Oil price discussion and analysis

Following this weekend's attack on Saudi oil production, WTI crude (NYSEARCA:USO) is ahead 14.5% to $63 per barrel in early Sunday trades.

S&P 500 (NYSEARCA:SPY) futures are down 0.5%, and Nasdaq 100 (NASDAQ:QQQ) futures are off 0.7%.

Also, I wonder at the timing: if the (attackers) have a branch of their business trading futures, then, an attack on Saturday would allow a long position Friday, to reap the profit when markets re-open. The ultimate in inside trading. A bit James Bondesque.



jog on
duc

POO was up over 10% at start of trade this morning - to around $61.50 - but quickly came off its peak.
Most of the early price action after opening has been downwards, so there is not much at present suggesting POO has legs to run much higher than it has.
This seems a case where a lot more light needs to be shed on the actual damage done to Aramco's refineries before markets will get serious.
The Donald has tweeted here, so nothing to worry about .
POG also spiked at open, and since then has traded flat.
Let's see what the Fed says later this week, as a rate cut might keep commodities across the board a tad higher than usual.

rederob said:

POO was up over 10% at start of trade this morning - to around $61.50 - but quickly came off its peak.
Most of the early price action after opening has been downwards, so there is not much at present suggesting POO has legs to run much higher than it has.
This seems a case where a lot more light needs to be shed on the actual damage done to Aramco's refineries before markets will get serious.
The Donald has tweeted here, so nothing to worry about .
POG also spiked at open, and since then has traded flat.
Let's see what the Fed says later this week, as a rate cut might keep commodities across the board a tad higher than usual.

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Even in a worse case scenario after this attack damage-wise to oil stock and infrastructure , the Saudi's have protected themselves well by hedging.

In fact with so many Wombats of Wall St. attempting to profit, the POO may in fact contrarily decrease as other players increase their output/sales.

gg

rederob said:

There may be a market price reaction to the attacks, but unless the damage has been substantial, which to date appears not to be the case, then global oil reserves will be more than adequate to make up the temporary shortfall.

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Agreed yes. Physically there's enough oil in storage in various places and to clarify, my comments are in regards to price and other (eg political) impacts.

Price is self explanatory. Short term anything could happen. Medium term, if production stays down, well a diminishing inventory of anything tends to push the price up eventually.

Politics could be interesting particularly in the case of Australia which seems plausibly backed into a corner. It's the only country known to be non-compliant with its obligations with the IEA and, as a major exporter of energy commodities other than oil, also can't really afford to thumb its nose at the IEA.

Thus far the only apparent escape route, should the IEA direct a release of stocks (as is the intended mode of operation) and Australia be caught out, looks to be a deal with the USA to access their strategic stockpile. Deal as in Australia simply agrees to whatever the US wants, having zero choice in practice.

Being cornered in an emergency situation with no options other than to simply agree to what someone else wants is never a good place to be in.......

Back to price and politics together, the other interesting one is to what extent will the market apply a "risk premium"?

The attack itself is a bit like September 11 or Chernobyl in that regardless of the actual impact, it's proof of concept. Those incidents proved beyond all doubt that flying a plane into an office building is one way to demolish it and that yes a large nuclear reactor can in fact blow up. The aviation and nuclear industries have never reverted to their pre-2001 and 1986 status respectively.

With oil, well we now have proof that whoever with relatively simple equipment can set large oil facilities on fire. There's no erasing that proof from the minds of all involved in the oil market so it'll be interesting to see how the market responds there. Regardless of how quickly Saudi fixes the plant, the threat remains that the same occurs again at any time.

Price of oil has jumped .. No surprise here. US trying to blame Iran. Iran saying eff off and making it clear there will be consequences if they are attacked.

Depending on how long it will take to repair the Saudi refinery losing 5m barrels of oil a day will turn the oil market on its head.
Implications for world economies are ........ (chose own word.)

Iran warns US it’s ‘ready for fully-fledged war’ after drone attack on oil rig
Before and after pictures show how armed drones carried out a devastating attack that wiped out five per cent of the world’s crude oil supplies.

https://www.news.com.au/world/middl...g/news-story/694f6273aa01140c66cb715516475c3b

US ‘locked and loaded’ after blaming Iran for Saudi oil attack
September 16, 2019
30
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The United States doubled down on its claim that Iran was behind attacks on Saudi oil refineries on Sunday, despite Houthi rebels saying they launched the attack from Yemen.
https://chinapost.nownews.com/20190916-747038

"A significant volume of oil production can be restored within days but the company would need weeks to reach full output again, Bloomberg News reported Sunday, citing unnamed sources."

https://www.theguardian.com/world/2...a-oil-attack-as-crude-prices-soar-iran-aramco

Looking at the overall situation thus far, oil's trading at ~10% higher price than it was on Friday before the attacks. That's a jump but not a massive one.

