Luckbox bends over with oil trader Tracy Shuchart

Tracy Shuchart began her career in finance at the Chicago Board of Trade as a futures and options broker. She then moved on to managing trading desks on the floor of the agricultural and bond trading floors, where her firm served as both an executing broker and market strategist for global hedge funds and international banks. She is currently a partner and global energy and materials strategist at Intelligence Quarterly, as well as an energy and materials portfolio manager for a family office.

What is the future of fossil fuels in the United States?

The transition will take longer than most people think – fossil fuels will be around for a while. That said, we started shutting down coal-fired power plants in the 2010s. And now that’s all been shifted to natural gas, which is a perfect transition fuel because it burns very cleanly and we have plenty of it. When it comes to renewables, I know everyone really wants to get there fast. However, we are simply not logistically ready. If we all wanted to drive electric vehicles tomorrow, we would literally crush the grid. We just don’t have the power to support that. What needs to be done in the United States is to completely tear down the energy grid and start over, but no one wants to pay for that because it’s literally billions of dollars and it’s going to be a very slow process. So don’t think you’ll get rid of fossil fuels anytime in the next 20 years.

Originally published in Luckbox magazine. Subscribe for free at getluckbox.com/dailyfx

What do you mean by “destroy the energy grid?”

We have a very aging network. Europe has the same problem. The UK has the same problem. And then we added wind and solar energy — a new technology — to the old technology. It’s like having an old website and wanting to upgrade it, but you just put all the new code on top of the old code. They expect it to work perfectly. So what we have to do is start from scratch if we want to be able to manage this transition.

What forms of alternative energy should America pursue?

There is always wind and sunshine. But with wind and solar, we’re going to need a lot of fossil fuels just to produce these products. I mean, you need a ton of steel, you need a ton of copper, cobalt, and magnesium. For solar panels, you need a ton of plastic, a ton of resin and a ton of rare earths. And to harness all of that, we’re going to need a lot of fossil fuels.

We must pursue nuclear energy. Unfortunately for most people, Chernobyl and Fukushima come to mind. Yes, we have a lot of older reactors, but we also have a lot of new reactors.

We also need to make batteries more efficient.

The United States recently dumped 180 million barrels of oil.

How will this affect the market?

It’s actually 160 million barrels. Twenty million of them were already scheduled to be released. That’s about a million barrels a day.

Aside from the fact that the release of the Strategic Petroleum Reserve is a horrible decision and a threat to national energy security, especially during war and sanctions, it is just a band-aid and a more fragile. It does not solve the overall structural supply deficit of the market in the years to come.

Additionally, it slows shale growth as it discourages E&Ps from drilling more, which needs to be done. It also creates potential logistical bottlenecks, as we have never had such a large rejection, which creates congestion on the Gulf Coast, further compounding the problem. This, in turn, could force oil companies to cut production, creating a catastrophic loop.

What about the claim that E&P don’t drill? They are sitting on 9,000 oil drilling permits.

You can’t just light wells, it’s not that easy. There’s usually a six to 12 month lead time, and that’s not even taking into account the issues that the industry is currently facing. They face labor shortages. They face supply chain issues. It’s almost impossible to get steel pipes right now. Also, it’s not so easy to get the rigs out of the yard and put them to work. If we start taxing or penalizing permits, E&P will simply abandon the wells and their leases, which means they won’t be available when they’re really needed or when we want to turn them back on.

Do you approve of the Biden administration’s energy policy?

I think it’s completely disastrous. When Congress talks about “oil companies making so much money,” they are demonizing an industry that has been thoroughly beaten.

What voice would you take from the nation

energy debate?

I don’t think anyone in the Department of Energy is an energy expert anymore. This is not a Republican or Democrat thing. It doesn’t really matter. You have Republicans and Democrats there, so I’m not making a statement. I think we need to have more qualified people within the DOE.

Is there evidence of price gouging?

Several jurisdictions have sued the oil industry over this. It’s not unique to this particular administration. It’s a world market that sets world prices — oil companies don’t set oil prices. It is a global trading market. So it’s not the oil companies’ fault.

What is your oil price forecast?

I think we could easily see over $150 of oil over the next year. What we need to watch right now is how many Russian barrels will be taken off the market. With Iran, even if we had an agreement tomorrow, it’s still not enough to fill the void. Then we have the problem of where everyone is going with the gas boost. Every country has announced a gas stimulus, and several states have. The federal government has yet to announce a program, but this is creating more demand. If you’re giving everyone gas credits, checks, or grants, there are plenty of ways to go about it. But all that means is that when the price goes up, you don’t create demand destruction, you create demand construction.

Besides your medium-term macro outlook for rising oil prices, what specific opportunities do you see in the energy sector?

I don’t really like the majors. That said, I think there’s a lot of opportunity in small and mid caps in the US and Canada right now.

Naming names?

Devon Energy (DVN) was one of my favourites. I like Gran Tierra Energy (GTE), and I like Journey Energy (JRNGF). I like Occidental Petroleum (OXY). These are long-term trades. And I like Schlumberger (SLB), I like the services if the government lets these guys start producing more. I prefer SLB to Baker Hughes (BKR).

What aspect of energy policy should change?

We have to be seriously realistic. All of these green energy lenses are beautiful and fantastic. But no one has a plan to get there. We’re going to spend all this money, and what did they say? “Well, just buy an electric vehicle and you can save $900 a year”? Yes, but not everyone has $55,000 to buy an electric vehicle. And how does that save you $900? What car payment are you on? These are not real solutions.

A final thought?

Oil and gas are still very investable right now and over the next five to seven years. We have come from the lowest of the lowest. Some of those shares were $2 and $3. Oh, I also like Marathon Oil (MRO). And then if you want to look at refiners, which are very interesting, I particularly like Marathon Petroleum (MPC) and Valero Energy (VLO) because they’re looking at renewable diesel.

Thanks Tracy.

Learn more in Oil Trading Strategies with Futures Trader Tracy Schuchart

Originally published in Luckbox magazine. Subscribe for free at getluckbox.com/dailyfx

Leave a Reply

%d bloggers like this: