Oil Price Overview
Price Deck – Watch out for the low in February 2021 Oil prices generally peak in summer, and our bull argument for driving season 2020 has totally failed, with economic recovery from COVID taking longer than expected in the North East US, and re-locking down the south. With oil prices post-2014 OPEC breakdown having hit lows in February 2015, but not bottoming until February 2016, we expect another low in prices over the next three quarters. As of Q3 2020, the market is under-supplied in direct supply vs demand terms. However, the massive overhang of inventory, and further overhang of spare production capacity globally, make it likely that $40/bbl Brent in mid-summer 2020 is the high in prices until next summer, 2021. US refining utilization remains historically low for the time of year, speaking to the weakness of the real market. The oil price has rallied hard, but this is […]
Recent Posts
The Value in Scarcity: US Refining
Re-iterate Price Target: Valero $150/share by June 30th. Re-iterate Overweight all US refiners. Illustrating Valero $190/share argument. This is a time of year when the weekly Department of Energy US oil data is crucial: it will be released at 10:30am today. We see an emerging crisis in US oil product markets, depending on how much of that crisis we export to Atlantic Basin markets. It will be a battle of demand destruction: who blinks first […]
Good times in the right places
Happy Sunday in May, Never a bad thing. Fog this morning has lifted. Aramco results this morning rounded out a week when it became the largest stock in the world by market capitalization, surpassing Apple (not by free float, the Saudi government owns 94%). It generated an enormous profit in a quarter when Brent averaged just about $100/bbl (actually $99.53/bbl Q1 average). Refining earnings, as well as continued huge upstream earnings, will be even […]
It’s a Marathon and a Print
We had Kathryn Kelley and Bob Jonke on the Strategy Session yesterday. The story of how I managed to steal a major client’s wallet after we watched the Real Madrid vs Man City game with Kathryn was not repeated. It was an accident! Bob is worried about demand destruction and not super-bullish crude here. By contrast, Kathryn sees a 3mb/d shortage of oil in 2H which simply cannot be drawn from inventory, so something has […]
Happy Anniversary
The only good number in oil is the oil price The only good demand number in oil is refining margins The only barrier of entry to being an oil analyst is units You are only as good as your last call CNBC want me on this afternoon – unusually they booked me two weeks ago – for the second anniversary of oil prices going negative. Let me go to the grave saying I called for […]
Iraq and a Hard Place
This note starts with some near term Iraq production and export analysis, and works backwards through the short term political history, and long term political history, of the country, in the context of oil. Bottom line, Iraqi political instability continues, but oil production has steadily risen over the past 15 years to around 4.3mb/d – an all-time historic high for Iraq – and can likely rise a few more 100kb/ds, certainly in the medium term. […]
Sunday Philosophies
Greetings from Maryland, With limited computing power at my disposal, and having been in thought since watching Elon on Thursday give a TED interview, followed by self-identified philosopher Alex Epstein on our Thursday Strategy Session, a couple of days off, a stroll in Annapolis, this is note is more ideas in 1,000 words, to make a picture, than pictures worth 1,000 words. No demand destruction because there is nowhere to go to substitute Therefore self-compounding […]
Nets, Knicks, Refiners
Tonight PBF management on Strategy Session, 5pm for a tight hour. RSVP. I was at the Knicks vs Nets game last night with a global oil executive; combined with conversations with ConocoPhillips management Tuesday, some brief points. First, Shell profit warning this morning. Break it up. We would like to see a global LNG & gas and power trading powerhouse, a downstream “high carbon” operation with refining, chemicals and retail, a deepwater company. We don’t […]
Aramco’s Tax Windfall
Aramco’s full year 2021 results released Sunday (3/20/22) were more historic than perhaps the market appreciated. First, an announcement of a major increase in capex did not yield a major boost in oil supply, from a global perspective. Saudi capacity will rise just 1.5mb/d, exports 2.5mb/d by 2027. Second, an extraordinary statement from Saudi’s foreign ministry should give any observer of global markets pause for thought: Saudi Arabia said on Monday it would not bear […]
Sunday Overtime
Extremely busy this weekend, juggling Patricia wanting to go spring-time walking dogs and window shopping in (packed) SoHo, and me wanting to solidly sit in front of the TV watching March Madness while making bets online. Somehow she does not see the appeal of watching seven games of college basketball back-to-back over seven hours. Of course, she wins. I did snag North Carolina to win it all at 50-1 BEFORE they beat #1 seed and […]
Elastic Policy
ALL STAR STRATEGY SESSION tonight 5pm ET: Paddy Nicoll, UK Defense expert, Frank Kelly, DC expert, Kathleen Kelley, oil market guru, Jan Stuart, oil market guru. Register Here https://us02web.zoom.us/meeting/register/tZwtcu-vrjsvHNZytoBYUkhN5LzpcaKa-p1O Nothing beats a crisis to test a framework, and loyal readers will know that our framework has been that the marginal producer of global oil (& gas) is the USA, and the marginal consumer of global oil is the USA. Sure enough, cometh the crisis, cometh, […]
Flock of Seagulls: Iran
Strategy Session tonight, Doomberg. New guest date to-be-confirmed, Florian Thaler CEO of oil analytics company Oilx. We spoke to him yesterday on the subject of… The potential impact of Iran on oil markets in 2022. It is very different from 2015. In this note we briefly explain why. Iraq production falls 160kb/d in January – covered in this note. Accusations of cross-border shelling in Eastern Ukraine. No further comment in the note, but you can […]
It’s behind you!
