Comments
Transcript
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JSSuper fun! Smart!
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BPTracy says she would avoid MLP's. I would be interested to hear about internal problems she mentions that lead her to that conclusion.
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MFWhy are there no comments..have they been disabled..i find it curious that over 110 pax have viewed this without a comment? Comments section is helpful for me to help decide if there is interesting or poor content to view.
AMELIA BOURDEAU: Hi, and welcome to "Real Vision Access." My name is Amelia Bordeau, and I will be your guest host interviewer today. A little bit about my background first-- you may have seen me already on Real Vision. I'm the founder of Market Compass, LLC, where I help investors at every level [AUDIO OUT] global macro approach. I provide strategy, market commentary, and actual actionable trade ideas.
My specialty is forex. And I have 17 years of experience on Wall Street for some of the largest forex traders-- UBS, Deutsche Bank, and a couple of macro hedge funds as well. I started my career during the Asian financial crisis at the Federal Reserve Board in Washington DC in the International Finance Division. So I've been in global markets, international finance my entire career. I'm really excited today to be joined by Tracy Shuchart, who I'm sure from her large Twitter presence.
Her handle is chigrl on Twitter-- C-H-I-G-R-L. She has a big career as an independent oil trader, and I know that you've enjoyed her appearances on Real Vision before. So let's get this underway. Tracy, welcome, how are you?
TRACY SHUCHART: Thank you. Thanks for having me on.
AMELIA BOURDEAU: Great. I was wondering if we'd just start off something general-- what is the most pressing matter in energy markets today? What are you looking at?
TRACY SHUCHART: Well, I think that right now, on the forefront of everybody's mind, obviously, is coronavirus, because we're going to be looking at is there going to be manufacturing slowdown, is there going to be production slowdown? We've already seen a bunch of flight cancelations. And if you think about that, it takes about 1,400 barrels for a roundtrip flight overseas. Times that by the hundreds and hundreds of flights that are canceled-- so traders are looking at that-- how much jet fuel consumption is going to be off of the market, demand wise?
And then again, manufacturing and other industries that are on hold, and how long are they going to be on hold? Is this going to be a couple week thing? Or is this going to drag on for a month, two months, three months? So really, that's the most pressing issue, because that could really cut into demand in an already weak market.
AMELIA BOURDEAU: Yeah, it's interesting because a lot of people out there are starting to compare this or look back to the time of the SARS virus in 2002, 2003 in China and how that impacted China's GDP. And it really had a one quarter impact in Q2 of 2003. But the point of this is that China's growth was in a lot better shape back then during SARS than it is right now, right? And so--
TRACY SHUCHART: Exactly. Their contribution to world GDP was like 8.7%. They're up to 19.3%. So their consumption overall and as a player on the world market is way bigger than it was back then.
AMELIA BOURDEAU: Yeah. It could be even more of a problem this time-- even more devastating. So yeah, it's been extremely and interesting because, across all markets, as coronavirus has kind of come to the forefront as an external shock. I wanted to ask you, in January, so many things already happened. Looking back to earlier in January, when they had the US strike on Iran and the Iranian strike back on an Iraqi base where US military personnel were, I was actually surprised at how quickly oil prices came down post that shock-- that it didn't last longer. Why is that? Were you shocked? Were you surprised?
TRACY SHUCHART: Yeah. Well, I mean, it seems like we have had a lot of geopolitical issues. We've had Libya offline. That's almost a million barrels right now. The market didn't react to that. The market hasn't really reacted to geopolitical aspects, I think because market is so weak. I also think it has to do a lot with I IMO 2020, actually, because what we saw at the beginning year, there was a lot of long bets on that, right? Everybody thought this was going to be the biggest deal-- January 1st. And so there are a lot of long bets on that.
What happened is that at the beginning of the year, that spread started to come down-- the spread between light and heavy. It basically blew out. It started coming down. And a lot of people were caught wrong-footed and had to unwind those trades. So that's kind of what started in January-- the beginning of January, that price decline.
AMELIA BOURDEAU: Interesting. No one knows if these tensions are going to resurface geopolitically. If they do, is there something in the oil market that's making these things shorter now?
TRACY SHUCHART: Yeah, I think we have a giant private glut out there. I think people are apprehensive, really, did jump in the market again because we had this big push at the beginning of the year-- this reflation trade, right? Everybody was talking about the reflation trade. And kind of everything got a big push at the beginning of the year and then slowly deflated. So I think overall, you've been seeing this over the last couple of years, actually, where we've had a lot of decline in interest in the energy industry overall. 2018, saw a really weak OI. I mean, there was just no interest in the market whatsoever.
Oil stocks came way down. It hasn't been a really good time for energy in general. Energy stocks, companies have done everything they could to lure investors-- more dividends, no capex, anything they could do. It's just an industry right now that just doesn't seem to have a whole lot of interest.
