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Coronavirus Roundtable - Energy At The Center Of The Storms

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SA Investing Groups


  • The energy market continues to be in the center of several storms.
  • From geopolitics to USO's implosion to negative WTI prints to production and dividend cuts to a nat gas surge, a lot's going on.
  • We ask a panel of authors focused on the sector how they see things playing out.

Markets have settled and recovered from the initial shock of the coronavirus spread and the response of governments around the US and the world to lock down the economy. But while the major US indices have approached, if not quite matched, the fabled v-shaped recovery, there are still plenty of questions left for investors.

The disconnect between the markets and the economy has become a cliche, which doesn't change its validity. The size of stimulus in the US has been unprecedented. As governments start to reopen, it's to be seen whether we will see a second wave of cases. And we don't yet know how quickly people will go back to spending, and what the engine of the economy will be in this uncertain period.

To suss out all these uncertainties, we're starting a second round of our coronavirus roundtable series. We'll be looking at some of the major sectors of the market that are in the market, overall market and macro outlooks, and niches that may deserve investors' attention.

We focus today on the energy sector. When we last touched upon it, the Russia/Saudi stare-off had just begun. Since then, we've seen oil contracts trade for negative amounts, oil majors cut dividends, and firms around the world pull back on drilling due to an oil supply gut. Meanwhile, nat gas stocks have surged. Where does that leave us? Our panel to discuss:

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The Seeking Alpha Investing Groups is our platform for investing research and guidance. Services are led by individual authors and feature communities of investors with similar interests focused on a given investment style and approach. It enables investors to get guidance and ideas that suits their needs so they can take their investing to the next level. Contact us at marketplace@seekingalpha.com if you'd like to apply to launch an Investing Groups service. Interested in signing up for a Marketplace service? Check out all our services here. For any questions about SA's Investing Groups, contact subscriptions@seekingalpha.com. We'd be happy to hear from you.This account will be used to highlight these authors and offer insights into investing from the authors to any interested users. Follow this account if you'd like to hear what's going on with the SA Investing Groups!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Fluidsdoc is long HAL, SLB, RDS.B, and OXY. The Value Portfolio is long XOM, RDS.A, RDS.B, and OXY. Value Digger is long DPDW. Laura Starks is long BP, CVX, FANG, NEE, MPC, and VLO. Joseph Shaefer is long EQNR and REPYY, and may open a position in XOM. Kirk Spano is long KMI. Elephant Analytics is long CHK's second-lien bonds. KCI Research Litd. is long AR, EQT, COG, SWN, RRC, CNX, and XOM. Laurentian Research is long GPRK and ESTE.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given that any particular security, portfolio, transaction or investment strategy is suitable for any specific person. The author is not advising you personally concerning the nature, potential, value or suitability of any particular security or other matter. You alone are solely responsible for determining whether any investment, security or strategy, or any product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. The author is an employee of Seeking Alpha. Any views or opinions expressed herein may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.

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Comments (33)

These deep dives from Seeking Alpha are amazing!!

Unfortunately, like most people, I don’t actually have the time to read this article.

I tried highlighting the whole thing and having Siri read it to me, but that’s a nightmare. 

It’s very difficult to highlight an article this long. And then it won’t play through speakers or headphones because Siri hasn’t figured that out yet.

Bloomberg on the other hand has figured that out.

They give readers the ability to have their app read the article to them. I use that all the time while I’m walking around doing other things and listening to articles.

It mediators are Vetting these comments before they published, could you guys please pass this request on to your management?

I’m a paid subscriber to Seeking Alpha, and I would love to be able to listen to these articles while I’m doing other things.

That would be extremely helpful to me for consuming your product - which is a GREAT product!!
HariSeldon522 profile picture
Thx for thhe article!!!
This is how I view the oil industry on the whole. Investors can expect a one to two and a half year timeline for the oil glut to ebb away. This, of course, will be hampered strongly by the futures markets for the next two or three months. Futures contracts will come due, and with no storage available, the oil represented by those contract will be sold off at a loss, helping to keep the price of oil low. Natural gas sales and prices, as always, are dependent on the weather. A mild winter like we just had, will leave the utilities holding large unused quantities of natural gas in their storage tanks. If this summer is on the cool side, like last summer, then this will have a negative effect on not only the utilities, but the oil industry as well. So, in regards to the oil industry as a whole, the oil majors with lowest overhead and deepest pockets, war chests, will survive. Weaker oil companies may go under, causing their stock prices to tumble to zero. So invest with great care please. Now, let me address the sudden rise in gas prices at the pump. This too can have a negative response from the consumer towards the oil majors. With the price of oil being as cheap as it is, the consumer as well as possibly the US government may frown upon price gouging, resulting in negative press. Hang on folks, this could be a bumpy ride. I'm long in BP and CVX, so I'm pulling for the use of common sense here. The cheaper fuel is to buy. The faster the oil glut will go away. Happy investing to all.
Richard Berger profile picture

Your observations are very reasonable except as regards low prices leading to a faster snap back. So long as prices remain lower, the 1.2+ Billion barrels of contan go storage will remain. Only in rising price environment will contango storage slowly unwind ... unless it remains so low, so long that contango finally capitulates on their monthly storage costs and the storage sells off in a whole new market crash driving oil down to $teens or even single digits for a few months while those speculators cry uncle. Realistically, contango draw down will probably be orderly and not begin until oil has risen above $45 to $50, at which time it will slowly draw down over a period of 2 to 3 years. This translates to perhaps 12 to 18 months perhaps for oil to recover to the $45-50 range, then 2 to 3 years further held near that range as all contango is drawn. By that time, there will be major cheating in the OPEC/Russia block and shale oil will also be slowly ramping back up in the rising crude market. This is a scenario where oil prices remain soft for a decade or more. Even the super-majors can not sustain dividends or capex beyond maintenance and repair in such a economic climate. This is the the likely scenario that I see unfolding.

