Price of Oil hits new low

[dnmun]

not sure where all of this came from. nothing to do with what and how it happened back during thanksgiving week that led to this point.

i have to stick to real facts. before the opec meeting there were negotiations with the russians through the head of Rosneft, a guy named Szechin who was a friend and inner circle of putin. so when the saudis thought they had worked out a deal with Rosneft to reduce production along with everybody else in opec. so that everybody had to take a 3% haircut to support the price of crude. then at the last moment, another guy from the russian oil ministry by the name of Novak who made a public statement to the effect that russia would never cut back, and the saudis felt like they were being double crossed by the very guy who was undercutting them in deals to china and also supporting iran and assad.

after that the die was cast, so it is almost accidental since history could have been different if this guy novak had not publicly embarrassed the monarch by double crossing him in public like that.

that was how it happened. after that the saudis made the public announcement that they would not be the fall guy and cut their own production. they made a clear statement that is intellectually honest and appropriate considering the lesson in Capitalism was being taught to the two soviet/chinese army systems now corrupted by capitalism of the worst form.

the saudi statement was that capitalistic economic theory said that the low cost producer should have access to more markets since they could deliver cheaper than anyone else. the saudis can produce cheaper than everyone else so they are gonna prove the basic tenet of capitalism. so eventually all the higher cost producers will stop producing and the price will reach the natural level.

that is what is happening. that is what is bankrupting venezuela, and the shale oil drillers too. in spite of the insults about these guys polluting the land from him, i know that the work that these people do is way more than any of you could imagine. drilling horizontally within a thin rock layer 10,000' below the surface. the mud motors, the kick out, the proppants, multistage hydraulic fracturing of solid rock in stages over almost a mile horizontally in stages, up to 22.

nobody else in the world can do this stuff and all this financial pressure will just force the cost of drilling shale down even more than it was. that is capitalism in pure form. there has not been pollution of the water table. it is just pollution when people burn it in their fat cars.

 

[dnmun]

something just happened, crude just dropped 1.5% in a few minutes down to the $47.73 level from $48.60s, so there was news somewhere that has spooked trading. but they are dragging it back over $48 now, but will be interested to know what just happened.

 

[e-beach]

something just happened, crude just dropped 1.5% in a few minutes down to the $47.73 level from $48.60s, so there was news somewhere that has spooked trading. .........

Probably something like this.....

http://www.cnbc.com/id/102321721

One trader who has already made big money on the decline in oil services stocks is doubling down and betting big on further downside for the sector.

On an active day for options on the Market Vectors Oil Services ETF (OIH), the biggest trade was the "rolling" of a position in the February 34-puts down to a position in the April 30-puts. This maneuver allows the trader to profit on a successful bearish bet on oil stocks, and to effectively double down, in an expectation that the trend will continue.

This trade, which Mike Khouw chronicled in a Wednesday "Fast Money" segment, began in December. That's when the trader, over a couple weeks, bought bearish put options on the oil ETF. Specifically, 20,000 February 34-strike puts on the (OIH) were purchased for an average price of $1.25 per share.

On Wednesday, the trader exited that position by selling the contracts for $1.82 per share, enjoying a profit of just over a million dollars. (If you're following along with the math here, recall that each standard options contract controls 100 shares of the underlying stock or ETF.)

 

[EMF]

something just happened, crude just dropped 1.5% in a few minutes down to the $47.73 level from $48.60s, so there was news somewhere that has spooked trading. but they are dragging it back over $48 now, but will be interested to know what just happened.

Well, Maybe unrelated but...

I just filled up at the U-pump it down the street from work, and I am pretty sure they have a security camera. I was on vapors, so they just took a hit for 17 gallons. Curious to see if crude swings right back up. Normally, I don't wait that long to buy gas!

 

[dnmun]

usually a drop like that is another hedge fund being liquidated by the broker or bank. i do not see this turning around in 6 months if the russians do not blink. i do not think putin will blink.