What I do think could fairly be said though is that there's more risk to the upside than to the downside at this point. If the situation escalates then it's not hard to foresee scenarios involving ongoing disruption to oil production in Saudi or some other country nearby. In contrast, it's somewhat harder to come up with a scenario where anyone floods the market and substantially drops the price.

Oil at $60 becomes oil at $90 = plausible, it could happen if this escalates.

Oil at $60 becomes oil at $30 = seems extremely unlikely to me. Anyone who could actually flood the market to that extent loses by doing so.

In view of the political circumstances anyone who shorted oil right now would be brave in my view.

basilio said:

"A significant volume of oil production can be restored within days but the company would need weeks to reach full output again, Bloomberg News reported Sunday, citing unnamed sources."

https://www.theguardian.com/world/2...a-oil-attack-as-crude-prices-soar-iran-aramco

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F#$k anything from the Guardian. Communist bastards all of them.

gg

WTI was sitting at $62.90 as I began this post, which was over a dollar higher than same time yesterday. (But it lost a dollar between beginning this and finishing it!)
What is significant?
First, that as the details came in regarding the "damage," POO began to climb again. So we know that the probability of returning to full production quickly is improbable, otherwise the price would have fallen further away.
Next, the last report I read this morning had about half the 5.7MB loss in production mitigated, so we are looking at a bit less than 3MB/day to be made up.
The Saudis have a strategic reserve of approx 60mb, or 20 days, should they dip into it. And the USA has some 645MB in their strategic reserve, so more than enough to counter the present supply disruption if it lasted many months. Both nations are prepared to dip into their reserves.
Next, the advantage of the Saudi's reserves is that they are at the ports, so continuing deliveries as normal can be achieved. That is not the case for the USA's reserves in that tanker re-routing would be necessary, so any release from it's massive reserves would be incremental.
So we know that there are not going to be any oil supply shortages in the near term.
For our Oz oilers, the extra dollars per bbl will be welcome profits, but how long it lasts nobody knows. My tea leaves are saying a month or two are quite possible. However the contractors just engaged by the Saudis have yet to make a thorough assessment and when that news becomes known we will have our next major price movement - direction tba .
The real take away is that production will be constrained, so a return to "normal" will take twice as long because any reserve depletion will need to be topped back up.
The political perspective is less clear.
If it is shown that the Iranians were responsible for the drone (more likely cruise missile) attacks I expect POO to move higher as a war risk premium will be factored in. It's likelihood is very low imho however Iran also controls the Straits of Hormuz and this point cannot be taken lightly in a tinderbox environment.
Difficult to see POO under $60 for a while, and the upside risk premium should remain while the likes of Trump continue to send mixed messages.

Garpal Gumnut said:

F#$k anything from the Guardian. Communist bastards all of them.

gg

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Did you notice the quote came from Bloomberg news Gummie ? Or are they Commie bastards as well

I

basilio said:

Did you notice the quote came from Bloomberg news Gummie ? Or are they Commie bastards as well

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Assume gg was ironic, when The guardian quotes Bloomberg, what's next? Real world reports and news,?

qldfrog said:

I

Assume gg was ironic, when The guardian quotes Bloomberg, what's next? Real world reports and news,?

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If I can influence the market to my advantage, I will, via comments on Newspapers.

The Grauniad (Guardian ) believe I am related to Lenin, the Times of London to minor Royalty, the Courier Mail to Gorden Tallis and the New York Times to Obama ( not the bin, but the Barak ) .

It is essential to "play" these news outlets.

The Guardian writers are on 3 mo. contracts atm and the "paper" is about to go arse up.

For a leftie rag such as the Grauniad to comment on the POO is in itself an an indictment of the volatility we experience.

Tally ho, anyone for Florentine at the open tomorrow?

gg

Giving this some further thought.....

I ponder to what extent end users of oil, from the general public with cars etc through to ships and industry, will engage in hoarding in anticipation of price rises?

At any given time most end user fuel tanks won't be full. Check 1000 random cars on the street and perhaps 5% will have been filled within the past 50km but the vast majority at any given time will have space in the tank.

Likewise it's not uncommon in the northern hemisphere in places where oil heating is used that tanks aren't filled to capactiy even after a delivery. Someone has a 1000 Gallon tank, knows they use 700 Gallons a year and there's a bit still in the tank, so orders 700 Gallons which fills it to 800. Etc, that's not uncommon.

