1 00:00:05,840 --> 00:00:06,520 Speaker 1: Welcome to Trains. 2 00:00:06,519 --> 00:00:08,320 Speaker 2: I'm Joel Webber and I'm Eric bel Chernas. 3 00:00:12,840 --> 00:00:16,760 Speaker 3: Eric, we had plans for this episode, and then the 4 00:00:16,800 --> 00:00:20,880 Speaker 3: situation in the Middle East, specifically around Iran, has continued 5 00:00:20,920 --> 00:00:22,760 Speaker 3: to escalate, so we need to talk about energy. 6 00:00:23,160 --> 00:00:24,120 Speaker 2: Yeah. Oil. 7 00:00:24,880 --> 00:00:27,520 Speaker 4: What really got me thinking we should call an audible 8 00:00:27,600 --> 00:00:30,360 Speaker 4: this week is USO. This is the oil ETF that 9 00:00:30,400 --> 00:00:32,120 Speaker 4: has come back from the dead. Like three times, I 10 00:00:32,159 --> 00:00:35,720 Speaker 4: swear I've written this thing off. Remember during COVID, it 11 00:00:35,800 --> 00:00:38,600 Speaker 4: actually had futures that were about to go negative because 12 00:00:38,720 --> 00:00:40,600 Speaker 4: nobody wanted oil reverse. 13 00:00:40,720 --> 00:00:42,239 Speaker 2: Now you've got this things up. 14 00:00:42,840 --> 00:00:46,160 Speaker 4: At least it was up twelve percent on this particular day, 15 00:00:46,400 --> 00:00:48,520 Speaker 4: and before that I had gone forty percent in a month, 16 00:00:49,120 --> 00:00:52,479 Speaker 4: and the volume was massive, twenty two billion dollars in 17 00:00:52,520 --> 00:00:55,639 Speaker 4: a week, and it's been in the top five most 18 00:00:55,760 --> 00:00:59,000 Speaker 4: traded ETF. So it's come out of its sort of 19 00:00:59,160 --> 00:01:01,600 Speaker 4: grave to come back and take over. This is the 20 00:01:01,680 --> 00:01:04,880 Speaker 4: kind of ETF that my friends from college will text 21 00:01:04,959 --> 00:01:07,720 Speaker 4: me about, like, oh, I want to buy oil. USO 22 00:01:07,840 --> 00:01:10,240 Speaker 4: looks like the one, and it's the ETF we really 23 00:01:10,600 --> 00:01:15,200 Speaker 4: made the whole traffic light system on because it's holding 24 00:01:15,240 --> 00:01:17,800 Speaker 4: futures and they roll and it can be hidden costs 25 00:01:17,800 --> 00:01:19,880 Speaker 4: in there and people it's like a wolf in sheep's clothing. 26 00:01:20,200 --> 00:01:22,560 Speaker 4: But when it goes up, man, it really works. I 27 00:01:22,560 --> 00:01:26,000 Speaker 4: think we should go over that, and then also alternative 28 00:01:26,000 --> 00:01:28,200 Speaker 4: ways to play energy, because if you don't want to 29 00:01:28,200 --> 00:01:30,119 Speaker 4: mess with derivatives, you got to go to the equity market. 30 00:01:30,200 --> 00:01:31,679 Speaker 2: So there's like XL XOP. 31 00:01:32,360 --> 00:01:35,119 Speaker 4: So when you want to play oil or invest in oil, 32 00:01:35,240 --> 00:01:38,080 Speaker 4: or feel like you want more exposure to it, this 33 00:01:38,160 --> 00:01:41,760 Speaker 4: is a perfect thing to cover on this podcast because 34 00:01:42,080 --> 00:01:45,160 Speaker 4: there's multiple options and each have their trade offs. 35 00:01:45,280 --> 00:01:48,280 Speaker 3: You mentioned your traffic light system at Bloomberg Intelligence. What 36 00:01:48,440 --> 00:01:51,640 Speaker 3: traffic light color are you giving this episode as we 37 00:01:51,680 --> 00:01:52,280 Speaker 3: go into. 38 00:01:52,040 --> 00:01:57,320 Speaker 4: It, it's kind of the whole spectrum because USO is 39 00:01:57,400 --> 00:02:02,520 Speaker 4: read XL and XOP would be green, although XOP gets 40 00:02:02,760 --> 00:02:06,920 Speaker 4: one mark for being not market cap weighted. But yeah, 41 00:02:07,000 --> 00:02:11,440 Speaker 4: I'll flashing everything. Yeah, that's why this is complex investing 42 00:02:11,480 --> 00:02:15,000 Speaker 4: in oil. The bottom line is if you think about 43 00:02:15,000 --> 00:02:17,240 Speaker 4: the thing you want to invest in, say a barrel 44 00:02:17,240 --> 00:02:20,040 Speaker 4: of oil, think to yourself how annoying would this be 45 00:02:20,160 --> 00:02:22,919 Speaker 4: to actually invest in directly? You have the bio barrel 46 00:02:22,919 --> 00:02:24,520 Speaker 4: of oil somewhere, put it in your backyard. 47 00:02:24,560 --> 00:02:25,200 Speaker 2: It's toxic. 48 00:02:25,720 --> 00:02:28,320 Speaker 4: The more annoying and exotic it sounds, the more you're 49 00:02:28,360 --> 00:02:30,840 Speaker 4: gonna have to deal with some frictions or things you 50 00:02:30,840 --> 00:02:33,200 Speaker 4: don't like, like costs, and that's the case here. 51 00:02:33,840 --> 00:02:37,600 Speaker 3: So joining us to walk through these options. Vincent Piazza, 52 00:02:37,720 --> 00:02:42,000 Speaker 3: who's the Bloomberg Intelligence Senior Industry analyst for energy, as 53 00:02:42,000 --> 00:02:48,959 Speaker 3: well as James Seffert ETF analyst at Bloomberg Intelligence, this 54 00:02:49,120 --> 00:02:52,360 Speaker 3: time on Train's the complexity of the oil trade. 55 00:02:54,520 --> 00:03:00,239 Speaker 1: James Vince Welcome Atrians, Thank you, thanks for having me. James, 56 00:03:00,280 --> 00:03:01,000 Speaker 1: I want to start with you. 57 00:03:01,040 --> 00:03:07,160 Speaker 3: Can you break down why USO is, Like Eric said, 58 00:03:07,240 --> 00:03:09,919 Speaker 3: it goes up and it comes down. What about how 59 00:03:09,919 --> 00:03:12,880 Speaker 3: does this thing of structure that makes it so volatile 60 00:03:12,919 --> 00:03:13,200 Speaker 3: like that? 61 00:03:14,120 --> 00:03:16,920 Speaker 5: Yeah, I don't this wording is going to sound mean, 62 00:03:17,040 --> 00:03:20,520 Speaker 5: but it's called the United States Oil Fund and Eric said, 63 00:03:20,520 --> 00:03:22,639 Speaker 5: it's the It's one of the primary reasons we went 64 00:03:22,680 --> 00:03:24,280 Speaker 5: with the traffically because it's kind of like a wolf 65 00:03:24,320 --> 00:03:27,080 Speaker 5: in sheep's clothing, like United States Oil Fund. Like it 66 00:03:27,120 --> 00:03:29,120 Speaker 5: just sounds like, oh, it just holds oil. It's simple, 67 00:03:29,639 --> 00:03:31,720 Speaker 5: and it's so much more complex than that, because, as 