Time to rotate out / in for a better price

Major oil producers in the OPEC+ group announced a surprise addition to production cuts Sunday.

Saudi Arabia, the top producer in the group that includes Russia, will cut 500K barrels per day. The total new cuts are about 1.16 bpd, bringing total cuts including the previous 2M bpd to about 3.66M, according to data from Reuters.

Russia reportedly made a cut of 500K bpd until the end of this year.

A Contrarian Buying Opportunity For Energy Bulls

https://www.acheroninsights.com/blog/a-contrarian-buying-opportunity-for-energy-bulls

Added

Nice turn today - hope it continues tomorrow

Added

Back to the table here. Took entry position yesterday am - will add as warranted.

Time to try this again?

Yum yum, that was good. Might eat at this restaurant again.

Trying some of this

Bought a lot of BNO this morning!

Bought some BNO!

https://stockcharts.com/h-sc/ui?s=bno&p=D&yr=0&mn=16&dy=0&id=p38090673899

If it's an IRA, no issues.

I cannot believe those tax companies could not figure it out??? It's just another form and you pay on earnings even when you have not sold the ETF.

If you treat it as a 1099 the my bet is they never catch it...

http://www.irs.gov/pub/irs-pdf/i1120ssk.pdf

Buying BNO is entering into a partnership.Even though I made a profit it was recorded on two separate pages on my income taxes. Paying twice on only one profit. BNO sends a partnership form K-1 that must be reported and then my broker sends in the profit I made through the trade. H&R Block could not figure out how to report the transaction and neither could Schwabs tax experts. So I ended paying twice on one gain. Has anyone else had this problem?

You were right last month, we will see how ERY goes from here, looks like right time to buy now, but I haven't been able to crack the code yet...oil might be heading back down again...I HOPE!!!

Yeah I get that but the contracts they are in will gain value as oil goes up. There is very small amount of decay. I believe the 52 week high was around $46. If oil goes back to $110 like it was in June then BNO may only go to $40.

Agree.. these companies have already started cuts.. to protect against losses.

This ETF has slippage.. so a long might not even benefit when going oil starts to go up.

This ETF buys swaps and futures.. only looking at daily. Thus you buy a future priced higher when they settle at spot. You just lost.

Thanks for your input but it seems a little late to be shorting energy

I was just dealing to a dude in OKC works in Oil Finance and told me that they were aDVISED BY MERRIL lYNCH THAT they expect oil to ggo down to $40 and stay there for 9 mos...which makes shorting oil companies a good play...I'm looking @ ERY...

I'll believe it when I see it...

Yeah WTI would be around $40 if Brent is $45. And either way, in a year we should be looking at at least $65-70 oil, which is a 20%+ gain

from what I have read about OPEC's war on independent oil companies mostly in the Bakken region, the price of oil will remain fairly low for awhile to ensure failure of the small dudes...XOM CEO has said they can survive even @ $40/barrel...

But when that happens oil will bounce quickly. You know how the markets are already. I'm looking to begin a position in BNO when Brent goes to $45bbl

until Bakken companies get out of Nodak...oil won't go back up...BNO on its way down further...

Starting to looks really good for long term investors.

I think I might buy this if oil completely tanks. Analysts today were saying it could possibly go to $46 a barrel. I'd be surprised to see under $60 but we will see

Yup

Anyone follow this?

May 4, 2012, 6:32 a.m. ET.OIL FUTURES: Crude Falls Ahead Of Nonfarm Payroll Data

LONDON (Dow Jones)--Crude futures fell Friday, continuing into their third straight day of declines as investors eyed U.S. jobs data, which many expect to disappoint when it is released later in the day.

Poor economic data has weighed heavily on oil prices this week, causing Brent to fall to its lowest since February and Nymex to hit a 3-week low.

At 1011 GMT, the front-month June Brent contract on London's ICE futures exchange was $1.36, or 1.2%, lower at $114.72 a barrel.

The front-month June contract on the New York Mercantile Exchange was trading down $1.41, or 1.4%, at $101.13 per barrel.

"There's generally a lack of directional conviction in the market in a low volatility environment which means the price grinds lower on softer economic data," said Harry Tchilinguirian, head of commodity strategy at BNP Paribas in London.

"All this comes against a fundamental background that is seasonally weaker in terms of demand while at the same time OPEC production in the preliminary April surveys continues to move higher," he added.

Speaking at a conference in Paris Thursday, the Organization of the Petroleum Exporting Countries' Secretary General, Abdalla Salem el-Badri said OPEC production in March increased to two million barrels a day above the ceiling agreed by the group in December.

"We are trying to bring the price down," he said, adding that OPEC wanted an oil price of around $100 a barrel in order to avoid damaging demand.

Speaking at the same conference, Maria van der Hoeven, executive director of the International Energy Agency, said oil consumers could still tap into strategic stockpiles if needed. "The oil price has been unable to shrug off this news and rhetoric," said Commerzbank in a note, adding that any more negative news would likely mean further declines.

Elsewhere, some of the risk premium that has supported the oil price so solidly for the past few months seemed to be eroding amid signs that western powers may reach a compromise with Iran over its nuclear program.

