A new guest weighs in on the relationship between oil and US markets
Joe Rokop, Managing Director of Commodities and Equities at Simpler Trading joins me to share his outlook for oil and the US markets. Even after the OPEC production cut the price of crude is not moving higher. This has everything to do with demand and is related to the US markets.
+1 Thanks Cory.
Rokop makes me feel glad I sold half my RDS.A at 38.60 last week. I don’t like oil as we go into a Depression.
Hello Bonzo,
Hope all is well for you and yours?
Personally, and fwiw, I view Oil (alongside uranium) has one of the best risk/reward investment in the next 2-4 yrs. FWIW, I call it a “no brainer”.
I’ve been wrong before, and I can be wrong on this one too. But conviction, based on
(a) data that I’ve looked at,
(b) discussions I’ve had with people who focus 90% of their time investing in the (oil) sector,
(c) back of the enveloppe numbers that I’ve run
is (really) “sky high”.
What I find even more recomforting is that bearishness on oil is (still) pretty high – I like that fact.
If I am right in my view on oil 2 yrs down the line (call it early 2022) [FWIW, I suspect WTI will trade at $45-60/bbl], I suspect many Oil company share prices will most likely be higher rather than lower by then compared to what they are trading at today.
It seems there are 3 angles potentially worth considering:
1) maybe oil prices currently already reflect Depression time (i.e it’s baked in the current price already)
2) maybe oil prices will not reflect Depression time forever
(here, I find the forward curve on Oil futures very interesting – it provides a good amount of food for thought)
3) who says Oil prices cannot rise in a Depression?
These are just my usual 2cts.
Best as always,
LPG
Hi LPG, I am fine and hope you are well too. Thanks for your thoughts on oil. I also like oil for the long term and have lots of XOM, CVX, RDS, SU, and DVN. But in the short term I think oil will go lower so I sold half of my Shell last week after it rose from 21 to 39 in 2 weeks. I hope to buy the Shell back as well as SLB if they go lower. I am glad I sold my SLB@38 last summer, as well as 1/3 of my XOM@77, all my COP@48, and all my PSX@96. For the near term I feel better about silver than oil. Vive la France! Vive Quebec libre!
Good discussion guys and yes, there may be more pain in store for Oil in the short to medium term, as there is nowhere to freakin’ store it and there is a serious over supply glut of Oil & Gas. However, the low prices will finally cause many of the smaller and less financial sound companies to bite the dust and finally either get bought out, JV with a larger partner, or go to their intrinsic value of $0.
Once the sector clears house and gets rid of the weak and marginal companies and rebuilds then in a year or two the survivors should be a few multiples higher than they are at present, and there are many deals to be had for those that want to buy and hold and ride it out.
I like the prospects for gains much more in the Uranium sector right now than in the Oil sector, as there has been a slew of positive news in the form of supply destruction over the last 2 years and in particular in the last 2 months.
Ever Upward!
World’s Largest Uranium Miner Cuts Production; Price Starts to Run
April 7, 2020 – Derek Macpherson | VP, Equity Research Analyst – Red Cloud
“Pandemic related production cuts have translated to the uranium price increasing as the 2020 supply deficit grows. Kazatomprom announced that as a result of COVID-19 countermeasures being implemented in Kazakhstan, 2020 production guidance was reduced by 4,000 tU (~10.4M lbs U3O8e). This production cut along with already announced shutdowns from other producers of at least ~2.4 Mlbs U3O8e drives our current estimate for 12.8 Mlbs supply deficit in 2020, which is 6.7% of estimated market demand. It is important to remember that only a few weeks ago we had expected the market to be roughly balanced (~0.2M lb deficit). The sudden and now substantial market deficit has resulted in the spot uranium price increasing 14% since March 23, 2020.”
https://s3-us-west-2.amazonaws.com/cdn.ceo.ca/1f8sk0p-20200407-Kazatomprom-Curtailment.pdf
Uranium Squeeze Creates A Bull Market For A Fuel In Decline
Tim Treadgold – Apr 8, 2020
“Uranium, however, has become the best example of supply being withdrawn from the market with a trickle of mine closures becoming a flood over the past four weeks, starting with Cameco, Canada’s uranium leader, mothballing the world’s biggest uranium mine, Cigar Lake.”
“The southern African country of Namibia, which has a big uranium industry, dropped out of the market after it followed the example of its neighbor, South Africa, ordering the closure of all mines.”
