Official (Alberta) Oil Discussion Thread

[Enoch Root]

I have always hated 'short covering' as an excuse to explain market activity. So lazy. It is true only a tiny fraction of the times it is sited.

Oil has been rising steadily for 3 weeks, after putting in a pretty emphatic double bottom.

There may still be a few stubborn people covering shorts out there, but to suggest they are what's moving the market? No.

[BrownDrake]

Originally Posted by heep223

There most certainly is a change in fundamentals. Non-OPEC production isn't just slowing - it's now showing a persistent declining trend and it's just the beginning. You now have major U.S. producers forecasting double digit production declines for the year 2016.

You have the OPEC countries, not including Iran, and one non-opec country, Russia, that "may" join a production growth "freeze" at current levels. A freeze at current levels of overproduction estimated at anywhere from 1.5 to 2.5 million barrels per day more than the market needs. This on the backdrop of Iran coming to market with crude that has been off line - what in that scenario changes fundamentals?

Production in the USA is relatively flat or down less than 2% over the past 4 months.

Inventories are at historic highs, a build in API stocks in the USA of over 10.0 million barrels last week.

What fundamentals have changed?

[heep223]

There is a huge (yyyuge) difference between 1-2% production growth out of the US and a 1-2% production decline. That is massive. That in itself is a change in fundamentals and like I said it's probably just the beginning, with major US producers projecting huge declines. Market is already priced in the Iran production coming in. Yes OPEC is politicking back and forth but the point is that they're starting a process to support the market and they're currently operating very close to max capacity. I've posted similar things in this thread for a while now, as all you see in mainstream media is doom gloom and depression, and they are historically well behind the smart money, just like sell side analysts usually are. When Goldman posts a sub $20 WTI call, it's a great contrarian indicator to get long.

Like Enoch said above "short covering/short squeeze" is very shallow analysis. There's lots actually pointing to hedgies and other major investors are now actually piling into the long side of the trade, there's not much left to squeeze here.

Anyways we can agree to disagree, because we can't really "prove" anything as to how sustainable the recent rally is or the cause of it. I'll just leave this here though, coincidentally Pelletier just put this out. Like I've said before in this thread, he's usually ahead of the game and he's not a perma bull by any means. He was pounding the drum on a pending collapse in mid 2014. Fundamentals are changing

http://business.financialpost.com/in...nd-is-for-real

[stampsx2]

Originally Posted by heep223

There most certainly is a change in fundamentals. Non-OPEC production isn't just slowing - it's now showing a persistent declining trend and it's just the beginning. You now have major U.S. producers forecasting double digit production declines for the year 2016.

And when opec gets to a price point they're happy with ( say $60/barrel ) what's stopping shale production from restarting? The majority of opec countries need oil at over $100/barrel to balance their books. The market game opec's playing makes no sense.

[BrownDrake]

Originally Posted by heep223

There is a huge (yyyuge) difference between 1-2% production growth out of the US and a 1-2% production decline. That is massive. That in itself is a change in fundamentals and like I said it's probably just the beginning, with major US producers projecting huge declines. Market is already priced in the Iran production coming in. Yes OPEC is politicking back and forth but the point is that they're starting a process to support the market and they're currently operating very close to max capacity. I've posted similar things in this thread for a while now, as all you see in mainstream media is doom gloom and depression, and they are historically well behind the smart money, just like sell side analysts usually are. When Goldman posts a sub $20 WTI call, it's a great contrarian indicator to get long.

Like Enoch said above "short covering/short squeeze" is very shallow analysis. There's lots actually pointing to hedgies and other major investors are now actually piling into the long side of the trade, there's not much left to squeeze here.

Anyways we can agree to disagree, because we can't really "prove" anything as to how sustainable the recent rally is or the cause of it. I'll just leave this here though, coincidentally Pelletier just put this out. Like I've said before in this thread, he's usually ahead of the game and he's not a perma bull by any means. He was pounding the drum on a pending collapse in mid 2014. Fundamentals are changing

http://business.financialpost.com/in...nd-is-for-real

You sound like you are in the "its all clear" camp and we are higher from here.

Everything that is happening right now (idled rigs, declines etc.) is sowing the seeds for the next oil price shock.

I am in the camp that the pain is not done, it comes down to inventories and supply/demand balance, that is not the current fundamentals of the oil market. The market can stay irrational longer than most can stay solvent. This is not 2008/9, the market will take awhile to clear and it will be a long time for companies to repair balance sheets and increase activity. Just like oil should not have been at $90 to $100/bbl it shouldn't be at $25 to $35, but it is.

