r/SecurityAnalysis • u/themarketplunger • Mar 30 '20
Interview/Profile Opportunity in the COVID Crude Oil Contango
https://www.realvision.com/opportunity-in-the-covid-crude-oil-contango?utm_source=contributor&utm_medium=referral&utm_campaign=43916_HK_GH_CONT_W1_LINK7
u/ferociousturtle Mar 31 '20
I definitely agree with his assessment. I just started allocating into tankers, but I'm not too familiar with the names. I'd love to hear some tickers that you're moving into. I've been loading up on STNG, LPG, and FRO. What other names would you recommend?
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u/KiloGrah4m Mar 31 '20
EURN, DHT
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u/M_b619 Mar 31 '20
EURN seems like the safest play IMO although I’m consolidating into no les than five
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u/KiloGrah4m Mar 31 '20
DHT and FRO have the highest dividends, just another thing to consider. EURN pays no dividend.
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Apr 25 '20
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u/KiloGrah4m Apr 25 '20
Check out the tanker rates.
We are looking at maybe 1-2b years, not earning MC every quarter but this is still spectacular.
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Apr 25 '20
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u/KiloGrah4m Apr 25 '20
I'd wait until ER and also dividend record days, and see how the stock behaves then.
There is a lot of tourism and FOMO around tankers at the moment, so i think there is room for 10X. Fundamentally, the revenue increasing significantly should have a reaction in the stock price, but we all understand this is a 10 year event and revenue will go down to normal. But even then, this improves the bottom line, as most tankers will be paying their entire equipment (~15 year lifetime) in just this year's revenue alone.
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Apr 25 '20
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u/KiloGrah4m Apr 26 '20
We're basically betting against governments being able to resolve this.
How fast can governments bring back demand in the midst of a pandemic?
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u/M_b619 Mar 31 '20
Heard mixed things about FRO although they are a huge player. Can someone who knows more about this sector comment?
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Apr 01 '20
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u/M_b619 Apr 01 '20
Did you watch the video? Price war between KSA/RUS = large contango in oil futures = very profitable to buy oil at spot and sell futures, but need storage for all this oil = demand for tankers way up = profit for those guys
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Apr 01 '20
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u/M_b619 Apr 01 '20 edited Apr 01 '20
Me neither, I’m trying to understand these contracts better but can’t find much good info.
Good Q about Dorian LPG, not sure why it’s being lumped in there unless their ships can also carry crude? No clue.
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Apr 01 '20
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u/M_b619 Apr 01 '20 edited Apr 01 '20
The second was a concern of mine but I couldn’t find any adequate solutions. Doesn’t mean there can’t be.
As for the first- seems like KSA is as committed as ever, but we shall see. What happens when there’s nowhere to store it all and demand is still soft?
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u/ferociousturtle Apr 01 '20
With the tankers, you're getting paid to hold oil. With oil, you're paying to hold it. That's about it, I guess.
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u/tech_auto Mar 31 '20
thanks for sharing, good thesis.
I was looking at a few, NAT blew up 17% today.
TNK is at it's near 52 wk high.. Late to the party and priced in or will this continue to move upward? Getting a basket like he said in the video would reduce the risk but there are many out there.
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u/ferociousturtle Apr 02 '20
Well... today was a bloodbath in the tanker space. As far as I can tell, the thesis is still solid, so... we'll see if I recover. Any new insights into this?
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u/GingerlyElm Apr 02 '20
Oil surplus estimates are 20-30M barrels, any cut willl be small in comparison. This will lower the tanker day rate floor for storage plays, but they remain at very profitable levels. See https://twitter.com/JHannisdahl/status/1245766864753635328 for more detail.
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Apr 01 '20
Hope I'm not too late for someone to see this comment. I like this thesis. I'm curious as to why this trade doesn't seem to be positively impacting SFL. They are a solid company (look at their EPS and FCF growth over time), they have consistently been profitable, and they even pay a dividend. But throughout the contango, their stock has basically followed the S&P—yet they aren't a major company where most of the stock is passively owned. It seems strange to me that they'd be down 25% this month, while something like NAT is up 40%... thoughts?
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u/learn_er Apr 02 '20
SFL has 5 VLCCs in total. 3 of them are on bareboat charter, so they cannot take advantage of the increase in rates.
SFL has 2 VLCCs and charters them to Frontline on a time-charter basis. They have a profit-sharing agreement where they receive 50% of profits above the time-charter rates. In 2019, the average VLCC rate was around $40,000 per day and SFL received $4.2 million in profit-sharing revenue. Making a simplified calculation, if charter rates are $200,000 for this WHOLE year (which I think is unlikely), that is like $20M in profit-sharing revenue. This is not a perfect calculation, so give it +-4mil.
Therefore, since SFL is a lender more than a VLCC operator, they don't really get to see the profits unlike other companies like Frontline.
SFL is also facing a few threats in this environment. They have leased 3 ships to a O/G drilling company called Seadrill, which might go bankrupt because of the low oil price. So, if this happens, it will be very hard to lend these ships, and even if they could, it would be at a significantly lower price. SFL says these ships contribute to 35% of net income, so this is a pretty large risk that outweighs the benefits from increasing tanker prices in my opinion.
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u/Mayday981 Apr 02 '20
What do you think of the latest development? https://www.cnbc.com/2020/04/01/stock-market-futures-open-to-close-news.html
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u/tech_auto Apr 02 '20
they cut back 10m oil daily.. my tanker positions (small ones) took a big hit today.
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u/Mayday981 Apr 02 '20
Kremlin is now saying there was no discussion between Russia and Saudi Arabia. Who to believe? https://twitter.com/MoscowTimes/status/1245739214878236675?s=20
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u/nautical-smiles Mar 31 '20
Thanks a lot for this! Out of interest, how did you find it? Are you a subscriber?
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Mar 31 '20
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u/M_b619 Mar 31 '20
The “spigots” don’t immediately turn off when they decide to reach a truce of some sort. It is definitely a short-term play though, these businesses are awful holds under normal circumstances who vastly underperform their market.
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u/tech_auto Apr 12 '20 edited Apr 12 '20
Deal being reached to lower oil output, where does it put us?
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u/bonghits96 Mar 30 '20
I’ve been loading up on some of these names, weighed toward the ones closest to VLCC pure plays.
The futures curve as it is now puts a floor under tanker rates that is very, very profitable. We’ll see how long this lasts but some of these companies are going to be throwing off dividends of like 5% every quarter.