Eq: Energy

Eq: Energy (30)

Friday, 08 May 2020 10:11

Stay Away from These Sectors

Written by

(New York)

This COVID crisis has made whole areas of the economy uninvestable. Many companies have had to halt operations entirely and as the lockdown drags on it has become more clear that many may not reach their previous levels for years (if ever). One problem is that many stocks and sectors appear to be “stubs”, or stocks that have very binary value propositions. Unless things go very right, they are worth almost nothing. Energy is a good example. If oil prices don’t come back and demand for oil stays low, what is the US oil sector worth? Big brock and mortar retailers are the same—what are they worth if the re-opening doesn’t go well?


FINSUM: This is a useful way to think about some sectors, but the outcomes are probably not as binary as they may seem right now.

Wednesday, 22 April 2020 18:07

How the Government Can Save the Oil Market

Written by

(Houston)

The oil market has been the story of the week for markets. The price of black gold fell to -$37 dollars on Monday. The market would technically pay you to take oil off its hands. Even at $20, most of the US oil industry is out of business, so what can the President and the government do to save the market? There are several options. For instance, the government could buy a hundred million barrels of oil for its strategic reserve, or it could create new storage space. However, the option the markets favor is for the government to buy mountains of oil while it is still in the ground, and have producers pay them back as they extract it.


FINSUM: If the government wants to save the US oil industry from a mass bankruptcy—and resulting rupture in the high yield market—it will need to take action.

Thursday, 02 April 2020 13:00

Oil Prices Spike on Rumored Deal

Written by

(Houston)

The sole bright spot in markets today is the big jump in oil prices. US oil rose about 10% earlier today on an announcement by President Trump that a deal between Russia and Saudi Arabia was close. The two parties have ben locked in a price war, which alongside the virus, has conspired to bring oil into the teens from a high of around $63 per barrel in January. Trump says a deal could happen within a “few days”.


FINSUM: Oil hit an 18-year low this week. In our opinion it is only a matter of time until oil producers come to an agreement to try to fix prices higher.

Monday, 30 March 2020 10:33

Oil Plunges Below $20 per barrel

Written by

(Houston)

If there was ever a time to take a hard look at investing in oil, this might be it. Black gold just hit an 18-year low, falling under $20 per barrel. Evidently, in physical oil markets, barrels are already changing hands for $10 each. The market is grappling with a price war at the same time as a massive glut of excess oil at a time of sharply shrinking demand.


FINSUM: Two thoughts to weigh here. On the one hand, oil was recently at $63 a barrel (in January), so this is a very substantial fall, which means a potentially great buying opportunity. On the other hand, oil is not nearly as scarce as many thought at the start of the last decade, so it is not inconceivable that prices could stay low for a long time.

Friday, 13 March 2020 11:29

There are No Winners from the Oil Price Plunge

Written by

(Houston)

Generally speaking, when oil prices fall it is considered good for the economy as it unleashes excess consumer spending. This is what happened in the last big drop in 2014-2015. However, this time around, there are likely to be no winners from the drop. Because the huge fall in prices is coming at a time of significantly reduced economic demand because of the coronavirus, it is hard to imagine that much excess economic activity will be created to account for the drop in oil-related industries.


FINSUM: Supply and demand are tumbling simultaneously across the economy (not just in oil), so it does not seem this will be a net positive like it has been in the past.

Monday, 09 March 2020 11:05

Oil Plunge is Leading the Charge Downward

Written by

(Houston)

Markets are plunging today, and the reason for the huge fall is the complete collapse of the oil market. The trouble is occurring because a price war is erupting in the oil market with Saudi Araba announcing that is was boosting production this morning. The move came as a response to Russia refusing to agree to production cuts to help insulate the market. The oil market responded by falling an eye-watering 30%. That immediately sent stocks plummeting too.


FINSUM: The market is doing its very best to compel Russia to agree to curb production. Surely a production cut wouldn’t cost them 30% of revenue!!

Monday, 10 February 2020 09:11

Citi Warns this Sector to be Hammered by Coronavirus

Written by

(New York)

There is a lot of focus right now on how great an impact coronavirus will have on the stock market, both locally and abroad. So far it has impacted stocks on certain days, with the effect immediately disappearing soon after. The reality is, however, that coronavirus’ impact may be uneven, with some sectors getting hit badly and others being fine, even as benchmark indexes might seem largely unhurt. We have already written about how luxury retail is hurting because of a lack of Chinese tourists, but now it is looking like commodities might be deeply wounded across the board. China is a huge driver of commodity markets as its demand fuels the market. And with the economy so shut down, commodity demand is going to drop off a cliff.


FINSUM: What is most worrying is that commodity prices don’t seem to reflect this at all, which means they are at risk of plummeting.

Monday, 21 October 2019 10:52

Warren Has Spooked Energy Markets

Written by

(Washington)

Elizabeth Warren’s ascendency to being the leading candidate for the Democratic presidential bid, coupled with her strongly leftist policies, has begun spooking various sectors. Energy is ground zero. The reason why is a tweet recently fired off by Warren: “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands … And I will ban fracking—everywhere”. If that eventuality happened, it would greatly wound the US oil industry. Entire oilfield services industries would cease to exist in the US, and Canadian shale would be the big winner, along with huge oil companies, where the price gains from the tightened supply would offset other losses.


FINSUM: Analysts estimate this would send oil prices up around 60%, but it would really hurt the US oil industry.

Monday, 16 September 2019 13:49

Amazon to Be Hammered by Oil Shock

Written by

(Houston)

Oil took a phenomenal turn lower this week as news came out that half of Saudi Arabia’s oil production had been taken out via drone strikes. Yemeni’s took credit, but many suspect it actually came at the hands of Iran. Oil moved in a big way, up 20% at one point, representing the biggest percentage move in three decades. The drone strike is hugely consequential, as it removed 5% of the world’s daily oil supply. Airlines stocks were hit badly on the news, and Amazon may be the next big victim as higher oil prices mean higher shipping costs.


FINSUM: This big change is going to filter through markets in different ways, but the threat to Amazon seems real and very meaningful.

Thursday, 15 August 2019 11:40

Why Oil Prices May Be Headed Higher

Written by

(New York)

All the signs seem to point to commodity prices headed lower. Why you may ask? Pretty simple—the economy looks to be weakening, so demand will be lower at a time when supply will stay high. But no so fast, says Evercore, who argues that oil prices may be in for a counterintuitive rise of at least 19% by the end of the year. Evercore contends that production will be flat this year, as OPEC is curtailing output. At the same time, global monetary policy easing is likely to sustain demand, meaning the basic picture for oil may be more bullish.


FINSUM: We think this is an optimistic view that does not take full account of the worsening economic outlook.

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