OPEC (Mainly SA) is not trying to just punish NA producers, they are punishing everyone, offshore, Russia and even their own members (Venezuela, Nigeria etc.) who continued to exceed quotas as they throttled back production the last decade and lost market share. If oil hangs over $40 for very long trust me they will talk it back down or break the production freeze.

I say again, they are not doing this to drive the oil market to the edge of abyss without having a washout that clears the market. Cheap oil also puts a dent in alternatives and spurs usage in floundering economies increasing or stabilizing demand, they want the world hooked on cheap oil right now.

[Enoch Root]

Originally Posted by BrownDrake

You sound like you are in the "its all clear" camp and we are higher from here.

Everything that is happening right now (idled rigs, declines etc.) is sowing the seeds for the next oil price shock.

I am in the camp that the pain is not done, it comes down to inventories and supply/demand balance, that is not the current fundamentals of the oil market. The market can stay irrational longer than most can stay solvent. This is not 2008/9, the market will take awhile to clear and it will be a long time for companies to repair balance sheets and increase activity. Just like oil should not have been at $90 to $100/bbl it shouldn't be at $25 to $35, but it is.

OPEC (Mainly SA) is not trying to just punish NA producers, they are punishing everyone, offshore, Russia and even their own members (Venezuela, Nigeria etc.) who continued to exceed quotas as they throttled back production the last decade and lost market share. If oil hangs over $40 for very long trust me they will talk it back down or break the production freeze.

I say again, they are not doing this to drive the oil market to the edge of abyss without having a washout that clears the market. Cheap oil also puts a dent in alternatives and spurs usage in floundering economies increasing or stabilizing demand, they want the world hooked on cheap oil right now.

Why does it have to be one or the other? That seems like a false dichotomy to me.

I don't think anyone is looking for it to go straight up to $60 or anything.

But the one-way train to hell seems to have run its course as well.

There is so much going on right now, with currencies rebounding, other commodities rebounding, and emerging markets rebounding. I am not looking for sunshine and rainbows here, but there appears to be a lot more at play than some dead-cat, short-covering bounce.

[heep223]

Originally Posted by BrownDrake

You sound like you are in the "its all clear" camp and we are higher from here.

Everything that is happening right now (idled rigs, declines etc.) is sowing the seeds for the next oil price shock.

I am in the camp that the pain is not done, it comes down to inventories and supply/demand balance, that is not the current fundamentals of the oil market. The market can stay irrational longer than most can stay solvent. This is not 2008/9, the market will take awhile to clear and it will be a long time for companies to repair balance sheets and increase activity. Just like oil should not have been at $90 to $100/bbl it shouldn't be at $25 to $35, but it is.

OPEC (Mainly SA) is not trying to just punish NA producers, they are punishing everyone, offshore, Russia and even their own members (Venezuela, Nigeria etc.) who continued to exceed quotas as they throttled back production the last decade and lost market share. If oil hangs over $40 for very long trust me they will talk it back down or break the production freeze.

I say again, they are not doing this to drive the oil market to the edge of abyss without having a washout that clears the market. Cheap oil also puts a dent in alternatives and spurs usage in floundering economies increasing or stabilizing demand, they want the world hooked on cheap oil right now.

Well, I wouldn't say I'm in the all clear camp, you and I are closer than it appears I think. Like you're saying there is a lot of inventory to clear up and there are quite a few headwinds, and there could easily be demand surprises to the downside etc. Shale could come back pretty quickly if price goes higher. I'm just saying that I think we've put in a bottom and that this rally is based on fundamentals, and any supply side surprises will put oil higher. I agree with most of what you're saying except for the part that this is short squeeze and not rational. In my view, WTI will rally to $40-$45 and hang there for probably the rest of the year, based on what's happening in the market right now. I see us bouncing around there for the next 6-12 months but wouldn't be surprised at $50+. Down to mid 20s was a typical over-reaction and I don't see us going back down there, unless we enter a global recession (possible but not probable).

As per OPEC, I'm not sure how you can know what they want and what they're trying to do, when they don't know themselves. It's a cluster#### in there. All we know is: a) most of them (all) are heavily dependent on healthy oil prices; b) they are at the start of a process to support price; c) they hate each other, and d) they are pumping at very near to maximum capacity. Any surprise with OPEC will send price higher, be it war, outage, more clarity on freeze, or cuts. The geopolitical risk premium is coming back.

Anyways I'll stop hogging this thread.

[Fuzz]

Interesting chart showing that despite talk of demand being an issue, it continues to rise at a fairly steady rate. Predicted growth is 1.2%.

source:
https://www.iea.org/oilmarketreport/omrpublic/

[BrownDrake]

Originally Posted by Enoch Root

Why does it have to be one or the other? That seems like a false dichotomy to me.

