Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Oil prices are setting their own course
The fear factor is still strong in driving the market
By Saadallah Al Fathi
Published: 13:15 August 26, 2012
It is indeed difficult to write about the evolution of oil prices in the market of few months now. Prices seem to move against expectations, one way or another.
Since the peak of $124.12 (Dh455.9) a barrel on March 18 for the Opec (Organisation of the Petroleum Exporting Countries) basket of crude oils, prices have fallen fast to $88.74 a barrel on June 26, only to start rising again, contrary to expectations and in the light of a decision by an Opec Conference on June 14 to leave the production ceiling where it was at 30 million barrels a day (mbd). The Conference “decided that member countries should adhere to the production ceiling of 30.0 mb/d” to please those members who wanted stronger action.
Prices were expected to move downward further but the rise has been remarkable and almost continuous since then. The price on Thursday was $113.56 a barrel for the basket crude and the average for August so far is almost $109 a barrel as compared to almost $94 a barrel in June.
An Opec monthly report says that most of the fundamental reasons behind the decline still remain, such as uncertainties in the world economic outlook and the rise in global oil inventories. The International Energy Agency (IEA) is saying that “sluggish economic growth could restrict annual oil demand growth to 0.9 mb/d in 2012 and 0.8 mb/d in 2013”, numbers that agree with the Opec estimate. The Opec is more optimistic in the sense that it says the oil market is no more in a declining momentum.
Even the geopolitical situation is less volatile and while the confrontation with Iran is still on, it is not expected to flare. Even the embargo on Iran oil is slow to show in numbers, but may become more visible later.
Rise in inventories likely
Opec production in July fell to 31.39 mbd or 70,000 barrels a day less than in June. Such production is adequate for requirements in the rest of 2012 but higher than the average annual call of 29.9 mbd. The call for 2013 is even less at 29.5 mbd and, therefore, inventories are expected to rise.
Against this background, Barack Obama’s wishes to release some of the US strategic stocks to cool the oil market have not been met with approval by the IEA or even by some individual members of the organisation such as Japan and Korea while France and the UK are prepared to discuss. However, the IEA chief Maria van der Hoeven said that the US have more than the mandatory 90 days’ stocks and, therefore, they can release the extra on their own.
On another front, the market was affected by the on-and-off new round of quantitative easing in the US or a solution to the Eurozone debt crisis, particularly if Greece will be given more time to meet the requirement for additional funds from its European Union partners.
But further support may be coming from tropical storm Issac which has the potential to reach hurricane force in the Gulf of Mexico. Oil companies are already reducing or stopping production there while evacuating or reducing the numbers of their operating staff on the platforms.
Only the US produced 1.27 mbd of oil from the Gulf of Mexico or 23 per cent of its oil production and 7 per cent of natural gas output.
Concerns of oil producers
The fear factor is still strong in driving the oil market and while the lingering problem with Iran is taking a breather, fear of the long term is still there. Will there be enough oil to drive development? Will Opec countries carry their investment programmes as planned? Is peak oil real or a myth? Will the development of unconventional oil go unhindered in spite of widespread opposition by local residents and environmental groups? Will renewable energies become a real alternative to oil one day?
All these questions and many others have the potential to move the market in one direction or another and we have to live with them and oil producers can only hope to negotiate the path safely.
One thing is for sure: some people will still need an extra amount of oil. I am sure some of the readers have read the story of Dubai police arresting a driver who does not only have a big car but has fitted it with an additional engine powered by jet fuel to achieve 350 kilometres per hour. As an engineer, I can only assume that the extra engine is a gas turbine and the driver only needed some wings to fly. My objection is that he should practise his driving on the Yas Marina circuit rather than on the streets of Dubai.
— The writer is former head of the energy studies department at the Opec Secretariat in Vienna.
I think he's gonna hit it!
Gold at three-month high on stimulus hints, dollar
Aug. 21, 2012, 3:30 p.m. EDT
Metal settles at highest level since early May
By Claudia Assis and Sara Sjolin, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures on Tuesday rose to their highest level in more than three months, after China hinted at fresh economic stimulus and investors were more optimistic about the euro zone, which resulted in a weaker dollar.
Reuters
Gold for December delivery (CNS:GCZ2) advanced $19.90, or 1.2%, to $1,642.90 an ounce on the Comex division of the New York Mercantile Exchange.
That was the highest settlement for a most-active gold contract since May 4.
Gold faced some resistance around $1,630 an ounce, “but once it moved past that, it just shot up,” said Howard Wen, a commodities research associate with HSBC.