 

[e-beach]

....... i do not think putin will blink.

yep, ol' puut-d-put is the king-man in his country. Nobody gunna' tell him no. He probably doesn't have enough information to even think to bilnk. What yes-man wants to tell him no. Probably wondering how it all happened. When he figures it out, heads will probably roll and the yes-men will scatter like rats. Maybe never to be seen again.

Russians aren't going to cut output. More likely increase output to make up the difference.

 

[e-beach]

As an addendum...

Oil production chart shows the big shale boost for U.S.
http://finance.yahoo.com/news/oil-production-chart-shows-the-big-shale-boost-for-u-s-204600737.html

 

[dnmun]

you can see how much more production growth has been from the Eagle Ford and the Permian than from the Bakken and Two Forks.

lay downs from last week' rig counts show texas had 16, this will be as bad as 1985 some people think. now looking like more than 40% of the fleet will be gone with most of it never coming back.

 

[arkmundi]

http://www.counterpunch.org/2014/12/16/the-oil-coup/

According to Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center, the dramatic price collapse is being deliberately caused by the Saudis, OPEC’s largest producer. The public reason claimed is to gain new markets in a global market of weakening oil demand. The real reason, according to Abanmy, is to put pressure on Iran on her nuclear program, and on Russia to end her support for Bashar al-Assad in Syria….More than 50% of Russian state revenue comes from its export sales of oil and gas.

When we live in a world dominated by multiple massive conflicting conspiracies, the word conspiracy looses all meaning. Power will always exercise itself in a manner that perpetuates and extends itself. The US/Saudi alliance is the most significant of these.

 

[TheBeastie]

Welp since the Swiss Central bank dropped its 1.20 flaw on its currency vs the euro. Oil has rallied to above $50 atm and also the Aud and NZ currencies have rallied.
The algorithmic trading computers must be going crazy.

 

[TheBeastie]

Came across this pretty cool video it explains how oil could hit $20 a barrel.
http://www.bloomberg.com/news/articles/2015-03-24/here-s-how-20-oil-could-become-a-reality-if-storage-runs-out
You can pick it apart but the core logic is pretty sound.

 

[dnmun]

no it is not sound. it is hype from GS.

the hype about the inadequate storage is part of the scheme to support the shorts who have piled on the largest short position in history of trading crude.

expect it to unwind with a huge spike.

the risk of the iran negotiations settlement leading to introduction of another 1mm bbls is the big risk to oil price right now.

 

[e-beach]

It is well known enough around here that every time a California petroleum refinery has an "accident" that prices spike for a while. It has gotten so routine that even the California State Senate spends a lot of time looking at it.

http://www.latimes.com/business/la-fi-california-gas-prices-hearing-20150324-story.html

Did accident or price fixing cause high gas prices? California State senators ask?
High gas prices: accident or price fixing?

State senators Tuesday questioned whether last month's high gasoline prices were caused by a refinery accident and natural market forces or a price-fixing scheme. (Nick Ut / Associated Press)
By Tiffany Hsu contact the reporter



State senators investigating a recent surge in California pump prices at a Tuesday hearing grappled with price-fixing accusations and pressure to shift to alternative fuels.

Members of the transportation, housing and energy, utilities and communications committees questioned why retail gasoline prices rocketed past the rest of the country last month and are only gradually floating back down.

Sen. Ben Hueso (D-San Diego) chaired the hearing and returned several times to one suspicion: that the tiny pool of refiners responsible for producing California’s unique fuel blends may be colluding to keep prices artificially high.

“Do we have monopolies on fuel in California?” he asked. “We want to know if we don’t have a competitive-enough market to keep prices low.”

Gas prices soared about $1 a gallon last month in California, making the fuel more expensive than anywhere else in the country. Prices have fallen this month, but at an average of $3.25 a gallon Tuesday, gasoline in the state still costs 82 cents a gallon more than elsewhere in the U.S.

There are no pipelines connecting California to its neighbors; imports come slowly by ship or truck, panelists said. And state regulations require specific, clean-burning fuel blends.