Tonight, Strategy Session with Jay Wilson, Vice President, Hess Corporation. 5pm RSVP. You are not going to believe this: Valero beats. That would be the 17th straight quarter that Valero has beaten analysts’ estimates. Kudos to IR! It does beg the question of why would any company ever miss estimates? After all, Valero earnings since 2017 have hardly been a cake walk. This period includes COVID and the worst possible environment for a refiner. They […]
The most bullish I have seen this chart
Super bullish charts today, see below, especially with Hess beating. Are returns up in oils? Well, Hess just reported 85c for the quarter compared to -32c a year ago. They should put it in the growth index <wink>. But first, as the market melted down this week, somebody responded as to why, that the Fed was raising rates and World War 3 was about to start. But I just can’t get past my gut feeling […]
Third Wheels & India
Portfolio Manager Special Happy Hour Tonight, 5pm ET, with Michael Masters. There might be no better commentator on “inflation day” than Mike. We additionally have four energy/natural resources PMs confirmed. VERY LIMITED event. Sankey Happy Hour Registration: https://us02web.zoom.us/meeting/register/tZIocuuprTooG9SqNZxj9rgUjl9KZxTOEHAJ Masters first came to national – and my – attention testifying to Congress further to a white paper he wrote on oil speculation around 2008. It is always a good sign when you write a research note […]
Looking for Kilos
Yesterday I took on re-modelling the oil market according to the new world order: OPEC+. But I also spoke to a top hedge fund portfolio manager, US mega-player, who is based in Singapore for a couple of months. He made the following points: Strong Singapore economy with staff shortages – he waited an hour for a coffee the other day China cutting back on energy intensity. Brain drain from Hong Kong. Massive capex cycle starting […]
Morning Refining Conference PBF
Our refining conference opened yesterday with an entertaining and informative conversation with the senior management of PBF: Tom Nimbley, Chairman and CEO, Matt Lucey, President, and Erik Young, CFO, and Colin Murray, IR. Noted in passing: OPEC meeting today, huge bull story over the past week was Russia’s December production numbers that once again failed to meet quota and remained flat with November at 10.93mb/d. Russian gas flows are also again very low to Europe […]
Some 2022 Bets Previewed
Thinking about the year ahead, one of my favourite Twitter follows @Raisingthebar47 published the following deliberately non-consensus list of things that will happen energy in 2022. The list is interesting, notably for natgas theorists, but also because it represents what could be considered a list of unexpected events for the year; it was just a quick checklist of things to consider: Natgas back to <$2.50/mcf MVP cancelled/pushed to ’23 (Mountain Valley Pipeline) Oil hits <$50/bbl […]
Morning Libya, Ecuador, and Oil Shock
A couple of stories over the past week have highlighted the precarious nature of global oil supply Outage in Libya 300kb/d Force majeure declared in Ecuador, cutting exports by at least 200kb/d Upstream Online 20th December 2021 Production from four Libyan oilfields has been shut in, causing NOC, the state oil company, to declare force majeure on crude exports from two ports the Zawia and Mellitah terminals. NOC said in a statement on Monday that […]
Friday: OPEC meeting continues
So the December 2021 OPEC did not end. But the working decision was to increase production. Having not met the previous decision to increase production. OPEC+ also decided to continue to require those that had exceeded previous quotas, should still have to cut back to make up for excess production previously, with lack of production currently. Yep, it’s a mess, and in this note I publish a table that tries to make sense of it […]
OPEC Happy Hour? Yikes!
