Oil price discussion and analysis

[Smurf1976]

A chart showing petroleum use in Australia by refined products:

https://www.eia.gov/beta/internatio...Australia/images/petroleum_demand_product.png

There's considerable variation between countries however so that's really just for interest. For example Australia doesn't use much fuel oil due to our relative lack of domestic shipping and the dominance of coal and gas as industrial fuels whilst we use more aviation fuel, as a % of the total, than many other countries due to distances etc.

There's also considerable change over time. Eg 50 years ago diesel was a very minor thing lumped in with "other" whereas fuel oil was more significant, aviation fuel was far less than it is now and LPG was basically irrelevant. Those old enough may remember that many years ago trucks and especially buses used to run on petrol not diesel as they do now.

Back to crude oil itself, do those looking at it from a technical perspective have any further thoughts now that WTI is trading around $55?

 

[Ann]

This was sort of what I was seeing, high inventories and lower rig count.

WTI Holds Losses After Inventory Builds Across The Board

WTI turned lower today as traders weighed output cuts from OPEC and its partners against expectations for rising U.S. crude inventories and a slowing US services economy.

"My guess would be that some of the refiners may cut back on some of their runs so crude supply ought to build a bit" said Stewart Glickman, an energy equity analyst at CFRA Research. "They’re probably limited in their ability to substitute away from Venezuelan heavy crude"
A small crude build last week (and product draws) surprised traders and tonight's API saw builds across all cohorts (with crude inventories rising more than expected)..........

 

[Parse]

Yes but, that was a minor drop and then overnight we have POO up again on reports of the OPEC cuts. I feel the API reports and Opec reports really only do minor changes to the POO. I don't think these last couple of days have anything to do with that rig count report.

 

[Parse]

Baker Hughes reported an increase in the number of active oil and gas rigs in the United States this week.

The total number of active oil and gas drilling rigs rose by 4 rigs, according to the report, with the number of active oil rigs increasing by 7 to reach 854 and the number of gas rigs decreasing by 3 to reach 195.

 

[Smurf1976]

WTI is now over $57 so getting close to the previously discussed $61 target.

Is that thinking in terms of a likely top around that point still current for those with those thoughts? Or have things changed?

I'm not holding any oil, just taking a keen interest at the moment. I do have a couple of oil related stocks however.

 

[Ann]

WTI is now over $57 so getting close to the previously discussed $61 target.

Is that thinking in terms of a likely top around that point still current for those with those thoughts? Or have things changed?

I'm not holding any oil, just taking a keen interest at the moment. I do have a couple of oil related stocks however.

I can see a couple of resistance lines...one is coming from February 2016 (red) and the other is the 200 day SMA (simple moving average) around the $62 to $63 level.
I am wondering if some of these oilers are hedged in a negative way like some of the goldies. Rederob knows about this sort of thing. He can read the ARs and find the hidden secrets.

Chart...

 

[Ann]

Then there is Brazil.....

Next OPEC Headache Is Brazil's Burgeoning Crude Production

When the giant P-67 floating oil production vessel lit its flare tower earlier this month, it marked the start of a Brazilian supply boom that’s poised to challenge OPEC’s efforts to balance the global market.

The mammoth facility -- long and wide enough to fit an American football field -- is the first of four similar platforms to begin pumping crude this year, lifting Brazilian output by roughly 365,000 barrels a day, its largest annual increase in at least 20 years, International Energy Agency estimates show. A second platform, P-76, has also started production, according to a regulatory filing Wednesday.


The Brazilian surge, combined with more oil from shale fields from Texas to North Dakota, is set to create a headache for the Organization of the Petroleum Exporting Countries. In the worst-case scenario, it may force Saudi Arabia and Russia to roll their production cuts over into the second half of the year, testing the strength of the Riyadh-Moscow oil relationship.


“Brazil is on the verge of major supply growth,” said Francisco Blanch, head of commodities research at Bank of America Corp. in New York. “U.S. shale is not the only driver of increased volumes.”

More....

 

[Ann]

Oil rig count down four this week.

 

[CanOz]

Ni Hao!

 

[Parse]

Oil rig count down four this week.

So does this mean the oil price is going to keep going up

An interesting point is with this chart overall showing a decrease in rigs, that they reckon oil production is at an all time high...

 

[Parse]

Argh.. should be oil price to go down. Sorry, that's the correlation we are tracking - lower rig count = lower oil price

 

[Ann]

Argh.. should be oil price to go down. Sorry, that's the correlation we are tracking - lower rig count = lower oil price

That is the thought but it may not be correlated, it is just a point of interest to watch. To feel confident that it could be a lead indicator is going to take a lot to convince me...only early days yet.

 

[Ann]

Crude Oil Plummets as President Trump Warns Against High Prices

Oil tumbled the most in four weeks after U.S. President Donald Trump tweeted that prices are too high and called on OPEC to “relax and take it easy.”

Futures in New York declined 3.1 percent on Monday. Trump’s war of words with the Organization of the Petroleum Exporting Countries punctuated big price swings last year, as he pressured the group to keep the taps open to help consumers. On Monday, he warned the world cannot take a price hike. More...


(I wonder if he noticed the rig count was down as well and decided to make himself look powerful and controlling?)

 

[Parse]

I guess he wants $50 oil (WTI). Odd thing is, the USA is the country that has increased production the most in recent times. Since it's now an exporter you'd think the oil companies would be in his ear as they'd like higher prices for export.

