Crude Oil Could Crash Again

Aibek Burabayev - INO.com Contributor - Metals - Oil Could Crash Again


It is interesting how often exaggerated expectations prove to be wrong in the market. Crude oil is the dominant fossil fuel energy source, and therefore it draws a lot of attention as well as speculation.

Looking back, I remember a conversation with my boss earlier in the year who had talked to a large oil producing company and they said that it is highly improbable for crude oil to get over $55 per barrel amid the supply glut. WTI crude almost hit the $73 level this month to break similar pessimistic forecasts that had persisted in the market last year. OPEC’s deal together with Middle East tensions has driven the oil price to a 3-year high benefiting oil producing countries.

But these days I have started to hear different highly optimistic forecasts calling for $80-100 per barrel. When these voices began to grow into a full choir, I began to expect the thunder as this “sweet unison” is the leading contrarian indicator. Continue reading "Crude Oil Could Crash Again"

"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"