GRG 55 might be on to something

[EasternBelle]

Re: GRG 55 might be on to something

Dear GRG55,
not so long ago you stated (if I remember correctly) in a thread that you had not seen the type of efficiency that shale oil companies were deploying in their operations during your entire 35+ years career in the oil business. It implied that American shale oil companies were going to be a fixture for the long run and therefore ultimately disrupting the oil market and securing the US $ as GAGFO (GoodAsGoldForOil) that EF coined a few years back. Are you still standing by this view, in light of the bankruptcies that have been referred to in this thread?
Best regards,
EasternBelle

[GRG55]

Re: GRG 55 might be on to something

It's an interesting world to say the least right now.

As I have posted in the past, the Arab Gulf States are the ultimate welfare societies. The Ruling Families (and the selected favored Merchant Families that support them) collect the income from the national economy. And then dole out what the Princes don't take for themselves (cars, jets, yatchs, villas in the south of France, properties in London and Geneva, hookers & blow) in the form of generous public housing, health care, food subsidies, free utilities, madrasah schools, mosques, and such. Understand these have been some of the fastest population growth locales on earth these past few decades, and large swaths of the populations are deliberately poorly educated and lack the skills to function in a modern, technology driven environment (hence the ongoing dependence on skilled professional labor to run their economies). Take away the benefits and there's going to be a big social backlash - large numbers of unmarried men with time on their hands is always a threat to any government (ask the Chinese Politburo). The only way to preempt problems as the cash available to be doled out dries up is to lock things down into a police state. After the Saudi announcement last Saturday about opening the oil taps, the concurrent arrests of senior Ruling Family members on charges of treason were the first marker that's where this is headed. Out of necessity. MbS is playing a high stakes, dangerous game at home. But then when you have the chutzpah to saw up journalists, arrest, detain and demand the resignation of a visiting Prime Minister (Saad Hariri) and host a weeks-long party for all your favourite cousins and friends at the Riyadh Ritz-Carlton, this all starts to look normal.

Contrast this with Russia, where the oligarchs and KGB alumni run the place, and cut up all the cash. Half the friggin' hospitals don't have running water. Putin does not risk having an internal problem like the Persian Gulf states and Kingdoms.

I don't think this has anything much to do with US shale oil. That's just getting caught in the cross-fire of Russia and Saudi a) being on opposite sides of the Iran and Syrian situations in the Middle East, and b) Russia believing (correctly imo) it can exert greater political influence in the Middle East by taking away more of the critically important Chinese and Western European energy market share from Saudi Arabia, thus severely compromising its income, from which it derives its external political influence given it lacks the military capabilities of Russia or the USA.

I think Saudi is going to lose this dog fight, and cry uncle first.

I do agree with you; this is not just an energy sector disruption. Large swaths of the US and global economy look like it's headed for a decadal fire sale.

[Mega]

Re: GRG 55 might be on to something

"L" shaped recovery?
Mike

[ST]

Re: GRG 55 might be on to something

"L" shaped recovery?
Mike

the high frequency economic indicators were all pointing to recession before this, typically bottoming out like this takes 6 to 18 months (who knows), credit crunch in corporate debt looks likely esp. in energy sector at record debt

[jk]

Re: GRG 55 might be on to something

if we a cascade of bankruptcies as well as defaults in the corporate credit markets we'll know we're near the bottom. there's a lot of corporate paper that has to be rolled over in the next few year- that will be interesting to watch.

[GRG55]

Re: GRG 55 might be on to something

the high frequency economic indicators were all pointing to recession before this, typically bottoming out like this takes 6 to 18 months (who knows), credit crunch in corporate debt looks likely esp. in energy sector at record debt

I find it difficult to imagine how we are going to avoid a global recession. The USA may be the best placed to do so, but "Fortress America" is certainly not an island, immune from what is happening elsewhere.

[GRG55]

Re: GRG 55 might be on to something

if we a cascade of bankruptcies as well as defaults in the corporate credit markets we'll know we're near the bottom. there's a lot of corporate paper that has to be rolled over in the next few year- that will be interesting to watch.

The amount of forbearance the lenders will be forced to extend will be dramatic.
Expect loan extensions, payment restructurings, support for mergers and consolidations (and other sector strategies to regain pricing power), anything to avoid foreclosing on fallen asset values in an illiquid market.

If this gets gets bad enough the lenders aren't even going to foreclose on home mortgages as long as there's any modest debt servicing coming in from the borrower.

[ProdigyofZen]

Re: GRG 55 might be on to something

IMO Saudi will keep oil prices in the 30s for at least 6 months. I don't know if that is short term in peoples minds but it is long enough to bankrupt a lot of E&P shale players in the US.

I know quite a few personally that are already in bankruptcy proceedings.

