Oil price discussion and analysis

[Ann]

A fall back to support is more likely in the medium term unless things in eastern Europe flare up.

After looking at my chart this weekend I agree with you Rob. I have been fiddling with volumes as an indicator of future price direction. When there is high volume at either the top or bottom of the price it appears to cause a reversal in the price. I am looking at this concept closely. I see the identical thing on gold this week as well. Perhaps gold and oil are now in for a spell of falling prices. I see a massive volume spike at the bottom price of the S&P 500. I am wondering if this is going to be a total reversal for the stock market or just a dead cat bounce for the S&P et al?

So if Russian exports were to stop then we get some combination of inventory drawdown and price rising to the point where it kills demand. At least we do unless someone's sitting on more spare capacity than is generally accepted to be the case and is willing to use it.

...Or unless Putin decides to dump shiploads of oil at whatever price he decides is fair. I think he mentioned $70 to $80 ( I think, could be wrong). China appears to be willing to trade with Russia, correct me if I am wrong but I think China is a massive consumer of oil and would potentially influence the price if they traded with Russia at an agreed price of say $75. It is all very interesting.

 

[rederob]

...Or unless Putin decides to dump shiploads of oil at whatever price he decides is fair. I think he mentioned $70 to $80 ( I think, could be wrong). China appears to be willing to trade with Russia, correct me if I am wrong but I think China is a massive consumer of oil and would potentially influence the price if they traded with Russia at an agreed price of say $75. It is all very interesting.

With SWIFT not available to Russia nobody will be able to pay for their oil via conventional means.
However, there are a number of ways to bypass SWIFT so it remains to be seen where Russia's oil tankers will be heading in coming weeks. And, given these are rather visible things, it won't be hard to shame nations who continue to deal with Russia.
Here's what are leaving their Black Sea oil ports now:

 

[Smurf1976]

.Or unless Putin decides to dump shiploads of oil at whatever price he decides is fair. I think he mentioned $70 to $80 ( I think, could be wrong). China appears to be willing to trade with Russia, correct me if I am wrong but I think China is a massive consumer of oil and would potentially influence the price if they traded with Russia at an agreed price of say $75. It is all very interesting.

A thought I've had for quite some time now is that we'll see countries seeking to lock in supplies of scarce raw materials and in doing so those commodities are for practical purposes no longer on the market. That is, they are not for sale to others at any price unless both parties to the contract agree which they'll only do in the context of any surplus they have, that being the point to secure their own supply first and foremost.

In that context China is the most obvious buyer who'd potentially be willing to do long term deals given they tend to take a strategic approach and there's government involvement in the oil industry. Deals as in buy the entire output of an oilfield over its lifetime, all sold in a single contract, or at least buy x amount for 30 years sort of thing.

There are plenty of precedents doing that with gas so it wouldn't be a big step to do it with oil, indeed Venezuela was selling natural bitumen on that basis 25 years ago (at least two companies in Australia gave some brief thought to buying some at the time since pricing was contract in no way linked to the spot market).

 

[Smurf1976]

With SWIFT not available to Russia nobody will be able to pay for their oil via conventional means.

Another practical observation is that looking at history, when any country with a significant oil production industry went to crap one thing that always happens is oil production volume falls in a heap.

The country doesn't have to be bankrupt or at war to do it, eg the breakup of the USSR took production down from about 11 million barrels / day in 1988 to a bit under 6 million barrels per day by 1994. It didn't even start to rebound until the very late 1990's so a lost decade basically.

So depending on what happens next with the overall situation, it may not just be a question of where Russia's production goes but of how much is produced in the first place.

 

[rederob]

Been a few weeks since I last posted US drill rig counts, so here's the latest:

As you can see from the separate chart below for US crude oil (excluding gas) rigs, we are still a long way below the pre-pandemic rig numbers, although they had been declining in the year prior:
Not sure why we aren't getting bigger numbers returning given the oil price is so high now, but maybe getting finance isn't as easy as it was.
Grateful for others to find better reasons than this because I can't make sense of it.

 

[Smurf1976]

Grateful for others to find better reasons than this because I can't make sense of it.

