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Rivian Automotive (NASDAQ: RIVN), the budding electric vehicle maker, initially bank-rolled by the likes of Ford (NYSE: F) and Amazon (NASDAQ: AMZN), is currently trading 80% lower than its peak since listing on the Nasdaq stock exchange.

Bear in mind that Rivian was listed on the Nasdaq in November 2021, when you had to be very unlucky not to make money in the stock market, especially as a company working in the electric vehicle domain. In a sign of the jubilant (and bygone?) era, within days of listing, investor exuberance had pushed RIVN up by 115%, to US $170 per share. RIVN’s market electricity has fizzled in the following five months and could do with a recharge.

The Rivian stock price is currently trading very close to an all-time low, at US $37.00, 80% lower than its all-time high. In contrast, Tesla (NASDAQ: TSLA), a company which Rivian investors hope can be emulated, is trading 25% lower than its all-time high (US $1,200 vs US $900), which it reached in November 2021 (roughly the same time Rivian reached its all-time high).

RIVN D1

RIV only just begun

As illustrated by its latest earnings call, Rivian has a momentous scope for growth.

In its Full Year 2021 earnings call, which was released on March 10, 2022, Rivian reported its first bout of revenue, a tiny US $55 million against a cost of revenue of US $520 million and other operating expenses (mainly R&D and administration) of US $3.7 billion. Consequently, Rivian reported a total net loss (inclusive of all costs) of US $4.7 billion for the full year.

The massive discrepancy between the company’s revenue and costs is a natural part of its growing pains. The automobile industry’s huge barrier to entry means that Rivian expects to be making a net loss for some time. However, it does expect to be profit-neutral by the end of the next financial year, and this might be what is more important for investors following the company.

No fast-charging solution

Rivian is still valued at over US $30 billion and far from a bust. However, it will perhaps take years for the company to charge its stock price back up to its IPO price of US $78.00. Even in the age of outsized valuations for EV companies and some residual investor exuberance in the market, investor confidence is butting up against obstacles such as the infamous chip-shortage affecting numerous car companies and tightening monetary policy from the US Federal Reserve.

To hasten the process and to overcome some of these obstacles on its way back to its IPO price, Rivian may have make better use of its US $18 billion cash reserve and carve out more than its planned 10% takeover of the EV market by 2030.

As it stands, Rivian’s total theoretical capacity at its two factories (600K) could garner 10% of the 2021 electric vehicle market. However, By 2030, electric vehicles sales are predicted to account for 1-in-2 vehicles sold, from a current 1-in-10. To account for 10% of all EVs sold in 2030, Rivian will have to boost production capacity to approximately 3 million vehicles per year.

For interest, Rivian generated its 2021 revenue of US $55 million on delivery of 2500 electric vehicles. The company’s guidance for 2022 expects to deliver 25K vehicles, which is a huge increase on its current production numbers, but fantastically far from the number of pre-orders on its books (83K) and unimaginably far from its 10% goal of 3 million.

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Block Inc (NYSE: SQ), the point-of-sale payment provider formerly known as Square, is reporting its Q4 2022 earnings this Thursday, February 24. 

What to expect with SQ stock earnings report?

The usual market dynamic of ‘good report = stock price rise’ and ‘bad report = stock price fall’ may not be entirely appropriate to expect after the report’s release.

As we have seen over the past month, a favourable earnings report does not necessarily mean that the market will respond favourably in turn. For one, when Nvidia (NASDAQ: NVDA) reported its impressive Q4 2022 results on February 16, its stock proceeded to sell-off. As of writing, NVDA is down 12% since its earnings call as investors were all too happy to overlook its earnings beats and strong guidance for the next quarter.

On the flip side, an unfavourable report can sink SQ stock considerably more than at any time in the past. Investors have little patience for growth tech stocks at the moment, with US Federal Reserve rate hikes just around the corner and post-covid revenue surges seemingly coming to an end.

Will SQ suffer a similar fate to PYPL?

PayPal (NASDAQ: PYPL), a leading competitor of Block, reported its own Q4 2021 earnings report three weeks ago, on the first day in February this year. While PYPL beat earnings expectations, its dismal guidance for Q1 2022 has helped tank the stock price 46% in 2022, YTD. 

As of writing, SQ is not far off PYPL’s shocking price retreat. SQ’s stock price has lost 40% of its value, YTD. 

An unfavourable report may push this loss into the 50s or even the 60s. Tech stocks dropping more than 20% in a single trading day is not unheard of this year, as you may have seen Meta Platforms (NASDAQ: FB) trim 25% (USD 230 billion) from its market cap on February 3.

Is there a buying opportunity with SQ stock?

