Oil prices going down

 

William, we obviously have different opinions about oil prices and are using different time frames. I base my fundamental opinion on the underinvestment by the larger players in traditional E&P since the price swoon of 2015, the Saudis strategy to price the ARAMCO IPO as high as possible to kick of MBS vision 2030 and the fact that many shale producers loose money under $50/BBL. On that basis I am not willing to go beyond 2020. Rather than providing a chart I will shamelessly copy a supply/demand balance from HFIR who I consider to be among the best energy analysts anywhere:

HFIR SD Bal.docx

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Just now, Manfred Kruger said:

Most of those sales were 5 day loading windows based on Brent

Never a number -- correct? A differential off of some indicator. As I see it, you have to go back to the original source to get the actual number. And that source is usually a futures trading entity. The print of the daily closing is so easy to use. This results in the futures trading entity as the price setter, which I define as the entity that provides the actual number that appears on the invoice. In my view, the price has to be a number, not a statement or an idea. A specific number.

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(edited)

38 minutes ago, William Edwards said:

Never a number -- correct? A differential off of some indicator. As I see it, you have to go back to the original source to get the actual number. And that source is usually a futures trading entity. The print of the daily closing is so easy to use. This results in the futures trading entity as the price setter, which I define as the entity that provides the actual number that appears on the invoice. In my view, the price has to be a number, not a statement or an idea. A specific number.

 

Edited by William Edwards

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40 minutes ago, Manfred Kruger said:

 

William, we obviously have different opinions about oil prices and are using different time frames. I base my fundamental opinion on the underinvestment by the larger players in traditional E&P since the price swoon of 2015, the Saudis strategy to price the ARAMCO IPO as high as possible to kick of MBS vision 2030 and the fact that many shale producers loose money under $50/BBL. On that basis I am not willing to go beyond 2020. Rather than providing a chart I will shamelessly copy a supply/demand balance from HFIR who I consider to be among the best energy analysts anywhere:

HFIR SD Bal.docx

You are correct, Manfred, we are on completely different wave lengths. You are concerned with trading numbers, which depend upon the flavor-of-the-day attitude on what influences prices. In other words, your price focus is based upon perception, which changes rather whimsically -- mostly from the follow-the-trend mentality. And since actual data are not available for these whimsical ideas, they can be quite fluid. But also never checked against actual historical data.

On the other hand, I am aware that there is a real oil business operating alongside, in spite of and impacted by the speculative world. But reality cannot be denied, even if it is neither noticed nor understood. Eventually it must be accounted for. I am trying to understand that world, since it is the real world for oil business, as opposed to the world of financial trading. The two are vastly different. One deals in physical oil. The other deals in paper promises. Try operating your car by pumping futures contracts into the tank.

So let us be careful to distinguish which world our comments are directed toward.

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Yes William I agree that futures are the tail that wails the dog in the short term, but wet barrels will always assert themselves in the long run and that is the reason that I included the HFIR global supply/demand table. That table roughly projects a supply deficit of one million barrels per day for the next couple of years. Those estimated stock draws, which admittedly are subject to many potential variations, imply global inventory reductions on steroids. If you add any potential geopolitical accidents, Venezuela, Nigeria, Angola, Libya and especially the Middle East, all bets are off. That is the great value of forums like this one where participants get the benefit of differing opinions.

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14 minutes ago, Manfred Kruger said:

Yes William I agree that futures are the tail that wails the dog in the short term, but wet barrels will always assert themselves in the long run and that is the reason that I included the HFIR global supply/demand table. That table roughly projects a supply deficit of one million barrels per day for the next couple of years. Those estimated stock draws, which admittedly are subject to many potential variations, imply global inventory reductions on steroids. If you add any potential geopolitical accidents, Venezuela, Nigeria, Angola, Libya and especially the Middle East, all bets are off. That is the great value of forums like this one where participants get the benefit of differing opinions.

I find essentially no value in short term forecasts of supply and demand, since I have zero concern that either the customer will go home with unfilled tanks or that the tanks, worldwide, will overflow. Inventory levels (the result of the supply/demand forecast) will be comfortable. In reality, only when the tanks are full and about to run over or, conversely, empty down to tank bottoms, do inventory levels do make any operational difference. Most tanks were built to handed non-linear operations, not to speculate with prices.

Are you one of the few individuals who noticed that the worldwide inventory numbers, reported after the fact, were at the lowest level of the past five years in the months leading up to the 2014 price drop? Or were you, like Al Falih, under the mis-impression that high inventories triggered the price drop? The reality was that inventory levels of real oil gave no "sell" signal. So you may wish to re-think your idea of the value of inventory projections to guide your trading.

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No William, when then Saudis changed their market balancing strategy and decided to maximize production to gain market share at the November 2014 OPEC meeting the market realized that supplies and global inventories would increase and prices dropped. Markets are forward looking and now they realize that unless OPEC and Russia increase production substantially, say at least 1 million barrels per day, global inventories will continue to drop and prices will rise.

