I think that the crude oil market (and nat gas) is now bifurcated between "embargoed" product and free barrels. Since Russia now has to redirect energy imports eastward, China now acts as a quasi Monopsomistic buyer who can substitute embargoed and free barrels depending on price and politics.
Since the growth market for energy is outside the OECD, my thought is that the main downside risk for oil is a Russo-Saudi market share war in China (and India to a lesser extent).
I don't agree that US nat gas is a good indicator of global energy market conditions because North America still has a structural surplus of shale gas (unlike shale oil, gas wells are very productive and decline relatively slowly). Also US nat gas exports are infrastructure constrained which limits TTF and JKM arbitrage.
I suggest looking at Chinese thermal coal prices for a better reflection of Chinese energy demand.
And on oil, interesting spin on SPR. No one is saying that, Have a client with close ties to DoD and D thinks it is too low. Caught in "old School" thinking?
Very interesting. Nat Gas pulling Oil back to 10x multiple again. Went Long Oil today a little early, thinking was that Nat Gas was going to pull it up by its shoestrings.
I guess I am saying that SPR sell down will keep oil looking cheap for awhile, and if Russian or Iranian supply came back, you could get a glut... not as straight forward as I thought. Food looks better as a commodity
I hear you. Prior to your piece I was very keen on Oil given the NG move in the last month. Stopped out of my Oil trade already. Ah well. $CORN looks interesting at around the $23 level, otherwise Risk Reward isn't there. Thanks for the Oil article.
2. SPR was released before midterms, about 180m barrels out of roughly 600m.
3. Shale=the bad rocks. Most of the sweetspots in the Permian and other historical oil fields have been drilled.
3. It isn't just bad rocks. It takes more rigs, more pads, more people to drill new shale oil.
4. There is a very strong argument that shale oil production in the US has peaked and is now in fast decline.
5. Shale only accounts for 7% of oil production. Biden administration has stopped all leases and all major oil/gas projects (offshore, onshore, foreign lands) has been halted.
There is an energy shock unlike anything anyone has ever seen coming, unless one believes in demand is going to drop by 30%.
Awesome video! Btw, what you are saying in your video about infrastructure, refineries and pipelines isn't just an SPR problem. All of the pipelines and refineries haven't been updated in the last 15-years to reflect where the current energy supplies are. Light oil is piped down from Alberta for example to Texas to be refined and then sent back to Canada because there has been no refinery built since 1974.
Things like Keystone XL or pipelines into the Utica shales in Ohio just haven't been built.
I also expected shale oil production to fall - for all the reasons you list above - and yet it has not happened.
EIA has shale oil production at about 8m barrels a day - so not sure where you are getting 7% from.
Permian production is the region that is at record levels of production for both oil and gas, which is the near where the SPR storage facilities are based, and from what I can see drilling is coming back on line.
Shale could be a disaster - but its not turning up in the numbers yet
7% of global production. Debatable on if to include NGLs/condensates as total global production but rounding error percent wise. 8m/93m = roughly 7%. The point is that most oil, 93%, comes from mega projects and those need years just to plan let alone build. The future for the oil price is bright. Steady demand and dropping supply.
I was mentioning gas above with both the Utica shale but main "core" is in Ohio (biggest untapped North American gas field that lies under the Marcelus) and the Montney (2nd biggest gas field in North America, as big as th Marcelus) in Canada because the infrastructure necessary to exploit them isn't being developed. It will take a decade just to construct the pipelines, let alone permit, design, finance etc. This era will go down as one of absolute insanity in not developing future energy resources. It isn't just "energy" that will be impacted by energy scarcity due to political medling. Things like fertilizer will be much more expensive for several years to come. Now no idea if that will be in 2020s or 2030s and a lot can change before we get a true energy crunch but we are well on the way for it.
Tenants Confront New Jersey Landlord Over Rent Hikes
BY KATE KING
Dina Bologa was shocked when she learned in July that the rent for her Jersey City, N.J., two-bedroom apartment would go up 40% to more than $6,000 a month if she renewed her lease.
She thought about moving and tried negotiating with her landlord. Then Ms. Bologa’s neighbors, who were facing similar rent increases, started organizing.
They filed petitions with the city saying that the 19-story waterfront building should be subject to rent control. The city’s rent-control administrator agreed.
Yes I saw that. Interesting part of that article was the widespread use of rent software. Raises the question of when pricing software is used my most participants does that cause cartel pricing. FTC will likely take a look
Thanks Russell, some comments
I think that the crude oil market (and nat gas) is now bifurcated between "embargoed" product and free barrels. Since Russia now has to redirect energy imports eastward, China now acts as a quasi Monopsomistic buyer who can substitute embargoed and free barrels depending on price and politics.
