Oil price discussion and analysis

[Smurf1976]

I knew it was silly to think they just need to drill a couple of holes in an entire field

My basic point is that oil differs from most other commodities in terms of how a resource is extracted.

Anything mined as a solid material - you build a mine that produces (for example) 5 million tonnes per year based on a 50 million tonne resource. It then does just that, you get 5 million tonnes of the stuff every year for the next 10 years and it's at a pretty constant rate until very close to the end. It's not quite constant but it's reasonably close.

Oil differs in that production tapers off over time from any given field and doesn't have the "flat" profile that most other things do. Whatever flow you get at the start, pretty quickly that comes down unless you keep drilling more and more wells to tap surrounding deposits (or to inject water, CO2 etc to enhance oil recovery).

So oil is very much a case of having to keep investing just to maintain a constant output. The world is producing somewhere around 96 million barrels per day at the moment (varies a bit depending on the data source). If we stop all investment in new wells etc tomorrow, then that figure will start coming down almost immediately.

 

[craiggary]

Hi guys

I booked some really nice profits on WTI this month. Adam button from forex live has 5 top seasonal trades every month. one of them for April was oil. So i had a close look and got in right at the bottom.

 

[CanOz]

Hi guys

I booked some really nice profits on WTI this month. Adam button from forex live has 5 top seasonal trades every month. one of them for April was oil. So i had a close look and got in right at the bottom.View attachment 66422View attachment 66422

I actually got the bottom, full size. I'm retired now

 

[luutzu]

My basic point is that oil differs from most other commodities in terms of how a resource is extracted.

Anything mined as a solid material - you build a mine that produces (for example) 5 million tonnes per year based on a 50 million tonne resource. It then does just that, you get 5 million tonnes of the stuff every year for the next 10 years and it's at a pretty constant rate until very close to the end. It's not quite constant but it's reasonably close.

Oil differs in that production tapers off over time from any given field and doesn't have the "flat" profile that most other things do. Whatever flow you get at the start, pretty quickly that comes down unless you keep drilling more and more wells to tap surrounding deposits (or to inject water, CO2 etc to enhance oil recovery).

So oil is very much a case of having to keep investing just to maintain a constant output. The world is producing somewhere around 96 million barrels per day at the moment (varies a bit depending on the data source). If we stop all investment in new wells etc tomorrow, then that figure will start coming down almost immediately.

Thanks Smurf. I feel better hearing that

 

[IamSurri]

Crude going to 90$

Does anyone belive that Crude is going to go

to 90$ by the end of 2016? I read that on news headlines today.
????

 

[lusk]

Re: Crude going to 90$

Does anyone belive that Crude is going to go

to 90$ by the end of 2016? I read that on news headlines today.
????

That would be the same news that said it was going to $20 a couple of
months ago? Basically everything you hear in the news is NFI.

 

[CanOz]

CL is hanging around a bracket now after rejecting close to 47. We could see another test of the 47 area in the coming weeks. Tonights reaction to the inventories might give us some clue on how sustainable this move could be. A move above 46.20 should get some momentum going again....

I was quite bearish when we sold off at the first of the month, but its caught a bit of a bid and the USD Index looks to be weakening somewhat, which should help CL.

The chance of a Fed rate rise in June is very low at the moment, around 4%. Even September is less than 50% i believe. This should put downward pressure on the USD, upward pressure on commodities.

 

[CanOz]

Latest CL composite, looks like a nice level in the making here...

 

[notting]

The herd is turning!!

http://www.cnbc.com/2016/05/16/oil-prices-jump-as-goldman-sachs-says-market-flips-into-deficit.html

 

[CanOz]

$50 has got to be a sell! Maybe on Brent first....

 

[gartley]

I believe there is a nice fibonacci/Lucas time cycle running through Crude ATM

For anyone not familiar with the Lucas Series of numbers: 4, 7, 11, 18, 29, 47, 76......
Every number divided by the preceding number is very close to the golden ratio number of 0.618

Looking at the link below a chart crude has just completed 5 waves up from the $26 low. Waves 1 and 3 where Lucas numbers for traded days. Wave 5 looks also to have been a Lucas number.

Wave 1= 29 days
Wave 3= 19 days
Wave 5= 12 Days

On this chart this appears to be strong confirming mechanism for EW which I beleive should never be used in isolation. Normally when we have relationships like this (and they are rare) they suggest a good move coming.

