Oil price discussion and analysis

[Smurf1976]

They would be saying how great the fundamentals are so they can unwind their positions?

That raises the question of who this hedge fund is?

If they're able to get the US President to threaten sanctions on a foreign country then that's not your average run of the mill hedge fund. It would have to be someone very influential to be able to command that sort of influence.

I'm not saying that is or isn't the case, just that if the "fundamentals" story was really just market manipulation then some very high up people are in on this one. If that is the case then literally anything could happen going forward.

Alternatively, it could simply be that the fall in oil is prompted by enough people losing faith in the "growth" story overall. Stocks down likewise.

 

[fiftyeight]

That raises the question of who this hedge fund is?

If they're able to get the US President to threaten sanctions on a foreign country then that's not your average run of the mill hedge fund. It would have to be someone very influential to be able to command that sort of influence.

I'm not saying that is or isn't the case, just that if the "fundamentals" story was really just market manipulation then some very high up people are in on this one. If that is the case then literally anything could happen going forward.

Alternatively, it could simply be that the fall in oil is prompted by enough people losing faith in the "growth" story overall. Stocks down likewise.

I guess the "hedge fund story" is more compelling when looking at CL and Nat Gas. Something funky is going.

Trump threatening sanctions and more LNG coming on to the market are all well know by the trading community. I am sure a few smart people put all the pieces of the puzzle together and made some big $$$. But then again I am not one for conspiracy theories so I could be blind as to what is going on.

 

[Ann]

Looking at that chart I note that the ETF hasn't tracked the oil price too accurately over the years.

Eg Oil's roughly half the 2014 price, give or take a bit, but the ETF is far lower.

G'day Smurf, I don't believe the OOO ETF is tracking the spot price which is in $US. They would be using a hedged $A dollar and buying into the futures market as they would be one of the large traders. However, I am sure one of our oiler experts could explain it better...where is CanOz?

 

[Ann]

I guess the "hedge fund story" is more compelling when looking at CL and Nat Gas. Something funky is going.

Trump threatening sanctions and more LNG coming on to the market are all well know by the trading community. I am sure a few smart people put all the pieces of the puzzle together and made some big $$$. But then again I am not one for conspiracy theories so I could be blind as to what is going on.

G'day fiftyeight, it appears they have announced that there is going to be a particularly cold winter this year and the traders are rushing to cover short positions. This may also drag the POO up with it.

 

[Ann]

I had a glance at the five minute charts for Natural Gas, Heating Oil, WTIC and Brent. At around 2.30pm New York time there was a single tall volume spike on each of these charts. This will be interesting I think.

 

[Smurf1976]

Looking further ahead there are some significant technical, and by technical I mean regulations, engineering and chemistry sort of technical not price charts, changes coming which could potentially have a significant impact on oil prices.

The change is that International Maritime Organisation (IMO, an agency of the United Nations) regulations will reduce the allowable sulfur content in bunker fuels from 3.5% to 0.5% effective January 2020 so just over a year away.

Here's the relevant facts and figures. Sources are the BP Statistical Review of World Energy, the International Energy Agency and some of my own knowledge arising from other sources.

Ships consume about 3.4% of all oil used or 3.34 million barrels per day.

84% of the fuel used in ships is heavy fuel oil (also known as bunker oil or No.6 fuel oil). In layman's terms this is the residue left after crude oil is refined into petrol, diesel, kerosene etc. It's thick black stuff which looks a lot like Vegemite or black grease and won't flow at all unless heated which is the standard practice.

That shipping use of heavy fuel oil represents about 2.8 million barrels per day or 40% of all heavy fuel oil consumption. Other major uses are as boiler fuel in industry, military vessels and to a declining extent power generation and heating of large buildings.

Now it's not impossible to remove most of the sulfur from heavy fuel oil. It costs money and requires significant additional equipment at refineries but it can be done. Thing is, since there hasn't been much demand for such a product it is assumed that refineries in general won't have invested to be able to produce it since businesses generally don't build expensive facilities to produce something nobody wants to buy.

So that raises the question of what happens?

One option would be that ships switch to diesel since technically that isn't particularly difficult, diesel is readily available and it meets the regulations. That would however mean a 10% rise in global diesel consumption or 2.8 million barrels per day.

Producing that diesel requires more crude oil, rather a lot of crude oil actually. It also raises the question of what to do with the fuel oil no longer being burned in ships but which will still be coming out of refineries? Burning it for power generation in countries which don't have regulations precluding it would be the obvious answer. Or burn it for power generation in Japan, the only country that has significant oil-fired power generating capacity fitted with flue gas scrubbers to remove the sulfur.

