Oil price discussion and analysis

[rederob]

Crude oil and its derivatives have to be stored in an oversupplied market, so here's a few recent articles covering issues and costs:

• Reuters
• Alaskajournal
• FR24 news.

The irony is that an oversupplied market increases storage costs, so speculative purchasers will bargain down producers to offset these.
Focusing specifically on the USA's LTO producers who will store mostly at Cushing and sell into the SPR, we get a double whammy effect. That is, in a recovering market purchasers are initially more likely to tap directly in to producers as the costs of stored crude will be at least a few dollars higher. As the prices near parity then purchasers will tap more in to stored crude. This flattens the price curve for LTO producers such that those debt laden have no hope of recovery.

 

[rederob]

POO has steadied over the week as intra-day volume spikes disappeared:

The trend is downward and, frankly, it would be a brave person thinking a recovery is likely for months to come.
The USA's lackadaisical approach to tackling COVID-19 will sheet home in coming weeks and I expect WTI to hit the teens and remain there for a while. I do hope I am wrong, but the difference between this market and past crashes was that global demand was always comparatively robust.

 

[ducati916]

Could there be a 3'rd Black Swan?

Would Putin invade the Arab states and take over their oil? I doubt there would be much help from Trump and the US, Europe wouldn't want to know.

jog on
duc

 

[Sdajii]

Could there be a 3'rd Black Swan?

Would Putin invade the Arab states and take over their oil? I doubt there would be much help from Trump and the US, Europe wouldn't want to know.

jog on
duc

Maybe I slept in for a few days or I haven't peeked out from under my rock for too long. I'd heard of a virus issue but what was the second black swan?

It's a crazy world in crazy times, so anything could happen, but I can't see Russia doing that. The west would hate them, the middle east would hate them, Asia would become very wary of them, and even if no one stopped them (and that wouldn't be a 100% certainty), they'd be seen by the world as evil and untrustworthy.

If it did happen and no one stopped them or did particularly much about it, it could certainly trigger all out hot WWIII, if other superpowers say 'hey, look at that, Russia just significantly expanded its empire, it seems that the rules have gone back to what they were pre WWII where countries could legitimately use military powers to conquer others'.

WWIII is inevitable and can't be too far off, so hey, that could be how it starts. It does seem a bit unlikely for Russia to target oil at a time when oil is at such low value and arguably it won't be terribly valuable going forward other than in brief spikes.

 

[ducati916]

1. Maybe I slept in for a few days or I haven't peeked out from under my rock for too long. I'd heard of a virus issue but what was the second black swan?

2. It's a crazy world in crazy times, so anything could happen, but I can't see Russia doing that. The west would hate them, the middle east would hate them, Asia would become very wary of them, and even if no one stopped them (and that wouldn't be a 100% certainty), they'd be seen by the world as evil and untrustworthy.

3. If it did happen and no one stopped them or did particularly much about it, it could certainly trigger all out hot WWIII, if other superpowers say 'hey, look at that, Russia just significantly expanded its empire, it seems that the rules have gone back to what they were pre WWII where countries could legitimately use military powers to conquer others'.

4. WWIII is inevitable and can't be too far off, so hey, that could be how it starts. It does seem a bit unlikely for Russia to target oil at a time when oil is at such low value and arguably it won't be terribly valuable going forward other than in brief spikes.

1. (a) COVID-19 and (b) Oil price war.

2. Senators accuse Saudi Arabia of economic warfare. A group of Republican senators sent Sec. of State Mike Pompeo a letter, accusing Saudi Arabia of economic warfare because of Riyadh’s decision to increase oil production. The letter said the U.S. could explore antitrust authority as well as revisit support for the war in Yemen, a clear threat to Saudi Arabia.

3. We have had any number of limited hot wars. If Putin phoned Trump and said...let's bomb them back to the stone age...who exactly would stop them? China gets 90% of its oil from Russia. I'm sure the US could stump up the 10%

4. A world war is unlikely if the US/China/Russia are all on the same page.

jog on
duc

 

[rederob]

Below is the near term trend on a 15-minute chart:

Those who trade should consider shorting oil (somewhat obvious I guess).
On Monday evening US COVID-19 numbers will have doubled so their exchanges are going to open into a brutal week.
I expect support to fail next week. The paper market and the physical market are too far out of kilter.
Onshore storage of crude is tightening, so again producers will be taking a haircut if they want to avoid shutting-in their wells and avoiding high restart costs.
Once things are back up and running globally, the best we can hope for is a recessionary market to sell in to, so suppressed prices look like being the norm well into 2021.

