Credit deflation and the reflation cycle to come (part 3)

[DurhamBorn]

"Some investors are pushing energy firms to split off their green energy arms, with Shell under pressure from the activist Daniel Loeb.

Looney said he had faced no such calls from BP’s investors but claimed some renewables-only firms are struggling to fund their growth. In contrast, oil and gas companies can divert their vast financial reserves into green power."

https://www.telegraph.co.uk/business/2021/11/02/oil-gas-price-surge-turns-bp-cash-machine/

[Loki]

That sounds familiar from somewhere @DurhamBorn...

[Majorpain]

I would like to say that our gas supplier (wholesaler) at work went bust today, but that would probably come under "dangerous misinformation" in the new online safety bill, so lets just say that our current supplier has decided to rebrand the same as one of the other market participants.  4 other consumer side utilities have also decided to rebrand.

Electric is from "that company" for all you sufferers!

[HousePriceMania]

I dunno if anyone agrees but we seem to be at an inflection/turning/pivotal point in the madness we have witnessed since 2000.

The CBs are all stopping QE/tightening ( or claiming to ) in Unison, some have started to push up IRs, inflation is no longer being seen as transitory, the private jet brigade are all lecturing us on green issues, the self appointed queen will be dead shortly, bitcoin heads to the moon, squid coin heads to 0, share prices that make no sense, rich men flying their rockets to the moon...

What comes now ?

 

[M S E Refugee]

6 minutes ago, HousePriceMania said:

I dunno if anyone agrees but we seem to be at an inflection/turning/pivotal point in the madness we have witnessed since 2000.

The CBs are all stopping QE/tightening ( or claiming to ) in Unison, some have started to push up IRs, inflation is no longer being seen as transitory, the private jet brigade are all lecturing us on green issues, the self appointed queen will be dead shortly, bitcoin heads to the moon, squid coin heads to 0, share prices that make no sense, rich men flying their rockets to the moon...

What comes now ?

 

The Rapture?

[Bobthebuilder]

9 minutes ago, HousePriceMania said:

I dunno if anyone agrees but we seem to be at an inflection/turning/pivotal point in the madness we have witnessed since 2000.

The CBs are all stopping QE/tightening ( or claiming to ) in Unison, some have started to push up IRs, inflation is no longer being seen as transitory, the private jet brigade are all lecturing us on green issues, the self appointed queen will be dead shortly, bitcoin heads to the moon, squid coin heads to 0, share prices that make no sense, rich men flying their rockets to the moon...

What comes now ?

 

A house price crash?????

[Loki]

Just now, Bobthebuilder said:

A house price crash?????

Be sensible Bob, this isn't off topic. 

[Bobthebuilder]

1 minute ago, Loki said:

Be sensible Bob, this isn't off topic. 

Sorry Loki, couldn't resist.

[Option5]

1 hour ago, DurhamBorn said:

"Some investors are pushing energy firms to split off their green energy arms, with Shell under pressure from the activist Daniel Loeb.

Looney said he had faced no such calls from BP’s investors but claimed some renewables-only firms are struggling to fund their growth. In contrast, oil and gas companies can divert their vast financial reserves into green power."

https://www.telegraph.co.uk/business/2021/11/02/oil-gas-price-surge-turns-bp-cash-machine/

In today's Norwegian newspaper.

 

[jamtomorrow]

18 minutes ago, HousePriceMania said:

if anyone agrees but we seem to be at an inflection/turning/pivotal point in the madness we have witnessed since 2000.

The CBs are all stopping QE/tightening ( or claiming to ) in Unison, some have started to push up IRs, inflation is no longer being seen as transitory, the private jet brigade are all lecturing us on green issues, the self appointed queen will be dead shortly, bitcoin heads to the moon, squid coin heads to 0, share prices that make no sense, rich men flying their rockets to the moon...

What comes now ?

 

[HousePriceMania]

8 minutes ago, Bobthebuilder said:

A house price crash?????

I think the horsemen of the apocalypse are more likely.

I'm hoping I live to see this fella proved right

 

 

[Castlevania]

1 hour ago, Cattle Prod said:

Yes that's one to watch, I've heard of some horrendous hedges out there where people grabbed 40 or 50 a barrel when things were really bad. Thing is, with this backwardation, you can't hedge next year or 2023 because you're getting 5,6,7 dollars below current spot. I bet there are very few hedges in 2022 and 2023. If the price has structurally shifted and stays in this range, cashflow will explode. That's probably why share price is lagging.

If BP is hedged at say $60 average and prices averaged $75 over 2022 on oil and gas equivalent, those rolling off end 2021 would add $11bn cash. Numbers for illustration, their hedges should be in their reports.

11bn is a lot of cash, buys a lot of windmills  And as you say, renewable companies would have to raise that on the debt markets at increasing interest rates. O&G companies are part of the solution, and it's dangerous to trash them like they have been. Because I wouldn't mind that $11bn in divi either 

Edit

Just read your post above!