68 00:03:31,800 --> 00:03:34,040 Speaker 5: Eric said, you've got to roll futures. It tries to 69 00:03:34,040 --> 00:03:35,600 Speaker 5: stay as much in the front month as it can. 70 00:03:35,640 --> 00:03:38,280 Speaker 5: Typically we can get into what happened when oil went negative, 71 00:03:38,320 --> 00:03:40,400 Speaker 5: which is going to be interesting to what's going on today, 72 00:03:41,000 --> 00:03:45,320 Speaker 5: but it it it can change exactly what it's holding 73 00:03:45,360 --> 00:03:48,000 Speaker 5: and when when when oil went negative, things drastically change 74 00:03:48,040 --> 00:03:50,880 Speaker 5: exactly how the ETF was working. But what ends up 75 00:03:50,920 --> 00:03:52,600 Speaker 5: happening is even if you think oil is going to 76 00:03:52,640 --> 00:03:54,120 Speaker 5: go up over a certain time period, that's not what 77 00:03:54,200 --> 00:03:57,240 Speaker 5: you're investing in. Everyone when oil went negative would would 78 00:03:57,280 --> 00:03:58,720 Speaker 5: have taken the bet that oil was going to go 79 00:03:58,760 --> 00:04:00,920 Speaker 5: up from here. But you can't just make that bet 80 00:04:00,920 --> 00:04:02,840 Speaker 5: in the markets, because the markets are smarter than that. 81 00:04:02,880 --> 00:04:04,440 Speaker 5: They know that oil is likely to go up. In 82 00:04:04,480 --> 00:04:07,280 Speaker 5: these contracts end every month. You need to trade each contract, 83 00:04:08,320 --> 00:04:10,000 Speaker 5: so and if you're on the front month, you either 84 00:04:10,040 --> 00:04:12,080 Speaker 5: got to get out of that contract or you have 85 00:04:12,120 --> 00:04:14,000 Speaker 5: to take the delivery of the oil. And all of 86 00:04:14,000 --> 00:04:16,880 Speaker 5: this just gets very complicated. So exactly why we're going 87 00:04:16,920 --> 00:04:18,440 Speaker 5: to call this complexity of the oil trade. 88 00:04:18,480 --> 00:04:21,200 Speaker 4: And let me just paint a visual. If you're picturing 89 00:04:21,279 --> 00:04:25,080 Speaker 4: futures right April, May, June, July, it goes out like. 90 00:04:25,040 --> 00:04:26,240 Speaker 2: A year picture. 91 00:04:26,279 --> 00:04:29,599 Speaker 4: The curve typically slopes up, so like as you roll 92 00:04:29,640 --> 00:04:32,440 Speaker 4: from like April to May, you pay a little more 93 00:04:32,480 --> 00:04:35,520 Speaker 4: for the next month. That is called roll costs. And 94 00:04:35,600 --> 00:04:39,520 Speaker 4: this curve isn't in the state of contango. Now if 95 00:04:39,600 --> 00:04:42,440 Speaker 4: everyone wants oil in an instant, the curve goes the 96 00:04:42,480 --> 00:04:45,720 Speaker 4: opposite direction, so you actually pay less when you roll. 97 00:04:46,240 --> 00:04:49,880 Speaker 4: That's where it's're at right now and USO obviously this 98 00:04:49,920 --> 00:04:52,640 Speaker 4: is a good time to use it. But normally that 99 00:04:52,880 --> 00:04:55,080 Speaker 4: roll costs when it's in a state of contango could 100 00:04:55,120 --> 00:04:58,520 Speaker 4: be anywhere from ten to thirty percent a year. So 101 00:04:58,600 --> 00:05:00,360 Speaker 4: you could make a call that oil is going to 102 00:05:00,440 --> 00:05:03,479 Speaker 4: go up in January and it goes up forty percent 103 00:05:03,560 --> 00:05:06,640 Speaker 4: or thirty percent, and you basically are flat because of 104 00:05:06,640 --> 00:05:08,880 Speaker 4: all the roll costs. That's why this is a wolf 105 00:05:08,880 --> 00:05:11,840 Speaker 4: in sheep's clothing. But because it does hold the near 106 00:05:11,920 --> 00:05:14,840 Speaker 4: months right the month's closest to the actual barrel of oil, 107 00:05:15,520 --> 00:05:19,640 Speaker 4: it does have a lot of sensitivity to the price today, 108 00:05:19,800 --> 00:05:23,560 Speaker 4: so it does move very sensitively, and that's why the 109 00:05:23,600 --> 00:05:26,760 Speaker 4: trading crowd likes it so decent trading tool, bad long 110 00:05:26,839 --> 00:05:30,279 Speaker 4: term holding. Vince as an energy expert at BI, I 111 00:05:30,279 --> 00:05:32,839 Speaker 4: know you cover the equities. Is that a fair assessment 112 00:05:32,920 --> 00:05:34,599 Speaker 4: of the future's market in your opinion? 113 00:05:35,400 --> 00:05:38,440 Speaker 6: That is the I couldn't have said it any better. 114 00:05:38,480 --> 00:05:42,720 Speaker 6: That is the perfect way of describing the difference between 115 00:05:43,200 --> 00:05:48,200 Speaker 6: a tnentango setup versus a backwardation, which is what we 116 00:05:48,400 --> 00:05:51,880 Speaker 6: have today. And because of the volatility, and also keep 117 00:05:51,920 --> 00:05:56,880 Speaker 6: in mind at the back end is fairly illiquid, so 118 00:05:57,040 --> 00:06:00,000 Speaker 6: the front end is more liquid. There's much more volume 119 00:06:00,200 --> 00:06:02,920 Speaker 6: on the front end of the curve the back end. 120 00:06:03,120 --> 00:06:07,479 Speaker 6: Because of that ill liquidity or the less liquidity relative liquidity, 121 00:06:09,680 --> 00:06:14,040 Speaker 6: you could see very very sharp changes in the underlying 122 00:06:14,200 --> 00:06:15,520 Speaker 6: price of those contracts. 