Figured this was relevant to the thread.
TL;DR: Fifty-nine percent of oil executives said investor pressure to maintain capital discipline is the primary reason oil producers are restraining growth. Hundreds of oil companies went bankrupt during multiple oil price crashes, leading investors to demand more restraint from energy CEOs.
The news has been talking about the Biden administration considering a release of 30M barrels from reserves all day long. To see what happened last time a release was announced, I found the following article from November of last year:
They released 50M barrels which gave us the following drop on BNO:
Dropped from $21.75 to an intraday low of $18.35 (-15%) over the course of four trading days. Considering how high oil is at the moment, I’m thinking that we might see a similar albeit completely temporary drop when this is officially announced.
The US uses ~20M barrels of oil per day… Someone mentioned too that the oil release isn’t dumped in one day, it’s over time, so the real effect is essentially nothing. It’s all just PR / damage control.
Indeed @TheMadBeaker - it’s a max of around 4.4M a day. And it takes 13 days to make its way to the pumps.
Also, a release from the SPR is often seen as bearish as it actually signals that there is a problem. So totally concur with @conqueror that this will very likely cause a temporary fall in prices at best.
This doesn’t mean that the drop won’t happen but it does mean that you should consider buying the drop
Totally agreed. From the couple I’ve looked at you get a drop because the market is inefficient as we all know, so I’m positioning in puts for the news drop down and the floor will be the place to buy calls because the real effect on pricing is meaningless and you can reasonably assume it will gap close within days of the drop.
I was curious about US energy production and found this page. Draw your own conclusions.
Oil is down this premarket, both on the news of the China lockdowns and I believe the 3-day cease-fire in Saudi Arabia.
So those with puts on oil from Friday looks like it’s going to pay today! Congrats!
https://www.reuters.com/business/energy/oil-slumps-shanghai-shuts-curb-covid-surge-2022-03-27/
OVX crossed below SMA(9) and SMA(21) this week.
USO touched 72 early this morning and has been recovering. Mostly correlated with crude price.
Brent-WTI spread tightening as geopolitical tension in Europe (i.e. Russo-Ukraine conflict) look to be easing up.
Shanghai’s lockdown will tighten on April 1, signaling further drop in demand for crude (unless already priced in).
I would not be surprised if we saw crude prices hold between 100 and 110 for a few days, but I still believe in 150/b in April.
Watching, waiting, cautiously optimistic.
Two other tickers to watch are $HAL - Haliburton and $CVX - Chevron
HAL
As of the time of this post, $HAL is one of the only Energy sector firms green today. It’s seen a lot of upward resistance around 39. Watching for it to break through and possibly run (but it likely will not happen this week)
CVX
CVX is trading at the consensus price right now and is approaching support at 157, although it has been trading at much lower volume than normal. Potential catalyst if a deal can be reached for an Israel-Turkey pipeline.
So ive been starting to use IMPP as my oil spike play moving forward as I need protection for energy spikes. I have been accumulating the May 20 $2 strike calls with a starter at .15 cents each. My preferred entry is .10 cents and it is for the following reasons.
1)Currently sitting at support level of 1.50
2)Trades aggressively with OIL prices on upturn and seems ton consolidate on support on oil downturn ( will consolidate until it doesnt)
3) Looking at the previous run up , the premium can run up to .30 and higher and I am expecting to be able to sell this at minimum of .5 cents per at conservative case scenario. However if price stays still I would expect to sell it off end of april depending if I need oil spike hedging
If I am able to get this at .10 cents I will probably go heavier since it makes the risk reward ratio even better. Im choosing IMPP also since it already had its offering period , has meme/retail focus , and acceptable risk reward. I do not know anything and this position is not about the underlying company itself rather than what the stock represents in my trading portfolio.
Were you able to get any fills at 0.1?
Great callout btw!
nah only .15
Another one im looking at is OXY right now since it trades with oil but can also trade with spy. So if oil runs again tommorrow the SPY downturn right now is giving it a good entry price. It is a buffet stock.
Seems oil is coming down. Ill try to get IMPP may calls for .10 as protection again tomorrow or Friday.
As a side not we should watch XOM , VLO , and XLE. They have been holding strong or not trading along oil prices and SPY on the downturn.
Biden admin is talking about a big strategic oil release… Talking about the release of around 1 million barrels of oil per day for several months.
Not sure how smart that is, we currently only have 568 million barrels in reserve.
I wonder if they feel confident the Iran deal will get signed shortly and are trying to drum up some positive headlines in the interim.
From what I’ve read the Iran deal could still be weeks away (if ever). I think this is just a short-sighted political move with midterms coming up and one of those “we’ll worry about the consequences later” kind of deals.
Biden is supposed to give the specifics in a press meeting today, so we’ll see.
