Maggette
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| Total Posts: 1233 |
| Joined: Jun 2007 |
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| A little bit embarrassing for somebody who once worked in the energy space (not crude though).. Can somebody give me some insight on what happened? |
Ich kam hierher und sah dich und deine Leute lächeln,
und sagte mir: Maggette, scheiss auf den small talk,
lass lieber deine Fäuste sprechen...
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kloc
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| Total Posts: 33 |
| Joined: May 2017 |
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https://finance.yahoo.com/news/oil-futures-fall-over-20-221934338.html
https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html
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Maggette
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| Total Posts: 1233 |
| Joined: Jun 2007 |
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Yeah. That's the official narrative.
I my personal experience, in the markets I worked in, the talking heads were almost always full of shit. I do believe SA presenting ratjher aggressive quotas is a valid reason. Not sure if I believe it is the whole reason for a 30% drop.
I was hoping somebody could shed some light on the interplay of the current situation on storage, hedging positions of consumers and producers etc. |
Ich kam hierher und sah dich und deine Leute lächeln,
und sagte mir: Maggette, scheiss auf den small talk,
lass lieber deine Fäuste sprechen...
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kloc
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| Total Posts: 33 |
| Joined: May 2017 |
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Well, between airliners reducing their hedges, OPEC+ spat, SA increasing production... something had to give.
I agree with your general sentiment about the talking heads, but this time they might not be wrong, just backwards-looking (which is the best they can do anyways).
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Kitno
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| Total Posts: 491 |
| Joined: Mar 2005 |
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Certain producer (countries'), mostly ME, need absolute revenue maximization in the light of their government fiscal situation. Hence max production against no demand.
Just think of the CSA'd hedged airlines: huge passenger fall and hedged for that load so much higher. How many cars do you see on the road in Wuhan? Etc. |
All the soul of man is resolution, which in valiant men falters never, until their last breath. |
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Maggette
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| Total Posts: 1233 |
| Joined: Jun 2007 |
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| Thx to both of you! |
Ich kam hierher und sah dich und deine Leute lächeln,
und sagte mir: Maggette, scheiss auf den small talk,
lass lieber deine Fäuste sprechen...
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nikol
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| Total Posts: 1126 |
| Joined: Jun 2005 |
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Case of nov-2008 happened due to collapse of trade finance (banks have blocked the liquidity), which blocked many trade deals, which caused collapse of transportation volumes and logistics and hence diesel and oil prices.
Today we have:
- blown up monetary base of USDollar vs
- huge production capacity of China,
- which much relies upon transportation with air to both US and Europe
https://www.stattimes.com/news/covid19-cripples-global-air-cargo-supply-chain/
What I do not understand is why covid19 has impact on air-freight, but not on ALL routes, first of all sea and second rail. Freight companies offer rail as substitute of air. Is it because of the virus vitality not lasting on goods for at least 2 weeks? |
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Patrik
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| Founding Member |
| Total Posts: 1363 |
| Joined: Mar 2004 |
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It's simple in this case - no deeper inside knowledge required. covid19 demand effect people had already pencilled in a 1-2mm bpd drop, combined with a MoM supply effect of some 2-4mm bpd depending on how much weight one wants to put on the highest production levels touted by the Saudis and others. On those figures we build an enormous amount of inventory, 100s of millions of barrels pretty quickly. Completely unsustainable so the function of the market needs to be steep contangos to store and low enough prices to cut off some production (over time).
Storage is pretty empty so we'll see storage owners minting money if these conditions stay put for a while. It's a slinky effect, spreads go to fill up the cheapest storage (inland, easy access), then gap down to next level cost and so forth until you have filled up your most expensive floating storage. If you fill that as well you get into super contango conditions.
@nikol: what makes you say it only impacts air travel and air-freight?
It is differentiated by what your cargo is obviously - e.g. clean freight, VLCCs etc, got a massive bid on the back of the increased Saudi (and others) export intentions and spreads getting weak enough for floating storage to be viable. But generally all freight exposed to activity slowdown will suffer from lack of demand. |
Capital Structure Demolition LLC  |
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Maggette
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| Total Posts: 1233 |
| Joined: Jun 2007 |
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THX,
I more or less was hoping for an answer from Patrik. Hence, mission accomplished. |
Ich kam hierher und sah dich und deine Leute lächeln,
und sagte mir: Maggette, scheiss auf den small talk,
lass lieber deine Fäuste sprechen...
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rickyvic
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| Total Posts: 217 |
| Joined: Jul 2013 |
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Same reason why gold goes up. Curve effects are a symptom not the cause.
Another symptom of the covid19 |
"amicus Plato sed magis amica Veritas" |
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Kitno
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| Total Posts: 491 |
| Joined: Mar 2005 |
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| From a Saudi perspective pretty neat - kill off (at least in the medium-term debilitate) the competition (both sovereign producers and alternative i.e. renewable power) |
All the soul of man is resolution, which in valiant men falters never, until their last breath. |
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nikol
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| Total Posts: 1126 |
| Joined: Jun 2005 |
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Why break even for Saudi is 80 usd? 30% dump will not be compensated with market share.
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kloc
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| Total Posts: 33 |
| Joined: May 2017 |
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I was about to ask the same thing.