123 00:06:16,040 --> 00:06:18,159 Speaker 3: Okay, So, Vince, one of the things that I wanted 124 00:06:18,200 --> 00:06:21,119 Speaker 3: to talk to you about was not that long ago, 125 00:06:21,960 --> 00:06:25,720 Speaker 3: like weeks, it seemed like the world was in an 126 00:06:25,760 --> 00:06:29,520 Speaker 3: oil glut, like there was more oil on ships than 127 00:06:29,680 --> 00:06:32,800 Speaker 3: ever before. The price had been dropping. We were talking 128 00:06:33,360 --> 00:06:37,720 Speaker 3: fifty dollars a barrel. Now it's like the reverse. How 129 00:06:38,040 --> 00:06:41,000 Speaker 3: sensitive is the oil market to just disruptions and why 130 00:06:41,040 --> 00:06:41,240 Speaker 3: is that? 131 00:06:41,279 --> 00:06:42,400 Speaker 1: So? 132 00:06:42,839 --> 00:06:48,240 Speaker 6: We have several significant choke points in the world, and 133 00:06:48,360 --> 00:06:53,280 Speaker 6: the Shadehorn moves is probably one of the more significant 134 00:06:53,360 --> 00:07:00,919 Speaker 6: choke points. Roughly twenty percent of LNG roughly eighteen nineteen 135 00:07:01,040 --> 00:07:05,320 Speaker 6: called twenty million barrels of crude run through that particular 136 00:07:05,520 --> 00:07:11,360 Speaker 6: very narrow passage, So a delay in transporting those molecules 137 00:07:11,880 --> 00:07:18,080 Speaker 6: has a significant ripple effect across several other of the 138 00:07:18,160 --> 00:07:21,960 Speaker 6: choke points. That choke point, that very narrow choke point 139 00:07:23,120 --> 00:07:34,080 Speaker 6: marries European supply, European capacity with Asian demand, so Middle 140 00:07:34,160 --> 00:07:38,800 Speaker 6: Eastern supply running through that up to Europe down to Asia. 141 00:07:39,160 --> 00:07:44,000 Speaker 6: That's a very significant choke point that could have considerable 142 00:07:44,400 --> 00:07:49,080 Speaker 6: impact on balances, both in the short term and also 143 00:07:49,200 --> 00:07:50,200 Speaker 6: in the long term. 144 00:07:51,120 --> 00:07:54,720 Speaker 4: One more follow Vince, because you're following this very closely 145 00:07:54,800 --> 00:07:57,400 Speaker 4: and from a like you're looking at the investment side 146 00:07:57,400 --> 00:07:57,640 Speaker 4: of it. 147 00:07:58,520 --> 00:08:00,400 Speaker 2: How long can this last? 148 00:08:00,520 --> 00:08:05,040 Speaker 4: Like is this something that it just seems like they're 149 00:08:05,040 --> 00:08:07,440 Speaker 4: going to try to get the choke point opened as 150 00:08:07,480 --> 00:08:10,640 Speaker 4: fast as possible. I mean, I'm sure, I'm sure that 151 00:08:10,680 --> 00:08:14,000 Speaker 4: the pressure, especially if it hits you know, a price 152 00:08:14,000 --> 00:08:17,280 Speaker 4: of gallon of gas, is going to be intense. So 153 00:08:17,440 --> 00:08:19,520 Speaker 4: is this something that could last for a long time, 154 00:08:19,720 --> 00:08:23,640 Speaker 4: or like I guess in this trade, is it kind 155 00:08:23,640 --> 00:08:26,000 Speaker 4: of like one of those things that could reverse pretty quickly. 156 00:08:27,240 --> 00:08:30,320 Speaker 6: So the analog here that we have. The closest analog 157 00:08:30,880 --> 00:08:37,079 Speaker 6: is twenty twenty two Russia Ukraine where Brent. Let's use 158 00:08:37,120 --> 00:08:42,280 Speaker 6: Brent right. Brent is considered the global seaborn benchmark. Yeah, 159 00:08:42,800 --> 00:08:47,480 Speaker 6: So we had Brent in February of twenty twenty two, 160 00:08:48,440 --> 00:08:54,600 Speaker 6: spike to a peak in March and retrace by early 161 00:08:54,679 --> 00:08:59,720 Speaker 6: two Q So it retraced that gain, that peak of 162 00:09:00,120 --> 00:09:04,200 Speaker 6: flee from ninety to eighty to one twenty and then 163 00:09:04,320 --> 00:09:07,360 Speaker 6: back down again to a ninety handle some time in April. 164 00:09:07,640 --> 00:09:11,600 Speaker 6: So it retraced very quickly. Now, in the case of 165 00:09:12,800 --> 00:09:17,079 Speaker 6: the Strait of Hormuz and Iran in general, we want 166 00:09:17,120 --> 00:09:21,000 Speaker 6: to look at three things. Right, I call it a delay, 167 00:09:21,840 --> 00:09:28,360 Speaker 6: I call it disruption and destruction. Delay is the hydrocarbons 168 00:09:29,760 --> 00:09:34,000 Speaker 6: get to their destination a few days later, we're not here. 169 00:09:34,960 --> 00:09:39,240 Speaker 6: Disruption is I shut down a well, I shut down 170 00:09:39,320 --> 00:09:44,720 Speaker 6: capacity because I fear that these barrels, these molecules can't 171 00:09:44,760 --> 00:09:47,880 Speaker 6: get to their final destination. That's where we are now. 172 00:09:48,720 --> 00:09:53,240 Speaker 6: The destruction phase, where all bets are off global economies 173 00:09:53,360 --> 00:09:58,720 Speaker 6: are severely impacted, is if assets are taken off the 174 00:09:58,800 --> 00:10:04,440 Speaker 6: chessboard because of destruction, so that there is significant capital 175 00:10:04,840 --> 00:10:09,640 Speaker 6: that needs to be invested to bring these facilities and 176 00:10:09,720 --> 00:10:14,400 Speaker 6: bring this back up to snuff. So supply chain delays, 177 00:10:15,120 --> 00:10:20,160 Speaker 6: maritime logistical delays, those are days. We're now in the 178 00:10:20,280 --> 00:10:25,480 Speaker 6: case where we could see significant barrels off the market 179 00:10:25,920 --> 00:10:30,640 Speaker 6: for significant periods of time, causing a collapse of the 180 00:10:30,679 --> 00:10:35,200 Speaker 6: global economy. Because we're staring at you know, not long 181 00:10:35,240 --> 00:10:38,720 Speaker 6: ago it was one hundred and twenty being bid before 182 00:10:38,760 --> 00:10:42,760 Speaker 6: the US market opened. We're staring at over one hundred dollars. 183 00:10:43,840 --> 00:10:45,920 Speaker 6: That volatility is significant. 184 00:10:53,120 --> 00:10:57,000 Speaker 4: Let's say you know, we were college roommates. This is 185 00:10:57,000 --> 00:10:59,760 Speaker 4: a cruise story, and I text you and I say, 186 00:10:59,880 --> 00:11:02,840 Speaker 4: n listen, I'm not selling my Vanguard funds, but I 187 00:11:02,880 --> 00:11:05,120 Speaker 4: want a little piece of this oil action. I want 188 00:11:05,160 --> 00:11:08,160 Speaker 4: to make sure that I'm participating in all this craziness. 189 00:11:09,480 --> 00:11:11,640 Speaker 4: I was looking at USO, but I don't know. I 190 00:11:11,679 --> 00:11:14,040 Speaker 4: know you cover the stocks. What should I do? How 191 00:11:14,040 --> 00:11:15,880 Speaker 4: would you answer that question to them? 192 00:11:16,000 --> 00:11:18,200 Speaker 1: You can start with this is not investment advice. 193 00:11:18,760 --> 00:11:23,280 Speaker 6: Yeah, yeah, yeah, yeah, yeah, yeah, yeah, No, definitely that's true. 194 00:11:23,480 --> 00:11:25,960 Speaker 4: I'm not trying to because we can't give investment advice. 