OPEC tomorrow: Joint Ministerial Monitoring Committee (JMMC) 7am ET; OPEC+ meeting 8am ET Woah it seems the chat from OPEC is they may just stick with the plan. That is, there is potential for an INCREASE in line with the 2021 plan tomorrow. This in spite of Joint Technical Committee (JTC) showing a massive excess of oil in Q1: LONDON, Dec 1 (Reuters) – OPEC+ sees the oil surplus worsening to 2 mbpd in January, […]
Letter from the Front Line 11/28
Very tricky to call, indeed! OPEC/Saudi surely will act if markets don’t bounce – my Middle East Intelligence says Saudi is worried about the price but wants to see the market follow through Monday. Fascinating real-time week coming up, we think there might be a unilateral cut by Saudi if the market continues to collapse. But for OPEC to do a cut, is extremely complicated. The easy out, given they have to do something unless […]
US E&P Q3: The Power to Set Oil Prices
Key points: Clients are focused on OPEC spare capacity and demand growth, but also, rightly, North American supply growth, which is the most price elastic component of global oil supply. Halliburton results yesterday naturally raise questions over US production growth; the company stated that it sees 20% rise next year in North American revenues, which includes “solid pricing gains”. This would imply Halliburton expects US E&P capex to be ~10% higher next year; not a […]
Morning Sankey 10/5/21
The headlines from yesterday’s OPEC meeting were “oil jumps to its highest level since 2014”. We finally made it back, and goodness me, it was a long road. Of course, the WTI price we have attained today with a super-bullish backdrop is completely different from what we faced in October/November 2014. At the time, we had peaked at $107/bbl in mid-2014, after a sustained period 2010-2014 when oil traded in a range with $80/bbl as […]
Xi-unday Sankey 9/12/21
In this note, natgas hedging exposure (oops) and a China focus. My S&P500 sentiment Twitter survey yielded a result that is spectacularly unhelpful, lol. Pretty much 50:50 bullish/bearish. All I can say is that it seems I got the categories right, given an almost exact balance between the four choices. One observation made by a major market maker to me this past Friday was that the market absorbed a ton of paper last week, between […]
Viernes Sankey 7/9/21
It was the optimum Happy Hour last night, with two expert witnesses, Kathleen Kelley and Jan Stuart, both highly tenured oil market experts, and a mix of long-only and long-short investors, mutual fund and hedge fund. We were also spread across the globe from Amsterdam to Mexico, with Kathleen struggling in a New York flash flood situation that resulted in a viral video of a lady wading into waist deep water to the NYC Subway. […]
Sunday Sankey 6/27/21
Please join the Sankey Research party in DUMBO this Thursday as we celebrate the crazy past year, since first publishing the first Morning Sankey as independent research, on the Friday, of July 4th weekend 2020. What a muted occasion that was. Now New York is raving, and that is before international tourists return. RSVP for the party. It’s meant as an opportunity for people to come to see the remarkably transformed and very cool Brooklyn […]
Souki Sankey 6/25/21
Overview: we hosted Tellurian Chairman Charif Souki on Happy Hour. Key conclusion: we are, like Souki, past and future mega-bulls on long-term LNG demand and US LNG supply. As such, Tellurian provides an excellent high-risk/return play on the mega-theme. However there are major risks regarding contracts (2 are signed, 5 are needed), project capital cost and execution (the claimed $550/tonne of gasification capacity cost needs to be sealed), and financing/level of shareholder dilution. Compared to […]
Friday Sankey 6/18/21
Fun fact: Australia’s biggest export is boomerangs. It’s also their biggest import. What actor could never play Quasimodo? Humpfree Bogart Doctor: Your body ran out of magnesium. Me: 0mg. The urge to sing The Lion Sleeps Tonight is just a whim away. A client writes: Paul! One day doesn’t make a market, but your next letter can’t come soon enough. Is the run in oil done? Dear clients, Key bear triggers were twofold yesterday. First, […]
Morning Sankey 5/11/21
Noted: private equity selling down $PXD, and Antero $AR issuing. No sooner had we highlighted the Goldilocks oil market, with strong refining margins implying good demand, the potential for further upside in demand from COVID recovery especially in global jet fuel, and the “Saudi Put” back in effect since January, than a bunch of Russian hackers show up and spoil the fun. The issue is that major negative volatility events like this are negative – […]
Sunny Saturday Sankey 5/1/21
Winner winner chicken dinner: Hess this past week. ExxonMobil, we think won of the mega-oils. Hess is the “last great oil NAV play” on Guyana, the stock is worth $100/share+ if you believe $80/bbl is coming down the strip; Goldman clearly does, we get there too, with a weak US$ and not dissimilar balances – a demand boom is coming. Wildcards vs GS are Iran and India, alongside the potential for rising US interest rates […]