Since the growth market for energy is outside the OECD, my thought is that the main downside risk for oil is a Russo-Saudi market share war in China (and India to a lesser extent).
I don't agree that US nat gas is a good indicator of global energy market conditions because North America still has a structural surplus of shale gas (unlike shale oil, gas wells are very productive and decline relatively slowly). Also US nat gas exports are infrastructure constrained which limits TTF and JKM arbitrage.
I suggest looking at Chinese thermal coal prices for a better reflection of Chinese energy demand.
And on oil, interesting spin on SPR. No one is saying that, Have a client with close ties to DoD and D thinks it is too low. Caught in "old School" thinking?
Perhaps, but is not the software just a more efficient way to collect surrounding comps?
Very interesting. Nat Gas pulling Oil back to 10x multiple again. Went Long Oil today a little early, thinking was that Nat Gas was going to pull it up by its shoestrings.
I guess I am saying that SPR sell down will keep oil looking cheap for awhile, and if Russian or Iranian supply came back, you could get a glut... not as straight forward as I thought. Food looks better as a commodity
I hear you. Prior to your piece I was very keen on Oil given the NG move in the last month. Stopped out of my Oil trade already. Ah well. $CORN looks interesting at around the $23 level, otherwise Risk Reward isn't there. Thanks for the Oil article.
1. Keep the moustache.
2. SPR was released before midterms, about 180m barrels out of roughly 600m.
3. Shale=the bad rocks. Most of the sweetspots in the Permian and other historical oil fields have been drilled.
3. It isn't just bad rocks. It takes more rigs, more pads, more people to drill new shale oil.
4. There is a very strong argument that shale oil production in the US has peaked and is now in fast decline.
5. Shale only accounts for 7% of oil production. Biden administration has stopped all leases and all major oil/gas projects (offshore, onshore, foreign lands) has been halted.
There is an energy shock unlike anything anyone has ever seen coming, unless one believes in demand is going to drop by 30%.
Awesome video! Btw, what you are saying in your video about infrastructure, refineries and pipelines isn't just an SPR problem. All of the pipelines and refineries haven't been updated in the last 15-years to reflect where the current energy supplies are. Light oil is piped down from Alberta for example to Texas to be refined and then sent back to Canada because there has been no refinery built since 1974.
Things like Keystone XL or pipelines into the Utica shales in Ohio just haven't been built.
I also expected shale oil production to fall - for all the reasons you list above - and yet it has not happened.
EIA has shale oil production at about 8m barrels a day - so not sure where you are getting 7% from.
Permian production is the region that is at record levels of production for both oil and gas, which is the near where the SPR storage facilities are based, and from what I can see drilling is coming back on line.
Shale could be a disaster - but its not turning up in the numbers yet
7% of global production. Debatable on if to include NGLs/condensates as total global production but rounding error percent wise. 8m/93m = roughly 7%. The point is that most oil, 93%, comes from mega projects and those need years just to plan let alone build. The future for the oil price is bright. Steady demand and dropping supply.
I was mentioning gas above with both the Utica shale but main "core" is in Ohio (biggest untapped North American gas field that lies under the Marcelus) and the Montney (2nd biggest gas field in North America, as big as th Marcelus) in Canada because the infrastructure necessary to exploit them isn't being developed. It will take a decade just to construct the pipelines, let alone permit, design, finance etc. This era will go down as one of absolute insanity in not developing future energy resources. It isn't just "energy" that will be impacted by energy scarcity due to political medling. Things like fertilizer will be much more expensive for several years to come. Now no idea if that will be in 2020s or 2030s and a lot can change before we get a true energy crunch but we are well on the way for it.
That is my base case - but does rely on China not imploding... o
unrealtes to oil, but it todays paper...
Tenants Confront New Jersey Landlord Over Rent Hikes
BY KATE KING
Dina Bologa was shocked when she learned in July that the rent for her Jersey City, N.J., two-bedroom apartment would go up 40% to more than $6,000 a month if she renewed her lease.
She thought about moving and tried negotiating with her landlord. Then Ms. Bologa’s neighbors, who were facing similar rent increases, started organizing.
They filed petitions with the city saying that the 19-story waterfront building should be subject to rent control. The city’s rent-control administrator agreed.
Yes I saw that. Interesting part of that article was the widespread use of rent software. Raises the question of when pricing software is used my most participants does that cause cartel pricing. FTC will likely take a look