My understanding is there's been quite a bit of pressure applied to the companies on two similar fronts.

First is from investors, fund managers and so on looking purely at the finances and who want to see dividends rolling in rather than that money being reinvested into drilling etc.

Second is from the so-called "activist investors" who are applying pressure to not invest in oil at all.

That's just my understanding having read quite a bit about the goings on with the US shale companies. They're under pressure from both of those, the first dating back a few years now and the latter being more recent.

That would raise the cost of finance if they still went ahead and drilled given that those two categories, the big fund managers and "activist investors" may well dump the stock if they're unhappy.

Related to that, the industry has been getting production up by completing previously drilled wells, leading to a fairly rapid decline in the inventory of drilled uncompleted (DUC) wells. Obviously that can't continue so, if drilling doesn't increase, then in due course the rate of completions (new production brought on) must slow.

I won't post an image since the chart is copyright but this shows it pretty clearly. Yellow line is DUC's with scale on the left:

https://img1.wsimg.com/isteam/ip/5ce6d220-2793-4de8-aa9e-8c7aa850eda4/The%20DUC%20Dillema%20-%20Charts%20copy%203-1.png/:/cr=t:0%25,l:0%25,w:100%25,h:100%25/rs=w:1280

Note that chart applies specifically and only to the US but still, the US is big enough to be a reasonable representation of the likely situation more generally.

 

[rederob]

Charts often repeat patterns, so I overlaid the shaded area from 2011's peak and put it into where we are now. Support post February 2011 is almost identical to now.
If it's going to be similar then anything after $110/bbl would be a good time to let go of oil for a while.

Back in 2011 support failed, so any buying back in would be in the $75 - 77 range.

 

[wayneL]

Back to the future?

I'm even starting to grow a beard and have bought the Mrs a bonnet...

... And for those in the Swan valley, come and see me to keep your Clydesdales running sweetly

 

[Captain_Chaza]

Crikey!
I have never bought an Oil share in my life because it is so closely manipulated by a FEW

Who needs to be MANIPULATED? Certainly Not me!

IMHO

MANIPULATED markets can always pull the carpets from under you without any warning

AND often do !

OIL Buyers be WARNED

"Safety at Sea is Parramount"

 

[rederob]

I only posted the equivalent of this chart yesterday, so here it is with a black background:

The previous high to this was almost 11 years ago - May 2011.

 

[wayneL]

LPG bottle swaps (I go through about two a week) have surged from average $29 to $32 too.

 

[wayneL]

Crikey!
I have never bought an Oil share in my life because it is so closely manipulated by a FEW

Who needs to be MANIPULATED? Certainly Not me!

IMHO

MANIPULATED markets can always pull the carpets from under you without any warning

AND often do !

OIL Buyers be WARNED

"Safety at Sea is Parramount"

my long-term strategy with commodities has been to determine what minimum production is and buy it with your farken ears back at or near the price.

Oil Spot at less than $20 was a no-brainer. Yep it did get less than that briefly... *briefly*.

But depending at your buy price and a bit of cojonies, that's at least a 5 bagger now.

 

[Captain_Chaza]

Well Done!
Was it a long time ago?

Ever thought of Averaging Up?

 

[Captain_Chaza]

Just to keep the Juices rolling over

I have never met anyone who has made any real money in The Insurance Sector
eg AMP included

or the Airlines Industry
I guess they are just simply UNLUCKY!

 

[Smurf1976]

I have never bought an Oil share in my life because it is so closely manipulated by a FEW

Oil is manipulated but it's about as open and visible as it gets so far as that manipulation is concerned.

OPEC has a physical, clearly signed office building in Vienna and makes no secret of its existence. Production data is routinely reported in almost all countries and likewise most national governments with strategic reserves either publish data or there are credible third party estimates.

It's not like penny stocks or cryptos where it's all done discreetly.

 

[mullokintyre]

From Freightwaves

In September 2019, the U.S. sanctioned tanker company Cosco Dalian, a division of Chinese shipping giant Cosco, for carrying Iranian crude. The sanctions only covered the 20 tankers owned by Cosco Dalian, but that didn’t matter. As a precaution, charterers shunned the entire 150-tanker fleet of the Cosco parent, causing tanker spot rates to spike.

