Oil @ 69.5, headed for 62.5. Down for 3+ weeks

[BillKidd + 139]

22 hours ago, Jeffrey Brown said:

A Tale of Two Oil Price Scenarios

Following is a link to an article regarding Dennis Gartman’s January, 2016 proclamation that oil would never trade above $44 in his lifetime.   

Following that is a link to and and excerpt from a July, 2018 report by Philip Verleger, in which he discusses his concerns about 2020 requirement for low sulfur fuel, versus the low sulfur fuel supply, which could lead to oil prices as high as $200, in his opinion. 

I thought it was an interesting spread in oil price scenarios, from a maximum of $44 in January, 2016 to a discussion of $200 in July, 2018.

However, I think that Mr. Verleger is making a critical mistake, which I discuss below.

GARTMAN: Crude oil will never trade back above $44 'in my lifetime’ 
January, 2016

https://www.businessinsider.com/dennis-gartman-crude-oil-call-2016-1

Dennis Gartman has a call on oil.

Gartman said Monday that he thought crude oil wouldn't trade back above $44 "in my lifetime," though he did say oil may have hit a short-term bottom.

The price of crude oil, which has been driving the price action in the stock market for the past month, fell about 7% Monday but bounced back a bit early Tuesday.

$200 Crude, the Economic Crisis of 2020, and Policies to Prevent Catastrophe  
Philip K. Verleger, Jr. 
July, 2018

https://www.pkverlegerllc.com/assets/documents/180704200CrudePaper.pdf

The IMO regulation on marine-fuel sulfur content, if left unchanged, will likely have widespread impacts on the petroleum sector. Crude oil prices could rise to $160 per barrel or higher as the rule takes effect, assuming no market disruptions. Prices could rise much higher with any disruption, even a moderate one. The higher prices will slow economic growth. If they breach $200 per barrel, they would likely lead to a recession or worse.   

The risk of high prices and an attendant economic downturn should force government policymakers across the globe to review the IMO 2020 issue. As of this writing, though, on July 1, 2018, no such reviews are being conducted. Instead, the global economy is moving steadily toward a crisis yet unseen by most, if not all, key individuals in policy positions. Soon it will be too late to act. Very high prices and recession await. 

My Comments:

A critical mistake that Verleger makes is defining BP’s number for total petroleum liquids as “Crude oil,” which is something that not even the EIA does (they define “Crude oil” as Crude + Condensate, or C+C). 

When we ask for the price of oil, we get the price of actual crude oil, most commonly WTI and Brent, but when we ask for the quantity of oil, we get some combination of actual crude oil + condensate + NGL + biofuels.

Note that Cat Feed + Distillate drops from about 60% for light, sweet 39 API gravity crude oil to about 20% for 42 API gravity crude oil—a two-thirds decline, just going from 39 API to 42 API, and based on the most recent EIA data (April, 2018), about 43% of US Lower C+C production exceeds 42 API gravity, which is the maximum API gravity for WTI crude oil (versus about 35% in April, 2015). 

In other words, about 43% of what the EIA calls Lower 48 "Crude oil" production can't be sold as WTI crude oil in 2018, versus about 35% in 2015.   At this rate of increase, in about two years half of US Lower 48 C+C production will exceed the maximum API gravity for WTI crude oil. 

Refinery yields by crude type:

http://i1095.photobucket.com/albums/i475/westexas/Refineryyields_zps4ad928eb.png

The most common dividing line between Crude and Condensate is 45 API gravity, but as noted above, the crude oil distillate yield drops off considerably just going from 39 API to 42 API,

In regard to global data, the rate of increase in global gas and global C+C production from 2002 to 2005 were identical, at 3.3%/year.  

But from 2005 to 2017, the rates of increase diverged considerably, with global gas production increasing at 2.4%/year from 2005 to 2017, while global C+C production increased at only 0.8%/year, one-third of the rate of increase in global gas production.  

Given that condensate is a byproduct of natural gas production, in my opinion the only reasonable conclusion is that actual global crude oil production has probably been on an "Undulating Plateau" since 2005, with rising condensate production accounting for virtually all of the slow post-2005 increase in global C+C production, and note that annual Brent crude oil prices averaged $110 from 2011 to 2013 inclusive (remaining at $99 in 2014).  In other words, there were considerable financial incentives to increase actual crude oil production post-2005.   

Also, note the flat global C+C production from 2015 to 2017, versus rising global gas production, which implies a probable slow decline in actual global crude oil production from 2015 to 2017. 

