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Completely agree!
I agree with what you've been posting!
Interesting read.
Oil Prices Driven Lower By Everything Except Fundamentals
By Leonard Brecken
Posted on Mon, 24 August 2015 22:00 | 4
It is clear that it is no longer supply and demand for oil that is dictating the price but is instead the financial markets and more importantly money flows tied to central bank policy.
Bearish sentiment in the oil markets is taking over as net short positions near record highs. According to Reuters, 50 to 60 hedge funds have taken short positions that account for around 160 million barrels of oil in near term contracts. In fact, the amount of short positions in oil options and futures now exceeds levels in the great financial meltdown of 2008, believe it or not, despite talk of a good economy and the Fed needing to raise interest rates. Madness, right?
(Click to enlarge)
As I have stated before , money flows into financial assets have more to do with Fed policy and FX than fundamentals. Since the consensus is for higher rates in the fall, combined with Asian turmoil stemming from the yuan depreciation, the backdrop of short interest in commodities has risen despite fundamentals improving.
However, in the past month the inverse relationship between the rising U.S. dollar and falling oil has decoupled, as the dollar is essentially flat Year To Date (YTD) while oil has fallen 35 percent to record lows. Some of this was tied to Iran supply worries in 2016, but most of it I attribute to short selling.
Related: This JV Could Trigger A Shale Boom In An Unexpected Venue
Fundamentally, almost every bear case presented by the media in 2015 has been proven false. Doomsday events such as rig count (vertical rigs being dropped vs. horizontal), Cushing overflowing, China demand slowing, to Iran floating storage of 50 million barrels being unleashed, U.S. production rising, have all been dispelled.
In fact, as I said, the fundamentals have even improved as U.S. production has entered into decline, crude stocks have been drawing down since the spring, and demand for gasoline is at record highs (much higher vs. expectations going into 2015). Furthermore, the worries on Iran are completely overblown given that the hype on floating storage – the millions of barrels of crude oil sitting in tankers turned out to be low quality condensate that is hard to process. Also, the 500,000 to 1 million barrels per day (mb/d) increase tied to the nuclear deal will be absorbed by higher demand, which has averaged 1 million barrels or more each year (in 2015, it has been even higher than that; closer to 1.4 mb/d or higher).
Furthermore, China alone will add 600,000 barrels per day in refinery capacity, as it allows independent refineries to process oil. What has been incrementally negative has been additional capacity added by Iraq and Saudi Arabia since the start 2015. However, aside from Iran, OPEC doesn’t have any spare capacity left and, Saudi Arabia has already announced intentions of reducing output by 200,000-300,000 barrels per day post their seasonally strong domestic period.
Yet even though the dollar has weakened recently, oil has still collapsed some 35 percent. The E&P equities have fallen even further as in addition to shorts, there are also pressing bets on the upcoming fall credit redetermination and hedge funds taking positions in E&P bonds while shorting equities.
All these things still don’t explain the panic in oil markets other than financially driven events that aren’t directly tied to the supply and demand of oil which, as I stated, has improved vs. the start of 2015. In fact, demand is soaring while days of supply are improving dramatically as evidenced by the charts the charts below:
(Click to enlarge)
Related: Oil Price Collapse Triggers Currency Crisis In Emerging Markets
In addition to the precipitous drop in oil is the mystery of oil imports which, over the last three months, have risen dramatically while U.S. production has fallen. Why would this occur as the media continues its portrayals of a supply glut in the U.S.?
Last week, and almost every week in which oil inventories have risen, it has come as a result of surging imports at a time that U.S. refineries have promised 700,000 barrels per day in additional light sweet oil capacity dedicated to shale production.
Suffice it to say, something smells rotten. Since June, U.S. imports have risen by over 1 mb/d to near record levels achieved back in April of this year. How can we be awash in domestic production yet be importing record amounts of foreign oil? I posed this very question to a senior executive of an E&P company and the answer was: Saudi Arabia.
Not many people realize that Saudi Arabia owns a 50 percent stake in the Motiva oil refinery, one of the largest in the entire nation. As a 2013 NYT article clearly states Saudi Arabia’s intention was to assure a market for their oil and, in some cases, sell it below market prices no less. I wouldn’t be surprised that the partly Saudi-owned refinery is intentionally importing more oil than needed, as it would play into the overall Saudi strategy to damage U.S. shale production.
(Click to enlarge)
If the chart below is correct and gasoline supplied to the U.S. domestic market rose 500,000 barrels per day while U.S. production held nearly flat since the start of 2015, how in the world are inventories in the U.S. so high according to the EIA?
Related: Why Water Is More Important To Iran’s Future Than Oil
(Click to enlarge)
As I stated in previous articles, until the Fed admits the strong dollar and rate hike threats are off the table signaling a policy change, efforts on depressing oil prices won’t subside. The U.S. economy is weakening not strengthening and has been for some time. Historical QE initiations have started at just about these times, as markets begin to crash, yet we still hear about higher rates. Has the FED changed course on stimulus instead, using falling commodities vs. QE? Maybe for a time, but recent data indicates that isn’t working either.
Look for a significant U.S. dollar correction in the coming months, marking a turn in commodities in general. Until then, we are in a perfect storm where forces are driving prices lower with little regard for the fundamentals, due to Fed policy and just the pure greed of funds who can push oil futures lower, so as to maximize short equity returns or to buy assets on the cheap.
By Leonard Brecken for Oilprice.com
More Top Reads From Oilprice.com:
OPEC’s $900 Billion Mistake
China’s Stock Market Meltdown Dragging Global Markets With It
Merciless Market Rout Drags Oil Further Down
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Everything is getting crushed, lot's of opportunity coming.
Or drowning in it! Lol
Where's the lifeguard ?
