A Return of Low Prices Is Suggested

[Jan van Eck + 7,558]

1 minute ago, William Edwards said:

Thanks for reminding me to be more precise in my wording. I mistakenly used "demand" for "consumption". The word "demand" is ambiguous. The word "consumption" is not. I apologize for my sloppy text. I shall edit the post.

Aha!  Well, when you put it that way, I agree!  

But if you edit the post, then mine becomes a non-sequitur!  Hah! Oh, well. 

[William Edwards + 708]

4 minutes ago, Jan van Eck said:

Aha!  Well, when you put it that way, I agree!  

But if you edit the post, then mine becomes a non-sequitur!  Hah! Oh, well. 

But you did provide a valuable service in forcing me to communicate accurately. Thanks again.

[Jan van Eck + 7,558]

Just now, William Edwards said:

But you did provide a valuable service in forcing me to communicate accurately. Thanks again.

I confess that I seriously thought you intended "demand."  It had not occurred to me that you were referencing physical consumption.  One of the inherent hazards of a Dutchman taking the English Language literally, I suppose!  Oh, well. 

[William Edwards + 708]

1 minute ago, Jan van Eck said:

I confess that I seriously thought you intended "demand."  It had not occurred to me that you were referencing physical consumption.  One of the inherent hazards of a Dutchman taking the English Language literally, I suppose!  Oh, well. 

You are to be commended for your skill in handling the English language. I cannot even begin to imagine the catastrophe that would occur if I tried to communicate in another language. Multi-linguistic people around the world are to be admired for their ability.

[Jan van Eck + 7,558]

Just now, William Edwards said:

You are to be commended for your skill in handling the English language. I cannot even begin to imagine the catastrophe that would occur if I tried to communicate in another language. Multi-linguistic people around the world are to be admired for their ability.

I am up to five.  Now starting in on Danish. Hey, I am such an old guy (72) at this point, might as well just keep going! 

Sure helped in selling on different continents.  I heartily endorse language training and education for everyone.  When I was a teenager I memorized entire passages in Goethe's Faust just to get limbered up in German.  Six decades later and it is still with me.  Cheers. 

[William Edwards + 708]

Just now, Jan van Eck said:

I am up to five.  Now starting in on Danish. Hey, I am such an old guy (72) at this point, might as well just keep going! 

Sure helped in selling on different continents.  I heartily endorse language training and education for everyone.  When I was a teenager I memorized entire passages in Goethe's Faust just to get limbered up in German.  Six decades later and it is still with me.  Cheers. 

I admire you even more! It makes me wonder what you will achieve when you grow up.

[Guillaume Albasini + 851]

Next week Aramco will release its official selling prices (OSPs) for July-loading tankers. It will be closely watched to see  if the saudis are serious on their intent to expand production and lower the oil price...

https://www.businesstimes.com.sg/energy-commodities/look-out-for-saudis-july-official-selling-prices-for-key-to-oil-outlook

 

 

[sudhir + 9]

On 5/26/2018 at 4:13 PM, William Edwards said:

 

On 5/26/2018 at 9:00 PM, Jan van Eck said:

Russia has to continue to increase its oil production as Putin needs the cash to finance his military machine.  Putin is a sick man; he has these visions of the old Imperial Russia extending total dominance over all the countries of the old USSR.  He is perfectly prepared to invade and occupy his neighbors, and has done so repeatedly:  Georgia, South Ossetia, Crimea, Eastern Ukraine.  Russia sits on the border of the Eastern European countries, including Poland, when you remember that Russia controls the Kaliningrad Oblast, now a totally militarized piece of real estate.  

It all requires military machinery and troops - and that costs beaucoup bucks.  Where is that cash going to come from? Russia, i.e. Putin, needs to selll oil and gas.  That is the source of the funding for the military machine.  I anticipate that Russia will continue to pump, and will allow the price to drop to clear his inventory. 

The West should flatly refuse to buy Putin's oil.  Why finance the entity that seeks to invade Eastern Europe?  We have had quite enough of Russian expansionism and militarism. 

Russia is another US on a small scale. 