Now my thinking is that if consumers are widely expecting price rises then at least some will choose to increase their stocks. They're driving past the servo, the tank's a third full but they decide to fill it up to beat the price rise. Someone ordering heating oil says "fill it up" rather than buying a specific quantity. Industrial and agricultural users decide to fill their tanks to capacity.

Not everyone will do so of course but it's fair to assume that literally nobody will do the opposite. Nobody's rationally going to run down their fuel inventory on account of the current circumstances. Rather, they'll either do nothing different or some will choose to fill up their tanks etc. End result should thus be some level of increased sales in the short term.

Whilst that's a temporary effect, since it moves the fuel from one tank to another without changing underlying consumption, my thinking is that we may see more oil removed from reported stocks than expected due to this phenomenon of end users increasing their physical holdings of oil products.

Time will tell how significant it is or isn't but I wouldn't expect the effect to be zero. At least some consumers will fill tanks to higher levels than they otherwise would have thus creating a short term rise in apparent demand and consequent drop in reported stocks.

Also interesting will be if our government makes any moves to increase our oil reserves from 28 days to the recommended 90 days.

They will probably have to wait until the price settles down again, they have blown any chance to do it quickly on the cheap.

Got full tank
Son
mentioned he filled up this week end after the attack and got a jerry can 50pc full for the machinery

And after all the kerfuffle, it's on at last in the Middle East.

Monsters fighting monsters with the Donald, Putin and Xi supplying the hardware.

For us in ASF.

BUY OILERS

gg

Another thought is about the broader economy in Australia and elsewhere.

Bearing in mind that the Australian economy was already somewhat shaky before this, my thinking is that there's two impacts really.

One is the practical one. To the extent that fuel prices actually rise that's an increase in costs for consumers and businesses. Consumers spend less on discretionary purchases, business has higher costs = not a good combination.

The other is the psychological one. Fear of not only further hikes in fuel prices but of the broader economic impacts of that could plausibly lead to consumers reigning in spending beyond the direct impact of petrol etc prices on household budgets. Again any reduction there will mean less spending on discretionary purchases.

So a restaurant for example doesn't have much direct use of oil, beyond transporting food etc to it, but is likely to be a victim if consumers reduce spending on non-essentials.

Note that I'm not aiming to be overly pessimistic, and to be sure it's only a few $ per barrel at this stage, but I'm just looking at the potential consequences given the apparent possibility that the situation could escalate.

Smurf1976 said:

Another thought is about the broader economy in Australia and elsewhere.

Bearing in mind that the Australian economy was already somewhat shaky before this, my thinking is that there's two impacts really.

One is the practical one. To the extent that fuel prices actually rise that's an increase in costs for consumers and businesses. Consumers spend less on discretionary purchases, business has higher costs = not a good combination.

The other is the psychological one. Fear of not only further hikes in fuel prices but of the broader economic impacts of that could plausibly lead to consumers reigning in spending beyond the direct impact of petrol etc prices on household budgets. Again any reduction there will mean less spending on discretionary purchases.

So a restaurant for example doesn't have much direct use of oil, beyond transporting food etc to it, but is likely to be a victim if consumers reduce spending on non-essentials.

Note that I'm not aiming to be overly pessimistic, and to be sure it's only a few $ per barrel at this stage, but I'm just looking at the potential consequences given the apparent possibility that the situation could escalate.

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On the practical impact: Hikes in fuel prices result in higher inflation which delays the need for further interest rate reductions. I could be wrong here but it seems people are more worried about their power bills rather than the fuel costs at present.

PS, I'm looking forward to re-buying the oilers today

PZ99 said:

On the practical impact: Hikes in fuel prices result in higher inflation which delays the need for further interest rate reductions. I could be wrong here but it seems people are more worried about their power bills rather than the fuel costs at present.

PS, I'm looking forward to re-buying the oilers today

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There are mixed messages about the timeline for Aramco returning to full production, so overnight the POO dropped.
That might see the oilers come off the boil, so you could be in luck.
I do not believe anything reliable will come out until Aramco's contractors have done a full assessment so we are truly in speculators' territory.
POO is holding above $59 at time of posting, but remains in a downward trend over the past 6 hours.

SirRumpole said:

Also interesting will be if our government makes any moves to increase our oil reserves from 28 days to the recommended 90 days.

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FWIW, as an International Energy Agency member country and net oil importer, it isn't a recommendation to hold 90 days in SPR, it is an IEA obligation that we have consistently failed to meet.

Despite having a lot of crude energy resources, we don't have the appropriate refining capacity to meet domestic demand and import quite a lot from overseas, including the Gulf region.