Global Dry Gas Production and Global Crude + Condensate (C+C) production, 2002 to 2017:

http://i1095.photobucket.com/albums/i475/westexas/Global Gas and CC Production 2002 to 2017_zpslzwt5i6f.jpg

I estimate that actual crude oil production (45 API Gravity and lower crude oil)—the stuff that refiners need to produce petroleum distillates—has probably fluctuated between about 68 and 70 million bpd since 2005 (versus about 69 million bpd in 2005), and it appears likely that the trillions of dollars spent on global upstream capex since 2005 only served to keep actual global crude oil production approximately flat. 

Jeffrey, well-written article. What you are postulating is that actual crude oil supply is not what is being reported? Isn't the small, but insightful difference, bullish for oil price long-term?

[Top Oil Trader + 469]

Like I said it will go down, but this down move is very weak. Which can only mean 1 thing. Get ready to rumble!

[Top Oil Trader + 469]

As mentioned wti now at 68.40, and now it will try to go up. Unfortunately this up move will be very weak. They need to try really hard, some comment or threat of bottleneck, could help it go up. As you can see, short term moves in oil prices are very predictable, I use about 3 different perspectives for the prices from many different angles, so it is easy for me to see. However, the long term is shrouded now in mystery. However, here is how I see it, when everyone is complacent that we will go to new highs, and all the negative price predictions about oil going down give up. That will be the apex just before another big down move. This is how Oil has been working now for many years, you might say since the 90s, If i look back in time on the charts. So get ready for lots of surprises.

Disclaimer. As you can see, trading futures is very risky and you could lose more than your investment.

[Top Oil Trader + 469]

Even now this WTI up move like i mentioned is  weak. It is almost a joke, it's almost like a basketball high schooler trying to show us his skills in front of pros. Which means it could quickly go down, if they don't support this very weak up move.

[Top Oil Trader + 469]

Price is now 68.67, they'll will now try to bring it above 69.5 and then 70.xx from what I see they will succeed. When they push it up you  got to be on their side, and not stand in their way. Like i said many times, the small time fluctuations in oil prices are very easy to figure out, if you know what you are looking at. So good luck.

Disclaimer. Yada yada yada....

[Top Oil Trader + 469]

As predicted they are trying now very hard to bring up the oil prices. Now prices are moving up very fast. 

[Top Oil Trader + 469]

And prices now moved past the pivot price of 69.5 a key resistance level, if they can keep this up, and I don't doubt them, they may have won round 1. Clap, Clap. Hip Hip Horah! Let see what round 2 brings.

[Top Oil Trader + 469]

If you like wild rides, and the scariest roller coasters, then there is nothing like watching oil prices, the speed they move in the US session, is like the stock market on speed. So currently the oil prices moved up 70 basis points, but quickly turned down 100 basis points. and now sitting at 68.5. So like I said if they could keep prices above 69.5 they would have won round 1. So far they are getting slam dunked, and I think we may soon have to call the medics, since right now they are having difficulty getting their senses together. But this is the oil market, and surprises happen by the hour. But the big event is now, something happened to wake them up to reality, and it is bringing the prices down.

[Top Oil Trader + 469]

What must have caused this fluctuation must have been the action going on now in Israel. 

http://www.euronews.com/video/2018/07/24/israel-shoots-down-syrian-warplane

and many other links. But something like this should have spiked oil prices like crazy. Like they say in professional circles, the night is still young. Although war is always serious but this could turn out to be a very thin latke.

[Top Oil Trader + 469]

Looks like Israel / Iran / Syrian conflict is causing this spike, seem s quite serious now, as prices are above 69.5 going towards 70. Should the swap convince the President to act, then oil could go way up. So far the news is having a field day, with the current conflict, and pumping it in overtime.

[Jeffrey Brown + 208]

6 hours ago, BillKidd said:

Jeffrey, well-written article. What you are postulating is that actual crude oil supply is not what is being reported? Isn't the small, but insightful difference, bullish for oil price long-term?

Yes, the various types of liquids numbers are misleading, especially when analysts refer to various non-crude oil liquids measurements as "Crude oil."  

The oil prices quoted are for actual crude oil, but the quantities quoted are almost always for actual crude oil + some combination of partial substitutes, condensate, natural gas liquids (NGL) and biofuels. 

Here is a link to and an excerpt from an April, 2018 article:

 

http://markets.businessinsider.com/commodities/news/us-oil-industry-mismatch-to-benefit-some-shale-producers-2018-4-1021516367

 

Super-light crude is flooding the US oil market, and there's little demand to meet it.  

