Focus On Fracking -- Posted -- April 17, 2022

This week's edition of "Focus on Fracking" has been posted. The lede:

• natural gas price is at a 13-year high;
• distillates supplies are at an 8-year low;
• oil product exports highest ever.

Wow, wow, wow, those are the three main themes I picked up on my own earlier in the week.

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Rambling

I started the blog simply because I wanted to understand "oil in North Dakota." I've discussed that elsewhere and no need to go over it again.

Over the years I realized how important "following the money" was if one wants to understand the oil sector. 

So, I followed the money -- mostly through the stock market, annual reports, analysts' analyses, etc. 

I had little interest in investing. I invested a bit along the way but generally lost money when investing based on what I saw developing in the Bakken. 

But in the past year or so, I've become more serious about investing in general, but not with regard to the Bakken. 

So, some thoughts on "oil" tonight and investing. I doubt anything I write about tonight will be "actionable." I'm simply going to ramble about some observations.

Observation #1.

I don't know if folks realize this, but a lot of investors, a lot of professionally managed funds, a lot of hedge funds have refused to invest in fossil fuel due to ESG issues. This is about to change.

Observation #2.

It looks like tech is going to get hit (negatively) again tomorrow, whereas "oil" will do relatively better. That helps explain observation #1.

Observation #2a: Warren Buffett buys into ESG but not in the same way that Greta defines ESG. He especially buys into the "G" in ESG.

Observation #2b: ESG is dead.

Observation #2c: "energy transition," a euphemism for "a shift to renewable energy" is also dead.

Observation #3.

Folks a lot smarter than I tell us that we are about to enter in a super-cycle regarding oil. Super-cycles tend to last years, not months or weeks. 

Observation #4.

Later, I will post a most interesting chart, but medium-size oil companies are about to generate so much cash flow that they will have enough cash to buy all of their outstanding shares, in others, taking their companies private. Of course, they won't, but that tells you how incredible that FCT is going to be. 

Observation #5.

Small oil companies are going to get hammered. Large oil companies will do well, but not great. Mid-size oil companies are going to blow your socks off, as they say.

Observation #6.

Putin has no Plan B. Assuming Russia doesn't go globally nuclear, mid-size oil companies are going to blow your socks off. Russia may go nuclear. I would argue that going regionally nuclear would be exactly what needs to happen. Perhaps more on that later.

Observation #7. 

This year, or next year, we will see data that corroborates or refutes that the Mideast (OPEC, not OPEC+) has "spare capacity." I think "spare capacity" is a myth. I could be wrong; that's fine. But let's find out. And I think we will, either this year or next year.

Observation #8.

The Biden administration has no more tools in their toolkit, no more arrows in its quiver, to influence US shale to produce more oil in the short term. Any chance that the Biden administration can make the energy situation better is between slim and none, and slim just left town. The Biden administration can only make things worse. No matter how bad things get, it doesn't mean they can't get worse.

Observation #9.

For investors, it's all about dividends for the next five years.

Observation #10. 

The gap between investors and non-investors will continue to wide, even during a "bear market" or a recession or years of stagflation.

Observation #11.

Most folks are throwing around the word "stagflation" without really defining it, or providing any metrics. 

Observation #12.

Releasing oil from the SPR only "tightens" the oil market.  

Observation #13.

Putin's War changes everything. So many story lines but at 2:05 a.m. I'm not interested in going through them.

Observation #14.

Natural gas market: contango. 

Observation #15:

Crude oil: backwardation. Once analysts understand what's going on, we'll see contango in oil. We'll see contango when the "myth of spare capacity" is shown to be not a myth. The fact we're not in contango with regard to crude oil suggests that analysts are misreading the tea leaves.