195 00:11:25,960 --> 00:11:29,320 Speaker 4: But I guess maybe as somebody who knows as much 196 00:11:29,320 --> 00:11:32,280 Speaker 4: as you, just be interested to hear what you would 197 00:11:32,280 --> 00:11:34,480 Speaker 4: say in terms of just somebody who wants to get 198 00:11:34,559 --> 00:11:35,960 Speaker 4: more exposure to this market. 199 00:11:36,640 --> 00:11:40,800 Speaker 6: Yeah. So if you think about from a broader perspective, 200 00:11:42,080 --> 00:11:46,400 Speaker 6: you have the ETF complex. The xl E is probably 201 00:11:46,440 --> 00:11:51,760 Speaker 6: the broadest, the most liquid, the cheapest form of exposure 202 00:11:52,040 --> 00:11:57,120 Speaker 6: across the equity energy space. But that exposure encompasses not 203 00:11:57,200 --> 00:12:00,960 Speaker 6: only the upstream but also the downstream the extream components, 204 00:12:01,000 --> 00:12:04,439 Speaker 6: so it gives you what I call the energy value chain. 205 00:12:04,800 --> 00:12:07,960 Speaker 3: So you you like that vehicle as just like a 206 00:12:08,000 --> 00:12:08,600 Speaker 3: proxy for. 207 00:12:08,600 --> 00:12:15,280 Speaker 6: The energy exactly exactly because within within that ETF as 208 00:12:15,679 --> 00:12:19,600 Speaker 6: both James and Eric No. Three names make up the 209 00:12:19,640 --> 00:12:22,680 Speaker 6: bulk of that exposure. And those are the integrateds. You 210 00:12:22,720 --> 00:12:26,920 Speaker 6: have Exxon, Chevron, and you have what I call a 211 00:12:27,880 --> 00:12:31,880 Speaker 6: mega independent like Conicgo. They make up the bulk of 212 00:12:31,920 --> 00:12:35,920 Speaker 6: that exposure. So they have exposure across not only the 213 00:12:36,040 --> 00:12:40,320 Speaker 6: upstream side of the business so the extractives right the EMPs, 214 00:12:40,679 --> 00:12:45,040 Speaker 6: but also have downstream downstream refining and also petrech chemicals. 215 00:12:45,400 --> 00:12:49,080 Speaker 6: So that provides you with the value chain exposure. As 216 00:12:49,120 --> 00:12:54,400 Speaker 6: you get more granular and you think about the EMP space, 217 00:12:55,480 --> 00:13:01,520 Speaker 6: the XOP is an area that that we've discussed in 218 00:13:01,600 --> 00:13:07,160 Speaker 6: the past. But the XOP or the US Oil and 219 00:13:07,240 --> 00:13:11,640 Speaker 6: Gas e M P ETF, which I think is I EO, 220 00:13:12,880 --> 00:13:18,240 Speaker 6: they're not pure proxies for the upstream exposure because they 221 00:13:18,320 --> 00:13:24,440 Speaker 6: too have much more broader exposure to the downstream and 222 00:13:24,520 --> 00:13:30,200 Speaker 6: also some LNG components. Really, when you think about the 223 00:13:30,320 --> 00:13:35,880 Speaker 6: exposure and what tends to do well in instances like this, 224 00:13:36,520 --> 00:13:39,800 Speaker 6: it tends to be that downstream side, right, because as 225 00:13:39,880 --> 00:13:45,199 Speaker 6: prices go up, the refiner's reprice to the consumer at 226 00:13:45,240 --> 00:13:49,560 Speaker 6: the retail level the gas and diesel that go into 227 00:13:50,200 --> 00:13:55,240 Speaker 6: on road vehicles, and so that price tends to come 228 00:13:55,280 --> 00:14:03,400 Speaker 6: across pretty instantly. But when price is revert at the 229 00:14:03,440 --> 00:14:08,760 Speaker 6: wholesale level at the crude level, prices at the pump 230 00:14:09,200 --> 00:14:14,240 Speaker 6: don't correlate as quickly. So in the refining space, in 231 00:14:14,240 --> 00:14:18,160 Speaker 6: the downstream space, you have probably one of my favorite 232 00:14:19,680 --> 00:14:23,560 Speaker 6: ticker symbols of all time. C R a K. You 233 00:14:23,560 --> 00:14:25,000 Speaker 6: guys can pronounce it for me. 234 00:14:26,280 --> 00:14:29,960 Speaker 4: Vince wrote a which is basically an introduction to stocks. 235 00:14:30,040 --> 00:14:32,640 Speaker 4: Usually he wrote one for xl E and in it 236 00:14:32,680 --> 00:14:35,400 Speaker 4: I'm reading it and I could tell he he loves 237 00:14:35,480 --> 00:14:38,360 Speaker 4: crack Joel, because I'm like I'm like, Vince, why don't 238 00:14:38,360 --> 00:14:40,560 Speaker 4: you just why don't you just say you love crack 239 00:14:40,640 --> 00:14:41,240 Speaker 4: in the headline. 240 00:14:41,280 --> 00:14:42,880 Speaker 2: I mean, that's really what's going on here. 241 00:14:43,520 --> 00:14:47,800 Speaker 1: Okay, So talk to us about about the ETF crack. Vince. 242 00:14:48,600 --> 00:14:54,080 Speaker 6: Yeah, So it provides you with pure play downstream exposure. 243 00:14:54,120 --> 00:14:57,280 Speaker 6: When I mean downstream exposure, the upstream side are the 244 00:14:57,360 --> 00:15:02,640 Speaker 6: companies that extract the hydrocarbon. The downstream the refiners are 245 00:15:03,280 --> 00:15:09,920 Speaker 6: the companies that refine the product, the raw material, the 246 00:15:09,960 --> 00:15:14,080 Speaker 6: feedstock into the things that we use. So the gasoline 247 00:15:14,080 --> 00:15:18,600 Speaker 6: and diesel that cars and trucks and vans used in 248 00:15:18,680 --> 00:15:26,720 Speaker 6: there every day. Now, as spreads widen, there is an 249 00:15:26,720 --> 00:15:30,080 Speaker 6: outside its profitability that ends up in the hands of 250 00:15:30,120 --> 00:15:34,920 Speaker 6: the refining companies and most likely for longer, even after 251 00:15:35,040 --> 00:15:40,000 Speaker 6: the price reverts. So it is a pure play exposure 252 00:15:40,360 --> 00:15:44,600 Speaker 6: to the downstream. The reasoning being that you have margin 253 00:15:44,680 --> 00:15:49,480 Speaker 6: expansion and higher profitability for longer as this crisis persists 254 00:15:49,480 --> 00:15:53,200 Speaker 6: for longer, you also most likely have what I would 255 00:15:53,240 --> 00:15:59,080 Speaker 6: call a geopolitical risk premium that remains in the commodity 256 00:15:59,120 --> 00:16:00,240 Speaker 6: for longer as well. 257 00:16:01,960 --> 00:16:04,160 Speaker 3: Eric, to bring in just a little bit of flows 258 00:16:04,280 --> 00:16:07,000 Speaker 3: and comp between the ETFs, we've talked about so far, 259 00:16:07,080 --> 00:16:09,720 Speaker 3: like what's the action look like for this suite of 260 00:16:09,840 --> 00:16:11,840 Speaker 3: ETFs in the energy space. 