 

[Ann]

I guess he wants $50 oil (WTI). Odd thing is, the USA is the country that has increased production the most in recent times. Since it's now an exporter you'd think the oil companies would be in his ear as they'd like higher prices for export.

I think they aim for lower prices as high prices impact negatively on the whole economy. More money spent on expensive fuel, less to buy other goods, also higher costs for shipping, manufacturing and all of this puts an upward pressure on inflationary figures. There is a big economic negative for high fuel costs.

 

[Smurf1976]

I think they aim for lower prices as high prices impact negatively on the whole economy.

Agreed - it's much simpler for someone like the Saudi's or Kuwait for whom oil is the dominant pillar of the economy so hihger prices are clearly of benefit.

Or somewhere like Japan that imports virtually all the oil they use so lower prices are always good.

For those with a foot in both camps such as the US it's more complex. The structure of the US industry with numerous private owners and the nature of US politics adds to the complexity versus, say, Saudi Aramco which is a government entity so very different in that regard. The President of the US won't in practice direct private companies in the way the Saudis and others with that structure can direct their national oil company to do certain things.

 

[Ann]

Agreed - it's much simpler for someone like the Saudi's or Kuwait for whom oil is the dominant pillar of the economy so hihger prices are clearly of benefit.

Or somewhere like Japan that imports virtually all the oil they use so lower prices are always good.

For those with a foot in both camps such as the US it's more complex. The structure of the US industry with numerous private owners and the nature of US politics adds to the complexity versus, say, Saudi Aramco which is a government entity so very different in that regard. The President of the US won't in practice direct private companies in the way the Saudis and others with that structure can direct their national oil company to do certain things.

I read something a while back about US oil companies not being permitted to export their oil to other countries in the past. If this is so then I guess anything they get from export income is a bonus.

Here is an interesting pie-chart I found a week or two ago as to who are the main suppliers of crude oil the Europe in 2018.

 

[Ann]

This is interesting. There appears to be about 300 people worldwide with enough money to be able to control how the hedge funds invest. They have a green agenda and are demanding hedge funds do not support the oil industry. (This is not new news to me I just haven't posted anything about it yet). However this article offers a salient warning how pushing the green agenda could end up making big oil stronger with no competition who are answerable to no-one and destroy the smaller independent players who up to now have been answerable to their shareholders and give the big boys competition.

I can see this whole green political agenda ending in tears. We are likely to be held to ransom in a false peak oil scenario. Although this will be longer term, I will no doubt be dead by the time it is serious but all the youngsters of school age and future generations will have to wear this.

The $32 Trillion Push To Disrupt The Entire Oil Industry

Global oil and gas companies are increasingly facing an uphill battle as global warming policies are taking their toll. Most analysts and market watchers are focusing on peak oil demand scenarios, but the reality could be much darker. International oil companies (IOCs) are likely to face a Black Swan scenario, which could end up being a boon for state-owned oil companies (NOCs).

Increased shareholder activism, combined with global warming policies of institutional investors and NGOs, are pushing IOCs in a corner, constricting financing options for oil companies.

The first signs of a green revolution in the shareholder-investors universe are there, as investors have forced Dutch oil and gas major Shell to officially change its strategy, investing in more renewable energy and energy storage. The Dutch IOC wasn’t forced by to do so because of mismanagement or a lack of reserves but due to a well-orchestrated investor/stakeholder offensive. Several other peers, such as BP, ENI or Total, are expected to experience comparable situations.

And it has become clear that not only oil and gas giants are being targeted, after one of the world’s largest mining and commodity trading companies, Glencore, decided to put a limit on its thermal coal investment. The group stated that this was done after it was confronted by a largely unknown shareholder network called Climate Action 100+, which claims to be backed by more than 300 investors, managing assets of around $32 trillion. The group was founded a little over a year ago but has already forced oil majors’ boardrooms to take radical decisions. More...

 

[Knobby22]

Good article. Your comment of 300 people sounds strange. I thought it was people pressure on pension funds hence it is the European companies like Shell , BP and Total being affected.

 

[Smurf1976]

I read something a while back about US oil companies not being permitted to export their oil to other countries in the past.

There was a ban on exporting crude oil in place for many decades. The ban didn't apply to refined products however, only unprocessed crude.

Something separate I'll throw into the mix is methanol and in particular its use as fuel in China.

The main use of methanol in recent decades (worldwide) has been as a petrochemical feedstock and virtually all production has been based on natural gas. Only fairly minor amounts of methanol have been used as fuel.

China however now seems to be using 600 - 700 thousand barrels of methanol fuels per day which is not insignificant in terms of the oil that replaces. Further, 85% of China's methanol production is reported to be based on coal rather than gas as is used practically everywhere else.

Without turning this into a chemistry lesson, the basic ways to use methanol as a fuel are blended with petrol for automotive use, as straight methanol to run engines, as additives to petrol, via a conversion process turning it into petrol as such, or in other forms such as dimethyl ether which is a workable alternative to LPG for the same uses.

So it could sort-of be said that China is "making" oil. Well, they're not making actual crude oil but they're making a direct substitute for a major end use of oil and doing so on a large scale which has thus far replaced around 5% of the oil China would otherwise be consuming.

Depending on how far they scale this up there maybe some oil market implications. Indeed there probably already are - if demand were ~650,000 barrels per day higher then price would probably be higher too.