That unique recipe – not recent adjustments to California’s cap-and-trade regulations – is the “fundamental problem” causing the price increase, said Jay McKeeman, vice president of the California Independent Oil Marketers Assn.

“Independent refiners can’t afford to make it, and it further isolates us from outside fuel producers,” he said.

Prices surged in the aftermath of a Feb. 18 explosion at the Exxon Mobil Corp. refinery in Torrance. Tesoro Corp. idled processing at its Martinez, Calif., plant earlier that month in response to a strike.

Tesoro spokeswoman Tina Barbee said Tuesday that the facility will not restart until the local United Steelworkers union ratifies a new labor agreement. The vote is scheduled for this week.

Refineries are generally under contract for 80% to 90% of the fuel they produce, said Gordon Schremp, senior fuels specialist for the California Energy Commission. To meet their obligations after a supply disruption, they tend to draw from their stockpiles, buy from traders and other refineries or turn to imports, all of which drives prices up.

“As inventories go down, the prices go up,” said Philip K. Verleger, an economist consulting for the Western States Petroleum Assn. “This is normal behavior.”

But Jaime Court, president of Santa Monica advocacy group Consumer Watchdog, said the prices are artificially inflated.

Refineries don’t try to produce more gasoline to undercut their competitors, Court said. Instead, he alleged, they work together to limit refining capacity and manipulate the market – a tactic that he attributed to intense consolidation in the industry.

Chevron and Tesoro together control 55% of the state refining market, Court testified.

California facilities keep far smaller inventories than other plants nationwide, he said. Court called for greater transparency in industry data and asked legislators to require refineries to keep more fuel at the ready.

Some senators and panelists also suggested a greater push toward alternative fuels, reasoning that a more diverse energy portfolio might balance out the volatility of petroleum pricing.

"This system is made to break because oil refineries keep it running on empty," Court testified. "They have every incentive to create a price spike like this."

Kathleen Foote, who heads up the antitrust division at the California attorney general’s office, agreed that the industry operates like an oligopoly in the state. But proving price fixing is difficult in a field where only a few players exist, she said.

“The more conducive a market structure is to collusion – fewer competitors, etc. – the weaker a plaintiff’s case is likely to be,” she said.

 

[TheBeastie]

It is well known enough around here that every time a California petroleum refinery has an "accident" that prices spike for a while. It has gotten so routine that even the California State Senate spends a lot of time looking at it.

http://www.latimes.com/business/la-fi-california-gas-prices-hearing-20150324-story.html

Did accident or price fixing cause high gas prices? California State senators ask?
High gas prices: accident or price fixing?

That is an interesting article, I dare say that if there are any refineries out there that have no ownership interest in the oil producers then its mighty tempting of them to squeeze the bottle-neck of the oil to petrol flow and push oil prices even lower for their own gain. If the refineries can't squeeze extra money out of the consumer via petrol prices due to governments breathing down their necks the next best thing to do is squeeze the oil producers , unfortunately most of them are on both sides of the fence but that still leaves some independents.

 

[dnmun]

you just don't understand the business and are limited by your personal political bias.

if you had more exposure to the actual world this takes place in you would have read this also, or many other comments to illuminate the false rumors of storage limitations since the GS story was blown up by the shorts:

