Daily Note, Part 1 -- March 12, 2020

Contango, also sometimes called forwardation, is a situation where the futures price (or forward price) of a commodity is higher than the anticipated spot price .... you may want to get really, really familiar with this term. You're going to hear it a lot over the next few months.

I could never keep contango and backwardation straight. I still can't. I might come back to the etymology later. But this is fascinating. Over the thirteen years that I have blogged, whenever we've talked about backwardation and forwardation, we've talked about relatively smooth, incremental, and in the big scheme of things, small moves in either direction. This time, not. We're going to see huge moves to the upside. Period. Dot. Saudi Arabia is not going to give their oil away for $30/bbl for very long -- unless they are bigger idiots than I already think they are. Fifty years of incredible wealth and what do they have to show for it? Huge bank accounts for 15,000 princes but that's about it. Take the oil wealth away and they will be back to a desert kingdom not much unlike what they had when David and Solomon ruled.

Roll yield: I assume the "talking heads" on CNBC will eventually get to this one. It will make them sound as smart as Jim Cramer. LOL. Seriously, "jargon" is incredibly important. I've talked about that before. Speaking of Jim Cramer. I wonder how he's doing. I wonder how "Fast Money" folks are doing. I haven't watched CNBC in months. Not gonna start.

Storage: yesterday, I mentioned that the big story in the 2020 oil shock - market meltdown will be storage. And, right on cue, over on twitter someone mentioned that. Much (most) of this oil is going to be stored off-shore on VLCCs. Already the daily rent prices are surging for these "storage" containers.

Head fake: by the way, have contracts been signed by Saudi Arabia and the European refiners for $25-Brent oil? If so, how far out have the contracts been signed?

Clever like a fox: you know, MBS might be a whole lot smarter than I think. We'll know in six months. I don't think Saudi can afford this to last longer than six months unless they see results. To deliver as much oil as MBS says they will deliver (or produce) --- speaking of which -- already folks over at twitter are pointing out the differences between production and delivering. We’ve talked about that before. The consensus among the experts suggest that to "produce" 13.5 million bopd, Saudi Arabia will be emptying their storage tanks, Right now, Saudi is producing, they say, 9.5 million bopd (compare with 12 million bopd for Russia and 13 million bopd for the US). The only way they get to 13 million bopd this month is emptying their storage tanks. If US shale shuts down -- which both Russia and Saudi Arabia are counting on -- six months from now, there's going to be a huge shortage of oil. Two things: we will see how fast the US shale industry can cut back and then scale back up. We will also see how many survive? Russia can't make up the difference. Clever like a fox: MBS empties his storage tanks; US falters; and, Russia can't make up the difference, and voilà -- a surge in prices. See contango above.

Oil will still be there: my hunch -- we're going to see a lot of mergers and name changes in the next twelve months. A lot of oil companies are going to fail. We will see a lot of oil companies change their names. For example, when Triangle Petroleum Corp became Nine Point Energy. Bankruptcies? A lot stays the same except the name. The oil is still there.

Disclaimer: this is not an investment site.  Do not make any investment, financial, career, travel, job, or relationship decisions based on what you read here or think you may have read here.

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Not Oil

Travel ban:  it speaks volumes that the UK was exempt. And the European travel ban only works if Heathrow, et al, ban flights from Europe. The Chunnel? Or as the French call it, le tunnel sous la Manche. Needs to be closed. JFK? Toast. But, wow, the lines are going to be short. Passport control officers will be as busy as the Maytag repairman.

The wall. You know, that wall on the US southern border is looking better and better every day. Figuratively and literally. By the way, Trump's policy "remain in Mexico," overturned by the Ninth Circus Court, was re-instated by the US Supreme Court. Supreme Court Justice Fagan gets the nod. Good for her.

Best story of the day: that math wizard over at the NYT editorial board says she was humiliated because she is African-American. Wow, she can't dig her hole fast enough. She said after her MSNBC debacle, seen by millions, that she needs to go out and buy a calculator.

Most folks can do that math in their heads. 600 million dollars divided by 300 million people --- drop the millions and it becomes 600 divided by 300 -- drop the two zeroes and it become 6 divided by 3 .... okay, I get it most folks can do that, but apparently not the folks over at NYT editorial board.

By the way, this was not an off-the-cuff mistake among bantering journalists -- this was a tweet that had been out there for some time; folks had plenty of time to study the tweet, and even -- heaven forbid -- fact check it. From her comments, it sounds like the entire NYT editorial board, sitting around the conference table, read the tweet, and went with it. Are you kidding me? 

But it's even worse. The woman who somehow connects her African-American heritage with her intelligence says she needs to go out and buy a calculator. Hellooooo! Your smart phone and your Apple Watch each have a calculator app, unless you deleted it because you were told there would be no math. 

It should be noted that to date, as far as I can tell, Brian Williams has not said a thing. He's just hoping this goes away.

The banana: if true, that was uncalled for, but I have to admit, there is some merit in re-thinking affirmative action -- I saw it in medical school -- think about that for a minute ... the next time the cable guy comes in to put a cardiac stent in your chest ...

Re-posting: seriously -- I thought she had blonde roots. LOL. Hey, it's a joke. Okay, I take it back. I thought she was Norwegian -- who else but a Norski could make such a blunder? By the way, Brian Williams could claim he knew this all along, simply stringing his guest out -- he, the straight man; she, the comedienne.


</ Really Bad Math, Brian Williams
North Dakota, reports its first case, in Ward County. 60-year-old resting comfortably at home.

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