Shorting Oil, Hedging Tesla

[Erleichda]

That was a post from last October, before we had any coronavirus or related contagion. If you'd asked me back then what the absolute worst case scenario would be for oil, I'd have described precisely what's happened since then.

US production growth isn't negative or slowing, it continues on it's upward trajectory as if nothing's changed. 13M+b/d in the US has taken us firmly and permanently into exporter status as of this month. See: 4wk moving average of net crude/products imports...

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That chart combined with flat demand from China means WTI is going to $30. It's become physically impossible to see any other possible reality. WTI @ $30 means full on consolidation of US fracking. At the same time I think we'll see oil majors stocks rebound after corona passes in 3 weeks, there is simply too much money out there searching for yield.

We are in the perfect storm for can't-miss longterm oil industry shorting. The big players will get bigger relatively cheaply and the market will likely see that as a positive this summer, but decades-long dividend bumps cannot be maintained for the next 18 months.

We rode the TSLA rocket up to this new level, time to ride oil's drop to 50% of today's valuation. Good times.

What are your best shorts? ETF doubles? Options on XOM?

 

[TheTalkingMule]

What are your best shorts? ETF doubles? Options on XOM?

That's an ongoing confusion for me. I've got my eye on CVX 2022 puts right now, fairly safe and I can just sit back and enjoy. Would love to buy an ETF that is inverse WTI, but there's no such thing that I can see. Will probably dabble in SCO over the spring/summer, but you can't really sit on that for months at a time.

Ideally.... everything pops back up in April once coronavirus is done. I'll buy CVX puts and SCO. Can't imagine WTI rebounding to much above $50 tho.

 

[jhm]

That's an ongoing confusion for me. I've got my eye on CVX 2022 puts right now, fairly safe and I can just sit back and enjoy. Would love to buy an ETF that is inverse WTI, but there's no such thing that I can see. Will probably dabble in SCO over the spring/summer, but you can't really sit on that for months at a time.

Ideally.... everything pops back up in April once coronavirus is done. I'll buy CVX puts and SCO. Can't imagine WTI rebounding to much above $50 tho.

Are you starting a $CVXQ cult on Twitter?

 

[TheTalkingMule]

Are you starting a $CVXQ cult on Twitter?

"Thinking about leasing half of Texas. Funding secured."

 

[TheTalkingMule]

Russia rejects Saudi proposal for more cuts, oil drops another 5%. Every gal for herself now!

 

[mspohr]

This presumes a liquid market with lots of well funded buyers and that the government only buys a tiny fraction of distressed assets. But the whole notion of distressed assets is that there really are not many eager buyers. When the government becomes are substantial buyer, it essentially pushes the market prices higher than if the government were not buying at all.

So while the policy intention may lie elsewhere, the likely economic outcome is that the government props up asset prices, which amounts to a wealth transfer from tax payers to oil and gas investors. Moreover, if a government were to stop production on these assets, this would shrink supply and drive up fuel prices to the benefit of oil and gas investors still producing in their own assets. So again this is a wealth transfer from tax payers to oil and gas investors.

I agree

 

[jhm]

Wow, oil is tanking. Down 9% Brent is about $45/b.

 

[SmartElectric]

How isn't this the case? AC is by nature bidirectional. or we talking 2 different ideas

Tell that to my solar installer.
One day to put panels on my roof.
Four days to connect it into my panel, along with a critical loads panel, external shut offs, battery control system, battery inverter, etc.

If I had known what the requirements were prior to this, I could have had the electrician pre-run wires and conduit to avoid opening up the ceiling in my basement.

 

[ZachF]

Are Oil Majors Facing A Terminal Decline? | OilPrice.com

Nice read from Nick Cunningham.






This last quote is the punchline. Oil majors have nothing meaningful to invest in so they are monetizing their balance sheets to return cash to investors. They sell off assets and raise debt to transfer $207B cash to investors.

This is one match short of a fire sale.

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

 

[ZachF]

Wow, oil is tanking. Down 9% Brent is about $45/b.

Cue the OPEC cuts...

