Why Markets Care About Oil (And Why Low Prices Could Be a Problem)
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- čas přidán 1. 06. 2024
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Oil doesn't get a love of love, and rightfully so, but for the markets they are an incredibly important resource. In today's video, we explain why investors care about the price of oil and how low prices could actually be a bad thing.
This video was sponsored by Skillshare
DISCLAIMER:
This channel is for education purposes only and is not affiliated with any financial institution, although Richard does work as an employee for an investment manager. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
Happy Friday everyone! The first 1000 people who click the link will get 2 free months of Skillshare Premium: skl.sh/theplainbagel7
How about use your CFA skills and go into showing how to analyze company ?
I'm in the oil industry physical trading and came here to say this video is quite accurate, good job.
Can you share your own insights and perhaps any predictions from your experience sir?
@@nickgreek6449 here: twitter.com/OilCfd
You sir, are my inspiration! I will be writing the CFA Level 1 exam this December. Cheers from Calgary!
Me too. Good luck!
Me too! Small world..
Level 1 is okay. Fuck level 2 and 3. Good luck. Got the CFA and the CAIA.
How did it go, did you pass?
The part of taking the pump back and restore the land, should be paid upfront just after the first liters of oil are being collected. Not after.
Exactly, there should be a deposit or some form of a down payment made by these producers so the cost doesn't just fall on taxpayers again (since we already subsidise them so much).
Alternatively, O&G producers could opt for depositing a portion of the cost every month or quarter in a similar manner to how margins get posted for OTC derivatives. In any case, I'm tired of seeing my tax dollars subsidising these companies AND cleaning up behind their ungrateful asses.
>Stock prices drops by 60% since you bought in
Me: this is fine
This is my favorite channel. Period!
Thank you so much... This was very useful.
Your channel is an absolute godsend mate. Thank you for your work :)
Awsome video bro..thanks for your time to inform us.
Really well explained how all are linked and impacted. It was very helpful to see and understand the bigger picture. 👍👍
Very good analysis! I definitely had a very simplistic view of oil and it's price. Thank you!
Another very well thought out video! 👍
well explained. learnt new things. Thank you.
Hey i just discovered your channel a few days ago....really good stuff.!
Thank you, great video!
Suggestion : Do a video on upstream, midstream and down stream oil related industries. I am especially interested in USA refineries - that is what I've been targeting as an investment strategy.
An excellent video on a very misunderstood topic, keep them coming!!
I've come to expect nothing less of the Plain Bagel. Although I've never truly found out if he actually runs a Bagel store on the side to his CZcams and Financial career. It would change what I think of this man.
dodid0 agreed I think he’s probably the best financial/investing channel and his love of bagels certainly enhances that!
Thanks for sharing this!
Great Video Richard. I’m sharing these with my kids, while they’re out of school! Also, for a future topic, do you think “how to read a balance sheet” can be made to be entertaining enough for a video? Thanks as always.
Great suggestion Kevin! I have a lot of topics lined up for the near-term but I think that would be a great topic for the future
That would be an awesome video!
Very good video! Great job.
I love your channel. I’m getting a free education with you 👍
Nice work! This guy has done the legwork and knows his stuff.
With a name like Plain Bagel he must be a Jew.
I always wondered how cheap oil leads to losses for the economy, now i get it.
Keep up the good work.
Yes, I know first hand, that oil prices falling are the worst this that could happen, I live in a country that depends on oil prices for income and exchange rate stability
Awesome work!
Here's a list of next video recommendations:
Options strategies like Iron Condors, butterfly spreads, straddles.
Value metrics such as EV\Ebitda P\B Ratio
Balance sheet: How pro forma is formed.
Today's my last day in the Oil and Gas industry, since I'm starting my new job Monday. I wish I knew more of this on my last job lol
You are one brilliant ginger, I must say! Kidding aside, thank you so much! That was a masterful explanation.Much appreciated!
Glad to see you mention ESG, they are fantastic options for the environmentally/socially conscious, but on the flipside because they are less leveraged on oil stocks and other questionable industries (e.g. private prisons, tobacco, munitions), potential growth and revenue generated from these sectors being excluded from ESG holdings may not be in everyone's cup of tea.
Logic beats fiction anyday. Thank u bro💯
Hi there, what trading platform do you use or recommend for canadians? Keep up the good work! Love your channel
I trade through my work so I haven't actually tried many platforms myself, however if you don't need any hand-holding and are sticking to basic ETFs, I don't see why a zero-fee broker wouldn't make sense. Wealthsimple has such a service, although I haven't tried it myself and can't speak to it.
Funny thing, oil prices rise as do food and household good prices and when oil prices drop they also go up. I think someone somewhere is getting even richer!
A level headed look into this issue.
@the plain bagel BTW oil is a limited commodity right? What happens when we run out of oil?