 

[barney]

Those who trade should consider shorting oil (somewhat obvious I guess). so suppressed prices look like being the norm well into 2021.

Can't argue with that Red.

On the flip side, somewhere down the track there will come a point where accumulating long Oil futures could be the trade of the decade.

I remember telling a family member back in January 2016 that's what we should all be doing, when OIL hit $28.

I didn't follow my own advice did I Probably be retired now if I did!

As you say, its a long way from being LONG just yet, but when it turns, it could turn into a very lucrative trade.

 

[jbocker]

...WWIII is inevitable and can't be too far off, ...

We ARE in WWIII have no doubt it. One against Humanity.

 

[Smurf1976]

A group of Republican senators sent Sec. of State Mike Pompeo a letter, accusing Saudi Arabia of economic warfare because of Riyadh’s decision to increase oil production.

So in other words the US is accusing the Saudi’s of doing the exact same thing the US has done but on a smaller scale.

I wonder what actions the US will take against the US? Probably not overly much.....

 

[fiftyeight]

3. We have had any number of limited hot wars. If Putin phoned Trump and said...let's bomb them back to the stone age...who exactly would stop them? China gets 90% of its oil from Russia. I'm sure the US could stump up the 10%

Does it even need Putin and Trump to say lets bomb them back to the stone age? There is enough tension in that part of the world, surely one the proxy wars could spill over. Few attacks on key infrastructure would change things.

A super low oil price definitely wont make things more stable???

 

[ducati916]

Does it even need Putin and Trump to say lets bomb them back to the stone age? There is enough tension in that part of the world, surely one the proxy wars could spill over. Few attacks on key infrastructure would change things.

A super low oil price definitely wont make things more stable???

Indeed, without a doubt one of the most unstable regions of the world.

jog on
duc

 

[rederob]

WTI is going to get absolutely hammered this week:

Just to put the early decline into perspective: it reflected a 10% dip in price before recovering.

 

[Country Lad]

Five days ago we were paying $1.48 for diesel in Tassie, and then $1.39 in Vic and NSW on the way home. Either the middle men or retailers are making a nice profit.

 

[rederob]

Five days ago we were paying $1.48 for diesel in Tassie, and then $1.39 in Vic and NSW on the way home. Either the middle men or retailers are making a nice profit.

It looks like prices at the pump are a bit like COVID-19, and will take a few weeks to take effect!

 

[rederob]

This chart magnifies yesterday's and is at the one-minute trading level:

Overnight, support was again broken but WTI has since recovered, albeit not fully.
A series of lower highs is evident.
I expect the trend will continue through the week.

 

[ducati916]

The Majors have stopped reacting to the POO.



They are (in my opinion) a buy. If you want the leverage ERX (was x3 now x2).

In contradistinction to Gold, where you want to buy the physical, in Oil, you want to buy the producers. They have the financial muscle to survive the price war and come out the other side with vastly reduced competition in their markets.

jog on
duc

 

[ducati916]

Might just be short covering in the overnight market, or, there is news afoot that hasn't made the newswires yet.



jog on
duc

 

[ducati916]

Shut-ins almost here.

Pipeline companies tell drillers to cut. Texas pipeline companies have told shale drillers to cut upstream production because pipelines and downstream storage and refineries are reaching capacity. The move is a sign that shut ins are just around the corner.

10 mb/d of production to be shut-in. IHS Markit says that 10 mb/d of global production could be shut in between April and June. Other analysts have smaller numbers. OPEC+ is expected to add 4 mb/d this year, but total global production could fall by 200,000 bpd, according to Energy Aspects, which highlights just how much supply needs to contract in non-OPEC countries. Goldman Sachs puts global decline at 900,000 bpd, “with the true number likely higher and growing by the hour.” Goldman said production capacity could shrink by 5 mb/d this year.

If, (when) that happens a certain % will never come back, resulting in a permanent loss of supply. Good for those still in business.

jog on
duc

 

[jbocker]

If, (when) that happens a certain % will never come back, resulting in a permanent loss of supply. Good for those still in business.

I wonder what the impacts on companies in the alternative energy supply/development will be, as oil becomes cheap for any extended period of time. (I will ask this question in Alternative energy? Thread.)

 

[rederob]

This week's price action, by the minute:

The above chart is a continuation of the trend posted last Saturday.
Support has been resilient during the week.
Still early days in the US LTO story, so bankruptcies are ahead.