GRG 55 .........its a Bloodbath!

[Mega]

https://www.zerohedge.com/energy/ene...oses-aa-rating

Mike

[GRG55]

Re: GRG 55 .........its a Bloodbath!

https://www.zerohedge.com/energy/ene...oses-aa-rating

Mike

Yes. This is one of those times when after the battle is over they go around and shoot the wounded in situ to put them out of their misery.

That is why I suggested earlier, people tempted to enter might want to limit themselves to "nibbling". As I am exposed to energy because of my businesses, I haven't yet pulled the trigger on anything. I am just a wee bit preoccupied enough at the moment.

The producers in the USA are going to their service suppliers and asking for 20% to 25% reductions in costs, indexed to oil price, so they will see a recovery in their pricing as oil prices inevitably recover. The services sector (drilling, fracing, pumping services and so forth) were already under pressure from overcapacity after the 2014 price drop. Now they are going to be hammered.

Occidental made a really stupid move last year outbidding Chevron for Anadarko (can't remember if I posted about it at the time, but I was telling friends at the time that Oxy would regret that move). Rumor today is Chevron is looking to take over Oxy for what they had bid a year ago for Anadarko alone. Unable to confirm, but something is going on. If a sale or merger occurs the common stockholders of Oxy are unlikely to see much if anything. Berkshire owns the preferred that funded the Anadarko deal.

The collapse in oil company stocks is breathtaking. Suncor down to ~CAN $18, Chevron/BP/Exxon/RDS all continue to get puked. Check out the dividend yield on the pipeline preferred shares (TC Energy C, Enbridge, now running 30% to 40% (no typo!). I guess Elon was correct...Tesla is going to take over the world by 2021 and we'll have an EV in every garage, LOL. Who needs petroleum or pipelines

This is going to (eventually) be the buying opportunity of the decade (if you have dry powder and courage). Not just energy or commodities, but "everything". Low oil prices/jet fuel is going to help the airline industry recover from this in a big way. After 9/11 Brent fell to about $10/bbl in the 2001 recession. By 2004 it crossed above $40/bbl. Despite rising oil prices the airline industry was back to pre-9/11 traffic volumes about 2 years after the event, and continued to grow through to the $150/bbl peak mid-year 2008, just before the financial crisis. These low oil prices should help the global economy a lot to "re-start" after the virus related destruction finally ends.

[Mega]

Re: GRG 55 .........its a Bloodbath!

I say this for Tesla, they moved metal!
Over million sold, see them all the time on the motorway (freeway) doing 67 mph in the slow lane...trying to streach out their range.

Oil, when to buy?

At the end of the summer we see "Dead cat bounce" but in the Winter the falls will again start......so when to buy?
Mike

[jpatter666]

Re: GRG 55 .........its a Bloodbath!

This is going to (eventually) be the buying opportunity of the decade (if you have dry powder and courage). Not just energy or commodities, but "everything". Low oil prices/jet fuel is going to help the airline industry recover from this in a big way. After 9/11 Brent fell to about $10/bbl in the 2001 recession. By 2004 it crossed above $40/bbl. Despite rising oil prices the airline industry was back to pre-9/11 traffic volumes about 2 years after the event, and continued to grow through to the $150/bbl peak mid-year 2008, just before the financial crisis. These low oil prices should help the global economy a lot to "re-start" after the virus related destruction finally ends.

Quite likely, but still not seeing enough fear. People who made out (or didn't) in 2009 are thinking they now have a chance to pull it off.

Very virus-centered as well. The day they announce a vaccine markets will explode upward I'd think. The question is which companies survive to that point.

[GRG55]

Re: GRG 55 .........its a Bloodbath!

Quite likely, but still not seeing enough fear. People who made out (or didn't) in 2009 are thinking they now have a chance to pull it off.

Very virus-centered as well. The day they announce a vaccine markets will explode upward I'd think. The question is which companies survive to that point.

I have a number of major customers in the Permian shale. Knowing the industry (after 43 years in this crazy business), credit quality is paramount for my contract counterparties. I do not deal with any of the overleveraged small independent drillers. One of my customers is XTO, the shale drilling division of Exxon, for example.