“But what ignited the latest upward surge in the uranium price to $28.70 a pound was a move by the government of Kazakhstan to place restrictions on its big uranium industry, a move which could see global supply of the nuclear fuel reduced by up to 10%.”
John Quakes @quakes99
“TD now estimates 124M lbs 2020 #uranium production + 24M lbs secondary supply + 7M lbs inventory sold = 155M lbs Supply vs 179M lbs #nuclear fuel demand (excluding Cameco Spot purchases & 3X initial fuel loads for X/53 reactors under construction) = -24M lbs #U3O8 2020 deficit.”
(CCO) (CCJ) Cameco Extends Production Suspension at Cigar Lake Mine and Withdraws Outlook
@nasdaq on 13 Apr 2020
“With the impact of COVID-19 continuing to escalate, we have determined that the Cigar Lake workforce will need to remain at its current reduced level for a longer duration. The precautions and restrictions put in place by the federal and provincial governments, the increasing significant concern among leaders in the remote isolated communities of northern Saskatchewan, and the challenges of maintaining the recommended physical distancing at fly-in/fly-out sites with a full workforce were critical factors Cameco considered in reaching this decision.”
“Cameco will therefore keep the facility in safe care and maintenance for an indeterminate period. ”
https://ceo.ca/@nasdaq/cameco-extends-production-suspension-at-cigar-lake
Yes Ex uranium supply destruction not quite a catalyst but a positive step forward. I wonder if japan will ever move on from fukushima and restart those reactors. A world swimming in cheap oil can’t be a positive. Sigh.
Serology testing is in the works – that will help define how widespread SARS-COV-2 is in the population – likely much more widespread with masses showing no symptoms, meaning lower mortality, and less fear. Treatment options are succeeding. These two factors will reduce the fear in markets, and people will go back to work and life.
I agree volatility will continue, but disagree with Joe that the economy will continue to be in the dumps. When the media hype is exposed, people will go back to life, and this will be a short term memory like so many past crises.
This has been largest and most destructive propaganda effort in world history – the question is will the increasingly CCP apologist media (COMCAST/NBC/Universal, ABC/Disney, VIACOM/CBS/Paramount, AMAZON/WAPO, CNN/ATT/Warner, NPR, NYT, MICROSOFT, Google) be successful in their campaign to spread fear and protect their future Chinese markets? I think not – there are too many alternative outlets for information in the West.
These media corporations openly support the DNC and their candidates – The DNC is weak, and favors globalism, which benefits China. CCP must support the DNC to avoid Trump retaliation in a second term.
The media attacks will get ugly as we approach November, and be fatal unless the economy turns around. This Trump administration knows this, and is taking proactive, bold and unprecedented actions to ensure it stabilizes well before then.
More importantly, people are fed up with being shut in their homes – the backlash against control will be a powerful statement, and a recovery will be strong.
https://www.zerohedge.com/health/largest-us-study-covid-19-reveals-single-biggst-factor-hospitalizations
The largest study to date of US hospital admissions for COVID-19 reveals that obesity and age are the largest factors in whether a person had to be admitted to a hospital.
We have an increasingly older age demographic across virtually all countries, as well as unprecedented rates of obesity, smoking, diabetes, and heart and lung disease, and an ever-growing population of people who are immunocompromised—
Live Peter Skiff …starts in 2 minutes…
Covid…will…thin the herd…
Peter Skiff…no sound…didn’t he set up his mic right??? Now he realizes it….the helper guy…is setting up the mic…
Poor Peter…just talking to himself…
Still…no sound
Looks like it ain’t happening today…Peter needs to get Cory to help him…JMO
If you want…you can watch 3:47 of Peter trying to set up the mic and talking to himself…
sorry…..vid ….deleted…..Peter did not want the public to hear it… 🙂
Peter needs to hire Cory…but OWL would fly the coop…
Shelter in place ………not looking good….
https://www.zerohedge.com/commodities/25-million-people-under-tornado-watch-east-coast
Yeah, those twisters already ripped through the middle of the country the last few days, and really nailed Mississippi pretty hard yesterday. At least many have revisited the preparedness plans and have more food and water storage on hand due to prepping for the coronavirus shut downs and shelter in place initiatives. I’ve been in 2 different neighborhoods that got leveled by tornadoes in the past and it is a terrible thing to see everything wiped away and destroyed. Wishing everyone the best.
Great interview. thanks.