Credit deflation and the reflation cycle to come (part 2)

[reformed nice guy]

Having a look at http://gridwatch.templar.co.uk

Currently sitting at:

42% gas, 15% nuclear, 8% biomass aka trees, 25% wind, 2% hydro, 2% coal

Its not even cold yet!

If Boris wants lots more wind power then thats fine by me because the amount of energy they need to make them is good for my shares!!!

 

[Loki]

35 minutes ago, reformed nice guy said:

If Boris wants lots more wind power then thats fine by me because the amount of energy they need to make them is good for my shares!!!

Now THAT is contrarian take! 

Out of reps but the above posts are all gold

[DurhamBorn]

36 minutes ago, reformed nice guy said:

Having a look at http://gridwatch.templar.co.uk

Currently sitting at:

42% gas, 15% nuclear, 8% biomass aka trees, 25% wind, 2% hydro, 2% coal

Its not even cold yet!

If Boris wants lots more wind power then thats fine by me because the amount of energy they need to make them is good for my shares!!!

 

Biomas aka DRAX 

[Democorruptcy]

2 hours ago, DurhamBorn said:

@Cattle Prod so you fancy my 2028 period for oil to go parabolic 

Iv done a a lot of work on gas lately,in fact pretty much the only work on macro iv done.I see a stunning set up.I know there is a lot of gas,but its not where it needs to be.If i run demand based on liquidity of currency and run it above that by 2% demand growth a year above trend i see a cross over around 2023.If Asia even starts to move to EV then demand grows even faster.Supply doesnt get near.There is a very good chance gas goes up by 1000%.I know that sounds crazy,but i see 500% as certain and a parabolic rise as a maybe.

Im temped to get into some smaller gas plays,but i think il just keep topping up Repsol and Shell into any pull backs.The MSM say oil/gas is dead.I see the biggest gas bull in history.One of the biggest oil bulls.

Lets see.

Article here about investing in gas, including a line-up of the usual suspects:
 

Quote

 

Notable gas stocks include:

• oil majors like ExxonMobil (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.A)(NYSE:RDS.B), all of which have both oil and gas drilling operations,
• independent oil and gas exploration and production companies like Antero Resources (NYSE:AR) and ConocoPhillips (NYSE:COP)
• pipeline companies like Kinder Morgan (NYSE:KMI) and MLP Enterprise Products Partners (NYSE:EPD)
• propane distributors like MLP Suburban Propane Partners (NYSE:SPH)
• existing and would-be LNG exporters like Tellurian (NASDAQ:TELL) and NextDecade Energy (NASDAQ:NEXT)
• Services companies like Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) as well as providers of frac sand specifically for natural gas fracking 

https://www.fool.com/investing/2019/12/15/how-to-invest-in-gas-stocks.aspx

 

 

 

[janch]

Here is Lyn Alden's latest newsletter which is very timely as it explains all about inflation from a macro perspective.  I find her articles pitched at the right level and easy to read and understand.  She also gives details of her investments and what she alters from month to month.  Her portfolio rises steadily.............(I wish mine did the same!) It's all from a US perspective but equally applicable here:

 

https://www.lynalden.com/november-2020-newsletter/

 

 

[Heart's Ease]

1 hour ago, Democorruptcy said:

Article here about investing in gas, including a line-up of the usual suspects:
 

 

 

Back in the day we used to write out a Christmas list for Santa - after studying the Great Universal catalogue for most of November.

Now...I just look at that list and it's the equivalent of a chemistry set, black n white telly and Acorn Electron rolled into one.

If only Santa would pop all of those into my virtual Hargreaves Lansdowne stocking !

[Barnsey]

 

[Don Coglione]

40 minutes ago, Heart's Ease said:

Back in the day we used to write out a Christmas list for Santa - after studying the Great Universal catalogue for most of November.

Now...I just look at that list and it's the equivalent of a chemistry set, black n white telly and Acorn Electron rolled into one.

If only Santa would pop all of those into my virtual Hargreaves Lansdowne stocking !

Saddo, that catalogue was brilliant for spotting nipples and the odd full bush!

[StrugglingMillennial]

All whilst browsing for toys, good times 😏

[Yadda yadda yadda]

Fascinating reading the gas and oil analysis.

I guess that is one reason they're looking to add hydrogen into the gas supply. I don't fancy paying 6-11 times as much for my heating. At that sort of price an electric boiler would be cheaper! Or it would be if gas didn't knock on to the electric price.

What with that and the expected 60:40 pension armageddon we'll be looking at pensioner poverty again. Brrr.

[MrXxxx]

Though this might be of interest to all here (https://www.ft.com/content/630dcb71-d5cc-4c02-9381-4760eb21cf9c).

Basically a return to retail investors being allowed to partake in share issues rather than companies going direct to the 'Bib Boys' only.