The Head of the International Atomic Energy Agency said Friday that the United Nations watchdog is hopeful of reaching concrete results with Iran at its mid-May meeting ahead of separate talks between Iran and the P5+1 group later in the month.

"A deal is there to be done and the next meeting in Istanbul at the end of this month could be a genuine turning point in the confrontation," said PVM in a note.

At 1011 GMT, the ICE's gasoil contract for June delivery was down $14.00, or 1.4%, at $970.25 per metric ton, while Nymex gasoline for June delivery was 236 points, or 0.8%, lower at $3.0264 per gallon.

OPEC expects oil prices at $85-95 over next decade

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Reuters Nov 8, 2011 – 3:40 PM ET


By Alex Lawler and Sylvia Westall

LONDON/VIENNA – Oil producer group OPEC is investing in new supplies to meet rising consumption, even as it sees the risk to the demand outlook as being on the downside because of Europe’s sovereign debt crisis and a slowing global economy.

The Organization of the Petroleum Exporting Countries in its 2011 World Oil Outlook increased its estimate of supplies, saying the amount of unused oil production that the 12-member group holds in reserve in case of supply shocks would double by 2015.


World oil demand is expected to rise to 92.9 million barrels per day (bpd) by 2015 in OPEC’s reference case presented in the report, up 1.9 million bpd from last year’s forecast. Actual oil demand averaged 86.8 million bpd in 2010.

But the report cited an array of challenges for the global economy such as waning monetary stimulus, the euro zone debt crisis and signs that emerging countries — expected to drive oil demand — are not immune to worsening economic conditions.

“All this has led to heightened downside risks for the world economy,” OPEC Secretary General Abdullah al-Badri wrote in an introduction to the 287-page annual report published on Tuesday.

OPEC, which pumps more than a third of the world’s oil, is typically more conservative on oil demand than other forecasters such as the International Energy Agency. The IEA is due to issue its own long-term energy outlook on Wednesday.

“It is worth stressing that risks appear skewed towards the downside, especially since the sovereign debt crisis in some EU countries seems to be spreading and the world economy slowing down further, with potential consequences for the global financial system,” OPEC said.

Increased political uncertainty in Italy, where Prime Minister Silvio Berlusconi is under pressure to resign, has added to turmoil in Europe from the Greek crisis, which has hit markets in recent weeks.

OPEC’s report looks out to 2035, when it expects world oil demand to reach almost 110 million bpd in the reference case. Last year’s report stopped at 2030, when it foresaw demand of 106 million bpd.

HIGHER PRICES

The report assumes an oil price of $85-$95 a barrel this decade, up from a $75-$85 assumption last year and below Tuesday’s session high of more than $116 for Brent crude.

Oil reached a high so far in 2011 of $127 a barrel in April as the conflict in OPEC member Libya shut down its supplies. Badri told a news conference in Vienna he did not expect oil to fall below $100 soon.

“We leave it to the market to decide but to be more specific I don’t think the price will come down below $100 by the end of this year,” he said.

Saudi Arabia and its Gulf OPEC allies raised production unilaterally after failing at the group’s last meeting in June to convince other members to agree a coordinated increase to meet the Libyan shortfall.

As a result, OPEC’s unused production capacity declined to about 4 million bpd for part of this year, the report said.

OPEC estimated its spare capacity would double from that level and reach 8 million bpd in the medium term to 2015 as Libyan supply recovers and as a result of investments by other OPEC countries to expand output.

The report said member countries had provided details of 132 projects they were planning from 2011-2015, which would result in investment close to $300 billion in that period if all the ventures are developed.

“Regardless of all the challenges and uncertainties, OPEC member countries continue to invest in additional capacities,” the report said.

The report reiterated OPEC’s view that Libyan output would return to pre-war levels relatively quickly — in 15 months or less. Libya produced 1.6 million bpd in January before the civil war.

Supply is also expected to rise from countries outside OPEC, and the report saw demand for OPEC crude climbing slowly to 31.3 million bpd in 2015, up 500,000 bpd from last year’s forecast.

OPEC has often made clear that carrying spare capacity can be a huge financial risk. The report stressed that producers were concerned about the impact on demand of consumer countries’ energy and climate policies.

In another scenario in which a more rapid shift to hybrids and electric cars takes place, OPEC said world demand by 2035 would reach about 102 million bpd, curbing the need for extra OPEC oil.

“By 2035, the amount of OPEC crude needed will be less than current levels,” under that scenario, the report said. “This means that OPEC upstream investment requirements are subject to huge uncertainties.”

bumping resistance in wti

Some more info....

By Julian Murdoch
January 25, 2011. We often talk about the difference between Brent and WTI crude oil on this site. But never has the difference seemed so stark as now.

Brent crude, you may remember, is drilled from the North Sea oil fields and serves as the benchmark for European crude oil, while WTI (aka West Texas Intermediate crude) serves as the benchmark for U.S. oil.