Hello Richard! I have a suggestion for a future topic: could you please explain how bond ETFs work? I think they are not as straightforward as stock ETFs. How are bonds held within the fund? Do they mature? If not, how are they rolled over? Can you also explain different types of bond ETFs , how they work (years to maturity, inflation linked bonds, etc.) and how is a bond ETF affected by interest rates. Are government bond ETFs a good alternative to having your cash parked in a zero interest bank account? Thank you!
Great video
Can you do a video on leasure travel and how that industry will be change. Since is affecting millions of people all over the world, even here in las vegas. thanks
4/20/2020... oil traders have an interesting sense of humor.
What about the possible disruption to renewable energy also because with cheap crude it doesn't make financial sense to inovate.
Lizzy Chan actually nuclear energy makes much more sense, just because not scientists, but stupid activists are listened.
Good content, you should try linking up with some other channels for synergy cause your videos are clearly high caliber and lacking their deserved visibility
North American countries have a "Royalty Tax" PSC (Production Sharing Contract, a contract between the government and the producer) which gave a lot more freedom to their Producers on how much they could mine, who can they sell it to, and how they are priced.
Other countries uses "Iran" style PSC, Gross Split PSC, and the most common one is Cost-Recovery PSC. Basically the government owns the resources, they contract them to extract them, then split the revenue/profits and costs. This is a much less profitable yet risk averse than the NA "Royalty Tax" system.
Other than US shale being the more expensive method of producing, their relatively deregulated way of O&G EP causes them to be extremely sensitive to price changes than other countries. This is why most NA O&G (outside of the major player) would face bankruptcies while the rest of the world O&G company would fare better in this times.
good stuff
Can you explain impact on currency market & US $ as FED is printing massive amount of $$ to fight against COVID-19 impact?
Hi Richard,
Could you please make a video or explain graph "10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity"
I don't quite understand why short term bonds profitability getting higher before recession comparing to long term bonds. If a central bank lowers interest rate, why would price of one type of treasury bonds grows faster than the other? TIA
IMO, big oil is perfectly poised to turn into big renewable. Shell has been investing heavily in recent years. Let's hope this gives them a wake up call and when oil comes back up they can invest more into renewables
Hopefully, but the problem was having such a protected industry is it never needs to innovate because it’s too big to fail. That’s half of the battle with all of this stuff. Places who got to the top and turned into monopolies talking about the virtues of the free market, but they refuse any kind of competition that would see them have to change in the slightest
The same idea can be used for coal, health insurance, or any business that is not competitive, sustainable, or don't produce net economic output (like law, banking).
Actually, I like you. I will subscribe
Can we short oil?
What if you shorted oil prices when it went negative?
Also jobs in the oil sector are highly paid, so each job in the oil industry supports many jobs indirectly.
Nicely explained .. love from India
Thankfully I don't own any of the producers, only the pipes which are much less reliant to the price of oil, ENB and TRP.
Here's what's (most likely) going to happen: some oil producers will go bust which will reduce supply. Once the pandemic's over we will return to our habits ie. driving and flying. If anything, in post pandemic optimism there will be more of those things than before so the demand will increase. And what happens when there's demand but no supply? Prices go up. Or shoot up even.
Where did you get the info? How did you come up with the 11% revenue for Canada?
Here's the source for a couple of the figures:
www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/energy-and-economy/20062#L6
@@ThePlainBagel Thanks for the sources. I would recommend in your future videos that you include them in the description next time. Keep up the great videos!
Just wanna say I take issue with your point that "wells become abandoned." the well doesn't abandon itself, it's abandoned by the oil company who should be punished for doing so
Well thank god you take issue with the wording and are holding him to account lol.
What companies? They dissolve, that's the outcome of bankruptcy in many of these cases. Perhaps a better strategy would be requiring payments similar to unemployment insurance to a firm or gov't agency to handle cleanup in the event of insolvency. The agency would need to perform site inspections, of course, and adjust premiums accordingly. A poorly managed site would be considerably more expensive to restore. Research the EPA Superfund sites for more on the cost of restoring contaminated areas after industry bails.
I don't think low oil prices are going to be a problem for the US or Canada, since no one thinks its a problem and are living on hope that "things will get better"
The free market must determine what is necessary and the price. Shale is not needed or Canadian tar sands. That's tough shit.
Could you please share the source for the 772 lbs of petro-chemical plastics in electric vehicles? Thanks!
www.visualcapitalist.com/how-much-oil-electric-vehicle/
It's towards the end of the infographic
@@ThePlainBagel thank you sir!
I wouldn’t call it low oil prices, but somewhat negative, when it’s price minus Production cost is very negative.
It’s either the free market or it’s not, it’s either lower prices are good for the consumers or it’s not. Because the alternative is saying, this industry is untouchable. Whatever happened to competing and innovating? If anything this just proves that large sectors of economies shouldn’t be reliant on one thing.