Not one of my customers has yet shut in any production in the Permian shale that is serviced by our equipment as of this morning. I don't know if any of them have shut in production elsewhere; I can only track what we support.

But some of the smaller independents have. At least one has closed shop completely and sent everyone home - meaning they don't have a single barrel in their inventory they can produce at a profit because their costs are too high.

The rationalization I've been expecting is probably going to start in earnest before this year is out. The best assets will change to stronger hands. Unless this virus hangs around until Christmas, I believe the Permian shale will recover faster than most people expect.

[jpatter666]

Re: GRG 55 .........its a Bloodbath!

GRG55 thanks for the reply. Always interested to hear (read) your opinion.

The Middle East strikes me as as powderkeg just waiting for a fuse. Iran ravaged by the virus, the credibility of the religious leaders deteriorating by the hour.

Saudi even worse. I wonder whether the House of Saud will survive the next five years. They were fools (IMO) to get into a bidding war with Putin who has far greater control over his country and while not diversified, certainly not as oil dependent. I wonder how much the recent moves smack of desperation. One wrong move and oil will reverse at light-speed.

[shiny!]

Re: GRG 55 .........its a Bloodbath!

GRG55 thanks for the reply. Always interested to hear (read) your opinion.

The Middle East strikes me as as powderkeg just waiting for a fuse. Iran ravaged by the virus, the credibility of the religious leaders deteriorating by the hour.

Saudi even worse. I wonder whether the House of Saud will survive the next five years. They were fools (IMO) to get into a bidding war with Putin who has far greater control over his country and while not diversified, certainly not as oil dependent. I wonder how much the recent moves smack of desperation. One wrong move and oil will reverse at light-speed.

Can't happen too soon. To paraphrase Mega, my pipelines are getting KILLED!!!!!

[touchring]

Re: GRG 55 .........its a Bloodbath!

Can't happen too soon. To paraphrase Mega, my pipelines are getting KILLED!!!!!

What pipelines? EP?

[shiny!]

Re: GRG 55 .........its a Bloodbath!

what pipelines? Ep?

epd, mmp, psxp, shlx.

[ST]

Re: GRG 55 .........its a Bloodbath!

I have a number of major customers in the Permian shale. Knowing the industry (after 43 years in this crazy business), credit quality is paramount for my contract counterparties. I do not deal with any of the overleveraged small independent drillers. One of my customers is XTO, the shale drilling division of Exxon, for example.

Not one of my customers has yet shut in any production in the Permian shale that is serviced by our equipment as of this morning. I don't know if any of them have shut in production elsewhere; I can only track what we support.

But some of the smaller independents have. At least one has closed shop completely and sent everyone home - meaning they don't have a single barrel in their inventory they can produce at a profit because their costs are too high.

The rationalization I've been expecting is probably going to start in earnest before this year is out. The best assets will change to stronger hands. Unless this virus hangs around until Christmas, I believe the Permian shale will recover faster than most people expect.

Insightful comments, as always GRG. (43 yrs!)

These from Goldman might be of interest:

3/17



post talk of US supply side intervention 3/19:

[Mega]

Re: GRG 55 .........its a Bloodbath!

Jam Tomorrow?
I see things different, a massive reduction in demand lasting years.....

Mike

[lakedaemonian]

Re: GRG 55 .........its a Bloodbath!

GRG55 thanks for the reply. Always interested to hear (read) your opinion.

The Middle East strikes me as as powderkeg just waiting for a fuse. Iran ravaged by the virus, the credibility of the religious leaders deteriorating by the hour.

Saudi even worse. I wonder whether the House of Saud will survive the next five years. They were fools (IMO) to get into a bidding war with Putin who has far greater control over his country and while not diversified, certainly not as oil dependent. I wonder how much the recent moves smack of desperation. One wrong move and oil will reverse at light-speed.

Who has the lowest cost of production?

I would guess Saudi.

Let’s not forget the 1980’s Oil Glut.

Within a handful of years we saw the collapse of the Soviet Union reliant on energy export hard currency.

Is Putin’s Russia at risk of collapse?