AMELIA BOURDEAU: Why is that? And how is that impacting the individual oil companies?
TRACY SHUCHART: Well, we see it. Their stock prices have heavily declined. But it's a two-fold thing. I'm not sure if it's because of this giant green push that people are pushing. And I'm sure that is part of it. It's also part of it that they're just overproducing in the shale industry right now. There's a lot of waste and in a lot of mismanagement and it's been kind of a wildcatter situation where everybody threw a bunch of money at these guys and kind of was mishandled.
And so banks got burned before 2014. After the 2014 crash, banks didn't really get involved anymore. The private equity guys then swooped in and said, yeah, well, we'll throw a bunch of money at you. But nothing's really ever taken off, and oil prices have remained depressed. So nobody's willing to throw money at these guys anymore.
AMELIA BOURDEAU: Right. I think they're throwing money at Elon Musk and Tesla, right? That stock gets higher and higher. Actually, it was interesting-- the day of the retaliation when Iran retaliated against the United States-- that strike-- and then it became over quite quickly, but Tesla stock took a new leg up on that day. And that was just an interesting relationship to me that working in the markets for so long, that would have been a super risk-off day back in the day. It would've been a risk-off day. And yeah.
TRACY SHUCHART: There would be risk-offs everywhere.
AMELIA BOURDEAU: When you see this new car company, their stock going through the roof that day, and it was really-- it's interesting. It's really fascinating. I wanted to turn back to China and the US. So we just had that phase one trade deal signed. And I don't know, there's a lot in it. What does this mean for the structure of the energy market going forward? Just because there's requirements that China has to buy from the US, is that correct?
TRACY SHUCHART: Right. There is. It's supposed to be $52 billion over two years. And I can tell you that that is not going to happen-- well especially now with coronavirus. There's no way. I don't think they're going to keep any of those commitments-- anywhere close, or at least this year's commitment, because they're going to have too much to deal with. But as far as the energy industry is concerned, at its height, it's been about $9 billion. So that's three times the amount over two years of the most that we've ever sold them. So that's sort of an impossibility. We don't even have the port capacity right now built out to even service that much business right off.
AMELIA BOURDEAU: Interesting. OK.
TRACY SHUCHART: And so I think that there's just a lot of problems I see with that. Overall, I think that agreement is probably not really going to hold.
AMELIA BOURDEAU: That's interesting. Just personally, now that you say that, I didn't know that, and I think that's going to have wider implications for macro market that they don't make those commitments. Because there was such a focus of 2019.
TRACY SHUCHART: Right. Exactly. I mean, even if they did-- even if we could service it and they did buy that much, that changes the total global oil flow supply. So you can't just disrupt the whole market like that. So it's one thing to say oh yeah, we'll buy that much. But in reality, I don't think that is an actual feasibility right now.
AMELIA BOURDEAU: Another thing that I know matters a lot for commodity prices is certainly the US dollar. And people have disagreeing views on the direction of the dollar this year for various reasons. But I have my own view on the dollar. I'm interested to see-- can you first walk the viewers, all of us, through the relationship between the dollar and oil, so we have a bit of a background on that?
TRACY SHUCHART: It's just like any other commodity prices. And actually, I've argued this before, and I have actually something on my website if you want to go look where I've actually argued because of the way the Middle East hedges currency, that I think the euro is more correlated to oil price than USD. But certainly, higher USD always puts pressure on all commodities-- whether it's agriculture, metals, energy, et cetera.
AMELIA BOURDEAU: Yeah. It's interesting, because I think with all the risk out there, just in general, the US presidential election and kind of the Brexit trade agreement with the EU and the UK-- EU trade agreement that's not solved that-- I think the dollar could actually be stronger this year because of all the risk-off, which would negatively impact oil, in a way.
TRACY SHUCHART: I agree with you. I happen to be very bullish the dollar at this point. I don't really see another alternative currency right now. You want to be in the euro right now? I don't think so.
AMELIA BOURDEAU: Yeah, it's tough. Yeah, the dollar, I think, is king right now as well. With all of the green energy discussions, certainly a couple of weeks ago at Davos and things like that, are there any emissions rules? Or do you know of anything on the horizon that could be coming out or ones that have already been passed that could be impacting the energy markets?
TRACY SHUCHART: Well, besides IMO 2020, no. There's still stricter emissions in China, and India is trying to kind of get their emissions down and things like that. So I think it's definitely something to watch. I don't know of anything specific on the horizon, but certainly the EU, China, and India-- all three of those markets all have laws in effect or coming into effect regarding emissions.
AMELIA BOURDEAU: Is that stuff easily trackable, or do you-- track that?
TRACY SHUCHART: Yeah, you can track that. There are laws, so definitely you can look those up and find them.
