Neal Kumar

@JasonBordoff Completely correct but I’d replace “could make” with “already makes”. Started with Libya then Ukraine, now Iran. + leverage with Europe to supply energy. Of course the rest of the world is not dumb and will accelerate electrification in response.

In today’s @FT, I argue the Iran war shows how profoundly shale has affected US foreign policy. With the US far more insulated from global shocks, there are fewer restraints to using US economic and military power abroad — with major consequences for allies, rivals & markets.

@stevehou That's how the big traders and make tons of $, in various ways. Physical oil trading is an option on all of the mispricing, structure, premiums, storage positions, also incredibly risky if you've done it all wrong and end up on the other side. Have to be in the game to win.

why not buy oil in the paper market and sell it in the physical market and pocket the difference? how about that for an idea?

Separate out phyical premiums in a specific location vs. loss of supply globally. When I worked at PIRA they drilled out of me arbs/price etc. to look at global supply/demand over the short and long term. Which I'm grateful for. Dr. Ross of course understood how to market to his clients but he knew the fundamentals of price which are supply/demand/inventory/spare capacity change, globally over time. North Sea physical diffs can be higher or lower based on the specific dates/pricing/refinery demand or whatever games the North Sea traders are playing at the time and how their CFDs or derivatives are pricing in or out. What matters is the loss of production over whatever this period of time will be during the war, the inventory draw (SPRs and commercial), and then where price has to balance supply/demand to allow for inventory and spare capacity to get rebuilt. It is very difficult for me to think that a 600mln-1bbl bbls draw at least of crude + products is going to result in anything except substantially higher prices across the board. Product inventories both govt and commercial in particular have to be rebuilt and cracks have to move up to incentivize this, meaning crude will have to follow up product flat price even if short term cracks are negative to force crude conservation (this will create a product draw, already happening in the US). Import bbls cheaper than native bbls have to flow to Europe to make cracks positive, especially with no Urals or Russian VGO. We are seeing this at speed, and once the paper traders' risk managers are not in complete panic and traders get paid their bonuses from last year in full, they will start to bid the paper higher.

@JavierBlas @ALikhodedov @CRUDEOIL231 @CommoditiesGuy @AdiSurreyEnergy Any idea why physical easing despite same fundamental backdrop? Just trying to get a sense if this is a shift or day to day noise

Tentative signs -- with a lot of emphasis on tentative-- of easing in the European physical oil market. Dated Brent is falling below $120, and lots of offer today on the key trading window (compared to overwhelming bids in recent days). Physical premia also dropping a bit.

Oil is not as important in primary demand (power and refineries) due to oil only really being used in backup power and EVs, but it's much more important in petchems and derivatives than it was in the past. Oil and gas derivatives are used in everything we wear and do. Solvents, adhesives, plastics (including basic things like cling film and plastic containers). We are going to find out if that's a big deal or not pretty soon, starting with Asia. It might also just kill off the European petchem industry forever.

Good to see that all of the Dr Dooms are getting triggered by my posting 😂

@antoine_halff @glcarlstrom The incentive will be enough to move Caspian (reverse swap) via Baku or Makhachkala or even Aktau and Volga after ice. Rail to China also possible. Not massive volumes logistically possible but I wouldn’t underestimate trader motivations with +120-140/bbl and survival.

That 16 day estimate seems to correspond to the amount of storage available during COVID, when Iranian stocks hit an all time high of 92.15mb which at the time was 85% of nameplate capacity. It is tempting, but inaccurate, to take that as an indication of tank tops. Since COVID Iran has added16 mln bbls of capacity. Today those 92.15 mb would only fill up 75%. So I think we get at least three weeks now and likely a bit more if you throw in a few ships

"Iran will have to start significantly reducing its oil production within about a fortnight if a US naval blockade succeeds in choking off its exports. Storage tanks are just over 51% full... that leaves space for roughly 16 days of output." ft.com/content/dec9c5…

@TimMLatimer You’d be surprised how many datacenter operators know close to zero about electricity infrastructure and grid codes, even while they’re building! I’m sure this is why there are delays. It’s not easy to connect hundreds of MW to a grid.

Running Fervo has let me straddle the worlds of tech and energy and it’s been fascinating to watch them converge. Despite the convergence, I’m still shocked to hear tech thought leaders constantly parrot “energy is the easy part” when all the data points to the opposite.

@bataille_chris I’m telling everyone to buy whatever clothes or gear, especially waterproof, you need now. It’s going to be unavailable soon.

Now the global pain starts - the cascading effects through the petrochemical supply chain.

@Rory_Johnston It’s run cuts and ex USG laycans starting to firm so more actual cargoes to offer. WTI should firm vs DTD. If available Europe will also start to run condensates + feeds (standard when DTD linked becomes expensive vs margins).

Today's Dated Brent through ICE futures curve. Dated off ~$15/bbl from Monday's level. It's definitely strange to see given acute ongoing supply losses, but physical participants can be optimistic, too! Let's hope they're right and Hormuz reopens sooner than later.

Nobody wants to bring up the dodgy biz Farallon was doing in Russia in the 90s/00s when Steyer was running it? They were some of the biggest funders of oil/gas with many people now on sanctions lists. Everyone back then knew they would fund when nobody else would. I’m nowhere near California but this guy is crazy.

people are misinterpreting my position on steyer as "billionaires shouldn't do politics," which I obviously disagree with (I am a billionaire doing politics). my problem with steyer is his rhetoric is totally at odds with his actual life, bc all of this is for his ego, not CA.