Question, if you don't mind. Don't you think that all this money printing we're doing, where we almost doubled M2 in months, will lead to hyper-inflation? Where will all this money go in a stagnated economy otherwise?!
It's going into asset prices. If it makes its way into consumer price, that's when hyperinflation occurs. But for now, when it goes into stocks, bond, real estate, etc, that means the price of your potato chips and chapstick isn't increasing.
I am not sure how long this oil market war, will continue. I understand that the saudi arabia reduced the oil production, but how much ?
They barely reduced production enough to really help prices up. They simply were playing chicken with Russia and it seems Russia blinked first. Saudi has enough foreign reserves to outlast most other (non-Western) O&G producer nations.
Russia and saudi Arabia are both playing games because they both don't want to lose revenue. They just want the others to cut production but not for themselves.
That is all very interesting and all, but my country is neither the US nor Canada, and it produces almost 0 oil, so..... cheap energy?
Does anyone have the source for 22.2% of every barrel of oil being used for polishes, waxes, and lubricants? That seems bizarrely high to me. What products are in that category that are so widely consumed as to make ~1/3rd of the world's consumption of fuel?
Woah a wild engsci spotted!
That 22% doesn't go to consumer products though, they're mostly used in industrial processes.
Seems high, but literally every household item seems to have a layer of paint on it.
Oil contracts in April went negative
CNBC Breaking news: the US puts LA and Texas on eBay
Oil exists
America: *oh yeah bois time to spread some freedom and democracy*
Lovecraft Tell the US to stay away from the Middle East, Nigeria, and Venuzuela.
Have you heard about adaptation plain bagel? Companies need to adapt or die just like everyone else.
I agree, from a purely free-market stand point, adaption is a necessary force. My point isn't to say we should support these companies, just that the change is painful and those frictions shouldn't be disregarded (10:52).
@@ThePlainBagel Some people have the mindset of preventing innovation just because of the frictions that would happen, that holds back progress. For example, Chinese firms created solar panels that could produce energy and the Bush administration put a huge tax on their products which discourages anyone from buying them. Change is inevitable, fear of change isn't a good reason to stop it from happening.
Adaptation takes a while. Try surviving in a -20C meat chiller for a year without thermal wear.
That's what you're expecting of the oil industry right now.
And if the oil industry 'dies like everyone else' in US and Canada due to the higher operation costs (fracking vs conventional in middle East), you'll end up with overwhelming demand and a drought of supply when the Covid crisis is over, and you'll be spending half your month's salary filling up a tank of gas.
Good luck with that. Some industries can be left for dead. An industry that provides energy for half the globe to function, is an exception.
@@lailai255 There are so many things wrong with your comment, where do I begin...
First off, the oil industry won't die, the overly in debt companies that borrowed money hoping the price of oil continued to rise will be wiped out, as they should.
2nd - The oil industry spends billions on research and development, they know the energy consumption trends well before any of us so they have the time and resources to adapt. My point is that they refuse to.
3rd - You don't realize how much oil there actually is in the world, USA has an ocean of oil, Venezuela, Russia, Africa, and the middle east have plenty of oil to meet energy demands.
@@JusdoinstuF I feel you and agree to some extent, but there are some complications. Part of the hedgemoney that the US enjoys economically speaking comes from the petrodollar. So, the US has a huge incentive to keep oil around and in addition to that become the biggest exporter of oil possible as long as there is global demand.
Second, to plain bagel's point. You're going to economically destroy parts of the US if you wipe out the energy sector quickly, which is what could have happened with the current oil price war and COVID situation. A transition and adaption to green energy is the correct long term direction, but it must been done gently and with careful planning.
Just posting a comment under another high quality video.
Just posted a response to a comment of another high quality video.
Pov: you are in 2022😂
Too bad that didn't translate at the pump with fees and taxes. Yes reduced at pump but prices should of been at early 2000's. Still demand is no where near and their would be lowing prices of goods but again the system is fixed by endless money printing to monetize debt.
Nuclear energy is the way!!!
Environmentalists should care about oil prices too though. Since higher oil prices push people to switch over to alternative energy sources.
Because of the dividend that it was paying I stayed with Energy Transfer. What a M-I-S-T-A-K-E it proved to be or lets say were I a smart man I would accept that I've lost half of my life savings and just go back to work and make it up while I still can. Who would have ever thought that an energy company that carries ONE THIRD of the nations oil and natural gas thru its pipelines would sell in the single digits for over a year. They keep saying they can pay their obligations but when they cut the dividend I saw the eventual bankruptcy coming.
I liked the video but I think it focuses too much on USA/Canada. I'm actually very curious to the "negative effect" of low prices for all the low cost of production countries, like Iran, Saudi Arabia, or non producing countries, like Germany, France Spain. For Europe apparently you just get cheaper energy without heavy impact on unemployment, and opec can just make less money for sometime until they strangle the competition.
why should the opec countries care if USA/Canada companies go bankrupt?