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9 minutes ago, Manfred Kruger said:

No William, when then Saudis changed their market balancing strategy and decided to maximize production to gain market share at the November 2014 OPEC meeting the market realized that supplies and global inventories would increase and prices dropped. Markets are forward looking and now they realize that unless OPEC and Russia increase production substantially, say at least 1 million barrels per day, global inventories will continue to drop and prices will rise.

Manfred, it is apparent that you do not remember the facts of the 2014 price drop, and, further, even after I pointed to the pertinent data, you ignored my assistance and stubbornly forged ahead on the basis of flawed recollection or misleading reports. I am unwilling to continue the dialog if you are not willing to carry out our discussions on a factual basis. Checking one's theories against history may be a little bit of trouble, but it is not too much to ask if one is providing instruction to others.

The WTI price entering June 2014 was about $105/B. By the time OPEC met in November the price was half that level. Begin with those facts and please revise your description of history. Once you have accurately accounted for history in your pricing theory you might be in a position to analyze the future effectively.

The key question for the short-term trader is "What was the trigger in 2014?" Obviously it was not the OPEC meeting, as you suggested. Obviously it was not high inventory levels, as I mentioned previously and as the data show. So what was it?

I can accept instruction based upon facts. I have no interest in hearing supposition, imaginary stories, fairy tales or "It should have been this way".

To the moderator: If my bluntness in insisting upon analysis based upon fact is not in keeping with the standards of the forum, please let me know and I will deal with that knowledge appropriately.

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49 minutes ago, William Edwards said:

The key question for the short-term trader is "What was the trigger in 2014?" Obviously it was not the OPEC meeting, as you suggested. Obviously it was not high inventory levels, as I mentioned previously and as the data show. So what was it?

Apologies for interrupting but I have similar views to Manfred and believe like him that the futures market drives the oil price. The OPEC meeting did not trigger the price fall however it's result was widely anticipated so November should not be taken as the start of the effect plus if you check the news from 2014 your will see that rising US shale output plus increasing production from Nigerian and Libya in June were signals to the futures market there maybe over supply going forward, my memory is not great but I bet there were many other bits of information out there pointing to rising production hence the reason for the drop. The futures market is not 100% accurate before you point out times it was incorrect as there are too many variables in oil producing nations politics producing unexpected events on a regular basis, the Arab Spring, the extent of Venezuelan production collapse, Trump getting elected and ending Iranian nuclear agreement etc. Oil goes in many directions and from my point of view anyone predicting the price is a hostage to fortune all a mortal can do is try and guess the effects of known events like the end of the use of bunker fuel in 2020 but who knows Saudi Arabia may collapse into civil war before then if some recent stories play out badly so a brave man predicts the price of oil that far out.
I enjoy reading your well researched views but dislike the tone of your replies you have given me and others. You perceive you are always correct and others are lesser for it, everything must be purely factual for you however I don't see the world working purely on what facts you can derive from graphs and numbers it is a more holistic place so there is room for interpretation. Pointing to numbers to disprove a theory is fine but doing so is not the full answer as you seem to think. I am an engineer so numbers, graphs etc are second nature but I have learnt that the world is not always that easy to tabulate. Please become less combative and this could be a great bulletin board.

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53 minutes ago, jaycee said:

Apologies for interrupting but I have similar views to Manfred and believe like him that the futures market drives the oil price. The OPEC meeting did not trigger the price fall however it's result was widely anticipated so November should not be taken as the start of the effect plus if you check the news from 2014 your will see that rising US shale output plus increasing production from Nigerian and Libya in June were signals to the futures market there maybe over supply going forward, my memory is not great but I bet there were many other bits of information out there pointing to rising production hence the reason for the drop. The futures market is not 100% accurate before you point out times it was incorrect as there are too many variables in oil producing nations politics producing unexpected events on a regular basis, the Arab Spring, the extent of Venezuelan production collapse, Trump getting elected and ending Iranian nuclear agreement etc. Oil goes in many directions and from my point of view anyone predicting the price is a hostage to fortune all a mortal can do is try and guess the effects of known events like the end of the use of bunker fuel in 2020 but who knows Saudi Arabia may collapse into civil war before then if some recent stories play out badly so a brave man predicts the price of oil that far out.
I enjoy reading your well researched views but dislike the tone of your replies you have given me and others. You perceive you are always correct and others are lesser for it, everything must be purely factual for you however I don't see the world working purely on what facts you can derive from graphs and numbers it is a more holistic place so there is room for interpretation. Pointing to numbers to disprove a theory is fine but doing so is not the full answer as you seem to think. I am an engineer so numbers, graphs etc are second nature but I have learnt that the world is not always that easy to tabulate. Please become less combative and this could be a great bulletin board.

Thanks for your instruction. My engineering training did not suggest that numbers were the only applicable data, but it did firmly imprint on my mind the idea that if the valid numbers were not consistent with the ideas, there was a problem with the ideas that should be reconciled. It appears that the other approach, forget the data and go with the preconceived notion, is the more popular position. Sorry, but I cannot work in that camp.

