Some other issues are emerging this morning as the collateral
damage being done is in the early stages of being tallied.
Yesterday, the Financial Times reported that a Singaporean
trader hid some $800 million in losses from oil trades gone sour.
His counterparties include HSBC, Société Générale and ABN Amro.
On Tuesday, there are reports that South Korean investors have
recently loaded up in structured notes tied to the price of crude
and are likely suffering large losses as the result of yesterday’s
historic crash.
Add to that, the likelihood of additional, and large, losses
among hedge funds, domestic holders of leveraged oil
exchange-traded funds, highly levered oil producers and a coming
wave of bankruptcies among those same companies and the damage done
to oil markets is far from over.
ETF marketers are already suggesting they may, or will, halt
trading in them or possibly liquidate them, causing a further
cascade in the price of oil.
In history, there are parallels but no precedents.
In 1986, then Saudi Oil Minister, Sheikh Ahmed Zaki Yamani,
decided to punish OPEC members who were not abiding by the cartel’s
daily production quotas and taking market share from the
Kingdom.
To enforce discipline, the Saudis flooded world markets with
crude, driving the spot price of oil to just below $10 per
barrel.
The damage to oil producing nations, including the U.S., was
severe. Cities like Houston, Dallas, Oklahoma City and elsewhere
closed up shop, with large and small oil companies capping wells
and going bankrupt and/or merging.
Posted by chadtech on 21st of Apr 2020 at 02:01 pm
Walt, I just wanted to thank you for this thorough post.
Really informative and gives more perspective on something
that looks like a complete disaster to an outsider.
The ramifications from this has not been felt yet. States
like Texas will be crushed at the loss of jobs from small rigs.
I bought TNK on monday and sold at the gap up this am.
Good play brought up here by Matt.
Marie Kondo can make 37 pairs of shoes disappear, but she can't
stuff millions of oil barrels into a wicker basket. There's just no
place to store the stuff.
Some traders are sending barrels on a leisurely cruise aboard
very large crude carriers (literally, VLCCs). "Many traders are
betting that the coronavirus pandemic will run its course and
demand for oil will jump later this year," the
WSJ explains.
Six-month VLCC leases have risen to an average of $100,000/day
from around $29,000 a year ago.
Sounds steep...but companies that have the liquidity and
capacity could make ~$16 of profit per barrel after storage
costs.
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all the tankers followed through
Posted by matt on 21st of Apr 2020 at 09:32 am
ASC - Chart Link
NAT - Chart Link
INSW - Chart Link
STNG - Chart Link
NAT nice bounce off support...
Posted by morton7 on 23rd of Apr 2020 at 09:39 am
NAT nice bounce off support...
NAT took off :-)
Posted by morton7 on 27th of Apr 2020 at 09:32 am
NAT took off :-)
OIL Drop Causing other Damage I
Posted by Walt on 21st of Apr 2020 at 01:35 pm
OIL Drop Causing other Damage
I like the tanker play Matt!
Op-ed: Recovering from this unprecedented oil crash could take years and may not benefit Saudi or Russian producers
Some other issues are emerging this morning as the collateral damage being done is in the early stages of being tallied.
Yesterday, the Financial Times reported that a Singaporean trader hid some $800 million in losses from oil trades gone sour. His counterparties include HSBC, Société Générale and ABN Amro.
On Tuesday, there are reports that South Korean investors have recently loaded up in structured notes tied to the price of crude and are likely suffering large losses as the result of yesterday’s historic crash.
Add to that, the likelihood of additional, and large, losses among hedge funds, domestic holders of leveraged oil exchange-traded funds, highly levered oil producers and a coming wave of bankruptcies among those same companies and the damage done to oil markets is far from over.
ETF marketers are already suggesting they may, or will, halt trading in them or possibly liquidate them, causing a further cascade in the price of oil.
In history, there are parallels but no precedents.
In 1986, then Saudi Oil Minister, Sheikh Ahmed Zaki Yamani, decided to punish OPEC members who were not abiding by the cartel’s daily production quotas and taking market share from the Kingdom.
To enforce discipline, the Saudis flooded world markets with crude, driving the spot price of oil to just below $10 per barrel.
The damage to oil producing nations, including the U.S., was severe. Cities like Houston, Dallas, Oklahoma City and elsewhere closed up shop, with large and small oil companies capping wells and going bankrupt and/or merging.
The pain lasted for years.
Walt, I just wanted to
Posted by chadtech on 21st of Apr 2020 at 02:01 pm
Walt, I just wanted to thank you for this thorough post. Really informative and gives more perspective on something that looks like a complete disaster to an outsider.
The ramifications from this has
Posted by ssaffer on 21st of Apr 2020 at 01:45 pm
The ramifications from this has not been felt yet. States like Texas will be crushed at the loss of jobs from small rigs. I bought TNK on monday and sold at the gap up this am. Good play brought up here by Matt.
Just State revenue lost from
Posted by retirefire on 21st of Apr 2020 at 01:50 pm
Just State revenue lost from gasoline tax is crushing.
Why can't they hold onto
Posted by Walt on 21st of Apr 2020 at 01:05 pm
Why can't they hold onto it?
Marie Kondo can make 37 pairs of shoes disappear, but she can't stuff millions of oil barrels into a wicker basket. There's just no place to store the stuff.
Some traders are sending barrels on a leisurely cruise aboard very large crude carriers (literally, VLCCs). "Many traders are betting that the coronavirus pandemic will run its course and demand for oil will jump later this year," the WSJ explains.