Allow plus or minus 1 day for each. If the pattern holds then crude should begin it largest correction since the rally started. This is not trading advice as anything is possible at all times but I am short as of yesterday.

http://invst.ly/1silt

 

[notting]

Such a comedy of errors all over the joint, in the oil industry, since the price got too low for everybody

Right now, the market is sensitive to any kind of supply disruption," he told CNBC, noting the oil trade had already been roiled by sabotage on Nigeria.

http://www.cnbc.com/2016/06/05/stumbling-dollar-lifts-oil-prices-but-uptick-in-us-drilling-caps-gains.html

Play the game cause that's what it is!

 

[JohnITMS]

The psychology of people involved in the stock market never ceases to amaze me. On February 11, 2016 crude oil traded as low as $26.00 a barrel, but people in the stock market were terrified to buy it at that level. In fact, many of the financial talking heads on television were saying that oil would go down to $10.00 a barrel. These types of remarks caused people in the public to avoid investing in crude despite the commodity trading at new yearly lows and being severely oversold. Now crude is trading above $50.00 a barrel and people are afraid to sell it short despite crude rallying higher by nearly 100 percent since February.

Many of the financial talking heads are now saying that oil will go to $75.00 a barrel before peaking out. Isn’t it funny how these so called experts come up with these levels? What are they using to say these statements. The truth is that they are probably hoping it comes back to that level so their investments can work out or recover from the 2016 decline earlier this year. If anyone looks at a chart of crude oil they could clearly see oil has major resistance around the $50 to $55.00 dollar area. Today, crude oil is trading around $51.00 a barrel.

There are many factors that affect the price of crude oil. Some of these factors include oil production output, weather, geopolitical events, and the U.S. Dollar. Out of all of these factors the strength and weakness in the U.S. Dollar seems to be most important. Please understand, most of the oil in the world is traded in U.S. Dollars. So if the U.S. Dollar is strong against most other currencies in the world the oil price will likely decline. That was certainly the primary reason for the decline in crude throughout the past two years.

There are many ways to trade oil despite using oil futures these days. ETF's and ETN's such as the United States Oil Fund LP (ETF)(NYSEARCA:USO), iPath S&P GSCI Crude Oil Total Return(NYSEARCA:OIL), and the ProShares Ultra DJ-UBS Crude Oil(NYSEARCA:UCO) are just a few different vehicles that can be used to trade oil on the long side. Some short side trading equities for crude include the ProShares UltraShort Bloomberg Crude Oil ETF(NYSEARCA:SCO), and the DB Crude Oil Double Short ETN (NYSEARCATO).

Full disclosure: I currently own SCO shares.

 

[qldfrog]

The psychology of people involved in the stock market never ceases to amaze me. On February 11, 2016 crude oil traded as low as $26.00 a barrel, but people in the stock market were terrified to buy it at that level. In fact, many of the financial talking heads on television were saying that oil would go down to $10.00 a barrel. These types of remarks caused people in the public to avoid investing in crude despite the commodity trading at new yearly lows and being severely oversold. Now crude is trading above $50.00 a barrel and people are afraid to sell it short despite crude rallying higher by nearly 100 percent since February.

Many of the financial talking heads are now saying that oil will go to $75.00 a barrel before peaking out. Isn’t it funny how these so called experts come up with these levels? What are they using to say these statements. The truth is that they are probably hoping it comes back to that level so their investments can work out or recover from the 2016 decline earlier this year. If anyone looks at a chart of crude oil they could clearly see oil has major resistance around the $50 to $55.00 dollar area. Today, crude oil is trading around $51.00 a barrel.

There are many factors that affect the price of crude oil. Some of these factors include oil production output, weather, geopolitical events, and the U.S. Dollar. Out of all of these factors the strength and weakness in the U.S. Dollar seems to be most important. Please understand, most of the oil in the world is traded in U.S. Dollars. So if the U.S. Dollar is strong against most other currencies in the world the oil price will likely decline. That was certainly the primary reason for the decline in crude throughout the past two years.

