Oil and Energy: Updating a Sector in Flux

Published on
June 4th, 2020
Duration
31 minutes


Oil and Energy: Updating a Sector in Flux

The Expert View ·
Featuring Warren Pies

Published on: June 4th, 2020 • Duration: 31 minutes

Warren Pies, chief energy strategist for Ned Davis Research, has been spot on with his predictions for crude oil and energy equities in 2020, but a lot has changed since he last appeared in mid-April. In this interview, Pies returns to update viewers on his basket of indicators to explain his shifting outlook for crude prices. Pies touches on the rapid flattening of an unprecedented super-contango, the current fundamentals of supply and demand dynamics through the lens of U.S. inventories, and the macro and political factors affecting oil-dependent economies like Saudi Arabia and other OPEC+ countries. In addition, he breaks down the rally in energy equities, highlighting the stark contrast between the price action and fundamentals in a sector that is more of a macro trade than ever. Filmed on June 1, 2020.

Comments

Transcript

  • MK
    Mark K.
    9 June 2020 @ 16:21
    Answers all my current questions re the outlook for crude. Very good and thanks very much.
  • AA
    Andrew A.
    8 June 2020 @ 16:45
    Excellent but had hoped for a specific update on two previous recommendations - Enterprise Products Partners (EPD) and The Williams Companies (WMB). Both up c40%. My interpretation was that they remain a hold?
    • SH
      Si H.
      8 June 2020 @ 17:23
      He said hold onto them.
  • DS
    David S.
    4 June 2020 @ 17:14
    I wonder how much gold Saudi Arabia is selling in addition to the FX? DLS
    • MW
      Max W. | Real Vision
      4 June 2020 @ 17:37
      Those FX reserve charts include gold.
    • DS
      David S.
      4 June 2020 @ 19:17
      Max W. - Thanks for the comment and putting the charts in the transcript. I was thinking about the gold component excluding FX. Mr. Nicoletos stated his one caveat about the increase in the price of gold is sovereigns being forced to sell gold to pay for unfunded budgeted items. At the time I did not include Saudi Arabia in the distressed sovereign list. Saudi Arabia’s breakeven for oil on a budgeted basis is much higher than the current oil price. They have already constrained production to try to keep oil prices higher. There may be a lot more selling of gold which could affect the world gold price. (You sell what you can.) It is also interesting that Russia has larger FX + gold reserves than Saudi Arabia. Russia is also a gold producer. Interesting dynamics within OPEC. DLS
    • WM
      Will M.
      5 June 2020 @ 16:26
      David I do not disagree with your thesis. My main concern is losing out if we are hit with another financial shock (or grey/black swan) or currency shock (such as tumbling dollar, devalued yen etc, which could yield a scrambled into gold and silver. I now hold a big chunk of wealth in gold silver and mining stocks and although worried in them, I am much more worried about a couple of large pensions that are "diversified", hence risky in todays environment.
    • DS
      David S.
      6 June 2020 @ 02:15
      Will M. - I just buy digital gold - AAAU, SGOL type ETFs. It can be done instantly with my portfolio cash. I do not have the fear of missing out on the 10% of the move. If gold is really going to go up, it will be a larger move than that. To be honest, if it moves up too fast, i will probably take some profits. If the world falls apart, I will need the cash. I will miss out on many FED driven markets because I do not want to be the last one out. I am not a trader and I am certainly not in a position to give advice. I would look at some of the gold interviews in the RVTV library to see their advice. Some have as much as 25% gold exposure. If you have more than that, you might want to think about it. In the past when the gold miners moved, they move big. You do not need to size big. We live in a completely uncertain world. Most advisors believe a portfolio should have some gold. You should have an independent professional help to make sure you are not betting everything on gold. I hope this helps a little with my thinking. You need to solidify your thinking. Best of luck. It is not easy. DLS
  • TR
    Thomas R.
    4 June 2020 @ 20:37
    Whatever the new demand threshold is – a return to 100M bbls, 95M bbls suggested in the interview, or less – and the then calculated necessary drop in supply – to what extent do natural depletion rates coupled drops in cap-ex meet that drop in supply? Do you track average world wide depletion at 4% - or more or less? Does your research reflect shale production in the US to have a much higher average annual depletion/annual production decline? I’m wondering what the price would need to be for producers to maintain production at current levels with no escalation. How much oil is produced off-shore world-wide as a percent of total supply? and at what price does that make sense to perform new drilling/cap ex to maintain aggregate off-shore production levels?
    • WM
      Will M.
      5 June 2020 @ 16:34
      I worked for a big multinational oil integrated company for over 40 years. Larger deep water oil fields need a future stable $50 to commit funds long term. Marginal fields would need almost 50% higher than that.
  • LH
    Luke H.
    4 June 2020 @ 08:23
    Renewables have been massively outperforming oil and fossil fuels at least since October '18. Have a look at the TAN ETF for a proxy of what solar stocks have been doing. SEDG and NEE have been on long term face-ripping rallies.Could we possibly get some coverage of the global renewable market? Younger investors are less and less interested in oil and fossil fuels, and it's increasingly seen as a dying market, at least from a long term return perspective, to say nothing of divestment risk.
    • JM
      Jennifer M.
      4 June 2020 @ 09:38
      This will perpetuate your "longterm" view. Energy shift will not come from hope and puppy dogs, if it is true that younger investors will forgo energy stocks then this will increase the price of oil. Forcing a shift from a position of pain (high costs). My only push back is "young investors" moan that we have nothing all the boomers own everything when will we get a piece of the pie? So which is it do young people have nothing or do they have enough to shift a multi trillion dollar energy industry?
