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Big_Orrin

27 Dec, 9 tweets, 2 min read

1. If I was physical trader with long term gas contract with Russia. I would not buy extra. Why?

A. Extra flow would reduce value of inventories and profit selling it.
B. Buying extra would provide little profitable margin on the extra volume and potentially losing money

2. As soon as more flow is seen from Russia if I have bought extra then price falls in this volatile market. Thus reducing the value of my cheap inventories and cheap contracted volumes that I am selling on at market value.

3. If I bought extra it would be at spot price and I would sell at spot price. This would mean little margin and it could mean I lose if the price falls below what I pay. Why take the risk?

4. Also, many of the buyers of Russian gas will have long term contracts themselves selling gas on formula to end users. That will be lower than the price the extra volume bought at spot. Is it cheaper to pay penalty and not deliver than to buy extra to fulfill a contract?

5. This is a very cynical way of looking at it. But physical traders are not Ángels. Hedging etc can be done but again it is all about risk/reward. Extra volume has high risk and little reward. Physical traders only take risk if the reward is substantial compared to the risk.

6.This is why all the cargoes are coming from the US/ROW it is low risk and high reward if you have a LTC with the LNG plants. They are buying gas at very cheap prices and chose where they make the highest profit. Likely also undercutting any extra volume bought from Russia

7. Spanish buyers have bought a 1/3 of a tanker that loaded in Australia (other 2/3 discharged in China. The first of its kind for a very long time. Why? Because it is cheaper than extra volume by pipeline at spot prices.

7. This is despite Spain having an agreement with Algeria to provide extra volume should it be necessary, a colder start to the winter and less power from France. Why have they not asked for extra? Likely because it is not profitable.

8. Therefore, the volume coming from Russia May not just be about Russian supply, it also maybe about actually EU buyer demand.

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More from @Big_Orrin

Big_Orrin

@Big_Orrin

25 Nov

1. Seen a lot of paper traders telling Physical traders what they should do with regard to the SPR release and how much money they could make. $5/bbl seems to be the consensus level. On 1mb that is a cool $5m profit.

But sadly reality is not like paper trading.

2. Paper traders suggest you sell the prompt month you where you receive the crude oil and then buy back the month you need to return the crude oil to the SPR. Simple!!!!!!!

Not quite.

3. Lets take the costs on the physical transaction part.

First the easy bit. the cost charged by the SPR

For one year it is 3.9% to be repaid in extra barrels.

So 1mb received requires payment of 1,039,000bbls

Cost: $300k

Read 18 tweets

Big_Orrin

@Big_Orrin

23 Nov

1. Thread

Now seen what Biden is doing, I have been hearing it is not enough, it is worse than expected, etc. But putting potentially 50 million prompt barrels in market is not nothing. It is 1/9th of total US commercial crude inventories and 3 days of US refinery throughput

2. It is 50 WAF cargoes, or 83 North Sea cargoes. In WAF terms that is equivalent to 1.5 Angolan programs and 1 Nigerian. These two programs are already finding it difficult to sell.

So to stuff that amount into a market in as little as 15 days is huge.

3. Now the argument that I have seen most this last week is about OPEC+ retaliation as if it was some level of equivalence. That by suspending their increases OPEC+ would put it to Biden. So let’s do the numbers.

Read 9 tweets

Big_Orrin

@Big_Orrin

23 Oct

1. In Europe data showed that 19% of new cars are of Electric in nature. What is interesting is how that number is occurring.

In Spain, EV prices are not falling even with subsidies. What is happening is gasoline and diesel car prices are going up.

2. A Volkswagen Golf could be found for around €18k brand new before COVID, now lowers price is €23k. Dacia Sandero was €7k now is €8k.

It is happening across the board that new gasoline/diesel prices have risen while EV prices have remained static.

3. So what we are seeing is lower income people being forced out the new car market while those on higher incomes benefit from subsidies. So emissions are not going down, because the market is limited on who can pay the price for an EV.

Read 4 tweets

Big_Orrin

@Big_Orrin

23 Sep

https://twitter.com/columbiauenergy/status/1440762582319599619

1. This is a good listen but the most important factor for the energy transition was barely mentioned which was the backup Energy system. This is the factor that will make or break the energy transition. A reliable back up system.

https://twitter.com/columbiauenergy/status/1440762582319599619

2. In a push towards renewables, it’s intermittency means a back up system is needed much more and also needs to be much bigger in size. The U.K. saw prices over $3000/ MWh and a significant factor was the loss of its wind generation system.

3. The U.K. has. a 20GW metered system but during the last 3 weeks it was producing less than 3GW. That means the back up system needed to be 17 to 20GW. This is far bigger than if the U.K. lost a nuclear power plant (biggest is 3.2GW) or a Gas Plant (biggest is 1.9GW).

Read 11 tweets

Big_Orrin

@Big_Orrin

13 Sep

1. Thread: thought I would put all tweets in one place

Platts and Physical market analysts indicated today that they expect China to release much more from their strategic reserve than previously thought

The believe between 5 and 10 million tonnes (36 and 73mb)
will be released

2. That means before the end of 2021 100mbpd or more could be released from global strategic reserves into commercial inventories for refiners to use

China: 36-73mb
US: 20mb plus crude swaps
India: 4.3mb

3. Why is this significant? because strategic inventories are seen as off market unless an emergency. For China to release from their SPR to affect price suggests that Chinese strategic inventories have more in common with commercial inventories than traditional strategic ones

Read 12 tweets

Big_Orrin

@Big_Orrin

6 Jun

1. Thread- The current narrative is crude Supply i.e. production is less than Demand therefore market is tight. This is the narrative put out by the IEA, OPEC etc. But it is wrong Supply is not equal to production and demand is not equal to consumption.

2.
Supply= production + change in crude inventories

Demand= consumption + change in product inventories

In between is refiners trying to balance these equations

Currently product inventory are building while crude inventory draw

Therefore production roughly equals consumption

3. In the case of crude oil a production is being augmented by inventories to equal supply while inventories are being used to store excess barrels of product.

It means the oil market is always in a supply and demand balance while inventories exist.

Read 25 tweets

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