Energy stocks have started to outperform the wider stock market as Brent is nearing 89 per barrel this week, with energy leading the S&P 500’s eleven market sectors in March thanks to a 10% rise.
– The oil markets are anticipating the OPEC monitoring meeting on April 3, looking for potential clues on the directionality of pricing, with JPMorgan already predicting Brent to be in the $90s by May on Russia’s production cuts.
– The ongoing tightness in refined products has seen refiners outperforming pure upstream-focused companies by some 5 percentage points as the Red Sea shipping disruptions and refinery drone strikes in Russia kept supply restricted.
– According to Reuters, OPEC production declined to 26.42 million b/d in March, down 50,000 b/d compared to February, and the oil group is expected to see lower output in April still as Iraq vowed to offset its lack of compliance.
Market Movers
– Japanese trading house Mitsubishi (TYO:8058) agreed to buy an unspecified minority stake in MidOcean Energy, a LNG developer owned by US investment firm EIG, seven months after Saudi Aramco did the same.
– US oil refiner Phillips 66 (NYSESX) is exploring a sale of its 25% stake in the Rockies Express Pipeline, a gas pipe connecting Wyoming to Ohio, seeking to garner more than $1 billion from the divestment.
– Oilfield services giant Schlumberger (NYSE:SLB) signed a landmark deal with Iraq to utilize associated natural gas for electricity production instead of routine flaring, covering some 120 MCf/day in the first six months and an additional 120 MCf/day within one year.
Tuesday, April 02, 2024
Brent oil futures peaked at $89.08 per barrel in early Tuesday trading, signaling that the triple threat of Middle Eastern tensions, lower Mexican crude supplies, and Ukrainian drone strikes on Russian refineries could lift crude above the $90 per barrel mark. The last time that Brent settled above $90 per barrel was 27 October 2023, and with OPEC widely expected to maintain its conservative stance, it’s not that difficult to imagine Brent surging higher again.
Mexico Curbs Exports in Preparation for Refinery Launch. According to Bloomberg, Mexico’s national oil company Pemex plans to halt some crude exports to the US, Europe, and Asia as it seeks to start commercial operations at the 340,000 b/d Dos Bocas refinery later this year.
Baltimore Reopening Not Happening Soon. As demolition crews have started to dismantle the collapsed Francis Scott Key Bridge in Baltimore, port authorities are preparing to open a temporary channel for commercial essential vessels, although it seems to be dedicated only to ships taking part in salvage operations.
Kimmeridge-SilverBow Merger Falls Through Again. Eagle Ford-focused US oil producer SilverBow Resources (NYSE:SBOW) rejected another takeover bid of asset manager Kimmeridge Energy that valued it at $2.1 billion including debt, despite the latter owning 12.9% of the company.
Ukraine Drone Strikes on Russian Refineries Continue. Ukraine struck the Taneco refinery in Russia on Tuesday, located 800 miles from the front lines in Ukraine and boasting a capacity of 360,000 b/d, with regional media saying the drones were intercepted but still triggered a fire.
Chevron Starts Venezuela Drilling Program. Petroindependencia, the joint venture of US oil major Chevron (NYSE:CVX) and Venezuela’s national oil firm PDVSA, has started a new drilling campaign that will see 17 exploration wells spudded this year, seeking to add 65,000 b/d of production.
Qatar Keeps the Shipbuilding Frenzy. QatarEnergy top executive Saad al Kaabi announced the LNG giant has signed charter contracts with Asian shippers to operate a fleet of an additional 19 LNG carriers, to be built at South Korea’s Samsung Heavy Industries, taking the total number of contracted ships to 104.
French Nuclear Output Rebounds Strongly. After three years of disrupted nuclear power supply, French power generators ramped up nuclear production to just over 4 million kWh in the first three months of 2024, up 13% year-on-year, easing the pressure on electricity prices.
Goldman Predicts Fuel Demand to Peak in 2032. US investment bank Goldman Sachs (NYSE:GS) forecasts that global road fuel demand will increase by 5% from now to 2032, peaking then at 50 million b/d and then sticking to a protracted plateau all the way until 2040.
Shale Oil Looks for Nuclear Boost. As shale oil producers are increasingly moving away from diesel generators to local power grids, the unreliability of Texas’ stretched has prompted some drillers, notably Diamondback Energy (NYSE:FANG) signing a LOI with Oklo, to look to small nuclear reactors.