Forget about convergence. DTD is the real price of crude, the futures price is referenced to DTD via DFL (as Anton points out very well) and not vice versa. The futures price now has a kind of fear discount in the price due to vol etc, DTD is what people actually have to buy. It’s complex and why trading desks invest huge sums to get into the “real” mkt. I probably spent 100s hours with management and risk managers about it, hedging, efps, using ICE Brent instead (lower exchange margin), everything. Few understood. Then you get into trading DTD vs WTI CMA swaps (US export bbls), then hedging diffs of crude vs DTD based on 40s or now Midland refinery yields. The paper markets might not converge for a while if people are terrified to buy.

@ALikhodedov The backwardation should be converging as we move to expiration but it won't close all the way by 4/27 when ice Brent options expire. Do you know an estimate of how much of this convergence should occur by then via carry alone and ignoring news etc?

@bencahillenergy Yes, diesel supply will also be a major problem

Six weeks into the Gulf war. Supplies that loaded before Feb. 28 have just about reached their destinations. Strategic reserve releases and inventory drawdowns bought some time. But we still have near-zero transit through the Strait, and now a declared US embargo. And Brent is sub-100. Is the market pricing in a physical market scenario 30-60 days out that is impossible to achieve?

@ALikhodedov @GringoInvesting @OpenSquareCap Haven't seen anyone mention it but you could in theory move some bbls, maybe max 100-200kb/d via Caspian, Neka-Makhachkala or even via Aktau through Kazakhstan. Difficult, not impossible as Turkmen flows can go south or north + rivern navigation soon.

1) Iran has survived 2020 with 500kbd exports and laughable prices. I think they could hold out without income much longer than the rest of the world - without SOH. Imports of food etc are a bigger problem for Iran, but they still have a couple months before it gets really bad, I heard ... plus they would be able to move some stuff by land, although it is not a panacea. The issue is that US wasted 5-6 weeks threatening to wipe out civilisation or bomb civilian infrastructure - so now the world is 6 weeks into Hormuz closure, while Iran only gets into it. So I would not bet on Iran having less staying power at this point. 2) US military or parts of it may have been planning for 40 years (although I am not sure that they were ready - I think the effectiveness of Iran's Hormuz strategy was a surprise for most), but there is a thing called "institutional idiocy", which was on full display at the start of the war, where the decision to go in was made against - as I understand - advice of own intelligence services. Anyhow unless I am missing something it does not look like US is planning or even able to get SOH to 90% of the flows by force - in the next month. Sure, they can probably do it in 3-6 month, but this is too late.

If WaPo story is true then Trump’s economic vice will get costly as Iran has time on its side. No way world can hold out economically longer than Iran.

@DrPJSullivan @ira_joseph @ColumbiaUEnergy Fujairah is a "bypass" which has been repeatedly attacked and even if large tankers can load via the SPM (better than a berth in some ways for security) they can still be attacked

@ira_joseph @ColumbiaUEnergy Exactly.

This new episode is why when aspiring board members of major engineering companies suggest building a pipeline to here or a canal to there, it does not rid the world of a choke point, It only moves it to another location with a different set of antagonists. @ColumbiaUEnergy

@Tjernlund @ShanuMathew93 Only the fun part. You can still build a datacenter for an American or Chinese/Sinagpore company to use.

@NealFKumar @ShanuMathew93 I thought Europe made most ai illegal

“There’s a massive capacity crunch that’s unlike anything I’ve seen in the more than five years I’ve been running this business,” said J.J. Kardwell, chief executive of Vultr, a cloud infrastructure company. “The question is, why don’t we just deploy more gear? The lead times are too long. Data center build times are long, the power that’s available through 2026 is already all spoken for.”

@DeanEigenmann 6pm and 4pm on Saturdays

Imagine moving from Dubai, where you can order food at 10pm to Zug where everything closes at 7pm The culture shock must be insane

@tylermacro10 I would be extremely happy if there’s a deal and oil prices normalize as fast as possible, the protests in Ireland are just a taste of what will happen

@NealFKumar That’s not enough demand Yes they’ll keep pressure on dated, but that won’t be enough to erase the downward pressure from futures if there’s a deal

It’s pretty simple actually China has never allowed a bull market in commodities it sets the price for

@tylermacro10 Yeah but in this case they’re not gonna be able to stop Brent moving. The marginal buyer of Brent linked isn’t China because their marginal bbls is one of the 1 bln they put in storage, it’s Europe (no Russia) and Korea/Japan/other East.

@NealFKumar I mean that they are the major net buyer

The Brent price which matters is DTD. DTD prices almost all physical transactions for actual crude purchases in the Western hemisphere ex USA (US export bbls are vs DTD largely or Dubai to East) and a large portion of the East. There are some futures EFP which largely offset as part of DFL or Brent CFD hedging. How DTD is set is defined by Platts. On top of DTD is the physical cargo diff over DTD. Yesterday cargoes (Midland, Forties similar levels) traded +20/bbl over DTD for early May delivery, pricing on those dates via weekly CFD as an estimate. The physical diffs for real traded cargoes against the most applicable reference is the price. Futures, whether Brent or HO or Gasoil are not unless for gasoil/ho you are giving/taking delivery on the contract (and then you are taking a view on the physical diff prompt and future roll). If an MR diesel cargo trades into Hamburg at CIF NWE +20/ton and CIF NWE is 20 dollars over ice gasoil futures, that’s the price. This is not the first nor last time futures (driven often by liquidity or macro) diverge to a greater or larger extent from physical price. The diffs always tell the real story and in theory will normalize but can take a while. The futures backwardation is not a forecast. It’s where futures trades are clearing, not physical cargoes.

There was lots of talk how acute "physical" shortage in the spot market would pull up futures prices of oil. That turned out to be totally wrong. News of a ceasefire pulled down futures, which in turn pulled down spot prices. Don't listen to the doomers... robinjbrooks.substack.com/p/how-big-is-t…