Gains for the euro as well as for platinum and palladium in the wake of violence at a South African platinum mine also boosted gold, he added.
Investors also digested a report in the Chinese state-run Xinhua news agency’s Economic Information Daily that Beijing is planning fresh stimulus measures for the second half of the year. See: China stocks rise after reported stimulus plans.
The ICE dollar index (NYE:DXY) , which measures the greenback against a basket of six other currencies, fell to 81.888 from 82.475 in late North American trade in the prior session.
Dollar-denominated commodities tend to rise on a weaker dollar, as they get cheaper for holders of other currencies.
The euro rallied Tuesday on growing optimism that Europe’s monetary authorities will take steps to reduce borrowing costs for countries such as Spain and Italy. Read more about currencies.
Gold exchange-traded funds also garnered interest, with the largest ETF backed by gold, SPDR Gold Trust (NAR:GLD) , recently registering its largest one-day inflow since mid November, according to Commerzbank.
The ETF jumped to nearly 1,275 metric tons on Friday, from nearly 1,264 on Thursday. It held steady on Monday, the last day for which statistics are available.
Elsewhere in the metals complex, platinum for October delivery (NYMEX:PLV2) ended up $9.60, or 0.6%, to $1,507.80 an ounce. That was platinum’s highest level since May, and the metal extended gains amid recent violence at a platinum mine in South Africa.
September silver futures (CNS:SIU2) rose 84 cents, or 2.9%, to end at $29.43 an ounce. September copper futures (CNS:HGU2) moved 8 cents higher, or 2.4%, to $3.45 a pound.
Palladium for September delivery (NMN:PAU2) gained $16.50, or 2.7%, to $624.20 an ounce. That was the highest settlement for palladium since mid-June
Aug. 21, 2012, 12:28 p.m. EDT
Oil pushes past $97 on euro-zone hopes
Crude hovers at best levels since early May
By Claudia Assis and Michael Kitchen, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude futures rose Tuesday on optimism about the euro zone and expectations that the European Central Bank will step up efforts to help countries in the region’s periphery.
Oil for September delivery (NMN:CLU2) rose $1.25, or 1.3%, to $97.22 a barrel on the New York Mercantile Exchange, more than undoing its 4-cent loss during the regular session on Monday. Read more on Monday’s oil trades.
A close around these levels would be the barrel’s highest since early May.
Investors are more optimistic about prospects for the euro zone “and leaning toward the thought that something will be done there,” said Michael Lynch, president of Strategic Energy & Economic Research. “It looks like something will happen and things are less likely to fall apart.”
U.S. stocks also saw early gains, helping oil along the way. Equities are seen as a proxy for the economic climate and higher equities are thought to be an indicator of more demand for crude. See more about U.S. stocks.
The hopes for the euro zone also added to expectations of more demand for oil should a speedier recovery materialize for the euro zone. They also pushed the euro higher, keeping the dollar under pressure and benefiting oil and other commodities.
The ICE dollar index (NYE:DXY) retreated to 81.888 from 82.475 in late Monday in North American trading.
Dollar Drop Silver up...
Aug. 21, 2012, 9:12 a.m. EDT
U.S. stock futures up with Europe
By Kate Gibson and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — U.S. stock-index futures rose Tuesday on hopes the European Central Bank will step in to reduce borrowing costs for troubled euro-zone governments and contain the region’s debt crisis.
“Germany seems willing to give a little on Greece, not with new money but with easier terms on debt owed and possibly some more time to meet budget targets,” emailed Peter Boockvar, equity strategist at Miller Tabak. See markets stream .
Greece prepares further $14.2 billion in cuts
Details of Greece's €11.5 billion ($14.2 billion) austerity plan are emerging as Prime Minister Antonis Samaras moves to demonstrate his government is serious about cost-cutting efforts ahead of meetings with European leaders later this week. Alkman Granitsas reports. Photo: Reuters
Futures on the Dow Jones Industrial Average (CBOT:DJU2) gained 38 points, or 0.3%, to 13,267. S&P 500 futures (GLC:SPU2) advanced 4.8 points, or 0.3%, to 1,419.5, while Nasdaq-100 futures (CME:NDU2) rose 11.75 points, or 0.4%, to 2,791.75.
European markets were lifted after news reports highlighted remarks Monday by ECB Executive Council Member Joerg Asmussen, who backed the concept of renewed bond buys by the central bank in an interview with a Frankfurt newspaper. Read: Europe stocks up as banks, miners rise.