SLB Starts Oilfield Service M&A Drive. The world’s largest oilfield services firm SLB (NYSE:SLB) agreed to buy rival ChampionX (NASDAQ:CHX) in an all-stock deal valued at $7.75 billion that’s expected to close before end-2024, with the latter surging 10% in pre-market trading on Tuesday.
Kazakhstan Might be in Oil Spill Trouble. The Globus environmental group reported that a European satellite spotted an oil spill near Kazakhstan’s giant Kashagan oil field, producing some 400,000 b/d of light crude in the shallow waters of the Caspian Sea.
Shell Takes to Courts to Appeal Dutch Landmark Case. UK-based energy major Shell (LON:SHEL) started its appeal hearings this week, defying a 2021 Dutch order prompting it to cut GHG emissions by 45%, arguing the decision lacks a legal basis and would limit its transition strategy.
Gold Records Another All-Time High. Gold prices have reached another record high this week, hitting $2,265.70 per ounce, fortifying the metal’s standing as the number one pick in commodity markets in 2024 as the markets are building a mainstream position on a June Fed interest rate cut.
Because the higher FFR is eating the US alive as compounding just keeps adding to the debt requiring interest payments.
Tax receipts are directly correlated to the equity markets. Equity markets are clamouring for cuts in the FFR.
BTC tightly correlated to the QQQs.
Obviously the 9 new BTC ETFs would have nothing to do with that? You create ‘paper’ anything and you provide the powers that be (JPM/Blackrock) the ability to control prices, unless the demand for the physical (in this case digital) becomes overwhelming.
It took France to break the 1960’s Gold Pool, it has taken Xi and Putin to break the latest iteration of the Gold Pool via physical demand to the East. Eventually the speculators and general public wake up to the reality.
Now equity markets are ready for a bit of a pull-back. Well over due. What will be tested is the resilience of BTC for when equities fall apart. Will it provide a hedge?
Obviously TSLA is fuc*ed in China. China has their own EV industry. TSLA is going to zero sales there. The rest of the stuff, who knows. What is known is that relations between China and the US are pretty frosty. Probably not great for business.
Now earnings is one thing, but actually not that important except for the fact as it relates to ’employment’. Tech has been leading the way in layoffs. But some of these other industries have not really (started) with the layoffs. Not yet.
Meanwhile SPY
Only energy holding up. Everything else having an off day.
What will be interesting to see is whether BTD is still strong. Certainly BTD has over the last few days been apparent in the markets and has contributed to keeping the indices higher than than they should have been.
This area is/was important. SPY could re-test the 510 area. I think that the BTD has already been in play and failed to hold the high base just broken.
With Powell and the Fed waffling tomorrow, the message may not be well received.
Powell can see that inflation is heating up again. To cut into accelerating inflation is just not a good look. But of course what really matters are tax revenues. Whether Joe six-pack can afford his greasy take-away is irrelevant. The market wants rate cuts (or at least it thinks it does) to stay elevated.
Insider selling has been off the charts. All time highs. Leverage is high. Those coming late to the party…high. Employment is the only economic indicator (always a lagging indicator) that is still positive (after some particularly egregious manipulations) for the economy. How long until that number disappoints?
Gold as a signal, ie. rising in the face of (relatively) high interest rates, (relatively) strong dollar, which are both huge negatives for the USD. This is a signal in of itself. It has been flashing for at least a year. And the message is: secular inflation is inevitable.
Equity markets that have pretty much, in every sector, just gone up, will become far more volatile. Some (many) will just go down. A lot.
The problem is in the exact timing. Is this the top? Who knows. You can usually only pick the top in hindsight. Recognising the bottom is far easier. One thing to keep track of with tops is that good news starts to be sold. We had a little of that yesterday.
Returning to BTC:
One of us is a Director General at the European Central Bank with a focus on payment systems and market infrastructure.
This past February Ulrich and a colleague published a viral blog post on the ECB website questioning whether Bitcoin had any fundamental value and listing other reasons to be skeptical of its promise as currency. The blog post was a follow-up to an initial critique on the same blog written by Ulrich and his colleague back in 2022.
The other one of us clearly disagrees.
Omid has been working in the crypto industry for years and teaches it at Columbia Business School. As argued on his own blog and in his books, he believes Bitcoin has unique and appealing properties that will eventually make it a backup reserve currency.
And yet: we consider each other friends, colleagues at a distance, and are conducting research together.
