Wrap – Week Ended 03/6/20



This was one of the group's worst weeks in recent history with a roller coaster ride for the broad markets as a non supportive backdrop. Both reality and fear from Covid-19 impacts are landing hard on markets.  OPEC+ failed to react to those impacts on Friday.

On the lack of a decision by OPEC:

  • OPEC wanted to cut production. The proposal was 1.0 mm bopd OPEC share and 0.5 mm bopd Non OPEC share.
  • The majority of Non OPEC members wanted to cut as well. There are 13 members of the non OPEC group and the majority were onboard with further production cuts. Majority in terms of numbers if not productive volumes (Russia and apparently Kazakhstan were not on board).
  • Russia did not want further cuts. Word is that Russia sees U.S. shale as the beneficiary of any further cuts.  US oil production was already set to roll over. It's unlikely lower prices will turn the armada that is US production much faster. People are unlikely to simply curtail.
  • OPEC was unwilling to cut without Russia cutting.
    • OPEC used to invited Russia to observed its meetings and used to invite Russia to join.
    • Russia watched.
    • Russia benefited from OPEC's moves to stabilize markets.
    • Russia would not join.
    • How does letting Russia get what they want help Iraq or Saudi or UAE or even lower threshold Kuwait in terms of their budgets?
    • OK, Russia is backing to watching.  That's  fine, it's historically what they have done.
    • OPEC is a smart organization that does a lot more than meet every few months, have tea, and argue over production quotas. OPEC needs to be OPEC.
  • Notably, China's import data for January and February show oily only volumes were up 5.2% YoY.
    • This is just short of all time record levels and maybe what Russia is eying.
    • March numbers however are highly likely to slow and refiners have been reducing throughput on lower product demand (domestic and for export).

The blotter is updated:

  • We have had one trade in the last 4 weeks. It was not an oil and gas name trade. We have not been sellers or buyers in oil and gas for the last month. Things are in panic mode over the lack of decision and the virus impacts. We expect OPEC will ultimately take action to stabilize markets but the timing of this action is uncertain.
  • Renewables are now 39% of the portfolio.


Questions and comments under The Wrap will be addressed in the Monday post.

32 Responses to “Wrap – Week Ended 03/6/20”

  1. 1
    Baylor Says:

    I really do t want to get Long any upstream oil again, but some of these prices seem too compelling in the wake of corona virus

    Can we build a z list of most compelling adds should
    One be so inclined? For example, I posited some thoughts in CLR last week but it would seem MGY may be the better bang for the buck. Z and others, thoughts there?

    CRK for anyone wanting may has sponsored by Jerruh, seems to have more bounce in it than COG

    CRC is not at 52 week lows yet. I will wait there but suspect it could be on the BK choppping block with OAS another potential there to “stay away”

    BCEI hasn’t collapsed like MGY and has the Californians running Colorado now (and soon to be Texas) so not sure there long term given the politics.

    Renewable space is interesting as politics win the day over the last decade and fighting it seems to be a fool’s errand but they haven’t collapsed like upstream has so maybe better to just DCA there if you’re so inclined. I’m taking the same approach on an ET / EPD / KMI basket with weekly adds with bigger tranches on gigantic pull backs like we’ve seen of late.

    If we were to rank a top 5 of upstream for biggest turnaround and maybe not h m L risk level, that would be interesting to ponder.

    We’re approaching 401k all in levels for me personally based on tons of research on our past pandemic reactions. I caught the near top when I got out but it’s so hard to be right twice so getting back in is dicey especially when the headlines are so dire day after day.

    Talking to friends in Italy, Covid19 has literally shut the whole country down. Not getting a whole lot of those headlines here but they say it’s much worse than being reported.

    I think back to the gas shortage craze created by the media about 3 years ago that actually caused a gas shortage when there really wasn’t one. We are living through it in many ways again

  2. 2
    nrgyman Says:

    Looks like a price war has started again, according to this article. Putin wants to punish the US for the Nordstream pipeline defeat and VZ interference. He is tired of watching US shale growth take market share as he supported prices. Now he wants payback and chose a vulnerable market to dramatize it. He was willing to risk OPEC relationships to punish the US. Saudi’s MBS is directly counter-attacking Russia by slashing Arab Light prices to well below levels of Russia’s crude. He believes he is sending a message to Putin, but he is in fact helping Putin to win in his new war with US shale.


  3. 3
    nrgyman Says:

    RE 2: This could be a signal to buy the natgas names as associated natgas production falls victim to the oil price war. See Friday’s action.

  4. 4
    nrgyman Says:

    RE 2: Interesting this Putin move corresponds with the marked decline in the US election fortunes of Bernie Sanders, Putin’s preferred choice. Sanders would have destroyed the US shale industry on his own if he could. Now Putin is taking this new price-war strategy to bring down the US shale industry. Doubt Putin will abandon his support for the anti-fossil fuel movement in the US, though. They have proven to be a strong ally of his and an effective headwind for the US shale industry.