Shipping execs don’t just refuse vessels or cargoes based on what’s definitely sanctionable. They do so based on what they believe might possibly be sanctioned now or later. Sanctions are written in precise language, but they’re messy in practice.

That precept is now on full display. Sanctions have yet to specifically target Russian energy exports or (non-dual-use, i.e., non-military) containerized goods, but that doesn’t matter. Many tanker owners and container liner operators are preemptively pulling out of Russia.

On Tuesday, MSC, Maersk and CMA CGM — the top three liner companies in the world — temporarily suspended Russian bookings. Yang Ming, the ninth largest, suspended Russian bookings on Wednesday; ONE, the sixth largest, on Sunday; and Hapag-Lloyd, fifth largest, on Thursday. These six carriers control 62% of global capacity, according to Alphaliner data.

The world’s largest container lines are dropping Russia “to manage sanctions risk but also perhaps manage reputational risk,” said Michelle Linderman, partner of law firm Crowell & Moring, during a panel presented by shipping association BIMCO on Tuesday. “Do they want to be seen as supporting Russia? Or are they going to say at this moment, while this is going on, we don’t want to go anywhere near there.”

The tanker sector is seeing the same pattern of behavior among shipowners and operators. Many are refusing to load Russian oil cargoes even though sanctions don’t bar them from doing so.


“Few owners are now willing to transport Russian oil, resulting in an undersupply of ships [at Russian export terminals],” said Clarksons Platou Securities.

This will have flow on effects to both the availability of fuel and the price.
Price and availability going in opposite directions.
These are the sorts of things that will hurt Putin far more than UN resolutions or confiscating the assets of Russian oligarchs.
Mick

 

[Dona Ferentes]

Sanctions on Russia have deliberately stayed away from oil, gas and soft commodities, but traders’ refusal to touch Russian goods could cause big dislocations in global markets.

On Wednesday night an oil trading giant called Trafigura Group offered to sell a cargo of the Russian Urals oil at a discount of $US18.60 ($25.50) a barrel to the Brent Crude benchmark, which sits at about $US113 ($155) a barrel at present, with futures sitting near 10-year highs.

A report in Bloomberg described the discount as being the biggest ever seen in oil markets. But the cargo drew no bids. Zero. Nada. Nothing.

Another problem is actually moving Russian oil around, with a large number of tanker owners simply refusing to load Russian cargoes, at least until the impact of financial sanctions becomes clearer. The number of ships booked to load cargoes in March is reportedly less than a quarter of the number at the same time last month.....

 

[Garpal Gumnut]

Sanctions on Russia have deliberately stayed away from oil, gas and soft commodities, but traders’ refusal to touch Russian goods could cause big dislocations in global markets.

On Wednesday night an oil trading giant called Trafigura Group offered to sell a cargo of the Russian Urals oil at a discount of $US18.60 ($25.50) a barrel to the Brent Crude benchmark, which sits at about $US113 ($155) a barrel at present, with futures sitting near 10-year highs.

A report in Bloomberg described the discount as being the biggest ever seen in oil markets. But the cargo drew no bids. Zero. Nada. Nothing.

Another problem is actually moving Russian oil around, with a large number of tanker owners simply refusing to load Russian cargoes, at least until the impact of financial sanctions becomes clearer. The number of ships booked to load cargoes in March is reportedly less than a quarter of the number at the same time last month.....

Excellent.

If I want to know the direction of POI I just check my local bowser.

Similar to the weather and sticking your head out the window.

Bowser is a leading indicator of POI.

gg

 

[Dona Ferentes]

Excellent.

If I want to know the direction of Po0 I just check my local bowser.

Similar to the weather and sticking your head out the window.

Bowser is a leading indicator of POI.

Always hold a few oil shares. For same reason, petrol up and pay a bit more to fill tank but, hey, aren't those BPT, WPL shares looking pretty.

 

[frugal.rock]

Always hold a few oil shares. For same reason, petrol up and pay a bit more to fill tank but, hey, aren't those BPT, WPL shares looking pretty.

My thoughts as well.
Is it hedging or offsetting ? ?