On 5/26/2018 at 9:00 PM, Jan van Eck said:

 

 

[William Edwards + 708]

4 hours ago, Guillaume Albasini said:

Next week Aramco will release its official selling prices (OSPs) for July-loading tankers. It will be closely watched to see  if the saudis are serious on their intent to expand production and lower the oil price...

https://www.businesstimes.com.sg/energy-commodities/look-out-for-saudis-july-official-selling-prices-for-key-to-oil-outlook

 

 

You, and the author of the referenced article, are exactly right. The Saudis' action with the "price lever" is of prime significance. It will tell us a lot.

[Rodent + 1,424]

2 minutes ago, William Edwards said:

You, and the author of the referenced article, are exactly right. The Saudis' action with the "price lever" is of prime significance. It will tell us a lot.

Huge news. We will be closely following the KSA's price changes.

[Rodent + 1,424]

Related: KSA announced today that it is raising propane prices from $500 per tonne to $560 per tonne for June. https://english.mubasher.info/news/3293794/Saudi-Aramco-sets-propane-at-560-tonne-for-June

[Dennis Coyne + 82]

On ‎5‎/‎30‎/‎2018 at 10:10 AM, William Edwards said:

I enjoy theoretical price discussions as much as anyone. But can we now turn to reality? How do the Saudis translate their target price, stated or unstated, to the invoice on the receiving ship? Was their target yesterday different from a week ago? They sold oil yesterday based upon a $67 WTI price, and the previous Tuesday that put a $73 price on the invoice. Did they make a conscious decision to drop the price six dollars a barrel or did they simply follow the CME posting? Of course, they followed the futures posting. So the actual price was determined by the CME action, not the Saudi decision.

Had the Saudis chosen to put their own target price on the invoice, whether it was $50, $75 or $100, that would have been the price. The purchaser might have sailed way empty if that were an abrupt, unannounced decision and the price was higher than he would accept, but, since the Saudis provide the barrels of last resort, eventually he would agree to pay the Saudi price. If this fact ever sinks in to the decision makers ini Saudi Arabia, then a Saudi "target" price can be successfully implemented. Demand, and hence supply, would adjust to that price, whatever its is, down to the point where it was too low for the Saudi spare capacity to fulfill demand. On the upside it would be limited to the price so high that the Saudis were pushed completely out of the supply business and then they would relinquish the swing producer role and the next-in-line would set the price.

The idea that the Saudis "are thinking of a number" and that number, magically, becomes the CME settlement price and thereby appears on the Saudi invoices seems rather far-fetched.

William,

What do you think would happen to futures markets if OPEC/Russia said we will pump as much oil as is needed so the price stays at $65/b?

My guess is that if the market believes OPEC and Russia have enough capacity to supply the market at that price, then the oil price would be relatively stable at that price.

My guess is that OPEC/Russia are probably aiming for $75 to $85 per barrel, my point however is that if they choose a price range that the market believes is sustainable, oil prices are unlikely to move out of that range.  I imagine the World price is set by the individual transactions of many buyers, and that is the price we are usually talking about rather than any individual transaction and probably near term futures market prices determine the spot prices.  The bulk of the transactions are likely determined by long term contracts, which obviously have may different expiration dates and also may be influenced by futures prices upon renewal along with political and probably lots of other factors.

The real world is easier to understand when one has a theory of how it works.

You have a number of theories as well, such as supply is equal to demand at all times.  In the real world inventory levels change.

[William Edwards + 708]

6 minutes ago, Dennis Coyne said:

William,

What do you think would happen to futures markets if OPEC/Russia said we will pump as much oil as is needed so the price stays at $65/b?

My guess is that if the market believes OPEC and Russia have enough capacity to supply the market at that price, then the oil price would be relatively stable at that price.

My guess is that OPEC/Russia are probably aiming for $75 to $85 per barrel, my point however is that if they choose a price range that the market believes is sustainable, oil prices are unlikely to move out of that range.  I imagine the World price is set by the individual transactions of many buyers, and that is the price we are usually talking about rather than any individual transaction and probably near term futures market prices determine the spot prices.  The bulk of the transactions are likely determined by long term contracts, which obviously have may different expiration dates and also may be influenced by futures prices upon renewal along with political and probably lots of other factors.

The real world is easier to understand when one has a theory of how it works.

You have a number of theories as well, such as supply is equal to demand at all times.  In the real world inventory levels change.

