Hello Arjun, I look forward to a new Super Spiked and always read it first before anything else that day. It's top priority.
I know that you are not making trading calls, I fully acknowledge that, so can I ask about what you think the rough floor and ceiling on crude prices will be during this superspike period? I.e. demand destruction we seem to have reached at ($120 crude + crack spread of $40 = ~$160) at the pump during the March 2022 and June 2022 peaks, is that ~$160 range about the ceiling on prices for this period? And the shut-in floor, what price range? Again, I'm not looking for a specific prediction but just the general range you see prices gyrating within. Any clarification is appreciated.
Thank you for the kind words on Super-Spiked. On demand destruction pricing, it's really not a specific number and will vary based on a broad range of circumstances. Certainly could be $120 to numbers much higher. Classically, the floor is "shut-in" pricing though that tends to be temporary (< few months at most). I suppose $40 is probably not an unreasonable floor in a global recession scenario. Its a pretty wide band but one where I think risk/reward skews higher. But even as it skews higher, deep global recesssion can always crush prices.
I enjoyed this article so much that I went back in time and bought tons of XOM on margin at $34 right before the 2020 election. Actually didn't have to go back in time, actually did it. It's so refreshing to hear some common sense from someone who was at the top and not just little people like myself. How anyone could think oil is going to disappear any time soon boggles the mind. So grateful to the guy on seeking alpha who sent me a link to this post and I'm now a subscriber.
Robert, thank you very much for the kind words. A big motivation for my creating Super-Spiked was to vocally push back on the elitist "climate only" policies that I believe will hurt those least advantaged the most.
Allot of people who think the whole anti-FF ESG thing has gone overboard cite the economic ( standard of living ) and environmental ( deforestation ) differences between Haiti and the Dominican Republic as representative of the harms of that attitude. Is that something you've looked at or written about by chance?
Robert, I am familiar with the Haiti v DR work others have done but haven't done a deep dive on that area specifically myself. I would say that it is pretty clear that richer countries outperform poorer ones on most/all environmental and health metrics. And of course richer countries use far more fossil fuels than poorer ones. The challenge is that we don't really have any good replacements for fossil fuels at this time. Making rich countries poorer and keeping poor countries poor is absolutely not the answer.
Governments now appear to want to do anything they can to ensure citizens do not feel the full effects of higher energy prices. Often subsidising them in some way, and funding it via a windfall tax on energy producers. Talk about failing to understand economics, their actions can only make things more acute.
Thank you very much for your excellent columns and videos. Since I discovered one of your column (The 3Rs - ROCE rebounding, Recovering S&P weight, Rescued assets) from Twitters in late April, I have read every column, watched each video and listened each previous interview on your substack.
I wonder if you could write a follow up column on "market corrections, recession risk, and energy" that covers bear markets and corrections from late 1960s to early 1990s. Some people (including Stephen Roach) believe that there is a significant probability of stagflation for next several years. Your experience and knowledge (whether direct or indirect) of the energy market from late 1960s to early 1980s will be extremely helpful.
thank you so much for the kind words @Tonyforever. I definitely would like to take everything back another 20 years or so. There are some big differences from that era vs the post-NYMEX environment we now live in. Still, lessons can be drawn.
Thank you for such an excellent analysis! What do you think of oil sector's commitment to maintaining capital discipline despite elevated prices, and do you see that would contribute to sustained level of energy prices?
I have to admit I have been surprised at the significant the shift to broad-based "dividend growth" over "production growth" as the core metric. I have always assumed that capital discipline would fade. But within that view, I have never though the 0% ROCE over last decade was sustainable. I have pegged long-term "normalized" ROCE at 8%-10% for the sector...which would allow for both a slip in capital discipline AND better ROCE than last decade. Those points are for the multi-decade normalized view. Looking at the 2020s, I have thought ROCE would over-shoot on the upside versus a long term 8%-10% level, in large part because that is the nature of Energy. You overshoot in both directions. We are just coming off a 0% decade. So were due for at least a mid-teens ROCE or better.
Thank you for putting out such great content for free! I only started learning about energy markets recently this year and have benefitted a lot from the knowledge you have shared. It is not easy to find such pages on the internet now, it is dominated by people talking about cryptocurrencies, tech and disruption. We need more people sharing expertise on energy!
Mr Murti, do you have an email contact where I could directly contact you please? I have some questions regarding your posts if you don't mind answering them!
Many European majors are still trading below their pre-covid peaks when oil was trading at $60 a barrel. I think there is still upside in store for them.
With the Euros, the uncertainty created by their more aggressive stances toward shifting their business models I think is contributing to their lagging US peers. But wouldn't disagree that they are likely undervalued.
Hello Arjun, I look forward to a new Super Spiked and always read it first before anything else that day. It's top priority.