None of that matters guys.
The problem is not Saudi or Russian. It’s the Lack of demand which will Stop the natural snap back.

Until we solve Covid with Testing, strong Remedial Therapies and eventually a vaccine - the oil market is frozen in place.

NOTHING else matters.
tortoise1962 profile picture
Looks like you get instant thaw when a cop kneels on a guy's neck.

Social distancing thrown out the window. No fines as there were for going to church or watching sunsets, no jail as there was for cutting hair.

It will be ironic to watch them reimpose their silly rules after the rioting, looting, and burning have subsided.
If anybody actually believes that in the short term electric cars are going to displace IEC for passenger vehicles and freight transport and solar is going to displace LNG for power generation, they should be buying as much equity in the copper and nickel miners as they can get their hands on. The amount of copper required to de-carbonize the transport and power generation sectors will be absolutely monumental. The transition will take decades, and both India and China are forecast to significantly increase their LNG imports for the next 15 years, at a minimum.
Dividend Pro profile picture
Yikes! So much misinformation from some of these authors in this banter.
Scary. Some don’t know what they’re talking about.

Eg. the guy who claims the cheapest oil storage is in the ground.
Let’s mythbust him: only maybe true if nobody else is pumping out of that formation. And often there is another adjacent lease competing with me.
kongfuzi profile picture
Wrong Dividend Pro. That's not how shale works.
No mention of MRO. Strong cash position to whether the storm. Responsible management.
jculley profile picture
They just eliminated their dividend...
Yes, but that may be viewed as a responsible, positive step, as someone in the roundtable brought up
I took half of my mpc with A 40percent gain. Thinking about berry petroleum with my gains. Does anyone have an opinion?
Laura Starks profile picture
@hayfarmer0305 $BRY decent company back from bankruptcy, CA operating environment challenging. I have reviewed for my EBEI marketplace svc.
Thanks for the input
jculley profile picture
Loved this roundtable. I got thrashed by $OXY, still hold $BP and $CVX for oil and have rather large positions in $HFC $PSX $VLO and $MPC thanks to some lucky purchases and their subsequent share price increases lately.

Thank you to all you contributors for doing this roundtable, I sincerely hope that Seeking Alpha does a follow up in a few months while simultaneously ending all the annoying full screen pop up ads.
Delighted to read that mr Joseph Shaefer here makes the right comments about the May WTI briefly going negative before expiry. That’s all it was
Laurentian Research profile picture
As we know now, the counterparties in the down to -$37.63/bo trades are mainly:

Seller: retail investors in a structured product managed by the Bank of China. The investors were all wiped out and some, while BOC was ordered by the Chinese government to shoulder ~20% of the losses due to its design of the structured investment product and irregular handling of the accounts.
Buyer: CVR Energy of Carl Icahn.

Let's see what late-May to early June 2020 brings us...
shaner1 profile picture
The MKT is forward looking, already identifying the winners. COP bottomed at $20.70 now over $43. CVX $51.60 now over $95. (all refiners work). Saudi production of 10-11m bbl/d is irrelevant, there actual exports have exceeded 8m bbl/d only 3 times in history.
Even gloom and doom Goldman has oil at $50 this year.
Laurentian Research profile picture

It's not "....efforts of oil standardization through sanctions".

It is "....efforts of oil 'strandization' through sanctions"!
goat21 profile picture
Doc, not much discussion on reservoir damage from slowing or shutting in wells. Not all reservoir characteristics are the same. Many might be unable to produce.
Richard Berger profile picture
Oil producers are not stupid. Reservoirs subject to damage from shut-in, such as steam and fire flood and certain others, would not be shut-in unless reaching their long term economic limit anyway (hence at low production volume). This is not a significant issue that some try to argue it is.

Chris Valley profile picture
I'm just glad I don't follow most of these oil apologist theories.

Only one of these authors invests in a refiner? Nobody owns PSX? Wow What a diverse independent panel.
Laurentian Research profile picture
Actually, FIVE authors explicitly indicated in this article they owned oil companies with refineries. I don't get it why you recognized "only one":

Fluidsdoc (RDS.B).
The Value Portfolio (XOM, RDS.A, RDS.B).
Laura Starks (BP, CVX, MPC, and VLO).
Joseph Shaefer (EQNR, REPYY, XOM).
KCI Research Ltd. (XOM).

Plus other authors may also own refining stocks as known by their Marketplace subscribers but chose not to mention here.
Chris Valley profile picture
That's mostly just integrated majors, which is fine to point out but not exactly... refined?
Laurentian Research profile picture
True majors are not pure-play refiners however, refining is a big part of their business especially at this stage of the cycle. In some countries, they are the only game in town, if one wants to get exposure to local refining. So they are good picks by these authors and those who didn't highlight their refiner picks in this article.
Buyandhold 2012 profile picture
The energy stocks have been booming since March 23rd.

Exxon Mobil: Up 46.87%

Schlumberger: up 40.69%
HAL and MPC both over 50% in that timeframe as well
Ben Gee profile picture
Oil refiners should do well in low oil prices. Mixed oil producers plus refiners should be okay. Pure oil producers not so good.
VLO up over 100%
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