US storage comment from Morgan Stanley
Adam Longson, CFA, CPA – Morgan Stanley
March 25, 2015 4:18 AM GMT
US crude oil faces a structural and seasonal challenge, but 2015 is unlikely to be the tipping point.
US crude stocks will build through May, but there is plenty of storage. Tank farm utilization in PADDs 2-4 is should peak near 72%. However, record builds should support bearish sentiment for now.
Any extreme WTI bear case is unnecessary. The system is more flexible than most realize. Full storage will never be realized because regional diffs move as congestion builds, allowing access to alternative storage, markets and clearing mechanisms. And unlike past years, infrastructure is no longer a constraint.
US storage is more important for structure than price. Global dynamics are more important for price levels. The relationship between US storage and WTI is negligible. Regional diffs drive crude flows and will be dictated by the cost to clear markets, which can occur in a rising or falling WTI price environment.
Plenty of levers are available beyond storage, but require proper diffs. $8-13/bbl WTI-Brent should be sufficient to open arbs for now, but wide diffs are likely into 2H15 and beyond without a policy change.
Stock implications. Most positive: Refining (VLO, MPC, PSX, PBF, HFC). Storage focused MLPs ( PAGP/PAA, SXL, and EPD).
Bearish headlines for US crude, but a disaster scenario is unlikely. While the US faces a structural problem, 2015 is unlikely to be the tipping point. The build in US crude stocks is driven by North American specific issues. Similar to 1H14, we see crude stocks building to record levels, but peaking in May at 115 mmb higher YoY – still well below tank tops. The US still has many outlets, which should avoid catastrophe. US diffs need to support these efforts going forward, but these can occur with any WTI price. That said, the trend in US data coupled with oversupply fears may pressure pricing and structure more than is ultimately required.

 

[The fingers]

http://money.cnn.com/2015/04/15/investing/oil-price-high-2015/index.htmlOil just hit $56 -- its highest price in 2015

 

[TheBeastie]

So if you haven't been reading the headlines lately the price of oil per barrel is hitting new lows that we haven't see since the GFC, below $70 a barrel depending on the type.
http://www.nasdaq.com/markets/crude-oil.aspx

One thing I realized though is compared to iron ore per ton the oil market comparatively makes a killing. According to wikipedia or general calculations 1 ton of oil is about 6.5 barrels of oil.
http://en.wikipedia.org/wiki/Barrel_%28unit%29

The largest mining company in the world BHP is selling iron ore per ton on the spot market is about $80 per ton it has slid down from $114 from 6 months ago (and now probably $70).
http://www.indexmundi.com/commodities/?commodity=iron-ore

So if the crude oil guys were selling it by the ton like miners then it would be $70 x 6.5 = $455.
And the reality is oil is easier to get out of the ground as its just pumping instead of digging.

Looking at my original OP rant its amazing how much Oil and Iron ore have falling down together to new lows.
Both these commodities have tracked downwards very similary over the years, here is a chart below of Oil and Iron ore going back to mid 2012 to now 2016, Oil is blue and Iron ore is red, they are sharing the same price axis on the left as they are on such similar prices.
What else is there to say, but where to from here?
https://www.tradingview.com/x/ojqMjy46/

 

[Dauntless]

And now we're getting Iranian oil back.

http://money.cnn.com/2016/01/16/investing/iran-sanctions-lift-oil/index.html

 

[speedmd]

Gas under $1 in Michigan.

http://www.wxyz.com/news/michigan-becomes-first-state-to-welcome-back-gas-under-1

 

[Hillhater]

wow, !..$0.80 / gal....that has to be a 30 yr low ?
We are stuck at ~ $3 US / gal ....apparently because we are tied to the Singapore market rate !
I suspect someone is making huge $$$'s still over here to help support other markets.

 

[spinningmagnets]

The truck stop where the state 77 crosses the interstate 70 in NE Kansas...$1.49/gal, and a few blocks down the road it's $1.51...WTF?

 

[wineboyrider]

wow, !..$0.80 / gal....that has to be a 30 yr low ?
We are stuck at ~ $3 US / gal ....apparently because we are tied to the Singapore market rate !
I suspect someone is making huge $$$'s still over here to help support other markets.

Soon you too could be consuming american crude oil as the export ban is being lifted to relieve WTI supply.

 

[Hillhater]

Do you really think the Asian based refineries/wholesalers are going to significantly cut their retail margins just because they can source cheaper crude ?

 

[wineboyrider]

@Hillhater Yep, because they are just starting to buy it http://www.reuters.com/article/us-usa-oil-china-exclusive-idUSKCN0UT086

 

[wineboyrider]

http://www.unitedstatesoilfieldasso...-back-work-soon-saudi-arabia-may-go-bankrupt/ Saudia Arabia to go bankrupt as WTI oil enters the free market. 8)