Thanks for the awesome videos
10:50 a Canadian refusing to choose a side? Big surprise there, eh!
I'm just trying to get by and eat maple syrup man
@@ThePlainBagel And unfailingly self-deprecating...although my own personal motto is "keep your stick on the ice."
Well cub con go go to hill I’ll U.K. Fulton Cyndis Candice someone do fo go go go full full full food he icky ck dough hog do us fry FCC cry x cring dans chi uc dry food do mf full of chippy TV DC zag tv h gf d gj hm jk mi in
Those blokes from Essex made $654 million that day.
Fracking has a large environmental impact. In fact it's not allowed in many countries around the world. Fracking companies going bankrupt will mean a great benefit for the environment and underground water sources. Besides many countries will benefit of very low oil prices to help to boost their businesses. It's not so dark as you've painted it
That's a big leap in logic.
Lucky guys who bough oil at negative prices and sold it for more
10:25 So you are Canadian.
Happy 1-15-24
I don’t care if they thing it’s bad. I drive a v8 Audi so if I need low gas prices, to me the economy is good.
How do you feel about the European oil majors committing to reduce carbon footprint as a result of the oil glut? I'd like to hear your thoughts, Plain Bagel.
The correlation between authoritarian political tendencies and a high dependence on oil production in the GDP of a country, suggests that a decline in the oil industry might be a healthy development...
Not just oil production but any (highly) demanded commodity in general. See: en.wikipedia.org/wiki/Resource_curse
im actually taking advantage of oil being sold at a loss 2 ways i fill up the truck for cheaper and buying energy stocks like imperial at a discount. this is a nice time to hedge gas and diesel. the downside is i have alot less trips (less work) i used to be able to do 12000 miles in a month now im lucky if i do 6000
Black gold will 100% be here for the foreseeable future
As a Indian . I don't care about oil price. as India is net importer of crude oil. Middle east is rich for no reason
People don’t understand this. Money doesn’t come out of nowhere. Cut off the flow and everyone eventually feels it in the form of lowered employment numbers, lowered wages, and less tax revenue.
The Canadian sands was never profitable. Without governments grants and subsidies non of those projects would be viable. And now if oil stays around 35$ the Canadian tax payer will keep bailing out the Alberta oil industry so companies can make money and so housing doesn't crash in those cities as are bubble housing market is the 2nd if not largest sector of the economy.
It's oil profitable when oil prices skyrocket.
In short. Buy oils stocks
The energy density of Western Canadian Select is half of what sweet crude is. It requires that we cannibalize our natural gas resources earmarked for export to the U.S in order to thaw the ground to remove the bitumen (it's not oil). We then use enormous amounts of fresh water to clean and separate this garbage only to fill gigantic tailings ponds with the waste byproduct. Then it gets run through an upgrader to add a hydrogen molecule so that it is useful for the refinement process to make gasoline and other fuels (its synthetic crude at this point). It completely decimates the environment for a product the world has very little interest in. How this has been allowed to become a national security issue is something I'll never understand. Canada has been terrible at managing this so-called resource and its environmental effects have long-lasting impact on too many things to make it useful .... leave it in the ground where it belongs!
Give us the Beard
Like what happened to Linus.
Anyone here buying oil stocks?
Not yet. Watching still. Alot of uncertainty
Pls subtitle it, because sometimes you speak too fast!
I love The Plain Bagel but with due respect this is very misleading. The jobs in oil have little to do with price. If demand returns, activity will return regardless of price. Same with the banking sector - O&G loans defaults will simply mean it get turned into equity in the restructured companies that emerge... pretty good for the banks TBH. Finally orphaned wells are pretty rare these days - stripper wells account for 3MMBOE/Day, nearly a quarter of US production. Low oil prices make rig services really cheap and so when demand picks up there’ll be a huge rush to pick up these “orphaned wells” if there even are any.
So banks look forward to O&G defaults and corporate restructuring as a welcomed event?
That video is a bit life my friend.
I'm surprised how little time you expended on the elephant in the room: How bankrupting fossil companies relates to mitigating the climate change.
I think "fossil companies" are smart enough to invest in other energy sources before they have to worry about the "B" word. Besides, there are many other products based on petroleum. "Climate change"? What's that? I don't think the media has mentioned it.
Driving people into bankruptcy doesn't equal green anything becoming a thing. Besides, almost all of these guys have diversified into green energy for this very reason (Ford makes some nice EVs).
Imagine living in an opec country that doesn't produce oil...
CZcams finally moved the comment section back where it should be :)
The problem isn't the perception of the problems caused by low oil prices. The problem is using that perception as an excuse for government intervention.
Am I first?