[Harley]

2 hours ago, Cattle Prod said:

..... I have BP, Chevron, ENI, XOM, Gazprom, Repsol, Shell, Schlum and Total......

Ta.

[Loki]

13 minutes ago, Cattle Prod said:

Curve starting flip as discussed. Physical market doesn't lie:

Price has risen 30% in 3 weeks since my ~ $35 target The next move will be telling. I fancy another tree shake, but who knows. Maybe people will realise they need to buy the stuff.

 

Do you ever trade pure oil or just the oil companies?

[Harley]

1 hour ago, Cattle Prod said:

Just decided to buy the whole sector Harley, they're much of a muchness though Ill favour some over others as we go forwards. .

There are some stark differences in the company financials to help sift through the O&G industries.

[Loki]

Just now, Cattle Prod said:

I have some USO calls, just in case stocks lag. But recent moves suggest they may not. There is usually nasty contango in USO or any other pure oil derivative, and I like medium term, so decay is too much. You can't buy physical oil etf like you can silver or gold. Best to stick with big, quality stocks I think.

Thanks mate. No complaints with my RDSB, XOM, or REP so far 

Just need BP to wake up and realise the cool kids are leaving it behind

[Don Coglione]

7 minutes ago, Cattle Prod said:

I have some USO calls, just in case stocks lag. But recent moves suggest they may not.  I had WTI/Brent contracts in the past, but pretty pricey. There is usually nasty contango in USO or any other oil derivative, and I like medium term, so decay is too much. You can't buy physical oil etf like you can silver or gold. Best to stick with big, quality stocks I think.

CRUD?

Genuine question.

[DurhamBorn]

2 hours ago, Cattle Prod said:

Curve starting flip as discussed. Physical market doesn't lie:

Price has risen 30% in 3 weeks since my ~ $35 target The next move will be telling. I fancy another tree shake, but who knows. Maybe people will realise they need to buy the stuff.

Very much like how I just told my wife we need to do our Christmas shopping now because there will be supply problems closer to the time because everyone will rush online at the same time.

$44,$55,$38 $22 outlier,$80,$60,$300+

Road map from now Brent.

Gas,Henry Hub

$2.5.$3.2,$1.9,$1 outlier,$4,$7 ,$18

 

[sancho panza]

4 hours ago, Yadda yadda yadda said:

Fascinating reading the gas and oil analysis.

I guess that is one reason they're looking to add hydrogen into the gas supply. I don't fancy paying 6-11 times as much for my heating. At that sort of price an electric boiler would be cheaper! Or it would be if gas didn't knock on to the electric price.

What with that and the expected 60:40 pension armageddon we'll be looking at pensioner poverty again. Brrr.

Not sure the infrastructure could take it if a lot of people did iirc @Bobthebuilderposted on this.Or maybe I've misremembered

10 hours ago, Cattle Prod said:

Nothing much to report on the oil front, still drawing down ~2m bpd worldwide as expected, despite renewed (insane) lockdowns. Here are two figures that caught my interest though: 

From:

https://seekingalpha.com/article/4389644-first-vaccines-now-oil-spike?utm_medium=email&utm_source=seeking_alpha&mail_subject=open-square-capital-first-the-vaccines-now-the-oil-spike&utm_campaign=rta-author-article&utm_content=link-1

A good read on current and coming oil supply and demand. Interesting to hear what I'm seeing from a different source. I wouldn't call this mainstream, but I said that this narrative would start percolating out in Q4. This is a neat graphic on spare capacity, which is what is keeping markets compacent, despite demand currently being ~ 2mbpd in excess of supply. As discussed, US spare capacity isn't there, and is instead contributing to supply problems. Notice he puts in 5.3m for OPEC rather than the headline 7.7m cut. I'm not sure why he did this, but I did something similar a few weeks back. OPEC was already 'cutting' before the Covid mess. And I always put it in air quotes, because if you look a little closer you'll see that they jack up their production right before 'cutting'. This next graph illustrates that really well:

You could argue that that spike was the 'price war', but they do that frequently before a 'cut'. As do UAE et al. The OPEC members who can't physically do this get stung, hence a lot of friction. So they are currently producing around 2019 levels, or around a million below average. Practically, they do this by turning on thousands of crappy old 'stripper' wells which can provide a temporary boost. I said in March-Apr that they were doing this to fight the 'price war' and that it could only be short lived without damaging their reservoirs. Here it is in graph form.

Short answer: there is not 7.7m barrels being 'held off the market' as is widely believed.

The seeking alpha article also digs into worldwide rig counts. I'd started thinking about this, but hadn't done my own analysis. So I had a look at the Baker Hughes date just to check what he is saying. It's true, international rig counts have cratered more than I had supposed, down over 50% since January. Remember: oil fields do not produce oil, wells produce oil. 