I don't think anyone is looking for it to go straight up to $60 or anything.

But the one-way train to hell seems to have run its course as well.

There is so much going on right now, with currencies rebounding, other commodities rebounding, and emerging markets rebounding. I am not looking for sunshine and rainbows here, but there appears to be a lot more at play than some dead-cat, short-covering bounce.

You could very well be right and Oil has bottomed.

Merely pointing out fundamentals have not changed as has been posted here. If you subscribe to the point of view that the OPEC production freeze, at levels that are fundamentally too high for current world demand with historically high inventory levels, will prop oil to higher levels then so be it, could happen who really knows.

I am suggesting they haven't gone this far to save everyone now. They were trying to stem its further decline, and as suggested stabilize the market. Very likely what that means is $25 could be the floor, what makes you think we are done at those levels? I am inclined to believe we are range bound, $25 to $40 per barrel for some time until we see significant non-opec declines and inventories reverse course to more normal levels.

They want max pain, doubt they are done yet.

[Fuzz]

^ On that note...

He believes OPEC would like to set a $50 US a barrel floor for oil, as its members are suffering economically from low prices. That could mean some production cutbacks as the year goes on, or possibly a strategy of waiting for demand to rise as low prices encourage consumption.
"They want $50 oil, this is going to become the new anchor for global oil prices," he said.
"While it may not be an official target price, you'll hear them saying it. They're trying to give the market an anchor."

http://www.cbc.ca/news/business/oil-...479159?cmp=rss

[Enoch Root]

Or demand could pick up again in Asia. Or a whole bunch of other things.

All I'm saying is that there is more going on right now than short covering.

Where we go from here will depend on things not yet known (as always).

[nik-]

Originally Posted by BrownDrake

They want max pain, doubt they are done yet.

Our pain hurts our economy and oil companies. Their pain weakens their control on their populace.

There's a reason they're starting to back down.

[ranchlandsselling]

Originally Posted by heep223

Anyways I'll stop hogging this thread.

You are not and please don't.

[BrownDrake]

Originally Posted by Enoch Root

Or demand could pick up again in Asia. Or a whole bunch of other things.

All I'm saying is that there is more going on right now than short covering.

Where we go from here will depend on things not yet known (as always).

Agreed

Known Unknowns lol

The agreement was a signal to shorts to cover as downside was limited. Several of those shorts are probably longs now. Long until what level is the question, probably stiff resistance to break at $40 but we will see. At that level without changes in fundamentals you probably see shorts entering again. Investors don't move commodities markets, traders and hedge funds do - they make money both ways.

[Enoch Root]

Originally Posted by BrownDrake

Agreed

Known Unknowns lol

The agreement was a signal to shorts to cover as downside was limited. Several of those shorts are probably longs now. Long until what level is the question, probably stiff resistance to break at $40 but we will see. At that level without changes in fundamentals you probably see shorts entering again. Investors don't move commodities markets, traders and hedge funds do - they make money both ways.

If I was long right now, I would be really close to the door at $40.

[Enoch Root]

Originally Posted by BrownDrake

Agreed

Known Unknowns lol

The agreement was a signal to shorts to cover as downside was limited. Several of those shorts are probably longs now. Long until what level is the question, probably stiff resistance to break at $40 but we will see. At that level without changes in fundamentals you probably see shorts entering again. Investors don't move commodities markets, traders and hedge funds do - they make money both ways.

Hedge funds yes. Not many traders do though, unless they're playing with GS money!

[Azure]

Originally Posted by Enoch Root

I have always hated 'short covering' as an excuse to explain market activity. So lazy. It is true only a tiny fraction of the times it is sited.

Oil has been rising steadily for 3 weeks, after putting in a pretty emphatic double bottom.

There may still be a few stubborn people covering shorts out there, but to suggest they are what's moving the market? No.

I agree. The fundamentals might not be strong enough for $80 oil, but they're not as terrible as people make it out to be.

Nice to see the Canadian dollar hold too.

[Azure]

US rig count is down as well. Could easily start back up if prices rebound, but one would imagine OPEC will eventually give in.

Saudi Arabia for one can't sustain this market regardless of how much money they are sitting on. Emerging markets are there to tap in right now, especially with other high commodity prices. Seems shortsighted to not try to make more money from oil right now, especially given the trend towards renewables.

[calumniate]

How easily does everyone engage though? There's the glut, and then the producers who are holding off, ready to pull the trigger.

[Fuzz]

A lot are going bankrupt, so that will slow down re-deployment.