RE:RE:SPR Release: Paying the Visa with the MastercardYes Experienced, I acknowledge that the risk I have is extreme, and my leveraged approach is not for most other investors.
For my own security, I hold another small but diverse portfolio kept at arms length, managed by another good investment firm, which is stable and chugging along as expected eeking out small returns. Energy is too risky for their investment objectives, and hence the portfolio has stagnated in comparison. They are investment advisors managing risk, and have their hands tied. Once I see signs that the extreme price imbalance in the energy producers and energy future tightens, I will sell off most and collapse the margin, and then put a big portion of the funds to work with them.
Meanwhile, most of the signs are pointing to further gains in the oil sector.
The desperate first act of this SPR release is a last ditch attempt to win votes, as they try in vain to hold this beach ball underwater a bit longer. If you read the White House press release, you will see how far out of touch they are. They believe that releasing SPR storage is in fact increasing US oil production. Unlike money, you can't print oil, but if you are in the White house, you can count it two times, once as domestic production when you put oil into the SPR, and once when you take it out.
https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/31/fact-sheet-president-bidens-plan-to-respond-to-putins-price-hike-at-the-pump/ It is the wrong oil, at the wrong time, at the wrong place. As it is not what refineries want, expect a large portion of it to be exported. It is difficult to find any energy analyst that supports this move.
The second act of penalizing unused oil lease holders is counterproductive to getting additional supply to market. US producers are furious. Even with a gun to their heads, it won't raise production when there are already shortages of labor, materials, frac sand, etc. The energy industry needs future stability, and going through drilling inventory when there may not be more coming is not positive.
Oil may even be more expensive and in shorter supply when they try to replace the SPR oil in the future. With the knowledge that the SPR will be rebought cheaper, it sends traders a signal that puts a floor for crude when under $100.
The third act to stimulate renewables had to make it into the plan somehow, and will do nothing for immediate results. Those pipeline opponents can now move camp going over to protest those new lithium and rare earth mines that will be developed.
Some SPR perspective: It took 5 years in good times to fill the SPR with 150 mmbbls of oil during the Bush years. Biden will remove 180 mmbbls in 6 months. When will this be replaced?
Weekly inventory reports are not perfect, but I would not dismiss them. When you zoom out, one can clearly see the massive pace and direction of these drops. Historically, they illustrate that the train is off the rails, and points to a difficult predicament of a shortage potential as certain fuels and products run dangerously low. As supply is not increasing, this only leaves a reduction in demand to balance out. That means even much higher prices than we experience now.
Agreed, Russia has taken a page from the Iranians to cloak movements by turning off tanker ship transponders, and some oil is flowing to unscrupulous buyers like India. The true Russian supply drop is presently unknown, only estimated the best we can. Still, these numbers havn't begun to materially affect inventories due to the long term nature of the oil supply chains. One can assume it may displace the oil that would have been bought at world prices on the global market.
Looking at the market, it is interesting that oil bounced back around $104 WTI, and we have already recovered 50% of the price loss due to the SPR announcement. Again, a 50% technical recovery of the fall, up towards previous levels. It is also up from the rout 2 days ago on peace talk announcement. Energy producer stock prices are rising, so energy market investors overall are not selling positions on this 5% oil drop either, on both sides of the border.
The oil market may be the most volatile and manipulated market there is, with so many agendas being played. The OVX (oil vix) around 60 is extremely high now. I expect wild swings as this gets pushed around, and try to keep a portion in cash to try to take advantage of it as we get these wild bounces between levels. Options are too pricy as a result, and the decay will kill your profits even when you get it right.
With all these issues, Canada's world class energy producers like Suncor should be recognized for more than they are now. They offer long life, and security of supply, from a stable country in these crazy times. Carbon reduction efforts are ongoing, and improving. They are a beacon of hope for a secure energy future.
As Biden's vote gamble creates empty salt caverns in the gulf that make sucking sounds, they may be forced to accept that Canada will become the SPR they will need to rely on instead.
Again, play your own game everyone.
Experienced wrote: Nice analysis my friend.
I would add a couple of other considerations in all of this which makes those who make decisions based on the inventory numbers all the more silly and potentially dangerous.
1....a significant proportion of the oil inventory has to do with oil traders as opposed to actual short term supply and demand numbers. Oil traders take into account the present spot price of oil and the futures market for oil. When the math works that they can buy oil today on the spot market and sell oil futures for that oil so the difference between the two taking into storage costs and interest costs locks in a profit they buy a lot of oil and put it into storage and vice versa when the math shows a loss. these actions affect the overall oil price and the storage numbers.
2...right now due to the sanctions on Russia, oil tankers carrying Russian oil have turned of their transponders so that their movements can't be easily tracked. I have seen numerous reports that this Russian oil is being offloaded, ship to ship and delivered to various destinations, especially China and India. Then interesting things about this is that these reports say that the Russian being offloaded on other ships at sea is selling for around $30 a barrel below the Brent price due to the risk. If this is true it willfactor into the overall price equation for oil. How long this will last will obviously depend on what happens in Ukraine and how long the Russian sanctions remain in place.
In terms of the high stakes poker game that you are playing Migraine, I will you all the best that it continues to work out for you. My lengthy experience in the market both as a participant and someone who was in the business is that there often comes a time when these high stakes games become a humbling experience (As the old Wall Street adage goes - "Pigs get slaughtered"). Not to brag, but simply to make a point, I have more money than I can possibly spend in my remaining years on this earth and have no interest in taking inordinate risks to make more money that is of no use to me - but that is why there is a market because people have different investment strategies/objectives and risk tolerances. If everyone had the same strategy there wouldn't be a market. My best advice to the people on this Board is stay in your own personal wheelhouse and not try to duplicate another person's strategy, especially those that are high risk, and lose everything.