Ultimately this is all resolvable with a technical approach, just take the sulfur out of heavy fuel oil, but it would seem at least possible that there's going to be quite a bit of disruption in oil and refined product markets around the end of 2019 until it sorts itself out with the required changes to refineries. 10% more diesel and 40% less heavy fuel oil consumption is a pretty huge change to happen virtually overnight.

 

[ducati916]

Sanford C Bernstein [a research firm] undertook an analysis of the US fracking companies. At $80+/barrel 9/12 of the largest firms were cash-flow positive after capital spending. However only 3/16 of the smaller firms were cash-flow positive after capital spending.

So with oil again at $55/$60, even the larger firms that were positive, may no longer be so. Will they continue to sell below cost?

If the answer is no, then significant supply will come off the market, pushing price higher, despite I suspect lower growth estimates for the various economies going forward as there are supply issues in a number of swing producers world-wide.

How will the steel tariffs effect capital expenditures? If negatively, then Cash-flow which is only marginally profitable after CapEx will potentially not be even at the $80 mark

jog on
duc

 

[ducati916]

U.S. shale finally profitable. The U.S. shale industry suffered from years of red ink but is now becoming profitable – at least some companies are. A Reuters survey of 32 shale companies found that a third of them are cash flow positive, up from just 3 out of 32 a year earlier. However, the 32 companies still posted a collective cash flow deficit of $945 million in the third quarter, although that was sharply lower than the $4.92 billion deficit a year earlier.

Now, any OPEC output cuts that lift global prices should benefit U.S. shale producers. They have become so lean they can profit on each new barrel of oil pumped from West Texas shale fields at $36 a barrel and from North Dakota’s Bakken field at $43 a barrel, according to RS Energy Group.

Seems about right. Pioneer [PXD] financials:

2013 2014 2015 2016 2017
Sales/Revenue 3.49B 4.33B 3.14B 3.51B 5.29B


Cost of Goods Sold (COGS) incl. D&A 2.17B 2.8B 3.35B 3.49B 4.14B
COGS excluding D&A 1.24B 1.72B 1.94B 1.99B 2.71B
Depreciation & Amortization Expense 924.82M 1.09B 1.41B 1.5B 1.43B
Gross Income 1.32B 1.52B (212M) 20M 1.16B

POO Range $80-$110 $85-$110 $100-$55 $40 $35-$45

But of course that does not include the other costs, SG&A, Interest, Tax, Extraordinaries. All of which push the Net lower.

The average price for 2018 is circa $70. That price point would keep oil flowing from US shale, which, if the below is accurate will be needed to offset the Saudi cuts. If POO drops, or holds at $50 a lot of marginal producers will think about it.

Saudi Arabia angered by Trump waivers. Reuters reports that Saudi officials were reportedly caught off guard by the degree to which the Trump administration offered waivers on Iran sanctions. The waivers to eight countries will largely allow Iran to continue exporting oil and it effectively caps the potential outages from Iran in the short run. Those waivers are widely cited as one of the most important drivers in the recent oil price meltdown, something that Riyadh is not happy about. Saudi Arabia ramped up supply on the understanding that Iran’s exports would be going offline. Saudi sources told Reuters that the Saudi government feels betrayed by the Trump administration and that they are more determined than ever to engineer a production cut in order to put a floor beneath prices. Riyadh already announced that it would cut exports by 500,000 bpd in December.

jog on
duc

 

[ducati916]

So the COT numbers came out today. A significant increase [+24%] in selling pressure. On that basis, lower prices to come.

Correct orientation: short.

*Just a note, this was my favourite reversal set up for stocks, so this really is the opposite of what I would expect from a pure chart analysis.

jog on
duc

 

[Ann]

OK time for a chart for the POO (oil price). It failed the support of $55 and now the next support level of any strength appears to be $42. It will be interesting to see if this will be a quick fall or a slow death-by-a-thousand-cuts fall. My guess.....look out below!

 

[rnr]

MACD Bullish Divergence now evident on the H1,H4,Daily & Weekly.

 

[Sdajii]

We're about to find out if you're right it seems.

The sheer speed of the drop would, if it occurred with a major share index or something like house prices, be commonly referred to as a crash. Just saying.