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William,

The inventory levels are not well known and often get revised later.  From the Sept OPEC Oil Market report we have the following for OECD stocks.  They were low from Jan to May 2014, but the trend was up and by July 2014 OECD stocks were within the 5 year range.  The average Brent oil price in Sept 2014 was $97/b, down from $112/b in June 2014.

OPEC Sept 2014 Oil market report at link below

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_September_2014.pdf

 

OPECSept2014.gif

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More on 2014 stock levels from the November 2014 OPEC oil market report, p 75.

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_November_2014.pdf

The September level of OECD oil stocks was at the 5 year average and had increased by about 150 Million Barrels from Dec 2013 to Sept 2014.

So we have rising oil stock levels and then an anticipated decision by OPEC not to cut output, which was then backed up by the OPEC decision in NOV 2014.

William seems to have revised history.  :)

Chart below from OPEC Nov 2014 Oil Market report linked above.

opecnov2014.gif

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1 hour ago, William Edwards said:

Thanks for your instruction. My engineering training did not suggest that numbers were the only applicable data, but it did firmly imprint on my mind the idea that if the valid numbers were not consistent with the ideas, there was a problem with the ideas that should be reconciled. It appears that the other approach, forget the data and go with the preconceived notion, is the more popular position. Sorry, but I cannot work in that camp.

Clearly you are not understanding my second point regards your attitude. I will not reply to your posts from now on until you adopt a less condescending attitude. It is depressing a man off your age does not understand basic manners.

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43 minutes ago, jaycee said:

Clearly you are not understanding my second point regards your attitude. I will not reply to your posts from now on until you adopt a less condescending attitude. It is depressing a man off your age does not understand basic manners.

I agree. Let us not waste any further time.

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William, you are not acting as a moderator, you are actually coming across more like a brash insecure bully who has to control the narrative and is unable to ponder well-grounded alternative views. I am not particularly eager to continue the discussion, but feel obligated to share the other side of this discussion for the benefit of participants. Time will tell whether your view that we will see oil prices in the 20’s, or my view that we will see 70’s or higher in the next 12 months are more accurate. To make a final point of potential possibilities for the benefit of the rest of the participants who have a more open mind, I am adding a chart produced in 2017 by Flavious Smith, who was the land man for Mark Papa of EOG resources and is far more knowledgeable than the we are. Chew on that and Enjoy!

FS Oil Chart.jpg

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1 minute ago, Manfred Kruger said:

William, you are not acting as a moderator, you are actually coming across more like a brash insecure bully who has to control the narrative and is unable to ponder well-grounded alternative views. I am not particularly eager to continue the discussion, but feel obligated to share the other side of this discussion for the benefit of participants. Time will tell whether your view that we will see oil prices in the 20’s, or my view that we will see 70’s or higher in the next 12 months are more accurate. To make a final point of potential possibilities for the benefit of the rest of the participants who have a more open mind, I am adding a chart produced in 2017 by Flavious Smith, who was the land man for Mark Papa of EOG resources and is far more knowledgeable than the we are. Chew on that and Enjoy!

FS Oil Chart.jpg

Thanks, Manfred. My capacity to receive your counsel has reached its limit. Please direct your efforts to helping other more deserving subjects.

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2 hours ago, Dennis Coyne said:

William,

The inventory levels are not well known and often get revised later.  From the Sept OPEC Oil Market report we have the following for OECD stocks.  They were low from Jan to May 2014, but the trend was up and by July 2014 OECD stocks were within the 5 year range.  The average Brent oil price in Sept 2014 was $97/b, down from $112/b in June 2014.

OPEC Sept 2014 Oil market report at link below

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_September_2014.pdf

 

OPECSept2014.gif

For perspective, may I suggest that you view the chart from 2013-2018?

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On 6/5/2018 at 7:36 PM, Tom Kirkman said:

Ok, we are on the same page then, and I'll withdraw my gentle disagreement.

@Ajayi Micheal Welcome to the community!

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We're glad prices are dropping. Hopefully, it stays that way for some months.

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Excellent forum, where relevant topics of the energy area are treated, very good to be up to date with the information in the world situation.

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@Mosquedac Great to have you on board!

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Ok, I'm finally seeing the comments here this morning.  Note that my time zone is roughly 12 hours different from North America.

This is an interesting thread.  Multiple viewpoints from numerous commentors.  Since there are some contentious comments that got a bit heated about opposing viewpoints in this thread, I'll gently remind everyone of my general advice regarding different points of view:

===========================

*** Important !   I do *not* expect others to agree with my opinions.  I tend to have rather unusual opinions about international Oil & Gas.  I *do* hope that readers will fearlessly voice their own views about international oil & gas.

As a former moderator on the Oilpro forum, (and now a moderator here on the Oil Price Community forum) I *encourage* dissent, and *encourage* Freedom of Speech, and *encourage* others to freely voice their views and convictions about oil & gas. 

A diversity of global views is what makes the world a special place.  Conformity is just a slow, painful death of not speaking your mind.  So SPEAK UP.  Please don't be a jerk about about it, though.  If you want others to consider your views, please be willing to consider the views of others.

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