

 

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

 

Will WTI trade at a wide premium to Brent and will refiners get hosed?

 

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

Wow, you guys keep coming up with ways to totally destroy the US-Canada relationship eh?

 

Well first off, the US is not energy independent. It normally uses up about 20 mbpd and lately production was around 13 mbpd. Around this time though 13 mbpd should probably be enough though.

 

But this stuff is not the same and refineries are highly geared to the grades of oil they receive. PADD 2 is highly dependent on Canadian crude. So if you shut down imports you probably get a glut in PADD 3 and have a serious shortage of product in PADD 2. Well done. Now the price skyrockets and you have gasoline shortages in the mid west. There will be other distortions but that is probably the biggest.

 

Economically the import ban would work like a tariff. Basically the consumers subsidizing the oil companies by paying more for product. WTI will trade at a serious premium to Brent of course.  The's probably gonna be derivative bombs that go off on balance sheets, though who knows where.

 

Socially a tariff or import ban is gonna be a shit show also. Picture Bernie sanders on coke in front of every microphone he can find looking like he's gonna pop a vein. Canada is probably gonna go ahead with a national energy program. Trudeau the second finishes what daddy couldn't. Might even join OPEC . OPEC membership is surely to increase for that matter as producers are gonna look to better coordinate in case of events like these. None of it is good really.

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2020-04-04/trump-says-he-d-use-tariffs-if-needed-to-protect-oil-industry

 

President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.

 

Q: How much in tariffs would he have to add to "foreign oil" if U.S. already "~energy independent producer"? Just close off foreign imports altogether? Would it matter though as U.S. demand for oil has also cratered?

 

Will WTI trade at a wide premium to Brent and will refiners get hosed?

 

Or will refiners pass those costs to Americans who, though financially struggling, will willingly buy $3-4/gallon gasoline to fund the welfare for the oil industry so it helps DJT's reelection bid?

Wow, you guys keep coming up with ways to totally destroy the US-Canada relationship eh?

 

Well first off, the US is not energy independent. It normally uses up about 20 mbpd and lately production was around 13 mbpd. Around this time though 13 mbpd should probably be enough though.

 

But this stuff is not the same and refineries are highly geared to the grades of oil they receive. PADD 2 is highly dependent on Canadian crude. So if you shut down imports you probably get a glut in PADD 3 and have a serious shortage of product in PADD 2. Well done. Now the price skyrockets and you have gasoline shortages in the mid west. There will be other distortions but that is probably the biggest.

 

Economically the import ban would work like a tariff. Basically the consumers subsidizing the oil companies by paying more for product. WTI will trade at a serious premium to Brent of course.  The's probably gonna be derivative bombs that go off on balance sheets, though who knows where.

 

Socially a tariff or import ban is gonna be a shit show also. Picture Bernie sanders on coke in front of every microphone he can find looking like he's gonna pop a vein. Canada is probably gonna go ahead with a national energy program. Trudeau the second finishes what daddy couldn't. Might even join OPEC . OPEC membership is surely to increase for that matter as producers are gonna look to better coordinate in case of events like these. None of it is good really.

 

Yeah agree--a lot of hidden second or third order effects--"bombs" as you note--that could cause a tariff/import ban to be very harmful.

 

That being said, never underestimate the likelihood of this guy doing whatever it takes to boost his chances even if it means hurting other nations/industries/individuals who don't matter for his reelection and destroying longstanding norms. And why blame him? It's all in the self-interest Ayn Rand playbook that we all cherish. We want a POTUS who puts self first. Period.

[SharperDingaan]

There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

 

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

 

'Proof of commitment'. Show us the walk, not the talk.

The Twitter finger is getting itchy.   

 

SD

 

 

[Dalal.Holdings]

There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

 

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

 

'Proof of commitment'. Show us the walk, not the talk.

The Twitter finger is getting itchy.   

 

SD

 

Excuse me if I misunderstand your post--always takes me a few reads of your posts and even then I'm not 100% sure...lol

 

Trump has already exercised his "heads up" announcement and tweets and it moved oil up substantially. What more can he do with tweets/announcements that doesn't shatter whatever shred of credibility he may have left?

 

Aside from the oil industry colluding like a cartel to take a hit and all cut production (and actually abide by it), what else is going to fill the 20-30 million barrel/day hole?

 

And Russia says they'll only cut if U.S. cuts, but:

 

The thing about U.S. producers is it is a capitalist system unlike many others and colluding/price fixing *like a cartel* is not legal. Furthermore, if U.S. drillers go bankrupt, their wells do not stop pumping--they keep pumping for the creditors and/or shareholders in bankruptcy and they will keep pumping after CH 11 because now the breakeven cost of that well is lower. Drilling may stop, but the existing wells will likely keep producing.

 

I don't see how U.S. cuts production...Trump (in addition to crude imports) would have to ban/tariff refined product exports to achieve this? But lots of second/third order negative effects from doing so.

[Spekulatius]

There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

 

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

 

'Proof of commitment'. Show us the walk, not the talk.

The Twitter finger is getting itchy.   

 

SD

 

The last one maybe the key sentence. Doing nothin is nothin Trump’s vein, good or bad he feels the urge to do something, whether it works or not is a different question.

[Gregmal]

Isn't a lot of this missing the point that while $5 gas isn't healthy, neither is $1 gas.. There is a happy medium "range" which allows consumers to function and the energy industry to employ millions of folks. At $5 they can employ many more millions, but the net effect would be millions of losses elsewhere. At $15 a barrel hundreds of thousands, if not millions will lose jobs.

[rb]

Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

[Dalal.Holdings]

Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

 

Nah, they want us to have capitalism when times are good and socialism (bail out, subsidies, handouts) only when times are bad. Who would've predicted that a commoditized, cyclical industry would experience times of pain? Then later they can go back to moaning about food stamps and welfare when things normalize for them.

 

And don't get them started on renewable energy subsidies, socialist pig!