Spent some time down on the content farm this past week, here is the harvest:
‘World’s biggest oil trader says crude price can’t drop much more’: From the linked item:
Vitol Group, the world’s biggest independent oil trader, said the cost of finding and pumping crude will prevent prices from dropping much lower than where they are now for prolonged periods. Oil prices will range from $50 a barrel to $70 a barrel in the second half of this year, Ian Taylor, the firm’s chief executive officer, said in an interview at the FT Commodities Global Summit in Lausanne, Switzerland on Tuesday. “U.S. production growth is beginning to slow down and demand is looking quite good for the year, so the combination of all of that means that probably price, if anything, moves up a little bit,” Taylor said.
JON’S TAKE: You always must factor in whether or not someone is talking their position in items like this. If you are long crude and betting on it to rise, you would say things like this. This is ‘the world’s biggest oil trader’ and they also like markets moving one way or another. In the end, we all tend to see what we shine our lights on.
— Black Diamond Research (@BlackDiamondRsc) April 21, 2015
“If the whims of speculators are anything to go by, then oil markets are poised for a rebound. Data from the Commodity Futures Trading Commission show that bullish positions on WTI have reached their highest levels in eight months. Speculators make bets on the price of crude – long or short – depending on where they think prices are heading. Not since the end of the summer in 2014 have so many investors put money on the line, betting on a price rise.”
JON’S TAKE: This one is real interesting, because of the amount of money that is pouring into energy right now…with bigger companies buying up smaller, distressed assets as they are betting in a rebound. For me, this item carries more weight than the former as it is a macro level analysis and not an opinion from one trading house.
“The shorts are throwing in the towel,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone on April 17. “A lot of the people that were betting on a price collapse are changing their mind based on the fact that we are seeing U.S. production start to fall.”
JON’S TAKE: This item is supportive of the last..and when you have an expectation of strength in the outmonth, the buying picks up and the Contango widens…which is also what I feel is going to happen in propane; the gap between the in-month or near-month to the outmonth will widen. This item lists several somewhat bearish factors and is worth a read.
— Black Diamond Research (@BlackDiamondRsc) April 26, 2015
JON’S TAKE: You will read more and more about the American ‘Fracklog’, so it’s a term to familiarize yourself with. With oil prices dropping, you have a lot of known shale deposits being drilled, but not ‘tapped’…so basically you have millions of barrels of crude sitting there in the ground as a reserve, if you will. Once oil prices rebound to an economic level that makes it financially feasible to go get the stuff out of the ground, we’ll see another jump in domestic oil production. Depending on what OPEC/Saudi Arabia is doing at that time will have an impact on whether or not crude prices will go back down. We’re not the first step yet (the crude rise to $70 to $80) so we can’t know the second step, but it’s good to know that it’s there…and it makes you think a breakout to $100/bbl is unlikely unless there is serious geopolitical unrest or OPEC decides to shut off the spigot.
JON’S TAKE: Here was the money quote for me: “At this point, Saudi Arabia’s currency reserves are roughly equal to the combined market capitalization of the entire US shale oil industry.” Wow. The Saudi’s seem in this fight for a good while yet, which is one of the reasons why I have been surprised at the run up in crude the past two weeks. Were the Yemen situation not in the mix, I wonder if things wouldn’t be a few dollars per barrel cheaper right now.
But here is the ‘big idea’ behind this article: “In the end, who will win the oil price battle, Saudi Arabia or US capitalism and shale producers? Probably both; US oil producers are taking unparalleled steps to lower their costs which will result in much more efficient operations in the end, similar to how US manufacturing came out of the Great Recession at high levels of productivity and ultimately profitability. By the same token, Saudi Arabia is the king of the oil markets for a reason – geologically it is essentially the perfect oil producer. The real losers in this fight are likely to be the other participants who have been trying to stay out of the conflict as much as possible. Other OPEC producing nations and even Russia are not as efficient as Saudi Arabia, nor as dynamic as US shale producers. And ultimately, they are likely to be the ones forced to give ground and cut production.”
I don’t want to talk folks out of buying…I still believe the crude market fundamentals point towards a pullback…and propane fundamentals are not strong, either.
That said, as was the case a nickel ago, I don’t think anyone is going to get hurt owning a piece at current levels.