You try my patience, Dennis. I can see no benefit in my trying to explain reality to you. If you are unwilling or unable to grasp the simple fact that you cannot consume what is not supplied, nor can you continue to supply what is not consumed, then the conversation is probably hopeless. So I decline the opportunity to participate further.

[Dennis Coyne + 82]

On ‎5‎/‎30‎/‎2018 at 11:44 AM, William Edwards said:

In your post you say " let's say the Russia/OPEC  combined output is 45 Mb/d of crude oil and the price is $70/b.", then you move forward with your arithmetic. Are you suggesting that Russia/OPEC sets the 45MB/D level? How do they implement this level?

But are your assumed numbers realistic? Are they even close? How do you know? The answer is, you don't and neither do the Russians/OPEC. Further, in order to get the data, you would have to be able to set and maintain the price level for twenty or so years for the equilibrium of price vs demand to stabilize. 

The point is that this is a rather complicated subject over which you, nor anyone else, have specified how to implement a desired production level. You talk readily about the production target, or wish, but you have yet to describe the steps that the producer takes to make that production level happen.

William,

I agree price needs to change to raise or lower production levels that's rather obvious.  I agree the process of how the market gets from point A to point B is complicated, we need that Walrasian auctioneer. 

Yes one would need to estimate what one thinks will happen to supply and demand at different price levels, in other words one would estimate a World supply and demand schedule, but in the real world, it would be correct that nobody knows what these are precisely.

Generally one would expect in the long run that lower prices would lead to higher levels of consumption assuming the World income level was unchanged and higher prices would reverse the effect.

In any case it seems  it makes more sense for OPEC/Russia to keep output levels flat and let prices rise, if they want higher prices, if not they can offer oil for sale at just below the World price and put downward pressure on prices so there is more consumption.  It all depends on what they believe the slope of the World supply and demand curve is at current levels of demand and supply as to what the best strategy is for maximizing revenue.  There may also be other political considerations as Russia and Iran and Saudi Arabia are on opposite sides of several conflicts in the Middle East, this might make future agreements difficult.

[Guillaume Albasini + 851]

Maybe another piece of the puzzle showing a coming increase in oil production from OPEC and Russia :

"Rosneft is testing its capacity to bring back production it cut under a deal between Moscow and Opec, telling investors it boosted output this week by about 70,000 barrels a day, Renaissance Capital said. "

https://www.businesstimes.com.sg/energy-commodities/rosneft-testing-oil-production-increase-ahead-of-opec-talks

[Rodent + 1,424]

oprc raised its basket price today.

[William Edwards + 708]

1 hour ago, Guillaume Albasini said:

Maybe another piece of the puzzle showing a coming increase in oil production from OPEC and Russia :

"Rosneft is testing its capacity to bring back production it cut under a deal between Moscow and Opec, telling investors it boosted output this week by about 70,000 barrels a day, Renaissance Capital said. "

https://www.businesstimes.com.sg/energy-commodities/rosneft-testing-oil-production-increase-ahead-of-opec-talks

Thanks for passing this along, Guillaume. This is significant information.

[Dennis Coyne + 82]

16 hours ago, William Edwards said:

You try my patience, Dennis. I can see no benefit in my trying to explain reality to you. If you are unwilling or unable to grasp the simple fact that you cannot consume what is not supplied, nor can you continue to supply what is not consumed, then the conversation is probably hopeless. So I decline the opportunity to participate further.

Ok I guess in your "real world" there are no oil stocks.

In the long run you are correct, but in the long run we are no longer here, the real world is more short term and in that world supply does not create demand and demand does not create supply, but they also do not magically match as in the Walrasian World, inventory is a very real thing and is watched very closely by markets.  You claim they don't matter, I disagree.

[Dennis Coyne + 82]

On ‎5‎/‎30‎/‎2018 at 7:33 AM, Tom Kirkman said:

Russia has budgeted for $40 oil for 3 years, starting in 2017.  Russia recently said they would be happy with $60.

And last month, Saudi Arabia started a whisper campaign to get prices up to $80 to maximize the potential value of their (potential) Aramco IPO. Then later started whispering for triple digit oil at $100, probably to see if the market could bear triple digit oil.