BP lost US$ 6 billion in the quarter from valuing their gas hedges (I assume what they’ve forward sold) to market. 

[Bobthebuilder]

5 minutes ago, HousePriceMania said:

I think the horsemen of the apocalypse are more likely.

I think they are already staying in an Airbnb in Cornwall, at this present time.

[HousePriceMania]

8 hours ago, wherebee said:

"In an unscheduled press conference after Tuesday’s meeting, Dr Lowe said the RBA’s more bullish economic outlook meant “borrowers need to be aware that rates will rise again – not quickly, and not next year; the most likely case is 2024, but it’s possible it’s 2023”."

Shit, time to get out of cash.

That is frightening.

This is pretty much what I expect the BoE to do.

 

[Hancock]

Boris and the GreenTories couldnt give a fuck as they're rich!

https://www.telegraph.co.uk/business/2021/11/02/oil-gas-price-surge-turns-bp-cash-machine/

Consumers will be threatened with even higher energy prices if the Government backs a "premature" ban on oil and gas drilling in the North Sea, the chief executive of BP has warned.

Ministers will simply increase Britain's reliance on imports if they bow to pressure from activists and block all new fossil fuel projects, with no impact on carbon emissions, Bernard Looney said.

Speaking as BP unveiled a jump in profits driven by the global economic recovery, Mr Looney said that halting all new domestic oil and gas extraction would “not necessarily help” Boris Johnson in his drive to reach net zero.

"If you take away supply but demand does not change, the only thing that happens is prices go up. "So we need to be very careful about prematurely taking away supply from the market," he said.

Energy prices are a matter of increasing concern for the Government as it confronts the cost of reaching net zero carbon emissions by 2050.

The wholesale cost of gas has surged as much as sixfold since the world reopened, triggering the collapse of 18 UK energy providers since September.

Omni Energy, MA Energy, Zebra Power and Ampoweruk became the latest small players to collapse on Tuesday, meaning their domestic customer base of around 20,000 people will be moved to new providers.

The Prime Minister is this week seeking to secure approval from world leaders to halt global warming at the COP26 conference in Glasgow.

UK Prime Minister Boris Johnson and India's Prime Minister Narendra Modi at Cop26 CREDIT: Pool/Getty Images

Fossil fuel producers have been blocked from a formal role in the meeting but are keen for the government to recognise the importance of energy resilience and the risk of cutting too fast.

The oil and gas industry is waiting to see if approval will be granted for drilling at the Cambo oil field in the North Atlantic, thought to contain more than 800 million barrels of crude, with a decision expected before the end of the year.

Climate groups claim the scheme risks undermining Mr Johnson’s promise to lead the charge in cutting carbon emissions globally.

BP recently faced its own controversy over plans to extract oil from the Vorlich field, in the North Sea. 

The company faced a legal challenge against the scheme from Greenpeace but successfully fought it off last month.

Mr Looney said BP is still trying to convince experts that it can be part of the green energy transition, following complaints by the boss of Shell that his company was told it was not welcome at Cop26. 

But he pointed to a string of investments in electric car charging points, hydrogen plants and wind farms as evidence that BP is taking the matter seriously.

Mr Looney said: “That is what a company like ours can do. So I understand there are some people who think we are not part of the solution, but I disagree with them."

He also argued that the company’s traditional fossil fuels business was helping to provide the financial firepower needed to make the long-term switch to renewables.

Some investors are pushing energy firms to split off their green energy arms, with Shell under pressure from the activist Daniel Loeb.

Mr Looney said he had faced no such calls from BP’s investors but claimed some renewables-only firms are struggling to fund their growth. In contrast, oil and gas companies can divert their vast financial reserves into green power.

BP said on Tuesday that its profits had boomed in the third quarter as a jump in demand from reopening economies caused oil and gas prices to surge.

Mr Looney said demand had turned the business into a "cash machine", with the company's power trading business delivering a “strong” performance.

The FTSE 100 business made pre-tax profits of $6bn (£5bn) in the period, compared to $1.2bn a year earlier when demand had slumped due to the pandemic. 

It announced a further share buyback scheme worth $1.25bn and said that buybacks should now amount to around $1bn per quarter, with oil above $60 per barrel. 

BP said it expects gas markets to remain tight during the winter and oil prices to stay high as more crude is used for power generation rather than gas.

Shares fell 2.3pc to 348.9p, valuing the company at £70bn.

[Axeman123]

23 minutes ago, HousePriceMania said:

That is frightening.

This is pretty much what I expect the BoE to do.

 

For context:

https://www.zerohedge.com/markets/rba-abandons-yield-target-due-economic-improvement

RBA seems to be going for taper then rate rises, as is the US. Here we are expecting rate rises with continued printing, I think.