According to several investment banks and analysts, including Deutsche Bank, Credit Suisse, SeekingAlpa and MarketBeat, an even greater rout in the SQ’s share price may set investors up for a great long-term buying opportunity. SeekingAlpha and MarketBeat have price targets in the mid USD 200 range, which represent substantial upside potential.

Sign up today to trade SQ stock with BlackBull Markets

 

Russian de-escalation sharply moving markets

Several equities have reacted sharply over Tuesday trading to the suggestion that Russia is de-escalating its presence on the Russia/Ukraine border.

As reported by Reuters, Russia has begun to move an undisclosed number of its troops away from the Ukrainian border after completing mock defence exercises. Even so, tensions have not entirely dissipated. NATO, US, and UK officials remain cautious of the situation, with Boris Johnson noting that "the intelligence that we're seeing today is still not encouraging".

The markets have been more eager to embrace talk of de-escalation.

European Equities spent Tuesday rebounding sharply. The STOXX Europe 600, which is comprised of 600 stocks across 17 European exchanges, broke a three-day losing streak and rose 1.43%.

On an individual bourse level, the Italian stock market Index, the IT40, led the way back into positive territory, up 2.17% over the trading day. The German (DAX30) and French (CAC40) indices followed closely, each climbing ~1.9%, and the UK's FTSE100 climbed up 0.98%.

US stocks reacted in a similar manner when they opened a few hours after Europe. The US market has recently closed where the NASDAQ rose 2.24%, the S&P500 rose 1.36%, and the Dow Jones rose 1.06%.

Commodities also make significant moves on news that Russia is de-escalating.

Naturally, commodities would be significantly affected by a war between Russia and Ukraine and NATO affiliated nations that have reacted the sharpest.

WTI and Brent have pulled back a shocking 3.7% and 3.4%, respectively. On Monday, Brent oil prices were pushing their way up to USD 100 per barrel after crossing USD 95 per barrel. Before the turnaround in the oil price, talk of USD 110 per barrel was beginning to filter into market predictions.

Russia and Ukraine are two of the largest exporters of Wheat. As such, supply concerns for the soft commodity have eased slightly, and with it, the price has pulled back from its two week high. Wheat is now trading down 2.63% to USD 7.8 per bushel. Low supplies could temper more downside for Wheat in Canada and the US.

Other major exports of the region are trading down on the easing tensions. Corn, Iron Ore, and Soybean are all trading down 2.86%, 1.37%, and 1.27%, respectively.

To trade WTI, Brent, and US Dollar vs Russian Rouble, we welcome you to sign up today.

Brent Crude Oil Reaches Yearly Highs

Brent Crude broke a critical fundamental level of $57 a barrel, a psychological resistance that may see Brent continue to price pre-Coronavirus levels.

Brent Crude Oil Bulls Looking for $58

This is likely on the news that more Americans have received at least one dose of a Coronavirus vaccine than having tested positive for the virus. The United States has been administering vaccines to citizens faster than any other country, with Bloomberg estimating the administration rate at around 1.34 Million doses a day.

Oil Supply Side Providing Headwinds, Complementing Demand Strength

With the demand side of Oil improving exponentially, OPEC has started to increase crude supply by 300,000 barrels to the market in January – showing their confidence in oil prices' stability now and going forward. However, disruptions and African nations Nigeria and Libya have slightly offset the supply hike, with a leak in a fundamental pipeline in Libya alongside a suspension in deliveries in Nigeria pulling away around 110,000 barrels of supply off the market.

Brent Crude Oil Timespread

With Brent Crudes futures month's spreads trading at the highest backwardation in a year, alongside Royal Dutch Shell Plc purchasing the most benchmark-grade cargoes in a single day in 10 years, the physical and financial markets are showing supply tightness and demand for the Crude Oil.

Analysts Are Tentatively Positive on Oil Markets

Ole Hansen, head of commodities research at Saxo Bank A/S, stated that currently, the oil market is "supported by the combination of tightening fundamentals, as seen through the rising backwardation and the renewed risk appetite in the U.S stock market.

Other analysts share this perspective, with Bill O'Grady, Executive Vice President at Confluence Investment Management, stating that "the market is going to see supply contract, assuming OPEC doesn't immediately move to fill the gap."  Furthermore, Goldman Sachs' commodity analysts estimate of 500,000 a day restriction on supply has been greatly surpassed, with the average supply deficit ranging at around the 900,000 barrels a day mark.

Oil's financial price comes from physical pressures

It is important to note that with commodities and other hard asset such as Silver and Gold – the futures market may say one thing. Ultimately, however, it is what happens in the physical market that sets the final price. And in this case, the physical market for Oil is more robust than it was at the peak of the pandemic. Pair that with positive sentiment regarding the vaccine rollouts around the world and a continuation of a supply restriction by OPEC+, and you have a breeding ground for Oil to move higher.

