Calvin Profile picture
Jun 25 9 tweets 3 min read
I don't have blind faith oil will stay strong, and I acknowlede the oil market is rightly considered as somewhat opaque. There are two factors giving me confidence:

1) Crack spreads (record highs)
2) VLCC rates (near record lows)

So first on crack spreads. This is your sanity check on "is demand destruction occurring". The crack spread is the difference between the price of crude and the price of products like gasoline and diesel. At incredible, historic, world beating levels.

What does this imply?
Basically, that refineries have zero incentive to slow down. They cannot meet consumer demand. So fuel margins are at record highs. As long as this persists, refiners, the main buyer of crude, have a historic incentive to not only buy, but to bring more capacity online. Anything.
The other factor, low VLCC rates, combined with big backwardation in the futures structure, shows that floating storage is low and supply of crudd is insufficient.

Usually, VLCCs do best in an over supplied market, especially a contango structure, where on shore storage fills.
Best years in recent memory for VLCCs were 2020 (super contango), 2019 (floating storage build up for #IMO2020 transition), and 2015 (contango). You might notice two of these years coincide with materially lower oil prices.

I've said often don't sell oil till VLCC rates good.
Which brings up another point: VLCCs are paradoxically a great hedge to a weakening oil macro. When market moves into contango, VLCC earnings improve as tonnage is taken out of the trading fleet for storage.
Anyway, of course there are other factors, but these are two things you can look at which are easy to verify and impossible to manipulate, both representing a hyper competitive, global, and mostly physical market, as opposed to oil futures or equities which are largely financial.
Btw sorry for
Here are some charts which illustrate oil market dynamics well.

Tonne miles for VLCCs are still closw to the lows - this means supply crashed during covid and still hasn't recovered.

Fleet has grown, but this has nothing to do with export activity.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Calvin

Calvin Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @calvinfroedge

Jun 25
Anyone pointing to "product supplied" from EIA as a demand proxy shows a lack of understanding of what the numbers mean.

"Product supplied" is a proxy for how much fuel is being transferred to distributors, not how much fuel consumers are buying.
To illustrate this point, I would ask what happens to "product supplied" if there were, for instance a 500k bpd refinery knocked out by a fire. Product supplied would drop, but that has nothing to do with consumer demand.

"Product supplied" proxy for *refinery output*.
Why is this distinction important? Namely because the US has the least operable refining capacity today that it has had since 2014, due to closures during covid and accidents this year.

That's why refining margins are at record highs...…
Read 4 tweets
Jun 24
I would encourage you to look closely at BW Energy. BW Group is a world class management team well known in shipping i.e. $bwlpg $hafni.ol $dht

$bwe.ol at $100 oil just generates stupid cash flow over the next few years as production ramps, many multiples of current mcap.
This one has been discusssed quite a bit in Marhelm. Low political risk, high quality assets, pristine balance sheet, tons of cash, crazy production increases.

Im as sure as anything that this one is a long term winner, even at a mid cycle oil price.
Im long $bwe.ol with now about a 7% weight. Big position for me. My growth name.
Read 4 tweets
Jun 22
Two other sources that I trust (including fuel volume data) tell me volumes are up.

Here's a question. Would Bloomberg intentionally mislead you to help the DNC? It is owned by raging liberal Mike Bloomberg...
First, Gas Buddy, who has an app tracking user activity, says activity is up:

Recently he said gasoline demand set a record.
And OPIS from IHS Markit, which is a private service, said volumes were up 2% this week.

So who is lying? Because someone is.
Read 4 tweets
Jun 21
In retrospect, I should have looked into this before booking a flight with @Delta

1000 flights cancelled on Sunday alone...does not inspire confidence as a traveler.…
Now here's the crazy part...they had the Sheraton in Panama City booked just for airline cancellation guests.

The main lobby of the hotel was not operating, the bar was not staffed, the pool area was empty. The only guests in the hotel were passengers from cancelled flights...
So we have:

1) Last minute cancellation on extremely suspect circumstances (a plastic sign)
2) Airport seemed very accustomed
3) Airlines have booked out a 1000+ room hotel just for cancellations, which seems to have no other guests

Something very strange afoot...
Read 4 tweets
Jun 18
If we go on Q1 numbers ($101 Brent), $PBR is at 1.2x EBITDA, 2.15x GAAP EPS. They've paid out 23% in dividends in the past 90 days. Div policy is 60% of FFO-Capex.

That's just silly dude.
Main investments going forward are in refining and gas, which are the relatively weaker segments. Exporting crude production is the big money maker and what's driving the massive dividends.
In regard to "what the politicians are doing", the bottom line is that regardless of what Bolsonaro and other Brazilian politicians say they want, $PBR is sticking to market pricing policies established 6 years ago.

It appears state oil company is the true deep state in Brazil.
Read 5 tweets
Jun 17
Here's some reality on the prospect of a US international export ban. First, let's consider what the main US exports are:

Diesel, gasoline, propane, and other oils (like lubricants and additives).

If the US blocks exports, it will *devastate* the world economy.

We send a lot of diesel and gasoline to Mexico, Canada, Netherlands, Brazil, Venezuela...

We send a lot of Naphtha to Japan and Europe. Below is a visualization of clean tanker charters headed to other countries, from my shipping data production Marhelm:
On balance, most US exports (including crude) are going to Europe and Asia (figures below, again, are from my product, which bases stats on fixture data obtained from ship brokers, ship owners, and charterers).

Basically, we supply both crude and product to everyone.
Read 11 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!