The ECB on Monday said a weekend news report that it was weighing a plan to cap sovereign yield spreads within the euro zone was misleading, while Germany’s Bundesbank reiterated its opposition to any renewed ECB bond purchases.
Wall Street posted a virtually flat finish on Monday. No major economic data are on tap Tuesday, leaving investors to look ahead to Wednesday’s release of the minutes from the latest meeting of the Federal Reserve’s policy-making committee.
huge drop for this etf
I'm thinking we hit that $36 then go down and fill that lower gap before back to $100 spot.
USO still looking good
Best ETF these days
still strong!
The future of oil prices
By Chris Nelder | June 13, 2012, 3:00 AM PDT
Over the past several months, I have detailed the implications of the gradual shift from conventional to unconventional oil production, particularly its upward pressure on the cost of oil production. As it has been a little over three months since I presented my model for oil prices, this week I’d like to review what we know about unconventional oil, and offer an outlook on oil prices for the coming years.
The unconventional non-solution
First, we know that tight oil production, like that in the Bakken Formation of North Dakota, is a treadmill. The constant drumbeat of highly-placed editorials about incipient U.S. energy independence is strictly political fodder, with no sound basis in data. Yes, in theory, it’s possible that we could double the output from the Canadian tar sands and the deepwater Gulf of Mexico, quintuple the number of wells that have been sunk in the Bakken so far, and pull off some biofuel miracles. But local resistance to that drilling program will be fierce in some areas, and its cost will eventually prove prohibitive. And it won’t end there; to maintain that level of output, we’ll have to keep drilling like hell, with increasing risks to the environment and public tranquility.
In reality, despite the technological achievements that have enabled production from these difficult resources, the world is losing the race against the depletion of mature conventional oil fields. And the pace of that depletion is accelerating: it’s now an estimated 5 to 6 percent per year for OPEC, and 8 to 9 percent for non-OPEC. Unconventional oil cannot compensate for a drag of that magnitude for very long.
Further, even if the U.S. were to follow the path to so-called energy independence, it would likely cut the lifespan of our remaining oil in half, leaving us to struggle for decades afterward with greatly diminished domestic production at the very time when global oil exports are declining fastest and becoming intolerably expensive.
We also know that the shift to unconventional oil has moved up the floor of oil prices to around $85 a barrel, which I estimated to be the marginal average cost of profitable production worldwide. A report from Bernstein Research, covered in May by the ever-capable Kate Mackenzie for the Financial Times, suggested that the real floor was even higher at around $92 a barrel in 2011, on its way to $100 a barrel this year. This fits with the stated objective of OPEC members to defend a $100 price target.
But there is also a ceiling around $125 a barrel for the global Brent benchmark (roughly equivalent to $105 for the U.S. benchmark, West Texas Intermediate). This is why world oil prices have been bouncing around the “narrow ledge” between that floor and ceiling since the beginning of 2011, as shown in the following chart.
Source: EIA
In short, unconventional oil doesn’t scale; it’s expensive, and getting more expensive every year; and its risks are increasing.
Finally, we know that we’re losing the race for vehicle efficiency, and probably will lose it forever. Emerging markets, particularly in Asia, have been outbidding the U.S. and Europe for oil since 2005, exerting a constant upward pressure on oil prices even as demand from the developed world continues to decline. Our response to this has not been a materially significant shift to greater vehicle efficiency, but rather a gradual shift from personal to public transportation, shrinking economic activity, and the “nearshoring” of manufacturing.
All of these factors augur higher oil prices as we move into the future.
Oil prices for the next two years
When oil supply surpassed demand in the first quarter of this year for the first time since 2005 (see chart at top), some observers took it as an indication that peak oil fears had been laid to rest and that we were on our way to a new age of oil abundance.
They are wrong.
The simpler and more obvious explanation is that the narrow ledge of oil prices, shown between $105 and $125 (for Brent) in dotted red lines on the chart, is very much in control. As prices edged toward the ceiling in mid-2011, accompanied by the effects of the Arab Spring, demand and supply fell. But sustained triple-digit prices for the nearly 18 months since the beginning of 2011 gradually brought more supply to market, a trend which continues today. However, those same high prices once again began to kill demand, which has been falling in recent months, and prices are now falling again. As of this writing, Brent spot is trading for $97, and WTI spot is at $83. Spare capacity has continued to decline over the past three months, and is now nearly at the 2.5 percent threshold I discussed in February, but I expect declining demand and growing supply to increase spare capacity again and avert a price spike in the near term.