And of course, Trump tweeted his displeasure about artificially high oil prices, just before the Summer driving season in the U.S. and also before the upcoming midterm elections - - - U.S. voters tend to get annoyed with high gasoline prices.

So with Saudi Arabia angling for $80 to $100 oil, Russia budgeting for $40 oil and happy with $60 oil, Iran happy with $60ish oil (because that price hurts Saudi Arabia and Iran can live with $60) and all the other OPEC countries angling for their own preferred price... my general guesstimate of a Goldilocks comfort zone of around $65 for OPEC + Russia might not sound so crazy anymore.

Just my opinion; as always, you are free to disagree.

Hi Tom.

Isn't Saudi Arabia the swing producer?  If so, they could choose to restrict output so that the Oil Price was $80/b.  Let's say they could produce 11.5 Mb/d (I doubt this is true) and such an output level would result in $65/b, so we have $747.5 M/d of revenue. Alternatively they could produce 9.2 Mb/d and let's guess the oil price ends up at $85/b and they would earn $782 M/d of revenue.

Which choice makes more sense if maximum revenue is the goal?  As long as the oil price ends up at $81.25/b or higher at the lower level of output (9.2 Mb/d in this example) worrying about market share is a fools game.

[Dennis Coyne + 82]

1 minute ago, Dennis Coyne said:

Hi Tom.

Isn't Saudi Arabia the swing producer?  If so, they could choose to restrict output so that the Oil Price was $80/b.  Let's say they could produce 11.5 Mb/d (I doubt this is true) and such an output level would result in $65/b, so we have $747.5 M/d of revenue. Alternatively they could produce 9.2 Mb/d and let's guess the oil price ends up at $85/b and they would earn $782 M/d of revenue.

Which choice makes more sense if maximum revenue is the goal?  As long as the oil price ends up at $81.25/b or higher at the lower level of output (9.2 Mb/d in this example) is more sensible, worrying about market share is a fools game.

 

[Rodent + 1,424]

On 5/31/2018 at 9:30 AM, Rodent said:

Huge news. We will be closely following the KSA's price changes.

Reuters survey shows Saudis will raise prices... Reuters survey

[William Edwards + 708]

1 hour ago, Rodent said:

Reuters survey shows Saudis will raise prices... Reuters survey

Thanks for the update. Please keep us informed when the actual numbers are announced.

[Tom Kirkman + 8,860]

7 hours ago, Dennis Coyne said:

As long as the oil price ends up at $81.25/b or higher at the lower level of output (9.2 Mb/d in this example) worrying about market share is a fools game.

Dennis, I don't recall bringing "market share" into this discussion.

And I'll keep repeating, I do not expect others to agree with my opinions.  As always, you are free to disagree - no issue.

But you may wish to pay attention to the Halliburton CEO, who is fine with oil in the $60 to $70 range:

 

[JunoTen + 118]

Hopefully you all are right, gasoline is way too expensive these days. 

OPEC shouldn't push it, or else India and China will simply accelerate on electric cars and raise their quotas and subsidies for those technologies.

[Dennis Coyne + 82]

On ‎6‎/‎1‎/‎2018 at 6:24 PM, Tom Kirkman said:

Dennis, I don't recall bringing "market share" into this discussion.

And I'll keep repeating, I do not expect others to agree with my opinions.  As always, you are free to disagree - no issue.

But you may wish to pay attention to the Halliburton CEO, who is fine with oil in the $60 to $70 range:

 

Hi Tom,

You brought in OPEC and their preferred prices.  So forget about market share for a moment (the reason often cited for OPEC's increase in output in 2015/2016),  you suggest KSA wants $80/b?

Is your opinion that they are not the swing producer?  If they are, and if your opinion that they want $80/b is correct, can you explain how the price reaches your "hope" level?  We don't necessarily disagree, if your hope price level is never reached.  LTO producers are not very profitable at $65/b, KSA doesn't want $65/b and it's not clear why Russia and OPEC would choose $65/b over $80/b?

If OPEC/Russia stand pat on output levels (or increase by a token amount that simply fills in the gap due to declines in Venezuela), then prices will stay where they are at around $75/b or possibly increase to $80/b due to lower output from Permian, Canada, and Brazil than has been forecast.

It would be nice if there was enough supply at $65/b, but rational action by OPEC/Russia makes this unlikely in my opinion.