Well, we've hit the low I was predicting, so I'm right so far. I'll restate my prediction and say it won't drop further (at least not significantly). I'm fairly sure it won't go below $50 again and if so it won't be by much.

It may linger around here around $50/low 50s for a while, or it may not waste too much time, but again I restate my prediction, it will be $100 or close to it before the end of August. Could be earlier, but won't be later.

Not expecting to be taken seriously until it happens, but I'm posting it all so in hindsight you'll be able to go back and read the posts.

 

[Ann]

It may linger around here around $50/low 50s for a while, or it may not waste too much time, but again I restate my prediction, it will be $100 or close to it before the end of August. Could be earlier, but won't be later.

Not expecting to be taken seriously until it happens, but I'm posting it all so in hindsight you'll be able to go back and read the posts.

Sdajii, it is always more impressive if someone explains why they think something is likely to happen. Without a real explanation it just sounds like you are listening to another forecaster and passing on their opinion. I know you said it was too complicated or too hard to explain...try it. Otherwise you get no kudos.

 

[Sdajii]

Sdajii, it is always more impressive if someone explains why they think something is likely to happen. Without a real explanation it just sounds like you are listening to another forecaster and passing on their opinion. I know you said it was too complicated or too hard to explain...try it. Otherwise you get no kudos.

Okay, no kudos for me

 

[Sdajii]

Oh, and if I was blindly listening to someone else, couldn't I just repeat their reasoning anyway? *shrug* If you can find someone else saying the same thing, please let me know, I'd be interested to know if someone has come up with the same analysis.

 

[ducati916]

Oh, and if I was blindly listening to someone else, couldn't I just repeat their reasoning anyway? *shrug* If you can find someone else saying the same thing, please let me know, I'd be interested to know if someone has come up with the same analysis.

There is no analysis. There are simply two statements. The first of which is [essentially] correct. It remains to be seen whether the second statement becomes true in time.

So instead of being able to accord you credit for excellent analysis, all that can be said is that it could be a lucky guess. Randomness, luck, serendipity.

jog on
duc

 

[Sdajii]

There is no analysis. There are simply two statements. The first of which is [essentially] correct. It remains to be seen whether the second statement becomes true in time.

So instead of being able to accord you credit for excellent analysis, all that can be said is that it could be a lucky guess. Randomness, luck, serendipity.

jog on
duc

I really don't care about getting credit. I'm just telling you what's going to happen. It is too specific a statement to just randomly get right as a guess. 'Credit' from anonymous strangers via the internet is of no value to me. I don't expect anyone to take interest until what I'm saying has played out. Feel entirely free to ignore me until then. I invite and welcome that.

 

[ducati916]

I really don't care about getting credit. I'm just telling you what's going to happen. It is too specific a statement to just randomly get right as a guess. 'Credit' from anonymous strangers via the internet is of no value to me. I don't expect anyone to take interest until what I'm saying has played out. Feel entirely free to ignore me until then. I invite and welcome that.

Well your response illuminates the lie.

You made your prediction [statement] weeks ago. There was no need to revisit the thread. But you did. You came back to claim 'credit' for being right and to restate the second half of your prediction to us anonymous strangers on the internet.

However you are only right in as far as price is +/- $50 currently. It may still go lower. In which case you would be wrong as your initial statement was $50 and no lower. The jury is still out. Your seeking credit is at the moment premature.

Specificity is no defence to the charge of randomness and luck. I bet on 8 playing roulette. It comes up. Luck or analysis?

As to interest, of course I and probably others are interested. If you have a methodology that accurately predicts price, or even with a high probability, why would I not be interested if you were willing to discuss it.

jog on
duc

 

[Ann]

Oh, and if I was blindly listening to someone else, couldn't I just repeat their reasoning anyway? *shrug* If you can find someone else saying the same thing, please let me know, I'd be interested to know if someone has come up with the same analysis.

Well Sdajii, for a start you have given us no analysis of any kind, just made a blind statement of fact without any substantiation. The thing is, if you can't explain something in a simple manner so everyone can understand, because it is too complex, then that tells me you don't understand it yourself, but merely accept something with blind faith. Maybe someone is just sucking you in to make you look like a dumb tit!

 

[Smurf1976]

if you can't explain something in a simple manner so everyone can understand, because it is too complex, then that tells me you don't understand it yourself

Communicating the precise details can be difficult but the broad concepts, of anything, are always explainable in layman's terms.

Visit a NASA site that's open to the public and yep, they do indeed explain in simple terms how a man was put on the moon and so on. And that really is rocket science.