[A few notes about this chart: I have elected to show this data in quarterly terms for simplicity of presentation, and to highlight the crossover of supply and demand. Supply and demand data is from the IEA Oil Market Report, which includes biofuels and a liberal inclusion of natural gas liquids. Price data is from EIA. On a daily basis, Brent prices were above $120 from the middle of February through the middle of April, and exceeded $125 for 17 days from late February through early April. The second quarter is not yet finished and the most recent monthly Brent price data available from the EIA is for April, so I have averaged the April price with weekly data for May and the first week of June to plot the Q2 price, shown in gray on the chart. Brent stayed steadily above $105 from February of 2011 to the last week of May 2012.]
As oil prices are now below the price floor, the next major move should be upward, as demand rebounds in response to the lower price. Supply will remain above 90 million barrels per day (mbpd) if Brent rises above $105 within the next month or two, but if it does not, then supply will begin to fall back toward 89 (mbpd) again, and the risk of supply destruction will increase. Supply cannot continue to increase without prices remaining perilously close to the ceiling of demand destruction. It is very likely that demand will again exceed supply before the end of the year.
On the fundamentals, I expect this rangebound behavior through roughly the end of 2014. The price will bounce between the floor and ceiling of the narrow ledge, causing supply and demand to vie for the lead. Trading that range will be easy, but not terribly profitable, and speculators may begin to focus their attention elsewhere.
In fact, as reported by John Kemp for CNBC on Monday this week, Goldman Sachs believes the recent selloff was overdone. Speculative traders betting on rising prices left the market in droves last month, and “the market is again primed to rally hard” now, with a tighter balance between supply and demand expected in the second half of the year. This seems reasonable. (Sadly, it appears the Goldman analysts also recommended that their clients buy U.S. oil futures at $107.55 in February, right at the top of the range for WTI. If they had understood the narrow ledge, they would have recommended selling at that point.)
Of course, there is more to the oil trade than fundamentals.
The euro has been an air ball for over nine months, and whether it will break up, or be rescued through some sort of heroic intervention, remains to be seen. My bet is on a rescue.
OPEC could announce production cuts at their meeting later this week, which would be bullish for prices. But, despite conflicting reports this week about what Saudi Arabia’s oil minister, Ali al-Naimi, said or meant to say in recent press interviews, my bet is that the kingdom fears demand destruction more than supply destruction and will maintain output at its current high levels. I don’t believe the rest of the OPEC members will have substantive influence.
A fresh round of tensions over the standoff on Iran’s nuclear ambitions, or any number of other developments in Middle Eastern politics, could also drive prices higher. But I expect those risks to remain relatively muted over the next year. The consequences of letting things get out of hand are simply too great. And no, I don’t think Israel will bomb Iran.
Under the heading “A Foggy Horizon,” the IEA highlighted “the complexities faced by those trying to peer through the murk that shrouds any outlook for the second half of the year” in their May 11 Oil Market Report. I agree that the geopolitical uncertainty is high, and I agree that “there is no room for complacency” at this point. The ledge is narrow indeed, and it wouldn’t take much to push the global supply and balance off it. At the end of that discussion, they wondered rhetorically, “Who’d be a forecaster?” Fair enough; if your job doesn’t depend on seeing through the murk, then there’s little to be gained from taking that risk. Better to leave the bold calls to the energy futurists.
Outlook for 2015 and beyond
I may be right and I may be wrong about these calls, but forecasting a dull trading range for oil prices over the next two years is relatively easy, because it’s supported by recent data and fundamentals. Much harder is forecasting what prices will do after 2014.
As my regular readers know, I expect spare capacity to drop to critically low levels in late 2014/early 2015 as depletion finally overwhelms our efforts to fill the gap with unconventional oil, kicking off a long era of harsh volatility in both oil prices and the global economy as a whole. And I am not alone in this expectation; among others, the IEA official who was responsible for developing their petroleum outlook scenarios from 2006 to 2009, Olivier Rech, also sees a turning point around that time.
An interesting “working paper” prepared for the IMF in May (but expressly identified as representing the views of the authors and not those of the IMF), attempted to empirically quantify the key question of how the battle between geological depletion and technological innovation will play out. The authors concluded that “the future will not be easy,” after their model showed that “small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade.” They “suspect that there must be a pain barrier, a level of oil prices above which the effects on GDP becomes nonlinear,” but do not attempt to quantify it.
This conclusion comports with some of the academic research on EROI I reviewed in February. I obtained similar results after playing with a simplified EROI spreadsheet published by fund manager Stephen Johnston last month, which lets you discover the price effects of substituting low-EROI unconventional oil for high-EROI conventional oil. With his default, conservative assumptions, oil prices would rise by 23 percent by 2025, but after plugging in assumptions that I consider more likely, I got from 100 to 150 percent price increases.
