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Monday, May 16, 2022

$114 Oil? Simon Watkins Sees Oil Crashing Back To $65 / Bbl If EU Ban On Russian Oil Fails -- May 16, 2022

Link to Simon Watkins.

The concluding paragraph:

All of this rhetorical flim-flam by Germany and the E.U. has resulted in an oil price that remains way above where it should be, given the confluence of multiple bearish factors currently at play. 

  • On the supply side there remain:
    • definite pledges from the U.S. Energy Secretary, Jennifer Granholm, to engineer a “significant increase” in domestic energy supply by the end of the year, 
    • with the U.S. also working to identify at least three million bpd of new global oil supply. 
    • There remains the prospect of further strategic petroleum releases as and when required both from the U.S. and from member countries of the IEA, and 
    • of a new ‘nuclear deal’ with Iran as the U.S. is still open to the idea. 
    • Additionally, the U.S.’s ability to pressure OPEC into increasing production has been increased by its resuscitating the threat of the ‘NOPEC’ Bill. 
  • On the demand side, there remains:
    • further likely destruction from the COVID-related lockdowns across China, and
    • no prospect of its ‘zero-COVID’ policy being meaningfully relaxed, and
    • of a series of U.S. interest rate hikes stifling economic growth elsewhere.

It is apposite to note at this point that even without these bearish factors in play, Brent crude was trading at around US$65 pb before the real Russia-Ukraine war premium was kicked in by the smart money in September 2021 when U.S. intelligence officers started to notice highly unusual Russian military movements on the Ukraine border after the conclusion of the joint Russia-Belarus military exercises that had taken place.

$65 oil? One of two things?

  • $65 oil will be the result of those "things" Mr Watkins brings up plus a historic recession and huge demand destruction driving oil back to $65; or,
  • $65 will be based on more than enough oil being available, and the global economy will take off

Bottom line: fool's errand to predict the price of oil. 

BRK's 1Q22 13F -- May 16, 2022

I'm going biking before it gets any hotter here in Texas. 

Hopefully the Buffett 13F will be out when I get back.

The 4Q21 13F is here.

I'm looking for, previous value (4Q21):

  • AAPL (887,135,554 shares; $157,528,660,000, 48%))
  • CVX (38,245,036 shares; $4,488,055,000, 1.4%)
  • OXY (--)
  • BAC (1,010,100,606 shares; $44,939,376,000, 14%)
  • AXP (151,610,700 shares; $24,803,511,000, 7.5%)
  • KO (400,000,000 shares; $23,684,001,000, 7.2%)

The 1Q22 13F is here.

  • AAPL: 890,923,410 shares vs 887,135,554 shares previous quarter.
  • BAC: 1,010,100,606 shares vs 1,010,100,606 shares previous quarter (no change)
  • AXP: 151,610,700 shares vs 151,610,700 shares previous quarter (no change)
  • CVX: 159,178,117 shares vs 38,245,036 shares previous quarter
  • KO: 400,000,000 shares vs 400,000,000 shares previous quarter (no change)
  • OXY: 136,373,000 shares vs 0 shares previous quarter
  • VZ: 1,380,111 shares vs 158,824,575 shares previous quarter (huge decrease)

Finally, Traders Are Reading The Headlines -- May 16, 2022

The headlines:

  • no spare capacity;
  • Permian operators holding "the line";
  • Bakken's DAPL at risk (yawn);
  • demand coming out of the global pandemic;
  • Shanghai, China, "might" be "opening";
  • Russian production / exports at risk;

WTI: already high is higher. Up 2% by midday; up $2.20; trading at $112.70. 

  • Fortunately the SPR release will keep oil prices from getting too high. And banning new leases in Alaska and the Gulf of Mexico will help. And talk about excessive profits --- all this will help. 
  • What would really help: changes in attitude, changes in latitude.

Natural gas:

  • back to $8 as additional European exports secured;
  • this blows me away: Sempra Energy is poised to supply LNG to Poland's PGNiG, Poland's largest gas company;
    • PGNiG's liquefied natural gas supply portfolio with U.S. partners currently stands at 7M tons, or 9B cm; the Sempra contract would raise that amount by more than 40%.
    • SRE: off to a slow start earlier this morning, is up slightly in mid-day trading.

