Oil price discussion and analysis

[Ann]

Less drilling ultimately means less production which, assuming demand isn't going to fall in a heap suddenly, means higher prices.

In amongst all the speculators there are actually companies doing business. The way I look at it is the genuine orders for product comes in, the producers tally the orders, work out if they will need to pump more or less to fill the legit orders. If the demand isn't in the order book then why build up inventories, just shut some of the pumps down until the new orders are in? I am simply musing with all of this and have no firm basis for my opinion but my thought is, supply and demand in the order books. Others suggest the rig numbers are simply a reaction to the price. This seems too inefficient when these people would know who is ordering stuff well in advance, they would need to organize workers and haulage and a host of other stuff to run the pumps. Surely the oiler couldn't possibly be telling a worker to pop down and turn the tap off because the price dropped this week!

So the price drops in the short term but rises in the longer term?

The Northern Hemisphere are coming into the warmer months so there is likely to be less demand for heating oil I should have thought. However we can throw into the mix new pipelines, new skirmishes, new alliances, Saudi/Canada needing money in a hurry and dropping the price, Iran coming on board and flooding the market. My guess is lower prices but I could be quite wrong of course. The Baltic Dry Index is rising, so that means more demand for shipping fuel.

That most recent rise in the POO happened with light volumes in the middle of a holiday period. With everyone back on board again let's see where the price goes this week.

 

[Ann]

....and a bit more back and forth...

Trump Wants Cheap Oil. IMF Data Show Saudis Need Higher Prices

Saudi Arabia needs oil prices to be higher than what U.S. President Donald Trump may be comfortable with as the government increases spending to bolster economic growth.

International Monetary Fund data released on Monday show the world’s biggest oil exporter needs prices at about $85 a barrel to balance its budget this year, up from a forecast of $73 in September.


The estimates highlight the tricky task facing Crown Prince Mohammed bin Salman as he tries to forge closer ties with Trump and, at the same time, finance a plan to revive economic growth and create jobs at home. The kingdom, which reiterated last week its commitment to balance its books by 2023, plans to increase spending by 7 percent this year. More...

 

[Sdajii]

....and a bit more back and forth...

Trump Wants Cheap Oil. IMF Data Show Saudis Need Higher Prices

Saudi Arabia needs oil prices to be higher than what U.S. President Donald Trump may be comfortable with as the government increases spending to bolster economic growth.

International Monetary Fund data released on Monday show the world’s biggest oil exporter needs prices at about $85 a barrel to balance its budget this year, up from a forecast of $73 in September.


The estimates highlight the tricky task facing Crown Prince Mohammed bin Salman as he tries to forge closer ties with Trump and, at the same time, finance a plan to revive economic growth and create jobs at home. The kingdom, which reiterated last week its commitment to balance its books by 2023, plans to increase spending by 7 percent this year. More...

With Saudi Arabia needing an average of $85 in 2019 to balance its budget, the longer we spend below $85, the higher above $85 they need to spend *some* of the year, and the year is quickly slipping by.

 

[Ann]

...and today!

A New Mega Cartel Is Emerging In Oil Markets

China and India—two of the world’s largest oil importers and the biggest demand growth centers globally—are close to setting up an oil buyers’ club to have a say in the pricing and sourcing of crude oil amid OPEC’s cuts and U.S. sanctions on Iran and Venezuela, Indian outlet livemint reports, citing three officials with knowledge of the talks.

This is not the first time that the two major oil importers are working to create such an oil club.

India and China have discussed creating an ‘oil buyers’ club’ to be able to negotiate better prices with oil exporting countries and will be looking to import more U.S. crude oil in order to reduce OPEC’s sway, both over the global oil market and over prices, India’s Petroleum Ministry said in June 2018. More...

 

[Ann]

POO, goodness me what a challenge is this commodity to chart?
Let's have a look at the 6 month daily chart first, this is the one we have been following with the red rising resistance/support line. It dropped back below the line but it may just be doing a pole dance around it to fool us!




Now let's look at the five year Weekly chart. This shows a rising wedge aimed at the long term falling overhead resistance line. The POO fell out of the wedge as expected, but now it is climbing back on board again. Resilient little sucker!




...and finally lets look at the thirteen year monthly chart. I thought it would be interesting to look at it with only the Fibonacci levels and the long term falling overhead resistance line shown. Nice and simple. Note the POO is sitting just under the 61.8% level which it had failed end of October '18.

 

[Ann]

On my very long term charts I suggest oil may fall into negative figures per barrel. One would have to ask how could something cost -$20 for instance? Cleanup costs....