261 00:16:12,440 --> 00:16:15,160 Speaker 4: Yeah, so he went over I think four of the 262 00:16:15,160 --> 00:16:19,600 Speaker 4: big ones, maybe five, but XALE is the king. It 263 00:16:19,680 --> 00:16:21,720 Speaker 4: sounds like from what Vince is saying and what I 264 00:16:21,720 --> 00:16:22,320 Speaker 4: would you know. 265 00:16:22,400 --> 00:16:23,440 Speaker 2: Also, Echo is like. 266 00:16:24,280 --> 00:16:28,680 Speaker 4: You can't really get too hurt with XL. It holds 267 00:16:28,680 --> 00:16:31,680 Speaker 4: a lot of stocks, it's diversified. The only thing is 268 00:16:31,720 --> 00:16:35,040 Speaker 4: just it's not going to have the sensitivity to short 269 00:16:35,120 --> 00:16:37,400 Speaker 4: term moves and oil Like if you look over the 270 00:16:37,440 --> 00:16:41,000 Speaker 4: short term, USO is blowing away XL in the past 271 00:16:41,040 --> 00:16:44,720 Speaker 4: like week or month, but XLE is up like one 272 00:16:44,760 --> 00:16:46,680 Speaker 4: hundred and sixty eight percent in the past ten years 273 00:16:46,720 --> 00:16:49,720 Speaker 4: something like that, and USO is like down. So it's 274 00:16:49,760 --> 00:16:52,280 Speaker 4: that rolling of the futures that makes USO almost like 275 00:16:52,320 --> 00:16:55,120 Speaker 4: a hot potato. You cannot hold it for longer, We'll 276 00:16:55,120 --> 00:16:57,960 Speaker 4: just eat you alive. XLE you can hold for longer. 277 00:16:58,040 --> 00:16:59,920 Speaker 4: So I think that's the main takeaway. And then x 278 00:17:00,520 --> 00:17:04,520 Speaker 4: XCS they're going to have like more specific parts of 279 00:17:04,560 --> 00:17:07,479 Speaker 4: the oil industry, so it's like almost like a subsector. 280 00:17:07,200 --> 00:17:08,480 Speaker 1: Like a specific niche bet. 281 00:17:08,520 --> 00:17:10,480 Speaker 4: But if we look at this year, the number one 282 00:17:10,640 --> 00:17:13,320 Speaker 4: ETF by flows as xl E with five billion. Number 283 00:17:13,320 --> 00:17:14,439 Speaker 4: two isn't even a billion. 284 00:17:15,560 --> 00:17:16,000 Speaker 2: I funny. 285 00:17:16,240 --> 00:17:18,520 Speaker 4: Number two is u ur a uranium jool even though 286 00:17:18,840 --> 00:17:24,040 Speaker 4: that's t energy. Vd XOP is fourth. Oi H is 287 00:17:24,040 --> 00:17:26,920 Speaker 4: another one. So I guess you know this is part 288 00:17:26,960 --> 00:17:31,479 Speaker 4: of the dilemma. I'm want to go to James on USO. James, 289 00:17:31,480 --> 00:17:36,320 Speaker 4: obviously holding these equity ETFs is monitored. You know, That's 290 00:17:36,320 --> 00:17:39,840 Speaker 4: why these equity tfs get a green lightner system. They're diversified, 291 00:17:39,840 --> 00:17:43,320 Speaker 4: they hold equities. They have obviously some sensitivity to oil, 292 00:17:43,359 --> 00:17:46,840 Speaker 4: but not like USO. Now, can you go over USO 293 00:17:46,960 --> 00:17:49,000 Speaker 4: a little bit here? It came out in like twenty 294 00:17:49,080 --> 00:17:53,679 Speaker 4: years ago. It rolls futures, and then during COVID futures 295 00:17:53,680 --> 00:17:56,160 Speaker 4: were about to go negative, and I think it had 296 00:17:56,160 --> 00:17:58,800 Speaker 4: to like it was going to owe people money or something, 297 00:17:59,280 --> 00:18:03,080 Speaker 4: so it had to like switch strategy to holding all 298 00:18:03,119 --> 00:18:05,679 Speaker 4: of these different futures across the curve so that it 299 00:18:05,720 --> 00:18:08,840 Speaker 4: wasn't like just holding the near month. And then I 300 00:18:08,880 --> 00:18:11,080 Speaker 4: guess it switched back. Can you go through the story 301 00:18:11,080 --> 00:18:14,800 Speaker 4: of USO, because honestly I wrote it off I thought 302 00:18:15,080 --> 00:18:18,960 Speaker 4: it had become neutered by holding all these months, which 303 00:18:19,080 --> 00:18:21,679 Speaker 4: gives it less teeth and less sensitivity to oil. But 304 00:18:21,720 --> 00:18:25,560 Speaker 4: I guess it went back to its front month exposure. 305 00:18:26,920 --> 00:18:30,280 Speaker 5: Yeah, that's exactly right. So what happened Oil went negative 306 00:18:30,359 --> 00:18:32,280 Speaker 5: or was going negative. Things were going bad because the 307 00:18:32,280 --> 00:18:34,840 Speaker 5: government the world was shut down due to COVID And 308 00:18:35,520 --> 00:18:38,280 Speaker 5: what ended up happening really there was a few big drivers. One, 309 00:18:38,440 --> 00:18:40,760 Speaker 5: they were heavily in the front month and second month contracts, 310 00:18:40,760 --> 00:18:42,960 Speaker 5: which is what this product does, and they were not 311 00:18:43,080 --> 00:18:45,360 Speaker 5: doing well. The other problem was the ETF was this 312 00:18:45,440 --> 00:18:48,800 Speaker 5: was a case sometimes ETF's like there are a fish 313 00:18:48,840 --> 00:18:50,399 Speaker 5: that gets too big for the pond that they're in, 314 00:18:50,720 --> 00:18:54,000 Speaker 5: and in this case, USO owned like well over thirty 315 00:18:54,000 --> 00:18:55,960 Speaker 5: percent of the contracts with the open interests of the 316 00:18:55,960 --> 00:18:59,280 Speaker 5: futures that were getting exposure to the oil contracts. It 317 00:18:59,359 --> 00:19:02,280 Speaker 5: was basically the tail wagging the dog, and the SEC 318 00:19:02,359 --> 00:19:05,159 Speaker 5: was getting concerned, the CFTC was getting concerned. They had 319 00:19:05,240 --> 00:19:07,440 Speaker 5: to go in and break, like bake the rules that 320 00:19:07,480 --> 00:19:09,720 Speaker 5: they basically had and are in their perspectives saying what 321 00:19:09,760 --> 00:19:11,960 Speaker 5: the fund would do, because all of a sudden, you 322 00:19:12,040 --> 00:19:13,919 Speaker 5: have all this money in this fund that's holding this 323 00:19:13,960 --> 00:19:16,439 Speaker 5: contract and it's all gonna flow out because it rolls 324 00:19:16,520 --> 00:19:19,439 Speaker 5: to the next month contract like it's set to keep rolling, 325 00:19:19,760 --> 00:19:21,080 Speaker 5: and all of a sudden, you're gonna have a ton 326 00:19:21,119 --> 00:19:23,160 Speaker 5: of money pour out towards the end of this contract. 