I don’t think so, but when approx 50% of government revenue is sourced from energy exports, the collapse in energy prices is going to have an outsized effect as Russian production costs are circa $20/barrel with Saudi cost of production less than half that.

Libya, Angola, Venezuela seem like candidates for economic shock as well.

If I had to guess, we will see alignment between Russia & Iran on foreign policy designed to nudge energy prices north as they will both need it.

How they achieve it?

Kneecapping competitors is a more aggressive option.

A Russian/Iranian alignment against Saudi in a rules based world with rules declining by the day is cause for concern.

And the US, China, and the west are distracted “a bit” at the moment.

I’m no fan of the Saudis whatsoever, quite the opposite really.

But low energy prices will hasten recovery.

So will we see a divide between countries desperate for any tailwind to recovery(low energy prices) and countries desperate for revenue(energy exporters)?

[jk]

Re: GRG 55 .........its a Bloodbath!

i wonder how much of russia's energy revenue is from the gas it sends to europe via pipeline. and how much of its oil is under long term contracts. i don't think we have the information to know how much of a hit russia is taking at these prices.

[jpatter666]

Re: GRG 55 .........its a Bloodbath!

Who has the lowest cost of production?

I would guess Saudi.

Let’s not forget the 1980’s Oil Glut.

Within a handful of years we saw the collapse of the Soviet Union reliant on energy export hard currency.

Is Putin’s Russia at risk of collapse?

I don’t think so, but when approx 50% of government revenue is sourced from energy exports, the collapse in energy prices is going to have an outsized effect as Russian production costs are circa $20/barrel with Saudi cost of production less than half that.

Libya, Angola, Venezuela seem like candidates for economic shock as well.

If I had to guess, we will see alignment between Russia & Iran on foreign policy designed to nudge energy prices north as they will both need it.

How they achieve it?

Kneecapping competitors is a more aggressive option.

A Russian/Iranian alignment against Saudi in a rules based world with rules declining by the day is cause for concern.

And the US, China, and the west are distracted “a bit” at the moment.

I’m no fan of the Saudis whatsoever, quite the opposite really.

But low energy prices will hasten recovery.

So will we see a divide between countries desperate for any tailwind to recovery(low energy prices) and countries desperate for revenue(energy exporters)?

Saudi *does* have lowest cost of production, but they also need a far higher oil cost to balance their budget. All those expensive princes, priests and let's not forget wars (Yemen, anyone?). And for Saudi, it's pretty much oil or nothing. Putin has oil, gas, weapons, a modest industrial base and lots of farmland (even if it's ineptly farmed). Plus, one of the biggest gold hoarders around.

Oh, and the recently stock collapse I doubt did the Saudi investments funds any good.

And there's no talk of coups in Russia, while all sorts of rumors flying around Saudi.

I'm just saying, I'm keeping one eye on Saudi quite a lot these days.....

[globaleconomicollaps]

Re: GRG 55 .........its a Bloodbath!

Jam Tomorrow?
I see things different, a massive reduction in demand lasting years.....

Mike

There is a school of thought that electric vehicles will replace internal combustion engine vehicles. This article was written before the epidemic and subsequent depression:

https://seekingalpha.com/article/422...023-and-beyond

The basic idea is that electric cars are simply better than gasoline or diesel powered cars( cheaper to run, maintain and with a longer service life). The public is waiting until the right electric vehicle appears before switching, but they are already sold on the idea.

This video spells it out:
https://www.youtube.com/watch?v=aUC6lsLr04I

This study showed that for a range of assumptions, the date for the end of ICE ranged from about 2023 to 2028 based on this single variable. For my study, I chose the red curve in this plot as being most likely. I chose 2026 as the year when essentially all new cars sold are EVs. Tony Seba, who specializes in the study of disruptive technologies, now estimates that, by 2025, essentially all new vehicles will be EVs.

This depression will result in a collapse in oil production and consumption. I expect that subsequently oil prices will explode to the up side. This parallels the model in the paper but it amplifies it. So oil prices drop to the low teens and stay there for a year or two then skyrocket. All car demand drops to near zero and then rebounds but with a majority of car sales in the EV sector.

These same guys made another pitch with the same message yesterday:
https://www.youtube.com/watch?v=S8hNoPl7EZE