The Phil Flynn Energy Report
The Retail Revolution
Retail investors are rising up. Refusing to be Wall Street’s doormats, retail investors are attacking vulnerable Wall Street positions and making them pay. They’re banding together and rocking the markets, squeezing stocks like GameStop and AMC and are now turning their attention to silver. They’re attacking short sellers and they’re now realizing that silver is undervalued when compared to gold and Bitcoin. It’ll only be a matter of time until they realize that oil is cheap, as well.
Bloomberg News reports that “the precious metal has become a popular buying target for retail investors who want to inflict losses on hedge funds, after posts on WallStreetBets claimed the market was ripe for a short squeeze. Others in the Reddit forum have responded with pleas to avoid the trade, saying Citadel stands to benefit as a major holder of the largest silver exchange-traded fund.” But they’re not listening. Silver coins are flying off the shelf and silver futures soared above $30.00 per ounce.
The run on silver and the risk-on momentum is boosting oil! It may be only a short period of time before the rental army starts to realize that President Joe Biden's attack on oil is going to leave the market undersupplied. Retail investors might rely on the fact that banks are pulling their investment dollars away from fossil fuels and they could become a target of this crew that wants banks to feel some investment pain.
Oil prices were weak Friday on Covid-19 fears and what seems to be disarray in the Biden administration as far as vaccine distribution goes. Politico reports the following:
“‘It’s a mess’: Biden’s first 10 days [have been] dominated by vaccine mysteries. Biden’s team is still trying to locate upwards of 20 million vaccine doses that have been sent to states — a mystery that has hampered plans to speed up the national vaccination effort.
Joe Biden promised he’d bring in a competent, tested team to run the pandemic response, set ambitious vaccination targets and impose strict public health guidelines.
His team arrived at the White House with a 200-page response plan ready to roll out. But instead, they have spent much of the last week trying to wrap their hands around the mushrooming crisis — a process officials acknowledge has been humbling, and triggered a concerted effort to temper expectations about how quickly they might get the nation back to normal.”
In other news, recent reports state that OPEC+ compliance to previously-ordered production cuts is improving. Bloomberg News reported that “OPEC and its partners estimate they implemented 99% of their agreed oil-supply curbs in December, according to a delegate who asked not to be named…. Implementation in December was at 103% among OPEC members, and 93% for their non-OPEC partners, a group that includes Russia and Kazakhstan.”
Can “Big Oil” become big again? Big oil has certainly shrunk, but a major merger could signal a longer-term bottom in oil despite Biden's desire to transition away from the commodity.
The Wall Street Journal reports the following:
“The chief executives of Exxon Mobil Corp. [XOM -2.65%] and Chevron Corp. [CVX -4.29%] spoke about combining the oil giants after the pandemic shook the world last year, according to people familiar with the talks, testing the waters for what could be one of the largest corporate mergers ever.
Chevron Chief Executive Mike Wirth and Exxon CEO Darren Woods discussed a merger following the outbreak of the new coronavirus, which decimated oil and gas demand and put an enormous financial strain on both companies, the people said. The discussions were described as preliminary and are not ongoing but could come back in the future, the people said.”
The Journal writes, "Such a deal would reunite the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was broken up by U.S. regulators in 1911, and reshape the oil industry. A combined company’s market value could top $350 billion. Exxon has a market value of $190 billion, while Chevron’s is $164 billion. Together, they would likely form the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only in both measures to Saudi Aramco.
But a merger of the two largest American oil companies could encounter regulatory and antitrust challenges under the Biden administration. Biden has said climate change is one of the biggest crises the country faces. In October, he said he would push the country to ‘transition away from the oil industry.’ He has not been as vocal about antitrust matters, and the administration has yet to nominate the Justice Department’s head of that division.”
We’re still recommending staying hedged. The upside risks to oil and products are rising. We should see big inventory draws in the coming weeks. Oil demand is rising. We could also see the impact from shale oil producer restraint. On top of that, the anti-petroleum policies of the Biden administration will restrict U.S. output and allow OPEC+ to become the biggest known influence on price.
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