There are many ways to trade oil despite using oil futures these days. ETF's and ETN's such as the United States Oil Fund LP (ETF)(NYSEARCA:USO), iPath S&P GSCI Crude Oil Total Return(NYSEARCA:OIL), and the ProShares Ultra DJ-UBS Crude Oil(NYSEARCA:UCO) are just a few different vehicles that can be used to trade oil on the long side. Some short side trading equities for crude include the ProShares UltraShort Bloomberg Crude Oil ETF(NYSEARCA:SCO), and the DB Crude Oil Double Short ETN (NYSEARCATO).

Full disclosure: I currently own SCO shares.

on the ASX:OOO
disclosure, I sold last week the last of my OOO but had a sizeable amount I purchased relatively low, and sold as it went up to $50;that trade has been good for me this year;
I see oil going up to $60 max in the short term;
so my decision to get my profits

 

[Value Hunter]

People like Jim Rickards, T Boone Pickens, and many others suggest that the long-term equilibrium price of oil is in the $50-$80 USD per barrel range. An extended period at a price less than $50 and a lot of supply will shut down due to operational losses. An extended period of a price above $80 USD and a lot of new supply will come onto the market due to strong profitability. For those that are interested in trading oil by that analysis you should be buying at or below $40 USD or less and selling at $60 - $80 USD per barrel. I personally tend to stay away from oil because in the long-term the cost of alternative energy will come down due to new technology and this could perhaps gradually lower the long-term sustainable ceiling price of oil.

 

[luutzu]

People like Jim Rickards, T Boone Pickens, and many others suggest that the long-term equilibrium price of oil is in the $50-$80 USD per barrel range. An extended period at a price less than $50 and a lot of supply will shut down due to operational losses. An extended period of a price above $80 USD and a lot of new supply will come onto the market due to strong profitability. For those that are interested in trading oil by that analysis you should be buying at or below $40 USD or less and selling at $60 - $80 USD per barrel. I personally tend to stay away from oil because in the long-term the cost of alternative energy will come down due to new technology and this could perhaps gradually lower the long-term sustainable ceiling price of oil.

How long is your long term? Long enough and oil won't be around at all to extract.

I get what you're saying but part of the current "self-inflicted wounds" have more to do with geopolitics, mergers/acquisition, and as a bonus defeating investment into alternative energy.

Geopolitics in terms of the US and its dependencies (Saudi Arabia, Iraq and other ME kingdoms) wanting to hurt Russia, Venezuela, Brazil etc. The Arab states comply because, well they have to, but also because it will mean sanctions and ruining competitors will be good for business down the line.

With low enough oil, small players with big reserves get taken over for cheap, very cheap. Almost a steal.

Then with energy being so low, costly investment and switching of major infrastructure, or replacement decision to replace aging plants with alternatives... most would be delayed or cancelled.

Once consolidation of both market share and reserves are complete, oil will rise to make up for current losses... give that a decade before people start to seriously consider alternative sources, invest in them big time and crash again.


OPEC and all procuders are in pain at the moment. They're hoping things will work out as they planned... but if you're right and, say, the Chinese make greater investment into alternative sources - because they have to since all major reserves are either controlled by other powers or access to them carries great risk of transporting them home... if these countries make great gains into alternatives, and some are saying that the Chinese is way ahead and getting better at Solar. Then yes, oil may suffer this decline and won't be up to where it was and would.

 

[Smurf1976]

People like Jim Rickards, T Boone Pickens, and many others suggest that the long-term equilibrium price of oil is in the $50-$80 USD per barrel range. An extended period at a price less than $50 and a lot of supply will shut down due to operational losses.

The USA is an example of that with production declining significantly in recent months. Low prices killed drilling for new projects and in due course those already underway when the price collapsed were completed. After that, it's a simple case of the slow but steady decline in output from existing fields being greater than the now small amount of new production being brought online. End result = production goes down.

 

[Smurf1976]

Then with energy being so low, costly investment and switching of major infrastructure, or replacement decision to replace aging plants with alternatives... most would be delayed or cancelled.

Oil is almost always the easiest option to deploy at the consumption end (industrial fuel, power generation etc) simply because it's an energy dense liquid that's very easily transported, stored and used. Apart from a few things like making steel, you only bother with coal, gas, nuclear, hydro or whatever unless it's cheaper than the easy option of oil. And for something else to be cheaper, well oil has to be reasonably expensive to start with since the non-fuel cost of every other option is almost always higher than it is with oil due to the infrastructure required.