 

All of the industry's growth in the US over the last year was thanks to crude with a gravity above 40 on the American Petroleum Institute's scale, which measures the weight of a petroleum liquid compared to water, according to analysts at Morgan Stanley.

 

That's a problem for domestic shale explorers. Most refineries in the US are designed for heavier crude grades, around 32 API. And refiners are running out of room to process super-light shale without seeing losses. 

 

"Domestic refiners cannot take much more of this and are close to hitting the 'shale wall,'" the analysts said.

 

Options to export what US refiners don't want are limited. Demand for superlight crude outside of the US is modest.

Edited July 25, 2018 by Jeffrey Brown

[Jeffrey Brown + 208]

 

Incidentally, I think that Verleger actually talked about oil even briefly going to $400.  

https://www.washingtonexaminer.com/policy/energy/expert-makes-the-case-for-400-per-barrel-oil

 

…. He predicted a 2020 economic collapse based on the oil commodity market and the lack of diesel fuel. “Catastrophically high oil prices will cause the impending recession,” said Verleger. “The world oil market will see prices at least double.” And from there, the sky is the limit, according to his analysis.
 

From the $200 mark, the price of crude oil could surge to a price of $400, he said. Prices currently range from $65-$74 per barrel. Other analysts and oil market observers have noted that global oil reserves are thin and anticipate oil prices surging to $90-$100 per barrel after Iran sanctions kick in, while also pointing out the coming diesel crunch that Verlenger is watching.

What's interesting about Verleger's analysis is that based on my analysis, the supply situation if far more dire than what he thinks, for three reasons, even when we look at available total petroleum liquids:

(1)  Actual global crude oil supply is probably around 70 million bpd, not the 93 million bpd total petroleum liquids number;

 

(2)  Global Net Oil Exports (GNE*) have been below the 2005 level of 46 million bpd for 12 years; 

 

(3)  The Chindia region has continued to consume an increasing share of GNE, with the volume of GNE available to importers other than China & India falling from 40 million bpd in 2005 to 32 million bpd in 2017. 

 

*Combined net exports of oil from (2005) Top 33 Net Oil Exporters, total petroleum liquids, BP + EIA data

 

 

[Manfred Kruger + 40]

WTI Crude is in a clear uptrend with higher highs and higher lows. Technically the objective is still $78 to 80/bbl. Backwardation, crack spreads and Brent premiums are also supportive. The fly in the ointment is the high level of spec bulls that may require a correction to shake out the weak longs. A close below $65 may signal a deeper correction. Fundamentally, depleting global inventories and turbulent geopolitics also point to further upside although the Saudis and Russians could temporarily limit the upside. Bottom line, in my opinion we go higher after a correction.

US refineries are very sophisticated and in addition to basic distillation towers they have invested heavily into deep conversion units such as cokers, crackers, visc breakers etc. designed convert heavy crude into lighter feedstock to produce middle distillates and motor gasoline. Most of these investments, especially in the USGC refineries, were made to take advantage of cheaper heavy Mexican and Venezuelan crudes, such as Maya and Merey, that are no longer available due to mismanagement at state owned oil companies. Canadian crudes have partially replaced these heavy crudes but their availability is limited by transportation bottlenecks. To summarize, the USGC refiners prefer a heavier crude diet to take advantage of their existing infrastructure, but they can and do run lighter diets when necessary.

Historically there are enough instances when crude prices have changed by - 80% to +500% in relatively short time periods. When it comes to price predictions I have learned to never use the word “NEVER”. Furthermore Gartman is a generalist who probably knows less about the oil industry than many participants in this forum.

[Mr Oil + 5]

In my charts I see the WTI 09-18 price correcting to 67.90 before any move up. 

[Mr Oil + 5]

11 hours ago, Top Oil Trader said:

Like I said it will go down, but this down move is very weak. Which can only mean 1 thing. Get ready to rumble!

I agree! It will rumble up in the long term!

[Stephen + 67]

Veteran oil market-watcher Philip K. Verleger released a report from his firm, PKVerleger LLC, anticipating oil prices at $200, with the possibility of a surge to $400 per barrel, in the next 12 to 18 months.

[Dan Warnick + 6,100]

Crickets?

[Illurion + 894]

"It is the economy stupid."

President Trump believes that the November mid-term elections revolve around JOBS and GASOLINE PRICES.

He will continue to do everything he can to keep prices down,  and will strong-arm whatever, or whoever it takes to keep prices down.

Count on his enemies to do the opposite.

I believe Trump will probably win the wrestling match.