I Can't Resist -- WTI Just Hit $115 -- May 27, 2022

I had no intentions of any more blogging this morning, but after checking the market, I could not resist (blogging about oil, energy, the market).

First of all, I am quite disappointed. As an investor with a 30-year horizon it is disappointing the market has not yet "capitulated." But, here it is, with all this bad news and the market is up again today, going into a three-day (for me, a four-day) weekend. 

Sell in May, go away?

Monday is a holiday. I guess we still have one more opportunity to sell in May, Tuesday, next week. 

I don't recall but I believe PSX is among the top five refiners in the US. So, I was curious. Remember, I've been talking about this for weeks: it's no longer about oil production (supply/demand) or about transportation of that oil. 

It's now about refining. 

By the way, what is the current crack-spread built into the price of gasoline at $4.50 / gallon? Link here: $30 to $50 / barrel. 

Fact: there will never be another greenfield refinery built in the US. Probably true for Europe also. True for Russia. That leaves Saudi Arabia and neighbors, and they will be slow to the fight. 

So, what is PSX doing this morning? Holy mackerel.

• PSX is up 3.6%; is up $3.52; setting a 52-week intra-day high, it is trading for $102.26
• six months ago: $70
• in the past year, as low as $66

MPC? One of the three largest refiners in the US? I think it may be the biggest by capacity:

• MPC is up 3%; up $2.94; setting a 52-week intra-day high, it is trading for $102.50
• six months ago: $60
• in the past year, as low as $50

Seems to validate / corroborate my thoughts on refining.

MNRL's yield, sad to say, is falling, no matter how hard the company tries to maintain the yield:

• MNRL recently increased its dividend from 45 cents to 60 cents (a 33% increase)
• and MNRL's yield has already fallen below 7% (6.95% to be exact)
• that's what happens when a stock appreciates so quickly
• frustrating: dropping below a 7-percent yield
  

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First Among Equals

I own no shares in OXY. At one time I did, then got "cold feet" and sold. Big mistake, but there were enough other opportunities in the same sector that I have no regret. For that reason, I generally don't follow OXY too closely nor do I blog much about it.

But OXY is becoming very, very interesting. There are many indications that BRK could buy the entire company, OXY, just as BRK owns all of Burlington Northern railroad and See's Candy. 

It would only be done on a friendly basis and Warren Buffett and Vick Hollub have become close friends based on some reports. For someone like Vicki Hollub it would resolve a number of "things she has to be thinking about." 

To buy OXY seems beyond the pale, but one needs to remember that buying Burlington Northern would have seemed also to be "beyond the pale." Really, beyond the pale, to buy an entire railroad. 

OXY would be a lot "easier." 

Except for one thing: oilmen (and in this case, an oil woman) are incredibly independent. 

Having said that, Warren lets his subsidiaries run their own businesses with little interference. 

OXY's market cap, about $70 billion, is in same ballpark as the market cap of BNSF (BNI) when the latter was bought back in 2009, in a deal worth $44 billion. I assume the premium paid for OXY would be well in excess of the company's market cap.

One huge advantage to becoming a subsidiary of BRK: all of a sudden access to financial data is extremely limited, hidden. Exhibit A: does Burlington Northern release an annual report for public consumption?

Maybe I need to look at OXY again. LOL. 

Time for the disclaimer? 

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

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.

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Britain

I don't recall the exact numbers, but Bakken mineral owners are very, very aware of the impact that production and severance taxes have on activity in the Bakken, especially when the Bakken has a huge competitor in Texas, the Permian. If the severance tax jumps from five percent to six percent, some operators will move from the Bakken to the Permian, simply based on the delta between severance taxes.

Now, think about this: Britain has just announced a 25% windfall profits tax on oil produced from the North Sea. There is already talk that some majors are going to exit the North Sea. 

BP has already fired the first shot across the bow. 

I don't think the UK parliament has gotten the memo that oil operators have moved from production to "free cash flow." If they don't see FCF from the North Sea, they will move elsewhere. There are plenty of places to go. FCF is the new kid on the block.

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Pemex

A few weeks ago, the president of Mexico said he would end exporting Mexican crude oil; he wanted to make Mexico more self-sufficient. How did that work out? Link here. Or link directly to Reuters.

• Pemex crude oil exports rose 13% month-over-month in April;
• crude oil exports, almost identical to the Bakken: 1.02 million bopd in April, 2022, an 11% increase year-on-year
• production dipped slightly to 1.67 million bopd, a 0.6% drop from March, 2022, and a 0.3% drop from April, 2021.
• Pemex oil production has averaged 1.67 million bpd so far in 2022, slightly below the goal of 1.8 million bpd

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Vindicated

Yesterday I did a piece on "that stunningly massive draw." I did not agree. I did not see any massive draw, much less a "stunningly massive" draw.

I pointed out on the "gasoline demand" graphic that, in fact, things looked a bit "pathetic." Well, here it is, in The WSJ: gasoline prices are surging, demand is slipping ahead of Memorial Day weekend; record-high prices are pinching Americans' pockets ahead of what is usually peak summer driving season. 

Josh Young noted the same thing. Hugely bullish on crude oil, Josh Young says he is watching this phenomenon closely.

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Russia: Flight Of Capital And Western Technology

From Rigzone, Equinor exits ALL Russian joint ventures. 

Add Equinor to the long list of companies exiting Russia.

Putin has literally destroyed his country "overnight."  On so many levels.

It's gonna be a long time before any Western leader wants a photo-op with Putin. 

By the way, how much wealth has Putin destroyed for his country? CNBC is reporting that Russian stocks may be "essentially worthless." Regardless of the quoted price of equities on the Russian stock market, modeling suggests they are all worthless. 

It took a model to "show" that. LOL. 

A big "thank you" to the reader who sent me the link.

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How Bad Is The Energy Shortage In Europe

For folks paying attention, they know that Spain is the poster child for the EU when it comes to more than enough energy for its citizens, and the poster child for renewable energy -- wind and solar. Spain has been simply outstanding the last few years with regard to renewable energy. 

Folks are counting on Spain for this energy, and perhaps fossil fuel energy (more on that later, perhaps). 

But look at this.

How bad is the energy shortage in Europe? 

From oilprice.com, a link to the best writer of all on this subject (fossil fuel energy), Charles Kennedy: Spain initiates energy austerity with air conditioning limits.

When Spain starts announcing air conditioning limits, one knows it's bad. 

And it's only May. This is not good. 

Energy transition is dead, Greta.

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WTI: $115

While posting this note, WTI jumped from $114 to $115. 

Whoo-hoo. 

Josh Young will probably note this. 

PSX continues to trade above $101, but has dropped back a bit from its 52-week intra-day high of $102.27.

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Dam Removal

Earlier we talked about the largest dam-removal project in the US -- the removal of hydroelectric dams in northern California. For the record, I wrote about this project as early as December 11, 2020.

Now this, just breaking over at Seeking Alpha: California faces summer power outages as drought drains hydropower generation. 

Energy transition is over. 

By the way, I did not post it, because I was not particularly interested but apparently Governor Newsom is asking Joe Biden if there's money in the national budget to pay for extending the life of the last nuclear plant in California that was slated to close in 2025, or thereabouts. 

California, by the way, has a huge, huge budget surplus but still asking for a federal handout for nuclear energy.

Energy transition is dead.