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Oil Price War and your portfolio..

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  1. #31

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    The $35 is a broad estimate. Since those notes would have been done across different time. So the kick in on oil prices are different for different notes. Also depending on the structure I suspect many of them might only be observed closer to maturity, which usually for the korean notes are between 2 to 3 years.

    The impact, however, is very skewed market positioning of risk due to all the kick ins of the notes. Might mean better trading positions as investment banks will be able to go long on oil as a natural hedge against the notes.


  2. #32
    Quote Originally Posted by freeier:
    The $35 is a broad estimate. Since those notes would have been done across different time. So the kick in on oil prices are different for different notes. Also depending on the structure I suspect many of them might only be observed closer to maturity, which usually for the korean notes are between 2 to 3 years.

    The impact, however, is very skewed market positioning of risk due to all the kick ins of the notes. Might mean better trading positions as investment banks will be able to go long on oil as a natural hedge against the notes.
    Thanks for the explanation.

    For oil, there has to be a question about how long some of the oil exporters (especially in the Middle East) can continue to support their domestic spending budgets with oil prices at these levels. (Russia obviously has it's own agenda.) At some point, I expect OPEC will have to agree output cuts if they want to survive. On the demand side there's the questions of how long and how deep the Covid-19 downturn will be. I've got no idea but the history of disease outbreaks post- WW2 suggests that they are not long term phenomena.

  3. #33

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    Quote Originally Posted by traineeinvestor:
    Thanks for the explanation.

    For oil, there has to be a question about how long some of the oil exporters (especially in the Middle East) can continue to support their domestic spending budgets with oil prices at these levels. (Russia obviously has it's own agenda.) At some point, I expect OPEC will have to agree output cuts if they want to survive. On the demand side there's the questions of how long and how deep the Covid-19 downturn will be. I've got no idea but the history of disease outbreaks post- WW2 suggests that they are not long term phenomena.
    fundamentally i just dont see how they can survive.. Saudi needs oil price at 90USD for their annual budget to break even.. maybe now that they have collected like 50 or 100b from aramco sales, they are more confident of sitting tight and waiting thru another 1-2 years of low oil prices..

  4. #34

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    On the other hand, Saudi has lowest marginal cost of production ($10 a barrel or less, compared to $35 or more in Russia/US) so if they make fiscal savings (or just borrow more like they have done recently), they can weather the storm for longer than the others.


  5. #35

    Ouch! I'd guess that this could be a big issue for a lot of airlines. Airlines hedge their fuel costs against the possibility of prices increasing and based on forecasts of the amount of fuel expected to be used. When demand collapse the loss on the hedge is no longer offset by revenues.

    <Research Report>C Suisse Cuts CATHAY PAC AIR (00293.HK) TP to $9.4 on Latent Oil Hedging LossAASTOCKS Financial News - Research Report


  6. #36
    Quote Originally Posted by GentleGeorge:
    On the other hand, Saudi has lowest marginal cost of production ($10 a barrel or less, compared to $35 or more in Russia/US) so if they make fiscal savings (or just borrow more like they have done recently), they can weather the storm for longer than the others.
    Do you have a source for this? Wikipedia (FWIW) gives lower cost numbers for Russia (though still double Saudi Arabia):

    https://en.wikipedia.org/wiki/Price_of_oil

  7. #37

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    Quote Originally Posted by traineeinvestor:
    Ouch! I'd guess that this could be a big issue for a lot of airlines. Airlines hedge their fuel costs against the possibility of prices increasing and based on forecasts of the amount of fuel expected to be used. When demand collapse the loss on the hedge is no longer offset by revenues.

    <Research Report>C Suisse Cuts CATHAY PAC AIR (00293.HK) TP to $9.4 on Latent Oil Hedging LossAASTOCKS Financial News - Research Report
    Cathay has been burned badly on fuel hedges before, should just stick to flying planes.

  8. #38

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    Quote Originally Posted by traineeinvestor:
    Do you have a source for this?
    Think my numbers might be out of date, although there is a bit of variance across sources (and intra-regional producers), eg. https://www.investopedia.com/article...tional-oil.asp

  9. #39

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    Quote Originally Posted by mrgoodkat:
    Cathay has been burned badly on fuel hedges before, should just stick to flying planes.
    I think this is exactly why they hedge?!

  10. #40
    Quote Originally Posted by GentleGeorge:
    Think my numbers might be out of date, although there is a bit of variance across sources (and intra-regional producers), eg. https://www.investopedia.com/article...tional-oil.asp
    Thanks for that. I think (with the admission that I'm not an expert on oil) that there are different definitions of "cost" with "all in cost" and "cash cost" being two different beasts. I'd assume the latter is the more relevant for present purposes?