[reformed nice guy]

For all my fellow Drax holders:

02 Nov 2021, 6:53 pm	High offer accepted Drax 6 accepted at £4050/MWh
02 Nov 2021, 6:53 pm	High offer accepted Drax 5 accepted at £4000/MWh

https://thecurrent.lcp.uk.com/

[Hancock]

About a month ago Davey was saying the bust will be 3/6 months ... now its 2nd half of 2022.

Maybe he missed the bust in 2020, and is like one of those Japs still fighting WW2 in the early 80s.

[Loki]

14 minutes ago, Hancock said:

About a month ago Davey was saying the bust will be 3/6 months ... now its 2nd half of 2022.

Maybe he missed the bust in 2020, and is like one of those Japs still fighting WW2 in the early 80s.

It would be nice if the goalposts moved back a bit rather than always away...I suppose he's only calling it how he sees it, but that would suggest they are doing everything to keep it going that bit longer.  I don't know what to think any more, I thought DXY being this high for this long was a bad condition to be in, record highs past 3 days on markets.

[Axeman123]

29 minutes ago, Hancock said:

About a month ago Davey was saying the bust will be 3/6 months ... now its 2nd half of 2022.

Maybe he missed the bust in 2020, and is like one of those Japs still fighting WW2 in the early 80s.

I have been wondering if he has gotten sick of being progress chased by people on twitter, and just banged his estimate WAY out. I really struggle to see it taking several months (potentially 5+ if 1st qtr top isn't even definite) to gain 15% on the S&P, in a "melt-up" that covers a lot of ground really fast. Sentiment certainly seems to be getting into madness-of-crowds territory already.

[sancho panza]

3 hours ago, Cattle Prod said:

Yes that's one to watch, I've heard of some horrendous hedges out there where people grabbed 40 or 50 a barrel when things were really bad. Thing is, with this backwardation, you can't hedge next year or 2023 because you're getting 5,6,7 dollars below current spot. I bet there are very few hedges in 2022 and 2023. If the price has structurally shifted and stays in this range, cashflow will explode. That's probably why share price is lagging.

If BP is hedged at say $60 average and prices averaged $75 over 2022 on oil and gas equivalent, those rolling off end 2021 would add $11bn cash. Numbers for illustration, their hedges should be in their reports.

11bn is a lot of cash, buys a lot of windmills  And as you say, renewable companies would have to raise that on the debt markets at increasing interest rates. O&G companies are part of the solution, and it's dangerous to trash them like they have been. Because I wouldn't mind that $11bn in divi either 

Edit

Just read your post above!

Must say that I'd welcome a pullback,our position is a medium term one at a minimum-it's possible we may not sell up this side of 2030 instead preferring to hedge using puts.Markets that go up and up make me nervous but the set up here is sweet.

As you say structural supply issues are going to meet full on 100++mbpd demand next year and the evidence is increasingly showing that your predictions from 2 years ago are bang on ref the 'OPEC spare capacity' plus the assorted lockdown related reductions in exploration/drop in US shale production.

AS you say,futures markets being backwardated pretty much means that any sustained rise in oil prices will reach the bottom line.

This trade really starting to remind me of the Billiton/BAT's trade from 2000.Those ladders picked up at £2 BP could 5 bag with reinvested divi's over a decade.

Decl:very long

[Loki]

Does WTI oil look like it's rolling over to you @Cattle Prod?

[Loki]

Just now, Cattle Prod said:

Technically yes, but fundamentals are very strong. Can you imagine what an Abqaiq attack would do to this market as opposed to the complacent market of 2 years ago? I wouldn't trade it in core positions (I mess about with options to keep my itch scratched), and do what @DurhamBorn does: mentally prepare yourself for a multi year investment, even if we get a savage drawdown. It's much easier to spot a trade than stay the course and not exit early. People here should have a much lower average entry than the majority of the market, therefore shouldn't get shaken out.

Thanks, I was reminded of David saying it had topped for the remainder of this cycle and would roll over. (I appreciate it's not like an on/off switch) Just wondered what an oil expert made of that idea.  To me it seemed even if it had topped it wouldn't fall far.

[Froggy2000]

2 hours ago, reformed nice guy said:

For all my fellow Drax holders:

02 Nov 2021, 6:53 pm	High offer accepted Drax 6 accepted at £4050/MWh
02 Nov 2021, 6:53 pm	High offer accepted Drax 5 accepted at £4000/MWh

https://thecurrent.lcp.uk.com/

That doesn't mean much to me being an ignoramus, but I do know I pay roughly 13p per Kwh for my home electricity.  In other words I normally pay £130 for a MWh.  Drax is charging 4k!!  Is that right?!!!

[MrXxxx]

Waiting in cash for the BK?....is it a fools prophecy to do so?...have  a look at this video and see what you think: