Oil price discussion and analysis

[Ann]

Various others regulate the industry not so much with a price objective in mind but still with the effect of reducing production so as to benefit their own national interests. Norway is an example of that

That is really interesting, thanks Smurf, I had no idea Norway had so much oil.

 

[luutzu]

Oil look to be straight up again after today's OPEC cut.

There's report of a car bomb in Iran yesterday [?]... With the stated intention of taking out Iran's "regime", sporadic attacks to start a retaliation you can send boots in... With Trump being friendlier to the fossil industry than most... another war with another Arab state, one that can cut, or drastically disrupt supply from the Persian Gulf if war breaks out... oil and fossil energy looks primed to shoot up.

 

[Garpal Gumnut]

Oil look to be straight up again after today's OPEC cut.

There's report of a car bomb in Iran yesterday [?]... With the stated intention of taking out Iran's "regime", sporadic attacks to start a retaliation you can send boots in... With Trump being friendlier to the fossil industry than most... another war with another Arab state, one that can cut, or drastically disrupt supply from the Persian Gulf if war breaks out... oil and fossil energy looks primed to shoot up.

I believe the car bomb was a Sunni attack on the Iranians who are majority Shia and not Arabs but Persians. I take your point though, any instability can drive the price of oil up.

It occurred at Chabahar which is the Wild East of Iran with many different tribes of Sunni and Shia and is not too far from the border with Pakistan and an area which is unstable in the Wild Southwest of Pak.

If Trump's advisers are wise which may be a longshot knowing the Washington landscape they would be best to ignore this bit of fireworks.

gg

 

[luutzu]

I believe the car bomb was a Sunni attack on the Iranians who are majority Shia and not Arabs but Persians. I take your point though, any instability can drive the price of oil up.

It occurred at Chabahar which is the Wild East of Iran with many different tribes of Sunni and Shia and is not too far from the border with Pakistan and an area which is unstable in the Wild Southwest of Pak.

If Trump's advisers are wise which may be a longshot knowing the Washington landscape they would be best to ignore this bit of fireworks.

gg

They should stay out of Iran but some want to follow in the footsteps of Alexander.

Yea, there's the usual sectarian opposition. But given the friendly Trump in the White House, if you're Israel or Saudi Arabia and want a potential rival [independent nation] out of the way without risking too much of your own blood and treasure... now's about the time to fund a few terrorists and freedom fighters to get the party started.

 

[Smurf1976]

That is really interesting, thanks Smurf, I had no idea Norway had so much oil.

They're not in the same league as Russia or Saudi but still a significant producer and exporter of oil.

The approach they've taken differs from OPEC or the US which allow unconstrained development but then apply (or used to apply in the US case) quotas on production. What Norway has done is to regulate the pace of development in the first place but not apply quotas once it's up and running.

So it's still a "don't flood the market" approach, just with a different way of achieving it.

 

[Ann]

Thanks Smurf, I find it very interesting to see where the highest density of plant and animal life was centred back when oil was first being formed. Hard to imagine all those now desert areas being teeming with plants and animals.

 

[Ann]

The oil price looks as though it is tiring. There appears to be a Megaphone shape forming which could mean further falls. It continues to struggle to get to test the $55 resistance line. We will see what this coming week brings.

 

[Sdajii]

The oil price looks as though it is tiring. There appears to be a Megaphone shape forming which could mean further falls. It continues to struggle to get to test the $55 resistance line. We will see what this coming week brings.

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I won't stir up ducati by going into my predictions about oil having extreme fundamental support at around $50 at the moment, but even ignoring that, I don't think your megaphone pattern looks valid. Extrapolating the bottom edge of the megaphone from those two early points is stretching it a bit too far. Even if it fell through the bottom edge of the megaphone now (which I don't think it will, for multiple reasons), it wouldn't really count as a megaphone pattern in my opinion. It would need to touch the bottom then bounce back up (at that point it would count as a megaphone, especially if the top of the megaphone was touched another time) then after that fall through.