Saudi Arabia is IMHO financially much weaker than they want to admit. Hence selling off parts of ARAMCO, budget deficits of 15-20% of GDP. The alternative is dropping the dollar peg (triggering forced inflationary austerity) which is something I think they really don't want to do.

 

[ZachF]

Aramco stock hasn't dropped like other oil providers... It would be hilarious if SA is now buying back shares below the IPO price to prop up the stock.

 

[TheTalkingMule]

Aramco stock hasn't dropped like other oil providers... It would be hilarious if SA is now buying back shares below the IPO price to prop up the stock.

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....

 

[adiggs]

Wow, oil is tanking. Down 9% Brent is about $45/b.

t's apparently only 1 day and a few press reports, but it sort of looks like the market colluders have their knives out and are ready to see who can provide their product in the most volume at the lowest price.

The market participants that sold those contracts - I think they're going to be in a world of hurt.

 

[TheTalkingMule]

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

He went the other direction.....

Saudi Prince Detains Senior Members of Royal Family

 

[mspohr]

Climate crisis and Covid-19 conspire to crush oil firms like Tullow

Climate crisis and Covid-19 conspire to crush oil firms like Tullow

coronavirus this week as it prepares to lay bare the toll of a difficult year, amid growing investor concern for the oil industry in the months and years ahead.

The troubled exploration company has already lost more than half its market value since the start of 2019 as the Covid-19 outbreak punctured rising oil markets and cast doubt on the size of world energy demand in the year ahead.

But the impact of a global oil-market downturn, combined with mounting concerns over global heating, is likely to magnify the existing weaknesses of the company – and many of its peers

 

[TheTalkingMule]

It really annoys me when the press paints these oil failures as a result of action against a climate crisis. NO ONE is acting to alleviate a climate crisis, they're adding renewable energy because it's ultra-cheap and very easy to deploy.

Perhaps a few things like CA and Obama auto efficiency mandates are having an impact, but it's 90% economics based purely on a brand new elasticity in global energy supply.

 

[mspohr]

Bloomberg - Are you a robot?

“The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2,”

But the decision to take on shale could backfire. While many drillers in Texas and other shale regions look vulnerable, as they’re overly indebted and already battered by rock-bottom natural gas prices, significant declines in U.S. production may take time. The largest American oil companies, Exxon Mobil Corp. and Chevron Corp., now control many shale wells and have the balance sheets to withstand lower prices. Some smaller drillers may go out of business, but many will have bought financial hedges against the drop in crude.

 

[TheTalkingMule]

It's the end of the world as we know it....

Bloomberg - Are you a robot?

Saudi Arabia kick started an all-out oil war on Saturday, slashing official pricing for its crude and making the deepest cuts in at least 20 years on its main grades, in an effort to push as many barrels into the market as possible.

The cuts in monthly pricing by state producer Saudi Aramco are the first indication of how the Saudis will respond to the break up of the alliance between OPEC and partners like Russia. Talks in Vienna ended in dramatic failure on Friday as Saudi Arabia’s gamble to get Russia to agree to a prolonged and deeper cut failed to pay off.

In the first major marketing decision since the meeting, the state producer lowered April pricing for crude sales to Asia by $4-$6 a barrel and to the U.S. by $7 a barrel, according to a copy of the announcement seen by Bloomberg.

 

[mspohr]

It's the end of the world as we know it....

Bloomberg - Are you a robot?

This oil price war will not end well.
Is there excess demand at any price?

 

[TheTalkingMule]

This oil price war will not end well.
Is there excess demand at any price?

No, and there really hasn't been since 2015.

The most interesting part to me is the big price cut on exports to the US. This is a full reversal of the plan put in place spring 2017 to artificially lower exports to the US so our market(the only transparent one) would make the global market appear undersupplied.

So not only is the cooperation with Russia gone, but even if OPEC ever comes back together, Saudi policy has changed to pumping full blast. There is unlikely to be another major change in course until "the end".

Everyone must respond. XOM, national oil companies, everyone. The more I think about, the more likely I see an absolute bloodbath this coming week. All the oil algos do a full 180 Monday morning.

We're all gonna die!