327 00:19:23,480 --> 00:19:25,919 Speaker 5: It's already heading negative, so they're gonna dump more of 328 00:19:25,960 --> 00:19:28,520 Speaker 5: these contracts onto the market as it's negative. ETF can't 329 00:19:28,520 --> 00:19:30,800 Speaker 5: go negative. All these problems were happening. So what they 330 00:19:30,800 --> 00:19:32,760 Speaker 5: did is, as you said, they went to all these 331 00:19:32,800 --> 00:19:35,520 Speaker 5: other months. They went out twelve months essentially, so they 332 00:19:35,520 --> 00:19:38,520 Speaker 5: went from we have high octane exposure to what's going 333 00:19:38,520 --> 00:19:42,119 Speaker 5: on in oil right now, to we own the entire curve. Essentially, 334 00:19:42,160 --> 00:19:44,560 Speaker 5: we own the curve out one year and so one 335 00:19:44,680 --> 00:19:46,320 Speaker 5: a lot of investors who were trying to bet on 336 00:19:46,359 --> 00:19:48,200 Speaker 5: oil rebounding all of a sudden didn't have a bet 337 00:19:48,240 --> 00:19:50,520 Speaker 5: on oil rebounding because they were just bet across the curve. 338 00:19:50,840 --> 00:19:53,919 Speaker 5: And the funny thing is the Unit US Commodity Funds 339 00:19:53,920 --> 00:19:56,280 Speaker 5: actually has another fund that does this already. It's called 340 00:19:56,359 --> 00:19:59,879 Speaker 5: USL and it holds the twelve month contracts. So essentially 341 00:20:00,000 --> 00:20:04,120 Speaker 5: the USO started mirroring its it's sibling of USL, and 342 00:20:04,400 --> 00:20:06,719 Speaker 5: it wasn't great. It took a few years. But in 343 00:20:06,800 --> 00:20:10,680 Speaker 5: twenty twenty three, I believe they started moving back from 344 00:20:10,840 --> 00:20:13,360 Speaker 5: the twelve month contracts just to the front two months, 345 00:20:13,640 --> 00:20:16,160 Speaker 5: and I yeah, so this all happened. It was kind 346 00:20:16,160 --> 00:20:20,000 Speaker 5: of crazy in twenty twenty three time range, but they 347 00:20:20,040 --> 00:20:22,080 Speaker 5: got back. By January twenty twenty four, they were in 348 00:20:22,080 --> 00:20:23,439 Speaker 5: the front and second month contracts. 349 00:20:23,600 --> 00:20:28,000 Speaker 3: Okay, So change in strategy there. That brings us back 350 00:20:28,000 --> 00:20:31,359 Speaker 3: to basically being like this thing was originally right. So 351 00:20:31,800 --> 00:20:34,080 Speaker 3: we'll be curious to see how this one plays out 352 00:20:34,119 --> 00:20:35,359 Speaker 3: since it's so volatile. 353 00:20:35,520 --> 00:20:38,720 Speaker 4: Yeah, I mean, looking you're to date, USO's up fifty 354 00:20:38,720 --> 00:20:43,720 Speaker 4: seven percent, UNL is up two percent. So but if 355 00:20:43,720 --> 00:20:46,200 Speaker 4: you went back, UNL would have probably gone down less. 356 00:20:46,240 --> 00:20:48,840 Speaker 4: It also doesn't have as much role costs. But honestly, 357 00:20:48,880 --> 00:20:52,439 Speaker 4: here's my take. If you're looking for quick sensitivity and 358 00:20:52,480 --> 00:20:55,000 Speaker 4: a short term trade, I mean, USO will do the job, 359 00:20:55,560 --> 00:20:59,120 Speaker 4: but you can't hold it. You just you can't hold 360 00:20:59,119 --> 00:21:01,560 Speaker 4: two things long term. You can't hold anything that rolls futures, 361 00:21:01,600 --> 00:21:03,560 Speaker 4: and you can't hold anything has leverage. 362 00:21:03,760 --> 00:21:06,280 Speaker 2: You have to treat it like a chainsaw. 363 00:21:05,920 --> 00:21:07,000 Speaker 1: Or juggling the chainsaw. 364 00:21:07,119 --> 00:21:09,480 Speaker 2: Yes, XL XOP. 365 00:21:09,680 --> 00:21:12,560 Speaker 4: These are diversified ETFs that you can sort of bolt 366 00:21:12,560 --> 00:21:14,680 Speaker 4: onto your portfolio as if you're you know, one of 367 00:21:14,840 --> 00:21:17,080 Speaker 4: long term overweight to this sector. 368 00:21:17,320 --> 00:21:19,920 Speaker 3: I notice you didn't mention crack when I asked you about, 369 00:21:20,600 --> 00:21:22,320 Speaker 3: you know, Tom Screen, but you want. 370 00:21:22,160 --> 00:21:24,480 Speaker 4: To talk about there's also frack. You want to like 371 00:21:24,560 --> 00:21:28,800 Speaker 4: siblings crack and crack. So yeah, I mean, look, crack 372 00:21:28,960 --> 00:21:33,000 Speaker 4: is a very specific oil refiners. Vince's case is good 373 00:21:33,080 --> 00:21:36,040 Speaker 4: to me because you you can go out and speculate 374 00:21:36,080 --> 00:21:38,199 Speaker 4: and try to drill the oil, but you have to 375 00:21:38,240 --> 00:21:40,159 Speaker 4: refine it. So the refiners are kind of like in 376 00:21:40,200 --> 00:21:41,880 Speaker 4: a sweet spot of like you have to come through 377 00:21:41,960 --> 00:21:44,760 Speaker 4: us anyway, and that's a good spot to be in. 378 00:21:45,400 --> 00:21:48,120 Speaker 4: I guess it just depends on and also, I think 379 00:21:49,119 --> 00:21:52,480 Speaker 4: the more you get to subsector ETFs outside of xl E, 380 00:21:53,160 --> 00:21:57,080 Speaker 4: the more you are not overlapping your regular portfolio because 381 00:21:57,080 --> 00:21:58,760 Speaker 4: a lot of people own VOO and a lot of 382 00:21:58,880 --> 00:22:02,919 Speaker 4: XL's top holdings are in VOO already or IVV or SPY. 383 00:22:03,000 --> 00:22:04,920 Speaker 4: The more you go to subsectors, the more you're getting 384 00:22:05,240 --> 00:22:08,760 Speaker 4: unique exposure that we call portfolio completion. So I think 385 00:22:08,800 --> 00:22:11,760 Speaker 4: crack is a you know, a good novel choice for 386 00:22:12,160 --> 00:22:15,359 Speaker 4: something that's like, you know, not the obvious one. We 387 00:22:15,480 --> 00:22:17,320 Speaker 4: try to do that when we write our notes too, 388 00:22:17,400 --> 00:22:20,320 Speaker 4: is like here's the big one, here's the cheapest one, 389 00:22:20,359 --> 00:22:21,960 Speaker 4: and here's sort of like a wild card you might 390 00:22:22,000 --> 00:22:22,520 Speaker 4: not have thought of. 391 00:22:28,920 --> 00:22:30,840 Speaker 3: Okay, another wild card that I wanted to bring. 