US crude oil exports, link here:

  • 4-handle: October, 2013
  • 5-handle: December, 2015
  • 6-handle: February, 2017
  • 7-handle: October, 2017
  • 8-handle: October, 2018
  • 9-handle: October, 2019
  • the pandemic: 2020
  • 9.6-handle: December, 2022

Numbers -- May 16, 2022

Saudi Arabia: crude oil exports in March fell to 7.235 million bbls per day. Production history:

Russia: crude oil (+ condensate) increased 1.7% m/m to 10.25 million bpd in the first half of May.

One-Liners Without Links -- May 16, 2022

Snake bite: Rattler's stock surged in pre-market trading this morning. Diamondback Energy to acquire Rattler Midstream for $2.2 billion. With a "B."

ARKK: took in more dollars last week than the three largest commodity equity ETFs have taken in all year. Let that sink in for a moment. In other words, there will be a gazillion mom-and-pop retail investors who will have a better 2022 than Cathie Wood. 

Repeat. ARKK took in more dollars last week than the three largest commodity equity ETFs have taken in all year. Let that sink in for a moment. In other words, there will be a gazillion mom-and-pop retail investors who will have a better 2022 than Cathie Wood. 

Chinese: due to lock downs and zero-Covid-policy, China's economy fell more than expected. Some say President Xi will be out of office before the end of the year. 

Bakken: natural gas production grew while crude oil fell in 2021.

DAPL: US Army Corps of Engineers report was to be released last week; shelved, while a Biden administration takes another look at the concerns the Native Americans have. Capacity is now up to its max, 750,000 bopd, but is not running near that full. Exact volume not known. No longer matters. New pipeline to the "national pipeline system" will make the DAPL redundant and until that pipeline is completed we have Warren Buffett's CBR.

Inshallah: stop me if you've heard this before -- Saudi Arabia to expand oil production capacity to 13.3 to 13.4 million bpd by the end of 2026 / start of 2027. There is enough ambiguity in that sentence to drive three camels through the proverbial eye of the needle.

Carbon capture: North Dakota has approved loan requests for two carbon capture projects, and suggest regulators consider four other energy projects seeking state funding. A Tesla battery plant next?

Falling, finally: "retail" diesel dropped from $5.568 per gallon on Sunday (yesterday) to $5.566 today, Monday. Now you know the data is made up.

Rising, again: "retail" gasoline sets a new all-time high today, Monday, at $4.483 per gallon.

Wrong on this one: Zeihan says Putin's War to be an endurance game between the west's ability to continue supplying the Ukrainians vs the east with vast store of materiel. It's become an endurance game between Putin and his oligarchs. Same as the US in Vietnam.

India: gasoline demand soars, as Indians use a/c in cars to stay cool.

Profound: from Saudi Arabia again, "When in our lifetimes we have been seeing refining margins of $47 to $50 / bbl, it tells you that there is no refining capacity commensurate (huge word for one with English as a second language) with the current demand and expectation of demand this summer."

Repeat from Saudi Arabia again, "When in our lifetimes we have been seeing refining margins of $47 to $50 / bbl, it tells you that there is no refining capacity commensurate (huge word for one with English as a second language) with the current demand and expectation of demand this summer."

Investing: Ross Gerber's investment firm increased its holdings in Chevron by 64.5% in 1Q22 on a shares held base, or 128.7% on a dollar basis. [For the record, I also increased my Chevron's holdings.]

The Fed: installed heavy-duty fencing around its stately building in Washington (DC). Apparently overnight.

Last holdout leaves: one of the few holdouts from the first big round of boycotts -- RENAULT. Zelensky called them out by name and RENAULT suspended production. Now they are walking away for good. Another Russian oligarch just lost his lunch.

Penultimate holdout: MCDONALDS was at the tail end of the first big round of boycotts. Now MCDONALDS is gone for good. When you've lost MCDONALDS, you've lost the war.  MCDONALDS says it will leave Russia completely after more than 30 years of operation in that country. Another Russian oligarch just lost his lunch. Literally.