Canadian Oil Driller Abruptly Shuts Down, Abandons 4,700 Wells

A junior Canadian gas E&P company has shut down abruptly, leaving as many as 4,700 wells behind, CBC reports, quoting the Alberta Energy Regulator, which said it had sent Trident Exploration Corp. an order to manage its wells, to which the company did not respond.

Trident closed two days ago and announced it would not be returning any money to shareholders or holders of unsecured bonds, adding it had well abandonment and reclamation liabilities of US$244.78 million (C$329 million) to deal with. More...

 

[Sdajii]

On my very long term charts I suggest oil may fall into negative figures per barrel. One would have to ask how could something cost -$20 for instance? Cleanup costs....

This is a demonstration of what I was saying about charts not always being relevant to a commodity like crude. I really can't see crude having a negative value in our (or out grandkids') lifetimes.

On a different topic, and a much much shorter term technical look at the POO, does anyone see a current head and shoulders on oil, with a near term WTI target of around $58.50?

 

[Ann]

This is a demonstration of what I was saying about charts not always being relevant to a commodity like crude. I really can't see crude having a negative value in our (or out grandkids') lifetimes.

I am not so sure, everything is happening very quickly with the abolition of fossil fuels from funds so no money for capital raising for junior oilers and if these are the sort of figures for cleanup I can see how a minus figure per barrel/whatever could happen.

On a different topic, and a much much shorter term technical look at the POO, does anyone see a current head and shoulders on oil, with a near term WTI target of around $58.50?

It does a bit but I only call a true head and shoulders when the shape is actually at the all time pinnacle of a price level. It may resolve as a H&S, let's see how your call goes. I have added a short term falling resistance line just for fun.

 

[Sdajii]

It does a bit but I only call a true head and shoulders when the shape is actually at the all time pinnacle of a price level. It may resolve as a H&S, let's see how your call goes. I have added a short term falling resistance line just for fun.

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It's not exactly my call, if I had to bet on it (which I suppose indirectly I am) I'd say it won't play out, but if it was a purely technical play and I was ignoring the fundamentals I would expect it to. Not a perfect H&S but good enough that it would count.

What timeframe are you looking at oil being at negative value? I just can not see technicals being at all relevant for something like that happening. As you say, it could only happen if oil was a liability somehow, and chart technicals can influence how much people pay for something, but can't turn a commodity into a liability. Only fundamentals can do that.

 

[Smurf1976]

IWhat timeframe are you looking at oil being at negative value? I just can not see technicals being at all relevant for something like that happening. As you say, it could only happen if oil was a liability somehow, and chart technicals can influence how much people pay for something, but can't turn a commodity into a liability. Only fundamentals can do that.

From a fundamental perspective and noting that oil can be stored physically, and oil fields can be shut down or at least wound back greatly, I can't really get my mind around why anyone would produce oil and then pay someone to take it?

It's not like a steam turbine power station with a minimum output that's 20% - 55% of capacity (depending on design) and can't easily go below that. Oil's not like that, it can be stored, transported etc quite easily or just shut down so the idea of it having negative value seems odd indeed.

That said, well Ann's been right before so I'm not going to say it's wrong but my thoughts are along the lines that to have a negative price for oil, or indeed any commodity that isn't mostly just a by-product of producing something else, implies a "world's gone to hell" sort of scenario doesn't it? The sort of scenario where cheap petrol will be the least of anyone's concerns most likely.

 

[Sdajii]

From a fundamental perspective and noting that oil can be stored physically, and oil fields can be shut down or at least wound back greatly, I can't really get my mind around why anyone would produce oil and then pay someone to take it?

It's not like a steam turbine power station with a minimum output that's 20% - 55% of capacity (depending on design) and can't easily go below that. Oil's not like that, it can be stored, transported etc quite easily or just shut down so the idea of it having negative value seems odd indeed.

That said, well Ann's been right before so I'm not going to say it's wrong but my thoughts are along the lines that to have a negative price for oil, or indeed any commodity that isn't mostly just a by-product of producing something else, implies a "world's gone to hell" sort of scenario doesn't it? The sort of scenario where cheap petrol will be the least of anyone's concerns most likely.

Obviously no one would produce it and pay someone to take it. Hypothetically (completely unrealistic hypothetical IMO) some amazing invention could make oil obsolete almost overnight, which would make oil a toxic waste product/liability. But it would literally need to happen so quickly that oil would be obsolete before current inventories were depleted. I can't actually come up with an hypothetical 'world gone to Hell' scenario where people would pay to have oil taken away, at least not without getting into ridiculous levels of unrealistic on multiple facets. Technicals/charting can control prices within a range of plausible value or sometimes even a little outside plausible value, but it can't make people pay people to take a commodity product with intrinsic value away. And hey, if that ever happens, I'll personally be glad to take the lot for whatever money anyone is happy to give me.