    • JL
      Justin L.
      4 June 2020 @ 10:33
      Massively outperforming; what does that even mean?
    • LH
      Luke H.
      4 June 2020 @ 13:05
      @Justin L the top renewable equities are massively outperforming the large cap fossil fuel stocks. There will be more growth in the renewable sector than fossil fuels for the foreseeable future.
    • LH
      Luke H.
      4 June 2020 @ 13:07
      @Jennifer M young people aren't going to shift it, the prospect of human extinction is taking care of that. You may not believe the science, but it is settled and capital is shifting.
    • TM
      The-First-James M.
      4 June 2020 @ 14:49
      https://www.cfact.org/2020/04/30/wind-and-solar-add-zero-value-to-the-grid/ I agree that TAN has been on a role. That is a fact. However, longer term, without industrial scale batteries being part of the grid, it's a pipe dream. I own the TAN ETF, but will not be writing off fossil fuels or nuclear power just yet...
    • LH
      Luke H.
      4 June 2020 @ 16:19
      @The-First-James M. Agreed, I'm not writing off either fossil fuels or nuclear, but I do believe there will be more growth in wind, solar, geothermal and hydro. I like the limited partnerships like $BEP, $HASI, $TERP. Nuclear I have some speculative holdings, but I'm not convinced it's the solution that will win in emerging markets (I live in one myself) which is where the growth is going to come from. Batteries are improving exponentially and intermittency will be solved very soon. Expect big things this year. Decentralised power - solar at home / your business, with effective storage, is more resilient at the end of the day than centralised power grids. Here in South Africa, our grid is on its last legs. Soon people will source and locally share their own power, and use it to power their cars at the same time. Tesla battery day will be interesting. There is potential for electric cars to operate as home power storage - invest in a model 3 and now you've got 2 powerwalls as well - all you need is some panels and inverters.
    • WM
      Will M.
      5 June 2020 @ 16:14
      The science is not proven but it is suggested. The real issue here is that a rapid transition for hydrocarbons is not possible without massive unbelievable spending over a decade. Where is that money coming from? We have already bankrupted the sovereign bond sector and the BS propagated over the years leads one to believe that money can be printed will no ill effects. Oil remains the lifeblood of the industrial advanced economies. If we don't INVEST in it, the west will be held to ransom by the countries that have oil. War will follow. Therefore, don't count out oil and gas yet.
  • HB
    Hammam B.
    5 June 2020 @ 02:37
    Just want to add one point, your dear speaker missed a very obvious point and statement made by the Saudi Arabian Minister of Finance, the exceptional decrease in Forex reserves in March and April was due to a one-off to transfer to the Sovereign Wealth Fund (PIF), which used the funds to purchase multiple investments in the US and other markets. These are not reflected in the reserve data and hence shown as a decrease. i'm surprised that this wasn't research in a diligent manner as this was covered in Bloomberg and other publicly available sources!
  • BA
    Bruce A.
    4 June 2020 @ 23:53
    Really enjoyed this interview. Well done.
  • DS
    David S.
    4 June 2020 @ 17:30
    Although Russia is losing oil revenue also, it appears that President Putin is winning this tug of war with Saudi Arabia. Power and control of the Middle East is in the balance as President Trump withdraws US influence and troops. President Putin is also winning the US shale oil game against the US producers – his original target. If Coronavirus does not break his grip on Russia, it looks like Russia could be The Player in the Middle East and the marginal oil producer when you include the budgeted needs of Saudi Arabia. Russia is still selling oil to China on an old agreement at 50% of an old price in Yuan. I am assuming that the Chinese price may still be above current world oil price. DLS
    • DS
      David S.
      4 June 2020 @ 19:39
      President Trump’s US isolationism created a vacuum that President Putin is exploiting in the Middle East and Asia. It is in President Putin’s interest to re-elect President Trump in 2020. I expect President Putin to take maximum tactical advantage with a mis-information ad campaign to help any politician that he believes can help in this isolation effort. With all the disruptions with COVID-19, I also expect a concerted effort to hack the voting systems state by state. DLS
  • CW
    CC W.
    4 June 2020 @ 17:44
    Another excellent update.
  • HR
    Humberto R.
    4 June 2020 @ 14:58
    Question/possibility: What if the Saudis see their future in exporting more and more to China? Relatively speaking they might be ok drawing down their dollar reserves if the future crude settlements will be via China's gold backed petro-yuan?
  • MS
    Michiel S.
    4 June 2020 @ 08:27
    Great information! An idea to have him giving us a weekly 10-15 minute update instead of once every so many weeks. Thanks
    • MW
      Max W. | Real Vision
      4 June 2020 @ 13:52
      I agree that would be great and I'll see what we can do. I'd like to caveat that by saying Warren runs a pricy service for institutional investors who get reports and updates like this much more frequently and at a much higher price than RV. Too much exposure here could undercut the value of his business. There may be a middle ground that is more frequent but I'm grateful to have Warren on at the current rate.
  • MG
    Miguel G.
    4 June 2020 @ 10:49
    Thanks Warren for EPD and WMB ideas I made 40% and 60% respectively on your ideas. Just closed my positions yesterday hopeful to get back in when market risk lowers. Awesome interview and appreciate you sharing your knowledge with us.