Shorting Oil, Hedging Tesla

[pz1975]

Is there anyone here who follows specific oil companies? I anticipate a wave of bankruptcies in the oil and gas industry in the next 6 -12 months and would like to take advantage of that financially. Te number of companies in the industry going bankrupt continues to increase anyways, but recent events should speed that up even more.

Advice on what small cap companies most likely to be at imminent risk would be much appreciated. I am planning to just buy some cheap lottery puts but want to diversify across a number of them. The other option is to buy puts on an ETF covering these smaller companies.

 

[TheTalkingMule]

WTI is at $28.50......Lololol

Woulda been nice to have gotten out in front of this. Here's hoping for a rebound.

 

[renim]

As i type wti is $28
And brent is $32

The combination of low oil and coronavirus.

 

[renim]

Is there anyone here who follows specific oil companies?

No, but my impression is that the american shale drillers have higher forward sales than conventional oil.

How a company matches its financing is the big issue. Those in the industry will know which oil companies hedge and which prefer exposure. They also attract differing investors.

I've seen the same in Gold. Some companies hedge, some like to be unhedged. It seems that the companies that hedge look for the more risk averse investor, the companies that don't hedge are for the more commodity focused investor.

Either way, the company with refinancing coming up soon is the company most at risk.

 

[renim]

FWIW,
I once worked on a project (with lots of trucking), where i got the impression that the client would lock in the oil price (as a buyer) for 14years once project was given go ahead.

 

[Dr. J]

How a company matches its financing is the big issue. Those in the industry will know which oil companies hedge and which prefer exposure.

In my experience from > a decade ago investing in oil companies, this information is generally in the 10K/10Q.

Edit: much depends on who is on the other side of the hedge, that is, how likely is the hedged price and quantity to be honored.

 

[ProfTournesol]

What are the best fracking companies to short?

 

[ProfTournesol]

Nice one! -21% of royal dutch shell on opening! if you want to short oil it's a wonderfull day.

 

[ZachF]

Also oil production and exports are a large part of Russian GDP but small part of U.S. GDP. Large asymmetric punishment to oneself.

Russian ruble is down over 8% today.

 

[TheTalkingMule]

Oil is like 80% or more of Russian GDP.

Halliburton down 31% and not even reopened yet.

 

[ZachF]

Oil is like 80% or more of Russian GDP.

Halliburton down 31% and not even reopened yet.

Oil and gas are like 20-25% of Russian GDP, but 80% of exports, and I think they pay for ~60% of the government budget.

 

[jhm]

XOM has had an average payout ratio of 99.2% for the last 4 years:
Growth, Profitability, and Financial Ratios for Exxon Mobil Corp (XOM) from Morningstar.com

Chevron is over 100%:
Growth, Profitability, and Financial Ratios for Chevron Corp (CVX) from Morningstar.com

That's interesting. Near 100% payout of earnings, but negative free cash flow. So investors who are only looking at earnings and dividends, and ignoring cash flow, could be lulled into complacency.

 

[jhm]

Everyone who owns those shares is local and would be quickly beheaded if they sold.

I think I see MBS sneaking of to his mega yacht to retire in style....

Ouch

 

[jhm]

The new acronym for West Texas crude is WTF.

So WTF is down to $33/b while Bent is at $36/b.

 

[jhm]

I suppose that massive 20% decline in oil is what prompted Tesla to open 20% down. But it appears that Tesla investors have are deciding to back the cybertruck up.

 

[adiggs]

#offers match#

Gee - a whole week for the match to catch. That's aging well

 

[TheTalkingMule]

The the 2016 $260 TSLA shares that I thought were too expensive are up.
The 2019 $12 Jan 2021 $450 TSLA calls that I thought were a bit too expensive are looking good.
The $80 & $90 Chevron 2022 puts I thought were a bit too expensive at $3-5 weeks ago are now in the money.

Being a half-smart cheap bastard has cost me literally millions.

 

[jhm]

A chart can help put this price drop into historical perspective. Oil is nearly back the bottom of the glut in 2016. It took oil several years to sink this low. This time seems much faster. Maybe it has further to fall. The market is not yet contemplating just how long it could take for prices to recover.

Drill, baby, drill!

 

[jhm]

The price is still falling. Brent is down 24% to $34.30/b.

 

[jhm]

So for the longest time, it seem US oil investors have followed the idea that they can produce as much as they like and count on OPEC+ to cut production and stabilize prices. We've been wondering when OPEC would stop rolling over to US shale. Now we know. It seems a 2.3 mb/d cut is a bridge too far to hold Russia in with OPEC. This is about a 5% cut.

I actually think it is good for banks and investors to get a feel for how fragile oil demand has become. This is just a forewarning for how nasty peak oil demand can become. EVs and RE will continue to erode demand. This exposes the industry to every little hiccup in demand.

Realistically I do not think it is smart for OPEC+ to keep the price of oil high enough that US shale can keep expanding production. Maybe there is a happy price in the low $40s where OPEC+ can get solid revenue without conceding share to US shale.