Comment of the Day
Big Picture Long-Term video March 11th 2022
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Biden's Demands for Oil Collide With Drillers Reining In Output
This article from Bloomberg may be of interest to subscribers. Here is a section:
U.S. shale producers expect the oil price spike to be short-term, and shareholders don’t want companies investing capital in robust drilling programs delivering new production in 18 months, Pioneer Natural Resources (NYSE:PXD) Co. Chief Executive Officer Scott Sheffield said Wednesday. Oil futures indicate companies would get lower prices for crude that begins flowing in 12 to 18 months.
The administration’s approach assumes oil producers will turn on a dime in response to pleas from the same people “telling everybody that they are going to be obsolete in 30 or 40 years,” said Benjamin Salisbury, director of research at Height Capital Markets.
Investors in shale also have brushed aside arguments that drillers should crank up production because it’s their patriotic duty. Many still bear scars from the last boom-and-bust cycle, when companies chased production growth, ultimately contributing to a glut that drive down prices.
“The upstream industry is not a public service industry,” said Ben Dell, founder of Kimmeridge Energy Management. “For 10 years we made no money. The industry is profitable for two months, and the argument is that we’re supposed to price down the product or give away margins to support the consumer.”
My view - Shale drilling is capital intensive. The days when money would be thrown at the sector with little concern for profitability are over. Investors now demand returns. Unconventional wells require constant drilling to sustain production. Within months of the cessation of drilling, volumes shrink. That means these kinds of wells are price sensitive. It is possible to ramp up production provided future production can be hedged at attractive prices.
Cathie Wood's ARKK Lures Almost $1 Billion Even as ETF Sells Off
This article from Bloomberg may be of interest to subscribers. Here is a section:
But for some investors, “it’s opportunistic investing,” said Chris Gaffney, president of world markets at TIAA Bank. “Maybe it’s an opportunity to rebalance and buy some of these big-name, good companies that have been in this correction and the prices are cheaper.”
The S&P 500 is on pace to notch its second consecutive week lower, but retail traders haven’t been deterred by the volatility. They’ve become a reliable support pillar for the market, plowing cash toward stocks for nine straight weeks.
Partly, it’s a habit developed during the Covid-19 crash -- and one that’s proving stickier than many expected. Back then, buying during the March lows proved very profitable, including
for ARKK enthusiasts.
Gaffney says there’s a swath of investors who are wary of missing out on any other potential big run-ups in prices. “You always get some people who feel like, ‘I missed out on the last big run, and I’m not going to miss that again, so I’m going to get in now when prices are cheap.’”
My view - In a secular bull market buying the dip always works. It becomes engrained as the go-to strategy for investors to get a position at a discount. As interest returns, the assets leading the secular trend break higher, the decision is vindicated and buying the next dip becomes an even easier decision. One way to know that a bull market is over, is the buy-the-dip trade fails.
A New World Energy Order Is Emerging From Putin's War on Ukraine
This article from Bloomberg may be of interest to subscribers. Here is a section:
“The U.S. can try to make Saudi Arabia increase production, but why would they accept a break in the alliance, which is key for them?” said Paolo Scaroni, former chief executive officer of Italian oil company Eni SpA.
There’s a political dynamic at play to explain the kingdom’s fidelity to Moscow beyond the gusher of oil revenue.
Where Donald Trump cultivated a particularly friendly relationship with Saudi Arabia — making his first foreign trip as U.S. president to Riyadh — ties have turned colder under President Joe Biden. On the campaign trail, Biden pledged to make the kingdom a “pariah,” in part because of the killing of columnist Jamal Khashoggi. He will only deal with the elderly King Salman, relegating Mohammed bin Salman to interact with more lowly officials despite being the kingdom’s defacto ruler.
By contrast, Riyadh’s OPEC+ partnership with Moscow calmed years of distrust between the two oil rivals, and saved the kingdom from relying exclusively on Washington.
“Saudi Arabia doesn’t want to switch horses mid-race when they do not know if the other horse is actually going to show up,” said Helima Croft, chief commodities strategist at RBC Capital Markets.
My view - The USA going cap in hand to countries like Iran, Venezuela and Saudi Arabia this week, with the request to boost oil supplies must have been both humbling and galling for the Biden administration. For the all the talk of a more enlightened foreign policy the arrogance, even so-called allies, have been treated with is pretty astounding. International rulers will be told not to take it seriously. After all they were working in service to the higher cause of abating climate change.