We first connected shortly after Ulrich’s initial blog post. Omid presented a list of rebuttals to Ulrich’s arguments — which to his credit Ulrich wanted to hear. Ulrich asked thoughtful questions and volunteered to read Omid’s book. He then invited Omid to present to his colleagues on digital currencies and cited Omid’s writing in his own research. Along the way we learned that we share a passion for the plumbing of finance and the likelihood of it being revolutionized by modern technology.
Unlike Ulrich, other experts in finance often dismiss all blockchain-based innovation, on account of the speculative nature of crypto assets, not to mention the combative nature of crypto believers.
Unlike Omid, many crypto professionals dismiss the most important lessons from the history of finance, dooming themselves to repeat them.
We’ve learned a lot from each other by putting our differences aside. We’ve even discovered that there’s a lot we agree on when it comes to the power of decentralized settlement networks, smart contracts, and tokenization.
We agree that Bitcoin is a novel invention created by a genius, and that it will lead to lasting innovation.
We also think that decentralization comes with major tradeoffs, one of which is a difficulty to evolve.
The next few halvings are going to test Bitcoin’s economic security.
Bitcoin has an illicit use problem. The illicit use of it needs to be addressed — as it needs to be addressed for every other payment solution. Its unique properties require new tools for combating illicit use, but society has to manage the tradeoffs between catching bad actors and censoring good ones. Where to fall on this spectrum is a political decision.
We agree that the energy impact of Bitcoin is significant and must be acknowledged, even as it trends towards renewables. Whether the environmental impact is worth it will ultimately depend on its utility beyond pure speculation. We both think the appeal of Bitcoin is greater in places with high inflation, political oppression, or a lack of basic financial services.
That said, we both think stablecoins might be even more useful to such people for day-to-day use. They might also be disruptive in developed markets as a more sophisticated and programmable payment instrument, one that can be coupled with other tokenized assets to improve capital markets and invent new instruments. [BU1]
Lastly, we both think the high volatility and lack of generally accepted valuation framework of Bitcoin add to the controversy surrounding it. Omid believes that one of his students (or even Ulrich) might someday make a name for themselves by proposing one. Ulrich believes he already found the answer but will try hard to come with a different solution.
Most of all, we both consider ourselves better off for challenging each other’s views and would encourage others to try the same.
Author’s note: This piece was originally written as a back-and-forth debate about Bitcoin before it morphed into the post above. Below is Omid’s rebuttal to Ulrich’s post on the ECB blog as well as Ulrich’s response to the rebuttal. We share this in the spirit of provoking further debate.
Omid Malekan: (emphasis ours)
A skeptic could argue almost any asset — including dollars, stocks, and real estate — do well when currencies collapse. But these assets are often unavailable to ordinary people, or live on untrustworthy infrastructure. Bitcoin has stronger property rights.
As the original blog post points out, those protections have a cost. Bitcoin is too slow and expensive to be used as a day-to-day currency & is seldom used as originally intended. But many technologies evolve beyond their original intent — the internet was original meant for academia and didn’t allow commercial activity until 1993. Tech evolves to serve users, not the other way around.
Ulrich Bindseil: (emphasis ours)
Although it would be nice, I fear that the idea of women in Afghanistan improving their conditions with Bitcoin is largely a romantic wish. And if crypto-assets could support them, wouldn’t a US stablecoin relying on a faster, cheaper, and more efficient blockchain not provide a better store of value or payment mechanism than Bitcoin?
One can easily acknowledge that the technical design of the Bitcoin network appears to be a masterpiece. But that doesn’t mean that it’s not already outdated or on its way to being soon. How can the protocol be changed sufficiently to gain the efficiency it needs to survive in the medium term? Wouldn’t substantial changes betray the narrative of Bitcoin being immutable and having a fixed supply, making it indistinguishable from newer cryptocoins, reminding everyone its design is one of countless possibilities, and therefore not scarce?
The worlds of crypto and finance were always going to merge, so we might as well open our minds and learn from each other.
The energy requirement requires ‘renewables’. LOL. Renewables are dead on arrival. The quantity of commodities required to generate the power required is far in excess of that being produced or, more importantly, that which can be produced moving forward based on the investment required and provided for.
Day-to-day use: too complicated. Given that a significant percentage of the world’s population is ‘older’, they just are not interested in the complexity. Sure geeks love it. Outside of the geeks…who else?
Protection against inflation: jury is out on this one currently.
Designed by a genius: ie. the NSA. Hmmm. Would you trust the NSA?
You are either a convert and a believer or you are not. I am not.
Can you trade it and make money? Of course. No issues with that at all. Much easier now with all of the ETFs.
jog on
duc
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#April #DDD