How soon will Brent cover the gap?

With price wars between Saudi and Russia, to negative oil prices all during the Coronavirus, Oil has had one of its most turbulent year to date. However, deep cuts from OPEC and a resurgence in oil demand has helped oil prices stabilize around the $40 mark – with Brent peaking just under $43.929, just short of the psychological $44 mark. However, this is shy of the $45.5 mark required to close the gap pre-coronavirus.

WTI in Blue, Brent in Orange

Brent's losses are lower to its American Counterpart

It is interesting to note that Brent Crude is down 2.29% today; however, the American equivalent, WTI Crude, is down 3.1% today. This shows that the market is slowly, but finally, pricing in risk for different macro conditions. It makes sense that WTI, the grade of oil many American companies and citizens depend on, is lower due to Coronavirus cases continuing to climb in many large fuel consuming states such as California, Texas, and Florida. However, Brent Crude, the oil grade used worldwide, is down slightly due to the majority of the global population slowly emerging out of lockdown after relatively successful lockdown measures.

With oil shale companies taking on vast amounts of debt only serviceable with oil prices being at $60, low oil prices have been devastating for US shale producers. This is on Whiting Petroleum and Chesapeake energy filing for bankruptcy after they could not service their debt. Andy Lipow, president of Huston based consulting firm Lipow Oil Associates, stated that he does not “think $40 oil is enough to turn the shale industry” and that “the price is not enough to cover all the debt and costs that have been incurred during the boom.”

Bullish or Bearish on Brent?

However, not everyone is so bearish on the Black Gold. Christyan Malek, JP Morgan’s leading oil equities analyst state that there could be a supply gap around 2022 from delayed infrastructure projects and restricted supply, stating that “Covid-19 has increased the chances of much higher prices,” and that “the next oil supercycle” is on its way.

This pattern of market pricing in risk is not only limited to the oil markets. Today the NASDAQ closed higher, while the Dow Jones and the SP500 both closed lower as tech stocks and their balance sheets show their resilience in the Coronavirus era compared to more traditional businesses.

For now, however, we are likely to see oil range between the $40-$43 marks and $38-$40 marks for Brent and WTI respectively until positive signs show that oil demand is entirely on the road to recovery.

Oil markets may stay imbalanced

Oil markets may stay imbalanced – even after the Coronavirus passes. The oil markets have suffered dramatically as lockdowns destroy demand for the black gold. In their latest monthly oil report, OPEC predicts a 9.1 million barrels per day (mbd) demand contraction in 2020, to 90.59 mbd. This is on the back of OPEC and non-OPEC participants agreeing to unprecedented supply cuts, currently totaling 14.48 mbd.

Oil markets can't just stop supplying oil

However, suppliers can't just "stop supplying" oil, nor are they incentivized too. Closing off oil wells may cause irreversible damage or worse, making the reservoir basically useless. "The longer a reservoir remains out of operation, the higher the chance that changes in pressure, water content, and residue clogging will affect future output," said Vitaly Yermakov to Bloomberg, a senior research fellow at the Oxford Institute for Energy Studies. Suffice to say, it takes time and money to restrict supply; therefore, suppliers really, really do not want to do so. Nevertheless, the de-facto leader of OPEC, Saudi Arabia, seems to be keeping up their end of the bargain and more. Saudi Announced a further 1m/bd cut on top of their 3.8 mbd cut in April.

That was a long-wounded way of saying it takes some time for oil suppliers to cut supply; therefore, it has not been able to react to the sudden demand shock that the oil markets have experienced. This has caused a massive imbalance of supply and demand, causing significant concerns with regards to storage capacity. This was part of the reason as to why WTI futures expiring in April went into negative for the first time.

Demand is slowly coming back

There is tentative evidence, however, that this storage is easing up. The EIA release data showing US stockpiles unexpectedly dropping by 0.745 million barrels, compared to forecasts of a 4.146 million rise. Similarly, to how it took time for supply to react to demand, it may take time for procurement to pick up as demand picks up again.

With the EIA predicting demand to outpace supply by Q3 2020, an imbalance in order is predicted to outpace supply. Since oil is a spot asset alongside the fact that the short to medium turn effects due to the Coronavirus is extremely difficult to forecast, traders have been cautious about going long on the commodity. That does not mean speculators have taken advantage of the low prices. OPEC stated that "despite a significant decline in oil prices, hedge funds and other money managers firmly raised their combined futures and options net long positions" with "speculators inreasing their net long positions in WTI to reach their highest level since January this year."