WTI is a sweeter, lighter crude, and all things being equal, gasoline refiners prefer to work with WTI over Brent. Thus, in a vacuum, WTI should trade at a premium to Brent. But we don't live in a world of blind equality.

Looking back over the past five years (except for 2008, that is), WTI tended to obey common wisdom and run at a premium to Brent by roughly $2. But in 2008, the latter half of 2009 and now over the past few months, the two switched, with Brent trading at a premium—sometimes a substantial one—to WTI:



On Monday, that premium was $8.74—the largest spread seen over the past five years. So what gives?

Brent Trading Games, WTI Surpluses

Oil expert Chris Cook, former compliance director for the International Petroleum Exchange, points out that futures aren't what set the price of Brent crude. Physical cargoes coming out of the North Sea do.

"That amount coming out of the North Sea is gradually declining," he told Hard Assets Investor in a phone interview Monday. "It's been in secular decline for some time."

According to the Energy Information Administration, production in the North Sea in 2006 was 4.343 million barrels per day, but by the end of 2010, it had dropped 23 percent to just 3.348 million bpd. What's more, the EIA predicts this trend will continue to the tune of 185,000 barrels per day in 2011 and 156,000 bpd in 2012 (EIA's recent Short-Term Energy Outlook - Jan 2011).

New exploration licenses continue to be issued for the North Sea, and new discoveries continue to be made, but overall, says Cook, nothing can come close to slowing—never mind stopping—the production decline.

It hasn't helped that existing rigs in the area have had a few mishaps. Statoil briefly closed two of its fields in the North Sea earlier this month after a gas leak was discovered. (Combined, the two fields—Snorre and Vigdis—produce around 157,000 bpd.) Then just last week, Royal Dutch Shell closed four interconnected rigs in the original Brent field, when large hunks began falling off one. That took about 20,000 bpd off line, and the complex will stay closed for several weeks to come.

"The fewer and fewer cargos there are knocking about," says Cook, "the easier it is for people to actually influence [the price]. That is exactly what is going on—trading games. Hetco, the trading arm of Hess Co. in the U.S., has bought up roughly a third of this month's cargo and some of the next."

These "trading games among consenting adults," as Cook terms them, have gone on for years. But as Brent became a more widely adopted global benchmark in the 1990s, these trading plays began to affect the volatility of the global price of crude—and the Brent-WTI spread.

"I think we're seeing some games which have temporarily pumped up the arbitrage between the two contracts," he says. "Brent is financially pumped up, whereas WTI is more rooted in the underlying market because it is deliverable."

Physical delivery of WTI crude, which occurs in Cushing, Okla., has a real effect on crude prices due to the storage/delivery bottleneck that sometimes accumulates there. That means short-term inventory surpluses and deficits can have a significant impact on prices.

"Inventories in the U.S. have been coming down in the last few months, but there is still a healthy amount of oil in storage in the U.S., which tends to push the market more into contango,," says John Hyland, portfolio manager and chief investment officer of United States Commodity Funds LLC.

Indeed, according to the EIA's weekly petroleum inventory reports, inventories are still well above five-year averages, although they are lower today than in previous months.

So with tight supply and trading games pushing Brent prices up, and oil surpluses keeping WTI prices low, it only makes sense that the Brent-WTI spread should be as high as it is today.

But will the trend continue? No way to tell for sure. No matter—U.S. ETF investors can easily invest in either side of the spread.

Investing In The Brent-WTI Spread

Since USCF's introduction of the United States Brent Oil Fund (BNO), the fund is up 24 percent compared with the comparable WTI fund, the United States Oil Fund (USO):



The two funds are similar in that they both own a single, front-month contract and roll it two weeks prior to expiration. The only difference is USO owns WTI, while BNO owns Brent.

Although there's no guarantee that Brent will continue to outperform WTI, the future curves imply that maybe, it just might:



On the left, we've plotted the futures curve for both oil contracts over the next year. On the right, we show the historical cost of rolling that front-month contract over the last year.

Immediately obvious is that WTI is in fairly strong contango through the next year—a function of the aforementioned ample inventories. Brent's curve, on the other hand, remains comparatively flat, although technically in contango. If these conditions persist, then BNO will likely continue to outperform USO simply because of the roll cost—although all it takes is a drop in U.S. inventories to quickly flatten the WTI futures curve and change the picture completely.

So what's an investor to do?

One option would be to buy one and sell the other, depending on which way you think the spread is going to go, and take advantage of the arbitrage between the underlying crudes. With Brent at such a tremendous premium, it's a tempting play, although a flattening of the WTI curve could work against you.

Another option is to pick the crude that aligns with your investment strategy, whether it's something U.S.-centric or a more global approach. Hyland sees real opportunities in the latter.

"If you're bullish on oil because you're bullish on India and China, you're already halfway there to being non-U.S. centric. You've already concluded that the price of oil is no longer solely dictated by how many people are going to drive to Disneyland this summer," he says. "So take the next logical step and think about what kind of oil exposure you want to buy."

In the end, when it comes to crude, it pays to remember that more options exist than just plain old WTI.

Disclosure: No positions

This fund going to start gett'n some volume

BNO vs USO


USO