392 00:22:30,760 --> 00:22:32,440 Speaker 1: Up, the Breakwater ETF. 393 00:22:32,920 --> 00:22:34,240 Speaker 2: Yeah, talk about that one. 394 00:22:34,400 --> 00:22:37,639 Speaker 3: Yeah, because Vin, you know, Vince, we're talking about stuff 395 00:22:37,680 --> 00:22:40,840 Speaker 3: that's industry specific. But then there's gonna be the stuff 396 00:22:40,840 --> 00:22:42,680 Speaker 3: that's sort of like peripheral. 397 00:22:43,160 --> 00:22:46,120 Speaker 2: Right, so on the I didn't even know this existed. 398 00:22:46,200 --> 00:22:49,160 Speaker 4: Sometimes, I you know, there's forty eight hundred. 399 00:22:48,480 --> 00:22:50,720 Speaker 1: I was, you got to know these. 400 00:22:50,800 --> 00:22:53,360 Speaker 4: So this is called the Breakwave Tanker Shipping ETF. 401 00:22:53,440 --> 00:22:55,600 Speaker 1: Oh it said breakwater, Breakwave, breakwave. 402 00:22:55,680 --> 00:22:59,800 Speaker 4: Yeah, and the ticker is be WET. And the day 403 00:23:00,000 --> 00:23:01,200 Speaker 4: after the Iran do you. 404 00:23:01,119 --> 00:23:03,160 Speaker 1: Know this one? Do you know what it holds? No? 405 00:23:03,560 --> 00:23:05,879 Speaker 1: He says no, James, you know, of course, you know? 406 00:23:06,160 --> 00:23:08,520 Speaker 5: Well he was I do know, now, Yeah, okay, I 407 00:23:08,560 --> 00:23:10,280 Speaker 5: knew what be dry was, but I didn't know what 408 00:23:10,320 --> 00:23:12,760 Speaker 5: the UT was until this till the last couple of weeks. 409 00:23:12,800 --> 00:23:15,959 Speaker 4: The day after the Iran strikes, which would be Monday, 410 00:23:16,000 --> 00:23:18,719 Speaker 4: the second of March, it went up twenty eight percent. 411 00:23:19,400 --> 00:23:22,440 Speaker 4: That is insane for a non leveraged DTF. I mean 412 00:23:22,440 --> 00:23:24,720 Speaker 4: that is unbelievable. One day, Chang, Yeah, it went up 413 00:23:24,760 --> 00:23:27,439 Speaker 4: more than USO, went up more than anything I could see. 414 00:23:27,520 --> 00:23:29,639 Speaker 2: It was perfectly positioned. Okay, what does it hold. 415 00:23:30,160 --> 00:23:35,560 Speaker 4: It basically holds these tanker futures that are linked to 416 00:23:35,800 --> 00:23:39,320 Speaker 4: shipping oil from the Middle East to Asia and Europe. 417 00:23:39,760 --> 00:23:42,760 Speaker 4: So I'm like, this is it's like they literally made 418 00:23:42,800 --> 00:23:45,320 Speaker 4: it for this situation. It's a little dark thinking something's 419 00:23:45,359 --> 00:23:46,960 Speaker 4: going to benefit from war. I don't want to go 420 00:23:47,040 --> 00:23:50,680 Speaker 4: too heavy into this, but this was custom made for this. 421 00:23:50,840 --> 00:23:54,600 Speaker 4: Now it is so crazy sounding. Though the volume was 422 00:23:54,640 --> 00:23:56,680 Speaker 4: nowhere near what we saw in USO, it did trade 423 00:23:56,720 --> 00:23:58,840 Speaker 4: about fifteen million dollars, which is pretty good for a 424 00:23:58,880 --> 00:24:03,600 Speaker 4: real exotic ETF like this, But the average Joe Degen 425 00:24:04,200 --> 00:24:06,080 Speaker 4: is going to use us so this is just probably 426 00:24:06,080 --> 00:24:08,560 Speaker 4: even a little too crazy for them. James, what can 427 00:24:08,600 --> 00:24:11,560 Speaker 4: you tell us about this that we might not know? 428 00:24:13,560 --> 00:24:15,199 Speaker 5: You hit most of it. I mean, the way to 429 00:24:15,200 --> 00:24:17,320 Speaker 5: think about this is its futures contracts. So like you said, 430 00:24:17,320 --> 00:24:20,280 Speaker 5: on shipping to Europe, Middle East, it's really basically the 431 00:24:20,320 --> 00:24:24,080 Speaker 5: futures contracts on those actual tankers, think those massive, massive 432 00:24:24,119 --> 00:24:28,320 Speaker 5: ships that are holding the oil and whatever other hydrocarbons 433 00:24:28,200 --> 00:24:32,080 Speaker 5: as Fins talked about. And then the flip side, the 434 00:24:32,080 --> 00:24:33,840 Speaker 5: bee dry one was one that we talked a lot 435 00:24:33,880 --> 00:24:35,800 Speaker 5: about with Russia and Ukraine, and that's going to be 436 00:24:35,800 --> 00:24:40,120 Speaker 5: holding you know, dry goods, whether that's commodities like agriculture 437 00:24:40,240 --> 00:24:42,920 Speaker 5: and mining materials and things like that. So they're kind 438 00:24:42,920 --> 00:24:46,040 Speaker 5: of like twins or same side, different sides of the 439 00:24:46,040 --> 00:24:48,840 Speaker 5: same coin. But b wet is these futures contracts on 440 00:24:49,000 --> 00:24:52,320 Speaker 5: these massive shipping oil tankers, most of which are sitting 441 00:24:52,359 --> 00:24:55,800 Speaker 5: right now in that canal waiting to go by in 442 00:24:55,840 --> 00:24:56,720 Speaker 5: the strait of her moves. 443 00:24:56,800 --> 00:24:59,400 Speaker 4: And by the way, you know this idea that like polymarkets, 444 00:24:59,400 --> 00:25:02,720 Speaker 4: like oh all these degens can bet onto it's too crazy. 445 00:25:03,200 --> 00:25:05,640 Speaker 4: I mean the honestly this future is called Middle East 446 00:25:05,640 --> 00:25:06,560 Speaker 4: Gulf to China. 447 00:25:07,280 --> 00:25:09,879 Speaker 2: I'm sorry. The institutional world is pretty degen. 448 00:25:09,720 --> 00:25:11,400 Speaker 4: When it comes to betting on stuff. I didn't even 449 00:25:11,400 --> 00:25:12,440 Speaker 4: know there were futures. 450 00:25:12,720 --> 00:25:14,120 Speaker 5: I mean a lot of it is like they're using 451 00:25:14,160 --> 00:25:16,119 Speaker 5: it for hedging purposes, like a lot of these ships. 452 00:25:16,160 --> 00:25:18,360 Speaker 5: One of the huge things that happened is like their 453 00:25:18,400 --> 00:25:21,760 Speaker 5: war insurance stopped, and basically because anybody who's offering that 454 00:25:21,800 --> 00:25:24,000 Speaker 5: insurance can give a notice of like a certain days 455 00:25:24,000 --> 00:25:26,480 Speaker 5: beforehand and they can pick up insurance again and then 456 00:25:26,480 --> 00:25:28,200 Speaker 5: they have to pay more for it. So war insurance 457 00:25:28,240 --> 00:25:30,760 Speaker 5: now is like five x what it used to be 458 00:25:30,920 --> 00:25:34,280 Speaker 5: just before everything happened here. So all these things are 459 00:25:34,320 --> 00:25:36,639 Speaker 5: just hedging insurance. It's this is all it is, and 460 00:25:36,680 --> 00:25:38,320 Speaker 5: you can everything is financialized. 