 

[Ann]

I won't stir up ducati by going into my predictions about oil having extreme fundamental support at around $50 at the moment, but even ignoring that, I don't think your megaphone pattern looks valid. Extrapolating the bottom edge of the megaphone from those two early points is stretching it a bit too far. Even if it fell through the bottom edge of the megaphone now (which I don't think it will, for multiple reasons), it wouldn't really count as a megaphone pattern in my opinion. It would need to touch the bottom then bounce back up (at that point it would count as a megaphone, especially if the top of the megaphone was touched another time) then after that fall through.

Sdajii, I called the end to gold back in 2012 on the quarterly charts using the start of a rising megaphone pattern with much, much less information than this chart.

I say put up or shut up on your call, show me the reason for your call or just go away.

 

[Smurf1976]

Thanks Smurf, I find it very interesting to see where the highest density of plant and animal life was centred back when oil was first being formed.

The US would be the most interesting one in terms of having literally millions of mostly tiny oil deposits. That compares to a small number of huge fields in places like Saudi Arabia.

Some of those wells in the US have production that's literally under 100 litres per day. They're viable only because there's massive oil infrastructure there, that is it's easy to sell the oil to someone to refine not far away, and due to being on easily accessible flat ground and so on.

A lot of those tiny oil wells are literally just pumping into what any Australian seeing it would at first think to be a rural household water tank. All rather unimpressive to look at. When the tank nears full a truck comes and takes the oil away. Incidentally there's a few of those within walking distance of downtown LA (well, not that walking around LA is a good way of getting around but they're in a very urban area yes).

At the other end of the scale is the huge flow rates from a small number of fields in the Middle East.

For the record every Australian state plus the NT has at some time produced oil either conventional crude oil (Vic, WA, SA, Qld, NT) or oil shale (NSW, Tas, Qld).

Back to the price topic, from a fundamental perspective I question what has really changed to warrant the ~ one third drop in price?

The US backed down on sanctions against Iran. That seems to be the main argument for lower prices - Iran's production won't be curbed as had been expected. However:

Venezuela is still falling apart in every possible way both with oil production and the country in general.

OPEC + Russia just cut 1.2 million bpd of production. Separate to that, since they are not part of or associated with OPEC, is a 325,000 bpd production cut from Canada.

Most of the OPEC countries need prices to be higher than at present in order to balance their budgets and same with Russia. So they're likely to at least try and keep the price up.

The recent price drop has already resulted in falling drilling activity in the USA which will curb future supply. It's only a very minor drop thus far but it's still a drop in what was a rising trend and if price remains where it is now then we can expect further drops as current projects are completed and new ones not started due to poorer economics.

Demand is still trending up.

There has been talk of an oil glut but there is no actual physical glut since almost as soon as production exceeded demand production has been cut back.

Even after the cuts, global spare capacity remains in the order of 2.5% of consumption by most estimates. This is low by historic standards.

So from a fundamental perspective my thinking is that whilst price may well go lower in the short term, which would be more of a "technical" sort of occurrence, before too long it'll be higher than it is now.

 

[luutzu]

Thanks Smurf, I find it very interesting to see where the highest density of plant and animal life was centred back when oil was first being formed. Hard to imagine all those now desert areas being teeming with plants and animals.

Climate Change?

 

[luutzu]

The US would be the most interesting one in terms of having literally millions of mostly tiny oil deposits. That compares to a small number of huge fields in places like Saudi Arabia.

Some of those wells in the US have production that's literally under 100 litres per day. They're viable only because there's massive oil infrastructure there, that is it's easy to sell the oil to someone to refine not far away, and due to being on easily accessible flat ground and so on.

A lot of those tiny oil wells are literally just pumping into what any Australian seeing it would at first think to be a rural household water tank. All rather unimpressive to look at. When the tank nears full a truck comes and takes the oil away. Incidentally there's a few of those within walking distance of downtown LA (well, not that walking around LA is a good way of getting around but they're in a very urban area yes).

At the other end of the scale is the huge flow rates from a small number of fields in the Middle East.

For the record every Australian state plus the NT has at some time produced oil either conventional crude oil (Vic, WA, SA, Qld, NT) or oil shale (NSW, Tas, Qld).