AMELIA BOURDEAU: I think it's interesting-- what is your outlook for the actual WTI crude for the end of the year? I just know from an economic standpoint, it's interesting for the consumer, because people always say, well, a rise in gasoline prices is a tax on the US consumer, which dampens US consumer spending. And I know the Fed has cut rates. And so that's supporting growth here. But where do you think oil is going to go from the summer driving season, say?
TRACY SHUCHART: You know, there's all sorts of things out there. I mean, I think oil prices are probably going to stay pretty depressed this year just like they were last year. We were lodged in a very tight $10 range basically all year last year. OPEC tried to stabilize oil prices, and they did for the most part. You have to give them a little credit for that. And I think the same thing will be happening this year, but maybe on the lower end.
Certainly, again, it also depends on how this coronavirus plays out what really happens as far as that's concerned. Certainly H2 always looks better in summer driving season, but there's a lot of factors right now-- a lot of unknowns right now.
AMELIA BOURDEAU: A long way away, I know. January's already been a long month, right?
TRACY SHUCHART: Right. But in general, I see kind of depressed oil prices that obviously, barring any unforeseen wars-- I mean, we might have spikes, but as we've seen over the last, year the spikes dissipated pretty quick.
AMELIA BOURDEAU: OK. Thank you. Well, we have a viewer question so let me read it. Let me ask you this. This question is from Jim Daly. His question is-- despite short term bearish outlook, I'd like to know Tracy's thoughts on a regime reversal to oil supply scarcity due to record low capex and low likelihood of EV adoption as outlined in the Real Vision interview with Mark Gordon of Ascent Oil.
TRACY SHUCHART: Yes, so I would say I agree with that. I think that we might have a couple of years here where the shale companies, I foresee more bankruptcies, more mergers and acquisitions. There's a lot of debt coming up-- a big debt wall that they're about to hit. But I think once we get over that hump, then this lack of Capex and everything will come in, and the oil market's cyclical, right?
The cure for low prices is low prices. So I think you give it-- my time horizon is over the next-- I'm looking three to five years out. I really see growth as far as these companies are concerned. I think that shale industry will rise again-- not production wise. We actually need to scale back on some production so that these companies can do better. But I definitely think that, I guess I have a three-year time horizon for that that I think this industry can pick up again.
AMELIA BOURDEAU: OK. We have another question. This is from Jen Lee. What would make Tracy reconsider her thesis is wrong and oil is headed higher and the energy sector will outperform other sectors this year? Are there any price points or events which would kind of negate your negative view?
TRACY SHUCHART: I would have to see a reduction in shale production. We need to start seeing a decline. There's only so much WTI that this market can absorb, right, because crude quality does matter. You can't just swap Brent for WTI. That's not how it works in the real world. So I would really need to start seeing a decline in production numbers in the shale industry to then change my mind about where this was headed this year.
AMELIA BOURDEAU: Interesting. And I'm just curious-- how has the US production coming online of oil? Has that disrupted the energy market at all?
TRACY SHUCHART: Absolutely. We are now exporting a lot of oil. So we've become a powerhouse on the market, absolutely. Except for in the meantime, it's hurting companies. So it's kind of like a catch-22. We're producing all this oil, but these companies aren't making any money, because we're overproducing, right? So they need to scale back. We need a little reservation and a little self-control with these companies, because none of them are making money.
AMELIA BOURDEAU: It's so interesting, because if we're overproducing and oil companies aren't doing well-- their stock is down-- why do they keep producing? Wouldn't they stop producing so that the price will go up? Or when does the bottom hit that the price will go up? How do they determine that?
TRACY SHUCHART: I think if oil were to hit 40s again and stay there for a little bit, I don't think anybody is going to give these guys money the next time around, right? They already went through the banks. They already went through private equity. Nobody's going to give them money. So we are going to see a lot of damage in the industry. And so we need to see some control-- self-control.
But the good news is that the oil majors are now in the shale industry. We have XOM and Chevron. So there's some adults in the room. And they know how to control themselves a little bit better. So that is a good thing. Shale's not doomed, I just don't think that this year is the year.
AMELIA BOURDEAU: Interesting. And you brought up Chevron. And I'm just going to say I ran the Chevron Houston marathon, sponsored by Chevron, a couple of weeks ago, and they did a great job. And they also had Chevron employees write a note to every person running the marathon to give them inspiration-- so just a little shoutout there to Chevron. But I have another question from a viewer-- Jen Lee again. So, Tracy, what are your views on master limited partnerships? Looks to me-- looks to Jen-- either dividends have to get cut or the price is wrong and it will get bid higher in the next 24 months.
TRACY SHUCHART: MLPs, I would not touch right now. There's a lot of problems just internally with them. So I'm not a big fan of MLPs right now. And nobody is going to be cutting dividends anytime soon, because they're trying to lure investors back.