Are you short then? Or no position? Or just blowing smoke? Warning against oil on this board? LOL
Have you even bought in yet? Are you short? Monday morning QB now that oil is at $41? Yes patients is Key. GLTU $ GLTA
You have been saying that ever since i started reading this board…and finally you were right. Way over priced i don't think so. imho
Agreed. Sounds like some of the other OPEC country's are running out of patience.
Way over sold.
Another new 52 week low WTH
Opec unity cracks as disgruntled members call for meeting to stem oil slump
Divisions emerge within Opec as members frustrated by the oil price rout call on Saudi Arabia to scale back production in a bid to restore prices
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Some Opec members want to introduce individual production quotas within the group to prevent certain countries from over-producing Photo: REUTERS
By Andrew Critchlow, Commodities editor5:27PM BST 20 Aug 2015 Comments18 Comments
Pressure is building on Saudi Arabia from members within the Organisation of the Petroleum Exporting Countries (Opec) to agree to an emergency meeting to arrest plummeting oil prices.
The Telegraph understands that Opec’s secretary general, Abdulla Salem el-Badri, has spoken to Saudi officials on behalf of members within the group who are coming under extreme economic pressure from oil prices dropping towards levels of $40 per barrel.
It is also understood that Algeria has circulated a letter within Opec, lobbying for oil ministers to discuss measures to restore prices. These could include introducing individual production quotas within the group which would prevent certain countries from over-producing.
People in Opec are fed up with the Saudi policy of overproducing since November and have lost a lot of revenue because of this
Opec’s next scheduled gathering is due to take place in December but Algeria, Venezuela and a number of other members including Iran are now supporting an earlier meeting to discuss production levels, which are set at 30 million barrels per day (bpd) for the group as a whole. Opec declined to comment.
Saudi Arabia’s decision last November to increase its own production, which accounts for around third of the group’s output, to more than 10.6 million barrels per day (bpd) has made it impossible for other members to raise their production.
The country's oil policy has also opened up deep divisions within the group, especially with fellow Middle East power Iran. Officials in Saudia Arabia did not respond to requests for comment.
Saudi Arabia’s decision to increase its own output has hurt fellow Opec members Photo: AP
Riyadh has come under increasing criticism from within Opec for its determination to maintain a policy which has allowed oil prices to go into freefall since last November.
Saudi Arabia and its close Gulf allies, such as the United Arab Emirates, Kuwait and Qatar, now account for over 18 million bpd of Opec supply, leaving little room for countries such as Iran, Libya and Iraq to increase their output.
“The Saudis have flooded the market which leaves no room for others,” said a source close to Opec. “People in Opec are fed up with the Saudi policy of overproducing since November and have lost a lot of revenue because of this.”
Tensions within the group have risen further since Iran sealed a historic nuclear deal with world powers, which could lead to the lifting of sanctions and potentially more Iranian crude entering an already oversupplied market.
Iran's production has been severely curtailed by sanctions. Output is currently around 2.7 million bpd, of which 1 million bpd are exported.
Saudi and its close Gulf allies are unlikely to change their strategy of keeping production at current levels. In doing so they are causing rifts to emerge within Opec
The figure is a long way from its production levels prior to sanctions. According to BP, the country was capable of pumping over 4 million bpd in 2011.
"Individual quotas need to be restored," said the source, who added that Saudi Arabia's aim of pegging back shale oil production in the US had failed.
Saudi and its close Gulf allies are unlikely to change their strategy of keeping production at current levels. In doing so they are causing rifts to emerge within an organisation which has previously remained unified.
Brent crude tumbled to a new six-year low of $46 per barrel after the US government downgraded its short-term forecast for prices.
Opec member revenues fell below $1 trillion last year and that figures is expected to fall further in 2015, with oil prices expected to average around $49 per barrel, according to the Energy Information Administration.
Hopium this happens again. :-]
Awesome! Way to go! We all have to keep pushing.
Done! I would encourage everyone to do so as well.
21M shares at a dollar so there hedge fund friends could cover there short's?
Ok good! Getting a little confused with all of the date's. Thanks.
They were served via Fed Ex on the 5th time frame's should be Ok see what happens. Tho i could be wrong if the local rule say's 19 days prior that would put us out to the 24th or 25th. Local rules are a bitch.
Sausalito Kid why don't you take some of that SM and go to Sam's for some oyster's and a glass of whine. Another gold star for you. :-} GLTA
LMFAO.
In order to believe that some kind of conspiracy was done to cheat the common shares, you would have to believe that the EC was somehow part of it,
Ok on page 24 right now.
New doc #814 filed.
Shoot just went under 6 cents. This is crazy i'm sure the EC is getting there valuations ready. The judge and the trustee have to see the smoke and mirrors BS going on here.
Your so much smarter than everyone else, another gold star for you!!! GLTA
Doesn't even look like Louie wrote the last message I wouldn't respond to this tool.
OIL - Aug 3, 2015
Signs Oil's Downtrend Is Coming to an End
Averagejoeoptions.com's Todd Horwitz weighs in on the price of oil. He speaks on "Market Makers." (Source: Bloomberg)...
Just got back from a little vacation….should have stayed on vacation chit. This has got to turnaround soon.
Exactly!
Check out doc 773 at prime clerk. Go Brian Tuttle!!!!
Everyone should not respond to Louie put on ignore.
At least it didn't close at the low of the day. Have a good weekend everyone.
You will get there! Thanks for all you do for this board.
Wow good that your switching. I use Schwab and if you have 25K no problem.
To many trades on the same day? How long is your broker going to restrict you?
Smart! Hoping this was the bottom today.
You have a good handle on this. I should have listened when you were holding off i was buying $1.90 and $1.80 thinking we were at the 52 week low. This will rebound just going to take a bit.