Alright, this one’s for all of the price chasers out there that are wondering what’s been happening with the Energy industry.
Here’s the story.
🧵🪡
Here’s the story.
🧵🪡
Let’s start in 2014.
After rising over 10% in the first half of the year, oversupply caused petroleum prices to slip in July. With growing production from both the Permian and abroad, the crude index continued to fall, down 51% by January 2015.
bls.gov/opub/btn/volum…
After rising over 10% in the first half of the year, oversupply caused petroleum prices to slip in July. With growing production from both the Permian and abroad, the crude index continued to fall, down 51% by January 2015.
bls.gov/opub/btn/volum…
In the years that followed, many people’s attention turned to climate change. The idea of peak oil consumption & society becoming carbon neutral caught on fast.
While spot prices went sideways, the rotation out of energy companies continued.
While spot prices went sideways, the rotation out of energy companies continued.
https://twitter.com/cathiedwood/status/1283517274415075330
Fast forward to March 2020.
People tend to forget, but early in the month a price war broke out between Russia and Saudi Arabia. OPEC output hit a 30 year high while the two fought to dominate the global market.
worldoil.com/news/2020/5/1/…
People tend to forget, but early in the month a price war broke out between Russia and Saudi Arabia. OPEC output hit a 30 year high while the two fought to dominate the global market.
worldoil.com/news/2020/5/1/…
Then, just as this price war was playing out, worldwide demand crumbled as Covid restrictions swept across the globe.
With supply still flooding the market, inventories hit their capacity and $WTI fell from $18/bbl to an anomaly price of (negative) -$37/bbl.
With supply still flooding the market, inventories hit their capacity and $WTI fell from $18/bbl to an anomaly price of (negative) -$37/bbl.
With inventories full and demand down sharply, producing was no longer economic & OPEC was forced to do a record production cut.
Most companies had to abandon their dividends & spending in order to have a shot at making it through.
politico.com/news/2020/04/1…
Most companies had to abandon their dividends & spending in order to have a shot at making it through.
politico.com/news/2020/04/1…
For a while this made companies cautious to take on risk. Drilling was non-existent and very little new production was coming online.
As demand began picking up again, production still lagged. This trend has kept up and inventories continue to drop.
As demand began picking up again, production still lagged. This trend has kept up and inventories continue to drop.
The trouble is that shutting in a well is usually much easier than bringing it back online. That takes time and money.
More recently though, prices have soared and companies are back to putting together drill programs.
Problem solved? Not quite.
More recently though, prices have soared and companies are back to putting together drill programs.
Problem solved? Not quite.
Because of supply chain issues companies are now struggling to find some materials that are vital to their drill programs.
An example is casing, which is up ~70% in cost since 2020 & has a multi-month wait time.
In the meantime the rigs & their crews are being sent home.
An example is casing, which is up ~70% in cost since 2020 & has a multi-month wait time.
In the meantime the rigs & their crews are being sent home.
While global demand continues to rebound at the same time supply is constrained, inventories will fall. Until this issue is fixed upward pressure on $/bbl should continue.
It’s a classic supply crunch that will take time to correct.
It’s a classic supply crunch that will take time to correct.
As $/bbl climbs companies with steady producing wells and large reserves will have huge free cash flows without having to grow their production.
They can use this $ to buy back shares, distribute dividends, or pay off debt (which is getting cheaper by the month).
They can use this $ to buy back shares, distribute dividends, or pay off debt (which is getting cheaper by the month).
If you want to talk about a beaten down sector, energy is one that has taken it’s share of abuse over the past 8 years.
I would be happy to hear any differing opinions about the 8 that are to come.
End.
I would be happy to hear any differing opinions about the 8 that are to come.
End.
@WhiteTundraSG @ericnuttall @gnoble79 @sohaibab9 @leadlagreport @ChrisBloomstran @notabigdeal111 @energyburrito #WTI #Crude #Oil #Gas #Energy
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