The history of oil prices since 2007 suggests that a permanent doubling of oil prices, while possible in theory, are not possible in reality. We have been bumping against the pain barrier since the first oil price spike in 2008. As we substitute more and more unconventional oil for depleting conventional oil, the consequence will not be sustained oil prices at double current levels, but the shrinking of the global economy, or, as I have called it previously, the Great Contraction. Oil prices could actually drift lower, not higher, as we fall into the deflationary vortex.
So enjoy the relative stability of the next two years, and take advantage of the narrow ledge concept to trade oil profitably as it bounces between the price floor and ceiling. Just be aware that a large waterfall awaits at the end of that quiet stretch of river, and be ready to head for shore before you get there.
After this next down.. Jumping in...
One I can be sure of... Oil will go back up. When is the question.
still thinking 60? or all bets off...
nice pop today!
Jeffrey.. Nice blog and thanks for posting that DD...
The guy who wrote that blog last summer filed a 13 last Friday. 2+ million shares. He believes.
Here seems some good dd...
http://ragnarisapirate.blogspot.com/2011/08/sitestar-cigar-butt-that-isnt.html
I guess now we know why shares are up!
maybe a bull now?
OK that GAP filled.. we'll see where we go... I'm in.
LOL.. might be 5 or 6 of us...
I'm still here Lenny...
Opec 'working hard to bring down prices'
Posted on » Friday, May 04, 2012
PARIS: Opec is working hard to bring down oil prices that jumped towards $130 a barrel earlier this year, its secretary-general said yesterday, and is pumping much more than its official target even as exports from group member Iran dwindle.
Oil surged in March to $128 a barrel, the highest since 2008, on increased concern over the loss of Iranian oil due to tighter sanctions combined with supply hitches elsewhere.
Prices have since fallen back, and Brent crude slipped by more than $1 a barrel to below $117 yesterday.
"We are not happy with prices at this level because there will be destruction as far as demand is concerned," Opec secretary-general Abdullah Al Badri told an energy conference.
"We're working hard to bring down the price. We're not comfortable."
Opec is pumping 32.3 million barrels per day (bpd), he said. That is 2.3m bpd more than Opec's target of 30m bpd.
Al Badri again identified $100 as a comfortable price and said the price was being driven higher by speculators.
"There has been no shortage of oil in the market. Producers have been able to meet consumer needs," he said.
"Today the price continues to be driven by excessive speculation," Al Badri said.
Qatari Oil Minister Mohammed Al Sada, also attending the conference in Paris, warned oil would head ever higher unless trillions of dollars are invested in the energy sector.
Gulf producers will have to stump up $100 billion a year over the next 25 years to meet future demand, out of total investment of $19 trillion, he said.
"If these investments are not achieved by 2016, the price will rise to over $150 in real terms," he predicted.
US jobs data sends oil prices falling
Posted: 05 May 2012 0417 hrs
NEW YORK: Oil prices dropped sharply on Friday after traders took disappointing US jobs data as a sign of more slow growth to come in the US economy.
The US benchmark West Texas Intermediate crude for June delivery sank $4.05 dollars from Thursday's close to end at $98.49 a barrel, the lowest level since February 6.
London's main contract, Brent North Sea for June, lost $2.90 dollars a barrel to $113.18, its lowest level since February 2.
Traders pointed to the jobs data release in the morning, which showed the US economy generating only 115,000 net new positions last month, less than half the level of the first two months of the year.
The figure came in well below forecasts, and was barely at the level needed to match the normal growth of the working population, much less reduce the 12.5 million people unemployed.
The data also showed many tens of thousands of American had dropped out of the jobs market altogether - another sign suggesting that household income and spending would continue to be weak.
"The really weak jobs data... raises concerns for the economy and for petroleum consumption," said James Williams of WTRG Economics.
With tensions over Iran appearing to lessen, and US oil stocks extremely high, Williams said oil prices had already been on edge.
"The data is triggering concerns about the overall economy, and historically, anytime the economy is weak, oil prices collapse."
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.
sco winner so far this month
Yes I'll target $42
Does that mean a buy? TIA
OK that gap filled.. Where do we go now?
I guess back up...
LJ... I just go to the city and look for maps... Then enter owner name.
http://mapviewer.lynchburgva.gov/parcelviewer/default.aspx
I suppose 10K out soon. We'll see how things have gone.