Morning PSJeff 4/9/21
What’s Sisyphus’ least favorite band? The Rolling Stones We visited Japan for two weeks and did not see a single ninja. It was really impressive. “Officer, you can’t give me a ticket. I have to go run the marathon tomorrow.” Cop: “That’s not how you play the race card.” The Ketchup shortage this year was so predictable. Heinz sight is 2020. Happy Hour yesterday evening, we had a player whose firm had done a deep […]
Morning Sankey 3/26/21
My wife and I were sitting in the living room enjoying a bottle of wine. Out of the blue she said, “I love you. ” Surprised, I asked, “Is that you or the wine talking?” “It’s me,” she said, “talking to the wine.” What do you call a rich Centipede? A Dollarpede A mushroom walks into a bar and the bartender welcomes him. He’s a fun guy. A Freudian slip is where you say one […]
Morning Sankey 3/25/21
As of writing about the Suez Canal yesterday, we were very early to show how the bulbous nose of the giant ship was buried in the shoreline. That went viral, along with the shape the ship drew on satnav maps before entering the canal. The former, the buried nose of massively heavy vessel wedged in the sand, seems to be a major problem, and there was feedback on my comment that “two dudes in hi-viz […]
Morning Sankey 3/19/21
What is the highest rank in the popcorn army? Kernel. Where do you find the Andes? At the end of your Armies. Few people know that Bruce Lee had a vegan brother, Brocco. Where do DJs do their research? Wiki-wiki Wikipedia. It’s Friday! Why did oil airdrop? Probably because it was walking on air. Spot “flat” Brent prices fell 7.5% yesterday. A trading house sent this comment: “Vitol offered Brent aggressively, driving Dated lower. Shell […]
Morning Sankey 3/17/21
Noted: $PLUG – has said it will restate financials within a couple of months of a major stock offering of 28m shares at $65 per share around January 29, 2021. Not good, unless you are a lawyer. Stock is half that level in the pre-market after yesterday’s shock announcement. The IEA has produced a double whammy today of the Monthly Oil Market Report and their Oil 2021 outlook for global oil markets to 2026. As […]
Morning Sankey 3/12/21
Not sure about the Dad jokes this morning. But I will try a couple for sighs. I accidentally sprayed deodorant in my mouth this morning. Now I talk with this weird Axe scent. I got my friend a fridge for his birthday. I can’t wait to see his face light up when he opens it. How do you walk a dog with no legs? Hit him with the first pitch. We had our uber bull […]
Sunday Sankey 1/17/21
Trying to get up this morning, I was pondering whether the US military could split and part go renegade. However we continue to believe the US constitution will prevail. Rather a negative start to the day, but I moved on to put together the Sunday Sankey for you, with energy, be it alternative, or regular oil and gas, starting the year very well. We continue to be obsessive about the US$ impact on oil prices, […]
Morning Saudi Did What?
Sankey raising Brent oil price forecast to $54/bbl for 2021 (from $45) and $58/bbl for 2022 (from $56). Sankey raising WTI oil price forecast to $52/bbl for 2021 (from $42) and $55/bbl for 2022 (unch). It’s difficult to unpack what just happened to oil markets in terms of Saudi Arabia’s shock move to unilaterally “gift” cut production by 1mb/d for February and March; right down to 8.1mb/d, the very low of their historic production levels. […]
Morning X-Ys Club
Last week we published a chart showing the x-y plot of trailing year-to-date free cashflow vs volume growth for the big oil group. This if you remember, prompted Silvio’s legendary joke when I called him to tell him I was having a nightmare with x-y charts, which he misheard to be “having a nightmare with ex-wife chat”. Anyway, a major Long Only investor replied immediately to the note last week pointing out that the chart […]
Friday Sankey 11/13/20
Friday jokes: I lost all my sense of taste, I think I have COVID! Oh no wait, this is Bud Lite. My son said he was quitting college to move to the Arctic Circle. I said “I don’t like your latitude.” A kid goes to a Halloween party. The host asks him what he is dressed as, kid says “A harp.” The host rudely says “Your costume is too small to be a harp.” The […]
Friday Air Sankey
Well indeed, there are a lot of jokes out there this morning… you can say the news has gone viral. However, given our self-imposed standards of taste and decency, we will limit the news jokes to non-Presidential. If you’re driving a stolen Tesla… Would it be called an Edison? Mark Zuckerberg is in a car accident. Guy : “Let’s exchange personal details” Mark : “You are Scott Thomas, you have 237 friends out of which […]