Coal needs handling, emissions controls, ash disposal, means to move and store a large volume of a solid material (coal) and so on. Gas needs a pipeline as a minimum, LNG (huge capital cost) at worst. Nuclear or renewables are incredibly capital intensive to set up with all that's required. Oil is almost always far simpler (cheaper) to get running since less infrastructure is required such that any advantage in using something else depends on the oil itself being sufficiently expensive that the higher capital cost (and longer lead time) of some other option ends up cheaper overall.

We've got 3 temporary (hired) gas turbine generators sitting here in Tasmania at the moment due to the power supply problems. They're literally right next to a major gas pipeline but to cut a long story short it wasn't worth the cost and hassle of actually connecting gas to them given that they're just as happy firing oil (diesel) as fuel and there's plenty of that on hand just up the road which can easily be trucked to the site. If oil cost $200 per barrel then we'd have connected the gas to those generators for sure, but with oil at the present price it just wasn't worth the cost and hassle of doing so.

Same logic applies to any situation in industry, power etc. Oil is the easiest (cheapest) to set up almost always, you only use something else if the saving on fuel cost justifies the additional expense of setting it up. That's an easy decision if oil is expensive but it's much harder to make the economics work in favour of something else if oil is reasonably cheap.

 

[luutzu]

The USA is an example of that with production declining significantly in recent months. Low prices killed drilling for new projects and in due course those already underway when the price collapsed were completed. After that, it's a simple case of the slow but steady decline in output from existing fields being greater than the now small amount of new production being brought online. End result = production goes down.

Recently, some groups in Nigeria have their own terrorising ways of shutting down production, a bit like other groups in Libya: they blow up and sabotage pipelines and facilities.

The Nigerian terrorists said they want to bring production there to zero. IF that happens, 500K barrels comes off the global supply.

Bushfires in the Canadian tar sands region put something around 1.5M bbd offline.

I think those two alone lifted oil prices recently. So it doesn't take much to disrupt doesn't it.

Then there's Venezuela economy and politics going to heck as intended - seems it's only standing thanks to Chinese backing it up.

There's a bunch of delayed maintenance in the ME, and exploration and development are getting way down to zero. As you said previously, that's not going to do supply any good.

With natural rate of depletion further accelerated by the recent/current ramp up, all for some 2% above demand (demand that's predicted to further increase due to cheap supplies), it's going to come back with greater demand and drastically reduced supply with negligible supplies from alternatives.

But yea, I wouldn't want to put money on a specific range of dates when it'll happen.

 

[luutzu]

Oil is almost always the easiest option to deploy at the consumption end (industrial fuel, power generation etc) simply because it's an energy dense liquid that's very easily transported, stored and used. Apart from a few things like making steel, you only bother with coal, gas, nuclear, hydro or whatever unless it's cheaper than the easy option of oil. And for something else to be cheaper, well oil has to be reasonably expensive to start with since the non-fuel cost of every other option is almost always higher than it is with oil due to the infrastructure required.

Coal needs handling, emissions controls, ash disposal, means to move and store a large volume of a solid material (coal) and so on. Gas needs a pipeline as a minimum, LNG (huge capital cost) at worst. Nuclear or renewables are incredibly capital intensive to set up with all that's required. Oil is almost always far simpler (cheaper) to get running since less infrastructure is required such that any advantage in using something else depends on the oil itself being sufficiently expensive that the higher capital cost (and longer lead time) of some other option ends up cheaper overall.

We've got 3 temporary (hired) gas turbine generators sitting here in Tasmania at the moment due to the power supply problems. They're literally right next to a major gas pipeline but to cut a long story short it wasn't worth the cost and hassle of actually connecting gas to them given that they're just as happy firing oil (diesel) as fuel and there's plenty of that on hand just up the road which can easily be trucked to the site. If oil cost $200 per barrel then we'd have connected the gas to those generators for sure, but with oil at the present price it just wasn't worth the cost and hassle of doing so.

Same logic applies to any situation in industry, power etc. Oil is the easiest (cheapest) to set up almost always, you only use something else if the saving on fuel cost justifies the additional expense of setting it up. That's an easy decision if oil is expensive but it's much harder to make the economics work in favour of something else if oil is reasonably cheap.

That was worth more than 2 cents Smurf. Packed with info and analysis, much like oil