Actually, I just thought of a hypothetical which is almost sort of plausible... or plausible enough to put into the plot of a C grade dystopic sci fi movie. Governments going mad for renewable energy actually ban fossil fuels and demand that they be disposed of or denatured to their specifications. Again though, this would have to happen so suddenly that existing inventories can't be used up before the date the new rules are enforced.

 

[Ann]

What timeframe are you looking at oil being at negative value? I just can not see technicals being at all relevant for something like that happening. As you say, it could only happen if oil was a liability somehow, and chart technicals can influence how much people pay for something, but can't turn a commodity into a liability. Only fundamentals can do that.

What sort of time frame? Good question. My figure of minus was worked out using a swing trade calculation. This really only gives you a target figure more so then a time frame. At a wild guess maybe toward the end of next year to mid 2021. When the POO falls it tends to fall hard and fast. Between July and December 2008 it fell from around $145 down to around $30. In June 2014 it was around $106 by January 2015 is was down to around $44. Six month can see the POO slaughtered.

Chart technicals are purely and simply a reflection of the historical fundamantals in picture form. They are not separate from the fundamantals they are a pictorial representation of that same information. As an astute fundamentalist can look at the companies' balance sheets for a number of years and see a pattern, the chart reader is looking at this same information in picture form and seeing a pattern. Both can be wrong in their estimates or right for that matter.

That said, well Ann's been right before so I'm not going to say it's wrong but my thoughts are along the lines that to have a negative price for oil, or indeed any commodity that isn't mostly just a by-product of producing something else, implies a "world's gone to hell" sort of scenario doesn't it? The sort of scenario where cheap petrol will be the least of anyone's concerns most likely.

I can see a rapid change but I have a more optimistic view, I liken it to the change from horse transport to motor transport. That basically happened overnight. There were a lot of associated industries that had to adapt quickly into other avenues of work and people into other professions. I don't see it in a world of chaos but I think it will happen quickly which might distress a few people resistant to change. I think people will begin seeing the potential for change and may not be so supportive of oil companies. These may fold up camp and become lithium miners after a share consolidation and capital raising! There will be cleanup costs with a rapid closing down of oil fields/refineries and service stations, these will probably be the '$minus' aspect of the POO. I also think there is an enormous amount of hoarded oil by the preppers and those with doomsday scenarios in the hope they will make a fortune. This is where there will be costs per barrel to remove and dispose of the stuff.

. But it would literally need to happen so quickly that oil would be obsolete before current inventories were depleted.

Yes this is how I am thinking, especially after that previous article I put up about the Canadian oiler walking away from viable oil wells and now having to leave provision for the cleanup which will leave nothing for the investors.

Actually, I just thought of a hypothetical which is almost sort of plausible... or plausible enough to put into the plot of a C grade dystopic sci fi movie. Governments going mad for renewable energy actually ban fossil fuels and demand that they be disposed of or denatured to their specifications. Again though, this would have to happen so suddenly that existing inventories can't be used up before the date the new rules are enforced.

Oh yes, I can see this happening with the climate change hysterics in charge. That C grade dystopic sci fi movie may well be called 'Soylent Green 1984'. It will have more subplots other than oil, no doubt!

 

[Sdajii]

The logic makes sense, but I just don't think it's at all realistic to say it could happen within 2-3 years. It would require either apocalypse or some unfathomable new technology which could be implemented to make the combustion engine completely redundant within 6 months. Even in the incredibly unlikely event that it played out, charting couldn't predict that and if it did happen to coincide with the charts it would only be by coincidence. I think we can comfortably say that the historical data of oil prices were not caused by a future invention of unfathomable technology, or that they caused such an invention. Even cold fusion may not be enough, because even if electricity became effectively free and no new ICE vehicles were being produced, it would still take several years to convert everything over. Unless we invented super intelligent robots which were able to work on physical and conceptual issues incredibly efficiently, and they were both able to invent cold fusion and produce extremely efficient electric vehicles extremely quickly... but then presumably they'd also be able to clean up all the oil for us. Anyway, these are the sort of ridiculous hypotheticals required to fit the model.

I think a lot of charting is basically like tarot card reading. There are many different chart patterns, and people often just apply the one which looks most like the thing which happened. Usually when they play out it is because of the self-fulfilling prophesy effect. It's easy to retrospectively apply patterns to things, or to be vague enough that whatever happens you can say you predicted it.

 

[Ann]

It's easy to retrospectively apply patterns to things, or to be vague enough that whatever happens you can say you predicted it.