461 00:25:38,680 --> 00:25:41,440 Speaker 2: Vince. I know Vince. 462 00:25:41,480 --> 00:25:44,280 Speaker 4: I work with him a lot, and his out is 463 00:25:44,280 --> 00:25:47,920 Speaker 4: filled with earnings calls, like literally from like six am 464 00:25:48,000 --> 00:25:50,960 Speaker 4: to like six pm of all these energy companies. So 465 00:25:51,040 --> 00:25:54,520 Speaker 4: you clearly have your ear to the ground in terms 466 00:25:54,520 --> 00:25:57,600 Speaker 4: of what they're talking about. What do they think of 467 00:25:57,600 --> 00:25:59,800 Speaker 4: something like this, Like if you're in the energy industry, 468 00:25:59,840 --> 00:26:01,520 Speaker 4: is good, bad, and different? 469 00:26:02,040 --> 00:26:03,080 Speaker 2: What's the vibe there? 470 00:26:04,560 --> 00:26:09,679 Speaker 6: So I can tell you from our conversations with the 471 00:26:09,760 --> 00:26:14,560 Speaker 6: management teams that they look at this with a great 472 00:26:14,600 --> 00:26:18,000 Speaker 6: deal of caution, right, because you're now at a point 473 00:26:18,040 --> 00:26:22,160 Speaker 6: where you're in the realm of demand destruction and that 474 00:26:22,400 --> 00:26:26,080 Speaker 6: is very bad. Okay, when you sell a product whose 475 00:26:26,119 --> 00:26:30,679 Speaker 6: price is so high that it reduces the amount of 476 00:26:30,840 --> 00:26:36,960 Speaker 6: consumption or it creates that inflationary pressure across the value chain. 477 00:26:37,160 --> 00:26:42,280 Speaker 6: That's bad when you think about prices along this curve. Right, 478 00:26:42,400 --> 00:26:46,520 Speaker 6: we've seen the front end of this curve pop. The 479 00:26:46,680 --> 00:26:50,040 Speaker 6: back end of the curve, let's call it the second 480 00:26:50,119 --> 00:26:54,240 Speaker 6: half of the year, that's averaging somewhere around eighty bucks 481 00:26:54,359 --> 00:26:59,040 Speaker 6: or so. What you're likely to see from operators over 482 00:26:59,080 --> 00:27:03,760 Speaker 6: the course of call the next earning season is layering 483 00:27:03,840 --> 00:27:07,480 Speaker 6: on additional hedges. And what's a hedge. It's risk protection. 484 00:27:07,720 --> 00:27:12,040 Speaker 6: I am selling my output forward, I am receiving a price, 485 00:27:12,200 --> 00:27:16,800 Speaker 6: a confirmed price. It creates transparency for me, it creates 486 00:27:16,880 --> 00:27:21,879 Speaker 6: cash flow, It protects my drilling program. Okay, and I 487 00:27:21,920 --> 00:27:25,560 Speaker 6: think that's what the operators are looking for because the 488 00:27:25,640 --> 00:27:28,639 Speaker 6: investor base, what you all have told them is I 489 00:27:28,720 --> 00:27:31,680 Speaker 6: do not want to see production. I do not want 490 00:27:31,720 --> 00:27:35,399 Speaker 6: to see capital being invested to grow output. What I 491 00:27:35,520 --> 00:27:38,399 Speaker 6: want is the return of free cash flow. What I 492 00:27:38,520 --> 00:27:42,400 Speaker 6: want to see is better balance sheets. So the operators 493 00:27:42,440 --> 00:27:45,520 Speaker 6: have right size, there are balance sheets in this environment. 494 00:27:46,080 --> 00:27:51,160 Speaker 6: Since twenty twenty two, they've gotten their financial leverage down. 495 00:27:51,600 --> 00:27:55,400 Speaker 6: Free cash flow is relatively robust now, and so you're 496 00:27:55,440 --> 00:27:59,800 Speaker 6: seeing distributions. You're seeing distributions of what we consider based 497 00:27:59,840 --> 00:28:04,359 Speaker 6: it ends, and on top of that supplemental distributions, so 498 00:28:04,760 --> 00:28:08,520 Speaker 6: the capital is coming back to the investors. That's what 499 00:28:09,160 --> 00:28:12,960 Speaker 6: you all have said. You all wanted, we don't want 500 00:28:12,960 --> 00:28:17,800 Speaker 6: a production So I do not see any I shouldn't 501 00:28:17,800 --> 00:28:21,600 Speaker 6: say any. I would be surprised if we were to 502 00:28:21,640 --> 00:28:26,080 Speaker 6: see an acceleration of production growth in this environment. What 503 00:28:26,200 --> 00:28:30,800 Speaker 6: I will see, what is likely to occur, is an 504 00:28:30,880 --> 00:28:35,320 Speaker 6: increase in the amount of hedging over the year twenty 505 00:28:35,400 --> 00:28:38,800 Speaker 6: twenty six because of a way not only the front 506 00:28:39,000 --> 00:28:42,160 Speaker 6: of the curve has responded, but also the back end 507 00:28:42,320 --> 00:28:46,960 Speaker 6: of the curve, most recently, granting these operators an opportunity 508 00:28:47,360 --> 00:28:52,400 Speaker 6: to slap some additional hedges on, protect their chilling programs, 509 00:28:52,480 --> 00:28:55,920 Speaker 6: and grant them some incremental free cash flow to give 510 00:28:56,000 --> 00:28:56,800 Speaker 6: back to all of you. 511 00:28:57,080 --> 00:28:59,920 Speaker 3: A hedge feels like the perfect way to end this episode. 512 00:29:00,560 --> 00:29:02,200 Speaker 3: Thanks James, thanks so much for. 513 00:29:02,200 --> 00:29:11,760 Speaker 7: Your time, Thank you, thank you for having me, Thanks 514 00:29:11,800 --> 00:29:13,160 Speaker 7: for listening to trillions. 515 00:29:13,320 --> 00:29:15,400 Speaker 3: Until next time. You can find us on the Bloomberg Terminal, 516 00:29:15,520 --> 00:29:19,080 Speaker 3: Bloomberg dot com, Apple Podcasts, Spotify. 517 00:29:19,120 --> 00:29:21,120 Speaker 1: Or wherever else you'd like to listen. Good love to 518 00:29:21,160 --> 00:29:21,600 Speaker 1: hear from you. 519 00:29:21,680 --> 00:29:24,080 Speaker 3: Hit us up on social I'm at Joel Weber Show 520 00:29:24,240 --> 00:29:27,800 Speaker 3: He's at Eric Balcino's Trillions is produced by Magnus Hendrickson