Based on the usual range of numbers for breakeven oil levels which were thrown around over the last year or so, Saudis look more vulnerable to oil price drop than Russia? That is, if they're after Russia at all... |
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Kitno
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| Total Posts: 491 |
| Joined: Mar 2005 |
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I'm not a commodities guy but with a tired brain...
If Saudi brings the curve down (not just spot/near term) every man and his dog will hedge long term needs at these levels. You damage the rationale for rewables for term and you have got the big majors locked in through derivatives to being on the wrong side as you cut production and let Spot prices rise and so Aramco's fortunes as well as Saudi's deficit being sated?
This does seem a stretch of an argument...
At the end of the day Saudi's don't want renewables, have a bad sovereign financial deficit, don't like US oil autonomy (shale), and need Aramco to do well. So make renewables uneconomic, kill off shale through blowing up their debt funding,
hurt the Western majors.
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All the soul of man is resolution, which in valiant men falters never, until their last breath. |
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nikol
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| Total Posts: 1126 |
| Joined: Jun 2005 |
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So, Saudis hate renewables-West and all good what comes with it (especially weapons). Not sure if this works.
Bloomberg and WSJ try to present it as a war between Saudis and Russia (russians show absolute calm).
Truth is somewhere orthogonal. |
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Kitno
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| Total Posts: 491 |
| Joined: Mar 2005 |
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| @nikol - I agree |
All the soul of man is resolution, which in valiant men falters never, until their last breath. |
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nikol
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| Total Posts: 1126 |
| Joined: Jun 2005 |
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It looks like the keys to the puzzle are:
- shale hydrocarbons allow US to not import them. This frees demand for the market and puts excess pressure on supply. The aim is Russia, Iran, Venezuela. The last one is the most vulnerable.
- wish to get hand over Venezuela oil reserves to backup shale oil/gas as pressure tool (today this is not a coincidence):
https://www.bloomberg.com/news/articles/2020-03-12/u-s-sanctions-rosneft-subsidiary-for-backing-venezuela-s-maduro
- stagnation of shale oil/gas and large debt ticket attached. It's already stretched and is under limit and, therefore, the above strategy might be broken.
Main goal is to keep oil/gas priced/traded in dollars. Not because of the dollar itself, but first of all because it gives SEC a handle to control and approve all transactions. This alone is extremely important. Utmost. I don't know how to put stronger emphasize. That's what Secretary of Defense Ashton Carter meant naming Russia as "existential threat".
If it will not work, oil will rocket to the sky. |
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kloc
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| Total Posts: 33 |
| Joined: May 2017 |
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| @nikol: Why would pricing oil in EURs (or CNYs...) raise oil price? |
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There is a very thoughtful analysis of the situation in this podcast. The Deep Basin guys are the most sophisticated energy sector focused fund that I know of.
Full disclosure, I am connected to the parties involved but think there is a lot insight here.
http://investorfieldguide.com/deepbasin2/ |
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nikol
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| Total Posts: 1126 |
| Joined: Jun 2005 |
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@klok
Why in EUR? does Europe control anything? Not Yuan, Yen, Pound, not even Ruble. Likely it will be whatever two counter-parties agree for a while.
Oil reserves available for the market are controlled with sanctions,
(ADDED) but still it is shrinking. Not sure how long shale production will last, but it will impact the price. Again, sanctions is the way to control supply.
(ADDED2) imagine scenario where dollar is not central point anymore. What happens to shale projects? What happens to oil price if they collapse?
@ITs_Grisha
Unfortunately, they don't have script, but thank you. |
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Maggette
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| Total Posts: 1233 |
| Joined: Jun 2007 |
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@Its Grisha
Thx for the link
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Ich kam hierher und sah dich und deine Leute lächeln,
und sagte mir: Maggette, scheiss auf den small talk,
lass lieber deine Fäuste sprechen...
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nikol
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| Total Posts: 1126 |
| Joined: Jun 2005 |
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25-28 vs 30 by Saudi vs Russia at Rotterdam / ARA.
Even thought tanker freight has soared 10 times.
Looks like things are getting existential for all sides.
https://www.reuters.com/article/us-oil-opec-saudi/saudi-arabia-floods-markets-with-25-oil-as-fight-with-russia-escalates-idUSKBN21022H
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TonyC
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| Nuclear Energy Trader |
| Total Posts: 1343 |
| Joined: May 2004 |
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DOUBLE post
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flaneur/boulevardier/remittance man/energy trader |
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TonyC
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| Nuclear Energy Trader |
| Total Posts: 1343 |
| Joined: May 2004 |
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Nikol,
Indulge an old man who may have some old-fashioned ideas about the oil market
shouldn't tanker rates be up? Don't we expect them to be up?
As the Saudis and the Russians play the "whoo can pump more volume" game; shouldnt increasing the supply in the spot market drive the market into further contango, thus raising the demand for floating storage? hence increasing tanker rates from 25k or 30k a day to 200k a day?
That's the story of why I'm long STNG & TNK , anyhow
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flaneur/boulevardier/remittance man/energy trader |
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Patrik
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| Founding Member |
| Total Posts: 1363 |
| Joined: Mar 2004 |
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@nikol:
Similarly to @tonyc I can't say I follow much of your last 3 posts. I'm interested though - care to run through your ideas in a bit more long form?
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Capital Structure Demolition LLC |
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