That's a nice historical view. Here's one I knocked up for year on year:

Importantly, slight increases in the US are being offset by continued decreases elsewhere. Markets tend to focus on US data:

We are flatlined at less than half of pre Covd activity.

I was curious as to how far you had to go to find a worldwide rig count this low. Data goes back to 1975:

 

Answer is never, and 2020 average will fall further into year end. Activity was low, pre Covid, too low to sustain future production as it was. We are now baking in supply problems not just for 2021/2022, but for up to 7 years ahead. Shale drilling is 'fast cycle', it doesn't need to be discovered, and you can go from well spud to production in about a year. Conventional oil takes much longer. It can take 5-7 years to go from discovery to production. I was only looking at one of my wells yesterday that found gas in 2012. It's still not on production, despite being a commercial project all the way along.

The other thing that strikes me on this chart is the 1975-1985 activity levels. These were the 'good ole days' in the oil industry, as the old geezers never stop telling you. Anything went, very entertaining stories. But we are still living off what was done then: This is when the Middle East went into high gear, Alaska, North Sea etc opened up. The giant fields in Saudi that underpin their production now were being drilled up to full production then. 2005-2015 is the shale drilling. I don't see another rabbit to pull out of the supply hat.

Thanks for the time you've put into this post CP.

Absolutely incredible to read and look at those charts.

I remember wehn you put up an Art B chart avout how 83% of new supply 2009 to curretn was US shale and at the same time another chart on US shslae rig count(with accompanying expalanation fo teh tread mill).It expalained the situation tome.

I'm not surprised these rig counts have dropped(and who would be given the drop off in price) but as you say,putting 7 year project on hold for a year means it's going to add antoher year to the supply chain re establishing itself....if it can.But I am surprised the worldwide total ahs dropped by near 50%

This has made me have a quick look at oil prices pre 1990/2000/2008 recession which I psoted on earlier.Oil price rise has been an excellent indicator to time off before.It may be different this time but it may not.AS you've previously asserted low oil price is natural stimulus.WHilst some are calling the top here,I don't think we've seen everything fall into place for a top.Not least the run up in oil price.

It's aslo worth noting that oil price run ups are things we can watch in real time whereas we recessions are generally noticed two quarters post recession start due to the volatility of revisons sometimes(particaulryl if we're palying with -0.2% or similar.)

Sadly I'm on nights this weekedn,but I'm keen to have a proper look at those dates particualrly around the rig count drop in 2016.Is there any data going further back that's avaialable.

[sancho panza]

31 minutes ago, DurhamBorn said:

$44,$55,$38 $22 outlier,$80,$60,$300+

Road map from now Brent.

Gas,Henry Hub

$2.5.$3.2,$1.9,$1 outlier,$4,$7 ,$18

 

Have a you a time frame for those foirst four calls DB?

I'm looking for an oil peak April-July,although I am worried that a long stalemate in US Pres could reduce stimulus(Seante looks stacked against Biden)

[AWW]

8 minutes ago, sancho panza said:

I'm looking for an oil peak April-July,although I am worried that a long stalemate in US Pres could reduce stimulus(Seante looks stacked against Biden)

The Fed's temporary USD swap lines and repo facilities to various other CBs expire on 31st March. I think any price action immediately following that date is going to depend on what happens with USD liquidity.

[Bobthebuilder]

Gas safe the UK regulator have stated, no upgrades required to pipes, meters and household appliances with a 20% Hydrogen mix. All working and testing procedures to remain the same. 681 homes in Gateshead going to 20% early next year. @sancho panza, @Yadda yadda yadda

[Barnsey]

Well looky here...

 

[Harley]

11 hours ago, Cattle Prod said:

Granted. Do any of my lot look dicey, do you think? I'm guilty of thinking more about how they could do in the future, rather than how they are faring at present.

Nothing's perfect, especially in this group of industries atm, and I own some of these, but the debt and current ratios of some do get my attention.

[DurhamBorn]

10 hours ago, sancho panza said:

Have a you a time frame for those foirst four calls DB?

I'm looking for an oil peak April-July,although I am worried that a long stalemate in US Pres could reduce stimulus(Seante looks stacked against Biden)

Might peak early next year or into mid summer.To be honest im not really bothered.Those $300 oil and $18ish gas prices are my only concern.The market will get there in its own time.

I do of course consider how an out and back in could really boost returns,but that is risky.I think the answer is to build up divis etc and top slice a few things that run so extra capital is on hand if needed.

[DurhamBorn]

9 hours ago, Cattle Prod said:

I don't know it KT, but any of those I've looked at are synthetic or based on futures which will decay most of the time. Oil is consumed, so you can't buy physical like silver or gold which are hoarded. It's very difficult to leverage the oil price directly. Quality stocks will, if you have time!

Exactly,the way to leverage oil is through quality stocks who have it sat in free storage in the ground and a route to market.