  5. 5
    nrgyman Says:

    RE 2, 4: More color on the oil price war. Saudis are not just slashing prices, they are planning to significantly boost production in the face of the virus demand decline shock. This price war is described as “getting nasty” with the Saudis implementing a “maximum pain” strategy to quickly get global producers (like Russia and Iraq) back to the negotiating table in order to get their compliance with Saudi production reduction goals.


  6. 6
    zman Says:

    re 5 – bloomberg speculation, Javiar is so anti oil biased it seeps out of his stories, he portrays his views and guesses as facts all the time.

  7. 7
    zman Says:

    re 1 – if you’re not long now I’d continue to be patient. We can discuss it on the site Monday.

  8. 8
    zman Says:

    re 4 – conspiracy theory, maybe true, maybe not. I think Putin likes mischief and discord, I don’t know if he has a pick in the race. I do know that Bernie can’t get done what he promised to get done as far as frac and ICE engines in the U.S.

  9. 9
    nrgyman Says:

    RE 6: We’ll see if the Saudis are successful at bringing OPEC+ back together for a deal before they actually do anything beyond creating speculation. Watch what they do, not what they say (or signal through speculation).

  10. 10
    zman Says:

    re 9 – sure.

  11. 11
    Baylor Says:

    Re 4 i thought Agent Orange was Putin’s presidential choice according to the USA media for near 4 years now

  12. 12
    nrgyman Says:

    RE 10: Hard to believe anyone wants to go through another extended price war like in 2016. Yes Putin is po’d about losing the pipeline deal and he is in a much better position to withstand the loss of revenue a price war would bring. At the same time, the US shale industry is in stronger hands and (mostly) in better financial shape as well. So there may be no winners in a price war except consumers.

  13. 13
    zman Says:

    re 11/12 – cool, gotta run, let’s chat on Monday.

  14. 14
    nrgyman Says:

    RE 11: He might still be. This article highlights Russian support for Sanders among the Dems, which is what I meant by the comment in 4. Agree with Z that Putin likes discord.


  15. 15
    zman Says:

    W’ll have the Monday post out shortly after midnight.

  16. 16
    PackMan Says:

    9 – nrgyman …. are you saying Saudi has not yet done (cut prices) what is being reported ? https://www.reuters.com/article/us-saudi-oil-prices-idUSKBN20U0Y4

  17. 17
    zman Says:

    re 16 – I doubt he’s saying that, those are the OSP’s they are what they are and the direction of them signals intent to sell more when reduced AND/OR it signals that an area, when reduced, is seeing lower demand and they want it to be higher.

    He’s likely referring to how much they actually pump.

  18. 18
    zman Says:

    2020 E
    Kuwait $54.70
    Iraq $60.30
    UAE $70.00
    Saud Arabia $86.60
    Libya $99.70
    Algeria $109.00
    Iran $194.60

    IMF fiscal breakeven oil price

  19. 19
    nrgyman Says:

    RE 16: I was referring to the Saudis boosting production. IIRC the current OPEC+ agreement to cut production lasts until the end of March. After that producers are free to increase production. So there apparently is some time to re-negotiate before production increases take hold.

    ON the other hand, reports that the Saudis have slashed oil prices appear to be real. Oil may open Monday $10 below Friday’s close according to this:


  20. 20
    zman Says:

    re 19 – that’s what I thought. And the OSP is official. We’ll see in a few hours how far down oil opens.

  21. 21
    james T Says:

    Russia, Russia, Russia

  22. 22
    zman Says:

    WTI at $30
    Brent at $32

  23. 23
    zman Says:

    DJIA Fut down 800

  24. 24
    Baylor Says:


  25. 25
    zman Says:

    Lifting a bit, both down 20% now, $33 and $36, going to be volatile. DJIA fut will be impacted by oil as well, negative first, then should see as positive on expected consumer confidence boost. Will check back in a few hours. Covid-19 also going to color index futs pretty red given today’s news.

  26. 26
    Baylor Says:

    We need to produce a lot of for ranked most likely to go bankrupt so we can protect capital. Gotta learn from the last 6 years

  27. 27
    zman Says:

    re 26 – debt metrics are on the positions page.

  28. 28
    Baylor Says:

    What does this do to mid streamers and their dividends?

  29. 29
    zman Says:

    re 28 – Initially not much, if any, effect. It will take some time to see volumes come off on lower activity, at least a couple of quarters vs what they already would. You could see some chatter about reduced midstream rates (reneogtiations) but so far it’s been more on the gassy side and is not really widespread.

  30. 30
    zman Says:

    As of Friday we were 40% renewables, 17% natural gas (2 names) and then the rest oil and market tied. That 43% is going to take a hit on the open.

  31. 31
    Baylor Says:

    Yep. Seems like upstream is really largely uninvestable. Nobody’s made any money since about 2013 and patience hasn’t really paid off.

    Maybe this time is different but 6-7 years later there’s hardly a si HPE nake that one could say was a good investment upstream to be in

    Have to completely regroup and think through next steps.

  32. 32
    Baylor Says:

    2850 breached by a couple %

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