"OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall

Robert Boslego - INO.com Contributor - Energies


Andy Hall has forsaken his bull oil market position. In an investment letter dated July 3rd, he wrote, “Whereas it once seemed positions could be held with an eye to a longer-term secular appreciation, that is no longer the case…. In short, OPEC, the market and oil bulls have run out of runway.”

Andy Hall
Source: Amanda Gordon/Bloomberg

Mr. Hall explained his reasoning this way:

“Hitherto, it had been our view that oil would trend higher as prices would need to rise to a level that would justify investment in more costly sources of supply than just the core areas of US shale. However, not only has the core shale oil resource grown significantly — above all in the prolific Permian Basin — but break-evens have dropped because of secular productivity gains outpacing cyclical cost increases, at least for now…. If the marginal cost of oil for the next 3 or 4 years is headed to the mid-$40 range, then OPEC’s attempts to push prices to $60 seem futile.” Continue reading ""OPEC, The Market and Oil Bulls Have Run Out of Runway" - Andy Hall"

Global Seasonal Oil Stock Draw In Jeopardy

Robert Boslego - INO.com Contributor - Energies


OPEC has set as its goal to reduce global OECD oil inventories to their five-year average. In his opening address to the 172nd meeting of the OPEC conference, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, remarked, "The market is now well on its way toward rebalancing."

After the meeting, Mr. Al-Falih said in a press conference that the current production quotas will "do the trick" of rebalancing stocks to normal levels within six months. But they extended the cuts to nine months because of the seasonal decline in demand expected in the first quarter of 2018.

OPEC Khalid A. Al-Falih

In May, OPEC reported that OECD global inventories are 276 million above the 5-year average. OPEC estimated its production in the first quarter to be 31.944 million barrels per day (mmbd). Assuming April's production of 31.7 holds for the remainder of 2017, there will be a total global stock draw of just 29 million in 2017: Continue reading "Global Seasonal Oil Stock Draw In Jeopardy"

OPEC Lost Hedge Fund Long Oil Traders' Support

Robert Boslego - INO.com Contributor - Energies


Mohammed Sanusi Barkindo

The drop in crude oil prices in the international market after the decision by OPEC to extend its production cut through March 2018 is not a major concern for now, the Secretary General of the group, Mohammed Sanusi Barkindo said. He's not worried about lower prices.

He explained that OPEC is only concerned with the fundamentals of supply, demand and inventories. He is not concerned about other market conditions. Presumably, he means the sentiment of oil traders. Continue reading "OPEC Lost Hedge Fund Long Oil Traders' Support"

OPEC Caught a Tiger By The Tail

Robert Boslego - INO.com Contributor - Energies


Oil prices peaked in this latest cycle at about $107/b in June 2014. Prices had dropped below $80/b by the OPEC meeting in November 2014, and OPEC had had enough of America's shale oil taking away their market share and declared a market share battle.

Prices dropped for more than a year before bottoming January 2015, and retesting that bottom again February. On Friday, February 12th, the March crude futures contract spiked 12.2% based on speculation of a possible OPEC agreement to cut oil production. Even though the four oil producers announced that they had tentatively agreed to "freeze" their production, the subsequent price increases have added a total of about $4 per barrel to the OPEC Basket Price.

Although OPEC has not cut one barrel of production, the market has altered its distribution of potential future oil prices, raising its probability-weighted expected value. The fact that OPEC and Russian producers are talking and have agreed to something has led the market to think there could be movement toward shoring up prices from their disastrously low levels.

OPEC seems to be learning this lesson. Venezuela oil minister Eulogio Del Pino Tweeted on Tuesday that "an expanded meeting of OPEC and non-OPEC producing countries that support production freeze will be held in mid-March." Such an announcement may ensure the price gains hold.

I had written on February 29th, 2016, ("OPEC Freeze Talk Is A Free Lunch"): Continue reading "OPEC Caught a Tiger By The Tail"

Oil: Is It 2014 All Over Again?

Lior Alkalay - INO.com Contributor


In the past two weeks, crude oil futures took a beating; WTI futures ended last week at $46.47 per barrel while futures for Brent crude, the global benchmark, closed at $49.47 per barrel. Both WTI and Brent contracts have now concluded a 15% and 16% fall from their respective peak prices, closing at their lowest point since the deal between OPEC oil producers and 13 non-OPEC oil producers was signed. And the outlook for oil is not encouraging as a broader analysis of both the fundamentals and technical at play reveal a worrisome pattern—a pattern of an oversupplied oil market, ready to nose dive, as it did in 2014.

At the heart of the matter, as in 2014, is the US shale oil industry. Only this time around the US shale industry is significantly more competitive. According to Ron Ness, president of the North Dakota Petroleum Council quoted by Reuters, “the cost of extracting oil at Dunn County, North Dakota, is as low as in Iran” and “the cost of producing a barrel of oil is at $15 and falling" That figure is truly nothing short of dramatic! True, the production cost at Eagle Ford and Permian Delaware facilities is higher than Dunn country. And yet this figure underpins a very important change. In the next oil slump, shale producers won't be under the same pressure to cut production. Meanwhile, oil production in America has risen to 9.29 million barrels a day and is expected to surge to 10 million barrels a day by 2018. All the while, crude oil inventories are stubbornly high. The latest data from the EIA shows crude oil inventories were at 527.8 million barrels, at the higher end of the 5-year range. In fact, as the EIA chart below shows, US crude oil inventories have been persistently above the 5-year range for some time, suggesting demand for crude in the United States is too weak to accommodate the rising supply from shale oil. Continue reading "Oil: Is It 2014 All Over Again?"