Yes it is and that is why I like long term established charts which I watch for years as the forward lines have already been drawn years ago and not drawn retrospectively, this is what I find so fascinating when the price reacts to the old lines on one of my charts. Do they always? No! That is why I am never adamant but more....this may happen. Mostly it does, sometimes it doesn't with shorter term stuff.

I am not trying to defend charting or convince others to use them, I am simply putting up an opinion about something with substantiation from a chart. Accept it or not I don't particularly care, I do it for the sake of it and for my own fun.

 

[Ann]

This is interesting....

Why Your Gasoline Won’t Take You As Far As it Used To

Over the weekend, I saw a passing reference on Twitter to the declining energy content of gasoline. Intuitively I know this to be correct for reasons I discuss below. But the poster linked to data from the Energy Information Administration (EIA) that I hadn’t previously seen.

The EIA doesn’t directly tabulate the energy content of gasoline. But they do provide two pieces of data that let us calculate it ourselves from two relevant tables in the April 2019 Monthly Energy Review. More...

....Oil rig count up two this week.

 

[Ann]

Oil rig count fell 2 from 807 to 805 this week....

The Trade Fight Between the U.S. and China Is Weighing on Oil Prices

Crude explorers deployed fewer rigs in U.S. fields this week amid an escalating U.S.-China trade war that weighed on oil prices.

Working American oil rigs fell by two this week to 805, according to data released Friday by oilfield-services provider Baker Hughes. It was the third drop in four weeks. Drillers in the world’s biggest oil field, the Permian Basin, idled two rigs to bring the regional tally to 457 while activity in the Eagle Ford shale in South Texas remained steady.

Pressed by investors to show more austerity and return profits to shareholders, explorers spent the first five months of this year idling almost 10 percent of the onshore U.S. rig fleet. The outlook for oil demand has soured amid a protracted trade dispute between the U.S. and China, the world’s largest economies. More...

 

[Ann]

This article is a rather bleak look for Crude, I will put in a chart for Brent as it is right at a critical level.

Oil Short-Selling Jumps as Sputtering Trade Talks Darken Outlook

Pessimism is back in vogue in the oil markets, as investors bet sputtering trade talks and swelling U.S. output can kill crude’s rally.

Hedge funds lifted bearish bets on West Texas Intermediate crude by 39%, the biggest short-selling surge in more than eight months. Meanwhile, bets on a rally retreated for the second straight week.


Crude futures slipped to their third weekly loss in a row on Friday after high-level talks between the U.S. and China broke up, with President Donald Trump’s administration giving China a month to reach an agreement or face expanded tariffs. More...

This is a one month view of Brent, it is right on the 38.2% Fibonacci line and a very long term support/resistance line coming from 2007

 

[Miner]

Interesting thread, very powerful and value adder. I somehow was missing this and now have started to ready some of the issues last 3 months.
I must disclose my interest on oil stocks with BPT, HZN, BRU CVN, FAR are on my portfolio and son (exactly opposite to a miner) is a senior drilling engineer in a large oil producer.
As a miner, I would make this unscientific points :

1. China and India relationship would do something to bring down the oil price for sure specially Indian election will be over in 7 days. So oil price support could be released upwards.
2. US needs its $100 Billion weapon sale to Saudi. So they need Saudi to make money from increased sale.
3. As per there is an unwritten rule - if there is a political problem, need to stop oil price going down , create political hot environment bringing down the stability. That automatically triggers gold and oil to go up.
4. North Korea is going back to square one, US is pushing China to impose more duty- Trump is doing rhetoric with Kim, Iran, market, China and Mueller- divert attention with a mini war or some instability - oil disobeys all charts and go up.

Once again, the above are my unscientific speculations to make myself happy with oil stocks.

 

[Ann]

Oil Rig count down from 805 to 802 this week...

Trade Jitters Kill Global Crude's Longest Bull Run Since 2011

The U.S. and China have just killed the longest run of bets on a global oil rally since 2011.

Money managers cut their bullish wagers on Brent crude for the first time in 10 weeks after tensions escalated between the world’s two-largest energy consumers. The optimism hadn’t lasted so long in more than eight years.

The trade spat came back to the fore this week as the Trump administration imposed new tariffs on Asia’s economic powerhouse. Fears that the dispute will undermine oil consumption were reinforced by the International Energy Agency, which lowered its global demand estimate for the first time since October. To make matters worse, crude stockpiles in the U.S. are at their highest since September 2017. More...

 

[Smurf1976]

There seem to be two major opposing forces at work here.

One one side it’s China Vs USA trade war threatening demand.

On the other side it’s trouble in Iran, Venezuela and elsewhere threatening production.

Then throw issues with contaminated oil from Russia into the mix and if all gets complex.

My main thought is that the strength of forces involved this is going to end with an earthquake, the only question being whether that’s up or down (or one then the other)?