Brain aneurysm: that tweet about President Xi with a brain aneurysm suddenly disappeared -- literally in front of my eyes -- from my twitter feed, seconds ago (7:38 a.m. CT). Later, there it is, back up, at 7:47 a.m. CT.

Oil: how high can it go? GS says they don't know (honestly?) but their models suggest demand destruction sets in at $125. That's easy. Adjust for inflation and look at previous top a decade ago.

Covid: vaccinated folks who subsequently get infected with omicron may be primed to overcome a broad range of coronavirus variants. At least that will be the new marketing meme. Get vaccinated. Get sick. Get real.

Hart Energy: energy's stock market boom is just the start of this supercycle. Despite the efforts of the divestiture movement, the oil and gas sector's 12-month performance clobbered that of the market as a whole. Supercycle: one word, two words, or hyphenated. Apparently one word, but I prefer two words, not hyphenated. 

Investing: I have a very small amount of cash in my brokerage account. If the market opens down, I will buy a few shares of -------; if the market is up at the opening, I will buy a few slices of ------.

NDIC Site Remains "Down" -- My Hunch Is It Remains "Down" Through The End Of May -- Not Saying What Year -- May 16, 2022

WTI: $109.60 -- about where we left off on Friday.

Active rigs: in North Dakota, about 39.

Monday, May 16, 2022: 45 for the month, 110 for the quarter, 270 for one year

  • 37901, conf, CLR, Charolais South Federal 6-10H,
  • 37552, conf, Whiting, Lacey 13-10HU,

Sunday, May 15, 2022: 43 for the month, 108 for the quarter, 268 for one year

  • 38570, conf, Hunt, Quill 145-93-10-3H 6,
  • 37902, conf, CLR, Charolais South Federal 5-10H1,
Saturday, May 14, 2022: 41 for the month, 106 for the quarter, 266 for one year
  • 38569, conf, Hunt, Quill 145-93-10-3H 5,
  • 37903, conf, CLR, Charolais South Federal 4-10H,
  • 37669, conf, Whiting, Lacey 14-3 3XH,

RBN Energy: sourcing energy -- transition metals and minerals in a not-so-friendly world, part 3. Yawn.

Since the first OPEC oil embargo nearly a half-century ago — and more recently with Russia’s invasion of Ukraine — energy producers and consumers alike have learned important lessons about the significance of energy commodity sourcing. It all comes down to this, really: (1) know what you’ll need going forward; (2) diversify your sources of supply, focusing on suppliers who are reliable and friendly; and (3) don’t screw up by becoming overly dependent on suppliers who could prove to be sketchy. For decades, the industry’s focus was on oil and gas — which is still critical, as Europe knows all too well. But as policymakers attempt to transition to renewables and electrification, a whole new set of commodity-supply concerns is coming to the fore. In today’s RBN blog, we discuss the challenges associated with securing the key materials required to build the machinery of the energy transition.

As we said in Part 1, shifting to lower-carbon sources of energy and modes of transportation will require a lot of stuff to be mined, refined, fabricated and constructed to replace the hydrocarbon-based energy networks that run the world today. We’re talking about wind turbines, solar arrays, energy storage facilities, electric vehicles (EVs) and all of the other infrastructure and components that will need to be produced. Not only will all this stuff require staggering volumes of concrete and steel, it also will demand unprecedented quantities of metals and minerals such as copper, nickel, aluminum, lithium, chromium, and neodymium. It’s a fact that a decarbonized energy network is far more material intensive — that is, it takes a far greater investment in minerals, metals, and construction materials to produce the same energy as from hydrocarbons.

In Part 2, we looked at how the unprecedented rise in demand for key metals and minerals is already inflating commodity prices for everything, and also consequently leading to more expensive wind turbines, solar modules and batteries. How high and for how long those prices go up will depend largely on whether the policies promoting a transition to lower-carbon energy sources continue and, if so, whether the world’s miners and mineral refiners can expand production fast enough.