I know that you are not making trading calls, I fully acknowledge that, so can I ask about what you think the rough floor and ceiling on crude prices will be during this superspike period? I.e. demand destruction we seem to have reached at ($120 crude + crack spread of $40 = ~$160) at the pump during the March 2022 and June 2022 peaks, is that ~$160 range about the ceiling on prices for this period? And the shut-in floor, what price range? Again, I'm not looking for a specific prediction but just the general range you see prices gyrating within. Any clarification is appreciated.
Best,
J
Thank you for the kind words on Super-Spiked. On demand destruction pricing, it's really not a specific number and will vary based on a broad range of circumstances. Certainly could be $120 to numbers much higher. Classically, the floor is "shut-in" pricing though that tends to be temporary (< few months at most). I suppose $40 is probably not an unreasonable floor in a global recession scenario. Its a pretty wide band but one where I think risk/reward skews higher. But even as it skews higher, deep global recesssion can always crush prices.
I enjoyed this article so much that I went back in time and bought tons of XOM on margin at $34 right before the 2020 election. Actually didn't have to go back in time, actually did it. It's so refreshing to hear some common sense from someone who was at the top and not just little people like myself. How anyone could think oil is going to disappear any time soon boggles the mind. So grateful to the guy on seeking alpha who sent me a link to this post and I'm now a subscriber.
Robert, thank you very much for the kind words. A big motivation for my creating Super-Spiked was to vocally push back on the elitist "climate only" policies that I believe will hurt those least advantaged the most.
Allot of people who think the whole anti-FF ESG thing has gone overboard cite the economic ( standard of living ) and environmental ( deforestation ) differences between Haiti and the Dominican Republic as representative of the harms of that attitude. Is that something you've looked at or written about by chance?
Robert, I am familiar with the Haiti v DR work others have done but haven't done a deep dive on that area specifically myself. I would say that it is pretty clear that richer countries outperform poorer ones on most/all environmental and health metrics. And of course richer countries use far more fossil fuels than poorer ones. The challenge is that we don't really have any good replacements for fossil fuels at this time. Making rich countries poorer and keeping poor countries poor is absolutely not the answer.
Governments now appear to want to do anything they can to ensure citizens do not feel the full effects of higher energy prices. Often subsidising them in some way, and funding it via a windfall tax on energy producers. Talk about failing to understand economics, their actions can only make things more acute.
Yes, gov'ts can and will make the crisis worse. probably the surest bet one can make :)
Thank you very much for your excellent columns and videos. Since I discovered one of your column (The 3Rs - ROCE rebounding, Recovering S&P weight, Rescued assets) from Twitters in late April, I have read every column, watched each video and listened each previous interview on your substack.
I wonder if you could write a follow up column on "market corrections, recession risk, and energy" that covers bear markets and corrections from late 1960s to early 1990s. Some people (including Stephen Roach) believe that there is a significant probability of stagflation for next several years. Your experience and knowledge (whether direct or indirect) of the energy market from late 1960s to early 1980s will be extremely helpful.
Thanks again.
thank you so much for the kind words @Tonyforever. I definitely would like to take everything back another 20 years or so. There are some big differences from that era vs the post-NYMEX environment we now live in. Still, lessons can be drawn.
Thank you. I am looking forward to reading it.
Thank you for such an excellent analysis! What do you think of oil sector's commitment to maintaining capital discipline despite elevated prices, and do you see that would contribute to sustained level of energy prices?
I have to admit I have been surprised at the significant the shift to broad-based "dividend growth" over "production growth" as the core metric. I have always assumed that capital discipline would fade. But within that view, I have never though the 0% ROCE over last decade was sustainable. I have pegged long-term "normalized" ROCE at 8%-10% for the sector...which would allow for both a slip in capital discipline AND better ROCE than last decade. Those points are for the multi-decade normalized view. Looking at the 2020s, I have thought ROCE would over-shoot on the upside versus a long term 8%-10% level, in large part because that is the nature of Energy. You overshoot in both directions. We are just coming off a 0% decade. So were due for at least a mid-teens ROCE or better.
Fantastic analysis as usual sir!
Thank you very much Deepak!
Thank you for putting out such great content for free! I only started learning about energy markets recently this year and have benefitted a lot from the knowledge you have shared. It is not easy to find such pages on the internet now, it is dominated by people talking about cryptocurrencies, tech and disruption. We need more people sharing expertise on energy!
thank you Joshua. very much appreciate that.
Mr Murti, do you have an email contact where I could directly contact you please? I have some questions regarding your posts if you don't mind answering them!
Joshua, if you reply to an email, I will receive it.
Hi Sir, I've sent an email to arjunmurti@substack.com, would that be correct?
Yes, that is correct..and received it. Hope I can circle back this week.
Thank you Sir! I look forward to hearing from you!
Many European majors are still trading below their pre-covid peaks when oil was trading at $60 a barrel. I think there is still upside in store for them.
With the Euros, the uncertainty created by their more aggressive stances toward shifting their business models I think is contributing to their lagging US peers. But wouldn't disagree that they are likely undervalued.