Back to the price topic, from a fundamental perspective I question what has really changed to warrant the ~ one third drop in price?

The US backed down on sanctions against Iran. That seems to be the main argument for lower prices - Iran's production won't be curbed as had been expected. However:

Venezuela is still falling apart in every possible way both with oil production and the country in general.

OPEC + Russia just cut 1.2 million bpd of production. Separate to that, since they are not part of or associated with OPEC, is a 325,000 bpd production cut from Canada.

Most of the OPEC countries need prices to be higher than at present in order to balance their budgets and same with Russia. So they're likely to at least try and keep the price up.

The recent price drop has already resulted in falling drilling activity in the USA which will curb future supply. It's only a very minor drop thus far but it's still a drop in what was a rising trend and if price remains where it is now then we can expect further drops as current projects are completed and new ones not started due to poorer economics.

Demand is still trending up.

There has been talk of an oil glut but there is no actual physical glut since almost as soon as production exceeded demand production has been cut back.

Even after the cuts, global spare capacity remains in the order of 2.5% of consumption by most estimates. This is low by historic standards.

So from a fundamental perspective my thinking is that whilst price may well go lower in the short term, which would be more of a "technical" sort of occurrence, before too long it'll be higher than it is now.

Heard that the shale and those small pockets of oil you pointed to... it's more cost effective to transfer by pipes. They tried using rail and a few got derailed, setting a town or two on fire. Truck aren't much safer but I guess the distance is a bit shorter and it's only a freighter at a time.

With multi-billion dollar pipelines being greenlighted, unless the US gov't want to go the way of Canada and socialise a pipeline or two, oil better be at a price that's both profitable for shale and the pipeline kings.

 

[Ann]

A lot of those tiny oil wells are literally just pumping into what any Australian seeing it would at first think to be a rural household water tank. All rather unimpressive to look at. When the tank nears full a truck comes and takes the oil away. Incidentally there's a few of those within walking distance of downtown LA (well, not that walking around LA is a good way of getting around but they're in a very urban area yes).

They sound more like underground storage tanks. I reckon there are ship loads of little storage areas where investors have thought they will make a fortune, buying low selling high as with any other commodity. That is what I was saying ages ago, it will probably cost them dollars to have the stuff removed.

Back to the price topic, from a fundamental perspective I question what has really changed to warrant the ~ one third drop in price?

I think the greater proliferation of EVs on the road added to a warmer period in the climate cycle, a lot less demand for heating. If there is a ship load of stored stuff in underground tanks, they are likely to be selling the stuff back to whomever they bought from which may reduce the amount of OI as it will be done privately. Just a thought.

Climate Change?

Many a true word said in jest luu.

 

[Smurf1976]

They sound more like underground storage tanks

No I mean actual naturally occurring oil wells or “stripper wells” in industry terminology.

It’s a situation mostly confined to the US due to geology, regulations and oil infrastructure.

Added up all those tiny wells produce a significant amount.

 

[Sdajii]

Sdajii, I called the end to gold back in 2012 on the quarterly charts using the start of a rising megaphone pattern with much, much less information than this chart.

I say put up or shut up on your call, show me the reason for your call or just go away.

If you called something a megaphone with much less information than this, you have no business telling anyone else to shut up or go away. You will be wrong here.

 

[Smurf1976]

From a fundamental perspective there's a case for a bottom around here.

What concerns me with that idea however is that the "everything down" trend is still very much alive, the ASX is down ~2% thus far today, and there are also the various "technical" arguments being made to the effect that further downside is likely with oil.

I'm thus sitting on the fence for now.

 

[Ann]

If you called something a megaphone with much less information than this, you have no business telling anyone else to shut up or go away. You will be wrong here.

The thing is Sdajii, it doesn't matter if my call of a megaphone is right or wrong, at least I demonstrate why I am saying something. I don't just curl up like a coy little girl and say, "I have a secret and I know more than youhoo, nahnenahnenah." You have no idea how foolish you are making yourself look.