[jk]

Re: GRG 55 might be on to something

The amount of forbearance the lenders will be forced to extend will be dramatic.
Expect loan extensions, payment restructurings, support for mergers and consolidations (and other sector strategies to regain pricing power), anything to avoid foreclosing on fallen asset values in an illiquid market.

If this gets gets bad enough the lenders aren't even going to foreclose on home mortgages as long as there's any modest debt servicing coming in from the borrower.

that sounds right. i was thinking too rigidly. still, how are they going to roll over the paper? who will buy it? the previous holders, just to avoid the appearance of default i suppose. it's like when they abolished mark to market accounting during the gfc.

[jk]

Re: GRG 55 might be on to something

IMO Saudi will keep oil prices in the 30s for at least 6 months. I don't know if that is short term in peoples minds but it is long enough to bankrupt a lot of E&P shale players in the US.

I know quite a few personally that are already in bankruptcy proceedings.

do you know who is picking up the now-cheap assets?

[GRG55]

Re: GRG 55 might be on to something

Many many energy stocks I am being told are in bankruptcy filing.

This includes penny stock now Cheasepeak Energy. Also LPI and CDEV, going into bankruptcy. SM, MGY, WLL, OVV all going to zero. It is total annihilation across the energy space.

There will be no public market appetite for Permian names or most energy names outside the majors. It will all be private market going forward at depressed valuations.

The energy market was foretelling this Saudi production hike event, as most energy names had sold off by 50% YTD before this March 6/7/8 event.

Nice to see you back Andrew! Are you still based in Dallas?

It's never "total annihilation" in the energy sector Andrew. You know that. Your post is worthy of ZeroHedge :-)

This is just another repeat of an age old cycle. Yet again the upstream petroleum industry shows everyone what an efficient destroyer of capital it really is, LOL.

[shiny!]

Re: GRG 55 might be on to something

Nice to see you back Andrew! Are you still based in Dallas?

It's never "total annihilation" in the energy sector Andrew. You know that. Your post is worthy of ZeroHedge :-)

This is just another repeat of an age old cycle. Yet again the upstream petroleum industry shows everyone what an efficient destroyer of capital it really is, LOL.

If upstream is toast, how do you see the midstream pipeline sector faring? Can they hang on long enough without going bankrupt?

[shiny!]

Re: GRG 55 might be on to something

Comments?

https://ca.finance.yahoo.com/news/tr...200628237.html

Trump Orders U.S. to Stock Up Oil Reserve After Price Crash

Stephen Cunningham, Jennifer A. Dlouhy and Ari Natter
BloombergMarch 13, 2020

Trump Orders U.S. to Stock Up Oil Reserve After Price Crash

(Bloomberg) -- President Donald Trump told U.S. energy officials to purchase “large amounts” of oil to fill up the nation’s emergency reserve after the biggest price crash in a generation.

Replenishing the Strategic Petroleum Reserve -- as proposed by some oil lobbyists earlier this week in light of the collapse in prices -- would enable the government to take as much as 77 million barrels off the world market.

Oil prices jumped after Trump’s announcement, paring their worst weekly performance since 2008. Still, the purchases are unlikely to be able to offset the supply boost major producers such as Russia and Saudi Arabia have promised in the coming month.

The U.S. stockpile, set up after the Arab oil embargo in the 1970s, has previously been tapped in response to emergencies, such as Hurricane Katrina. The reserve has a storage capacity of 713.5 million barrels, with some 635 million barrels now buried in underground salt caverns along the U.S. Gulf Coast.

“While filling the SPR will not materially offset the tidal wave of new supply hitting the global oil market, it makes total sense from a national security and budgetary perspective,” said Bob McNally, founder of consultant Rapidan Energy Group.

“Better to buy low and before an emergency than the other way around,” said McNally, who oversaw the last major fill-up of the reserve as a top oil official at the White House during the George W. Bush administration.

What was not immediately clear was whether the purchases require congressional approval. The reserve can be filled at a rate of 225,000 barrels a day for most storage sites, the Energy Department said in 2016.

In recent years, Congress has used the stockpile as a piggybank for government programs, and Trump had previously approved reducing it by half, something that critics opposed even as the shale revolution allowed the U.S. to reduce its reliance on imports.

If the government filled the reserve to capacity at today’s prices, the purchase would cost about $2.6 billion and could generate about 430,000 barrels-a-day of demand over approximately six months.

“We’re going to fill it right up to the top -- saving the American taxpayer billions and billions of dollars, helping our oil industry,” Trump said on Friday.

[touchring]

Re: GRG 55 might be on to something

GRG55. The US can buy all the oil it wants at $30 but would there be sufficient underground storage to continue buying for 6 months?

[jk]

Re: GRG 55 might be on to something

Comments?

https://ca.finance.yahoo.com/news/tr...200628237.html

one of the few smart moves i've seen coming from this administration