Imbalance may turn into Oil Markets favour

However, this imbalance may soon shift in the oil producers' favor. Forecasts from the EIA and OPEC with regards to oil demand remain relatively prudent, with one crucial underlying assumption: consumers of oil do not change their behavior. Demand for Jet fuel may be down, but that only represents 8% of the daily global demand for oil pre Coronavirus levels. This is in comparison to gasoline, which makes up 23% of the daily global demand. Predictions of expensive overseas business trips being replaced with free Zoom video calls may be getting traction. Still, there is a high likelihood that demand for gasoline will increase for one specific reason: people fear they will contract the Coronavirus while they are on public transport.

Quick maths

Let's do some quick back of the envelope (and frankly, quite rudimentary and crude) math's here. I'm from Auckland, New Zealand, so I will use us as an example. There were over 22 Million passengers who took the Auckland Transport Metro train service in 2019. On Average, that is 60,274 passengers per day. Over 77% of New Zealanders are over 18, therefore can have a drivers licence - (My brother is over 18, and he does not have his drivers licence) so for prudence sake ill say 60% of New Zealanders have their drivers licence. Lets assume then, 60% of the average daily passengers can drive. That leaves us with 36,164 passengers. There are over 3.5 million registered cars in New Zealand. This means with a population of around 4.9 million, there are over 0.7 cars per person in New Zealand. If we then apply this is 36,164 passengers figure we got, we get about 25,315 individuals with a vehicle – which is around 0.04% of New Zealand's population. If we scale that up to the world's population, that approximately 31.2 million people in the world that take the train, that has the opportunity to drive instead of taking the train.

Phew. Okay. So, the average car takes around 0.35 barrels of fuel. Therefore if 31.2 Million people globally drive, instead of taking the train - this would equate to approximately 11 Million Barrels of extra oil demand.

People don't want to take public transport

Sure, the maths is quite arbitrary – however, this does not consider other forms of public transport, such as the ferry or bus. James Li, a public relations account director told Bloomberg that he would rather sit an hour in Beijing traffic than 30 minutes exposed to crowds on a train. Patrick Pouyanne, CEO of French oil giant Total SA also told Bloomberg that "People are using more of their cars because they are afraid to use public transport." Tentative signs for this are showing Apple Maps data for 27 world cities showing that more people are driving cars than taking public transport as lockdowns ease. Furthermore, with places such as New Zealand closing their borders off and airlines operating at 60% capacity to adhere to social distancing rules, domestic road trips may be the only alternative for people who do not want to pay the high price of domestic air travel.

It is yet to be seen whether oil will bounce back to fiscal break-even levels for oil-producing countries. But this potential catalyst for an increase in gasoline may help the oil markets grind back to its formal glory.

Anish Lal, an analyst here at Blackbull Markets has an excellent video about the reasons to be bullish on gold. You can watch the video here.

Oil futures lower on concerns over capacity and negative prices

It has been a bloody couple of weeks for the oil markets. A price war between Saudi and Russia, a depression in demand due to the coronavirus and a slow reaction from oil producers in cutting supply, has crushed the price of oil. Add to that a sprinkle of fundamental supply and demand forces hitting the futures market for oil, and you get the unprecedented price of -$37.63 for a barrel of WTI.

Futures were down today to a low of $10.07 and $19.99 for WTI and Brent, respectively. Concerns over negative prices repeating the next month loom for WTI as we edge closer to the expiry date for July, with the spread between WTI and Brent edging higher. But it is not all good news for Brent. With inventories across the world increasing, filling up excess capacity, negative prices for Brent are not out of the question. However, the odds are stacked up against WTI – with futures being physically settled in Cushing, Oklahoma, and storage being primarily onshore. This is in comparison to Brent with futures being settled in cash alongside the mobility being able to be stored on carrier vessels offshore.

Energy Aspects Chief Oil Analyst Amrita Sen told Bloomberg that the supply recovery is likely to lag the rise in demand for oil, giving a glimmer of hope for the battered commodity. Furthermore, Major OPEC countries Saudi Arabia, Kuwait, Algeria, and Nigeria have already started cutting supply ahead of agreed May 1st start date for the historical deal for where OPEC countries would collectively cut around 10% of the supply of oil to combat the effects of the coronavirus on the price of oil. With countries slowly getting out of lockdown, the demand for refined oil products is predicted to creep up in the following months. Nevertheless, significant countries such as the United States are still getting hammered by the effects of the coronavirus, which may stagger that increase in demand for refined oil products across the world.

This uncertainty with supply and demand, alongside capacity concerns and a repeat the negative prices last month, is being reflected in the drop in price today. But the fact that the price is not negative today may be considered as a good sign as it can be interpreted as traders selling their positions now so they do not experience what happened last week with oil, relieving the selling pressure come expiry for the June oil contracts for WTI.

Oil Traders need to be prepared for volatile and violent swings as supply and demand forces clash it out in the next couple of weeks.