 

[Ann]

From a fundamental perspective there's a case for a bottom around here.

What concerns me with that idea however is that the "everything down" trend is still very much alive, the ASX is down ~2% thus far today, and there are also the various "technical" arguments being made to the effect that further downside is likely with oil.

I'm thus sitting on the fence for now.

I can find no hand drawn levels at or around $50 Smurf but I have very carefully laid a Fibonacci level and that is showing 50% at $51. That may give it the support it needs to move up and try for the overhead resistance lines, now with a Megaphone shape to overcome as well, but anything is possible if it is a big enough shock, like another major terrorist attack. I guess we then need to look in Sdajii the rapa's direction.

 

[Smurf1976]

I can find no hand drawn levels at or around $50 Smurf but I have very carefully laid a Fibonacci level and that is showing 50% at $51.

Whilst we're looking at this from a very different perspective I must say I'm finding your analysis interesting and informative. That comment stands no matter what the eventual outcome with the market (since we both know that the probability of being correct isn't 100% no matter what method is used).

Putting oil market fundamentals aside, I'm reminded of the more technically inclined comment that "markets don't go up or down in a straight line". Indeed that is generally true, except that this one has pretty much gone straight down thus far.

That aspect pushes me somewhat toward the "technical" view that there's more downside to come after a bounce or sideways movement such that it's no longer a "straight down" thing. Reason = because it generally is true that markets don't go straight down, especially not with a literally straight line decline.

Now back to the fundamentals and specifically politics, something to bear in mind is strategic reserves held by governments. In particular and noting current global politics:

USA = 660 million barrels able to be released at at a rate of 4.4 million barrels per day.

China = 270 million barrels.

Many other countries, most notably Japan, South Korea, India and EU member countries, also have large stockpiles but the US in particular is the one I'm focused on.

In short the notion that US President Donald Trump decides to dump 4.4 million bpd of oil on the market is not totally out of the question in my view. That may seem an odd thing to do but we are living in a time when many "unthinkable" things do tend to happen "just like that" and in that sense I note the apparent tensions between Trump and OPEC and Trump's repeated calls for lower oil prices.

As background to that theory, booming US oil production does substantially remove the original rationale for having the strategic reserve stockpile. At the very least it substantially reduces the size it needs to be in order to cover any given period. That being so, and adding in the political factors, my thinking is that a substantial release of oil is not out of the question. A slump in price would put a stop to the US production boom yes, but never count on politicians of any persuasion to think too far ahead.

I'm not saying it's something that will happen but the possibility is not zero in my opinion. We're living in interesting times politically that's very clear and to the extent that anyone other than the Saudis have an "atomic bomb" to depress oil prices, this is it and Trump's the man who makes the call.

As for what it would do to the price, well I won't claim to know the detail there but there would be a significant impact I'd expect.

 

[Sdajii]

The thing is Sdajii, it doesn't matter if my call of a megaphone is right or wrong, at least I demonstrate why I am saying something. I don't just curl up like a coy little girl and say, "I have a secret and I know more than youhoo, nahnenahnenah." You have no idea how foolish you are making yourself look.

It's funny how you seem to be throwing a tantrum and making a big deal about it. I just stated what was going to happen. I didn't expect anyone to comment at all at this point. It clearly seems to upset you, I find this amusing. It upsets you to the point of throwing tantrums involving silly mudslinging and getting defensive. This is also funny. I am only commenting beyond simply stating my prediction and perhaps very brief updates less than monthly because people like you are whinging. It's also comical that you try to say I look foolish in an apparent attempt to get me to be quiet, ironically, causing me to respond.

Your megaphone prediction is flawed and the outcome will prove you wrong. You've stated your case, bravo, whatever. You're upset that I am not sharing my explanation. A polite request may have brought out some explanation, but whingy tantrums won't work. If you don't want to take me seriously, by all means, ignore me. If you want to ignore me after I'm proven right, great, good for you. And of course, in the hypothetical that I'm wrong, berate me to no end and I'll gladly take it

But really, your motives for calling me foolish are obvious and ironic.