Question: Why are oil futures so low through 2020?

[nathan_john + 26]

Many things indicate that oil prices should increase in 2020: Many of the points listed below were already trending this direction through Q4 2019 which, in my opinion, is why WTI went back over $60.

• Rig count is down to 790 from 1050 a year ago.
• Frac spreads are down to 310 from 450 a year ago.
• Crude oil inventories are down from 1.09 B to 1.07 B.
• Completions decreased each month September through December 2019.
• US DUC Inventory is down from ~8000 to ~7500.
• OPEC still has production cut (so they say).
• Year over year growth rate for US production has decreased from 19% to 7%, Nov. 2018 to Nov. 2019 (December through today is just estimates)

WTI is ~$50 when a year ago it was ~$52 and on the rise. So why is oil at $50? Everything I read says coronavirus because it has decreased global crude oil demand by 1 MBOPD. So that means crude oil demand is ~81 MBOPD rather than ~82 MBOPD (not including other petroleum liquids here). Really? A little over 1% decrease in demand causes oil price to drop 20%? So this means that WTI should rebound to $60 when this virus clears up given all the other factors listed above, right? So then why are WTI futures through 2020 all around $50? 

Here are the only conclusions that I can come to:

• Traders think that China is downplaying the coronavirus and it is actually a much bigger deal that will keep demand suppressed through 2020.
• Traders (and oil companies) are worried that one of these presidential candidates promising an oil export ban will win and keep their promise thus causing WTI to tank due to US oversupply.

Am I missing something here? These two things outweigh everything else? How much of the suppression is due to the first bullet point vs. the second? I think it's 80% because of the second. The risk of an oil export ban killing WTI outweighs any gains that can be made from going long, even after coronavirus clears up. I also think it will force US operators to coast this year as opposed to investing hundreds of millions in a product that could be worthless based on who wins the election. On the other hand, this could lead to an price spike in November if Trump wins.

Thoughts?

Disclaimer: I have no skin in oil trading.

[BLA + 1,666]

 

• Rig count is down to 790 from 1050 a year ago.
• Frac spreads are down to 310 from 450 a year ago.
• Crude oil inventories are down from 1.09 B to 1.07 B.
• Completions decreased each month September through December 2019.
• US DUC Inventory is down from ~8000 to ~7500.
• OPEC still has production cut (so they say).
• Year over year growth rate for US production has decreased from 19% to 7%, Nov. 2018 to Nov. 2019 (December through today is just estimates)

WTI is ~$50 when a year ago it was ~$52 and on the rise. So why is oil at $50? 

Simple

TOO MUCH OIL. 

Get used to it.  Oil in the $50s.  The new normal.

 

 

Edited February 13, 2020 by BLA

[wrs + 893]

You forgot to mention that Libya has lost 1mmbbl/day of production.  The shorts will get their asses handed to them if there isn't a 3mmbbl/day loss in demand from China.  As it is, that's how much is priced in, any deviation to the positive should be good news for oil prices.

Edited February 11, 2020 by wrs

[Gerry Maddoux + 3,627]

31 minutes ago, BLA said:

Am I missing something here?

Perhaps. The so-called "renewables"propagandists are just beating the living crap out of us. They talk about CO2 emissions and methane gas venting and flaring. Our response is to . . . vent and flare. In short, the electric car people never talk about how much petroleum is used in manufacturing their product, or blood cobalt, or even the SOX that is spewed out of the Nickel smelter ovens. They act like plastic wind turbine blades will never go bad, and that solar has no issues. Our response to all that is to . . . vent and flare more methane gas. 

Look, almost everyone on this board knows that the oil market is tighter than it seems. The price of oil has always traded on sheer emotion--at least until a real shortage hits. We're down to oil discoveries that come with vast amounts of natural gas--even in Guyana; it's too early to tell in Africa. In order to get to the oil, we have to deal with such massive volumes of natural gas that everyone is just barely hanging on. 

In my view, the oil and gas sector has been hammered enough. I'm starting to take it personally. I thoroughly believe that we should all declare a one-month moratorium on production, rebalance, see how much sunshine and wind those folks can feed into the petrochemical plants to manufacture the things the world depends on. 

Sorry to get on my high-horse. But you asked. The answer is that everyone in the entire world is bent on destroying the very industry that took mankind out of the caves and put some starch in our shirts. But we haven't done anything to counter it. Moratorium. 

22 minutes ago, wrs said:

The shorts will get their asses handed to them if there isn't a 3mmbbl/day loss in demand from China. 

Agree. Whatever loss there is will be--very likely--temporary. President Xi is going to have to put the pedal to the metal of his OneRoad/OneBelt Initiative is toast. He is under the gun--by his own people and the world. He does not want to fall to the wayside. He is no dummy, so I suspect he's going to play nice with the US. Whatever the guts of that virus, our CDC damn well knows as much as the communists do at this point, so there is that.

[BLA + 1,666]

13 minutes ago, Gerry Maddoux said:

Perhaps. The so-called "renewables"propagandists are just beating the living crap out of us. They talk about CO2 emissions and methane gas venting and flaring. Our response is to . . . vent and flare. In short, the electric car people never talk about how much petroleum is used in manufacturing their product, or blood cobalt, or even the SOX that is spewed out of the Nickel smelter ovens. They act like plastic wind turbine blades will never go bad, and that solar has no issues. Our response to all that is to . . . vent and flare more methane gas. 

Look, almost everyone on this board knows that the oil market is tighter than it seems. The price of oil has always traded on sheer emotion--at least until a real shortage hits. We're down to oil discoveries that come with vast amounts of natural gas--even in Guyana; it's too early to tell in Africa. In order to get to the oil, we have to deal with such massive volumes of natural gas that everyone is just barely hanging on. 

In my view, the oil and gas sector has been hammered enough. I'm starting to take it personally. I thoroughly believe that we should all declare a one-month moratorium on production, rebalance, see how much sunshine and wind those folks can feed into the petrochemical plants to manufacture the things the world depends on. 

Sorry to get on my high-horse. But you asked. The answer is that everyone in the entire world is bent on destroying the very industry that took mankind out of the caves and put some starch in our shirts. But we haven't done anything to counter it. Moratorium. 

Agree. Whatever loss there is will be--very likely--temporary. President Xi is going to have to put the pedal to the metal of his OneRoad/OneBelt Initiative is toast. He is under the gun--by his own people and the world. He does not want to fall to the wayside. He is no dummy, so I suspect he's going to play nice with the US. Whatever the guts of that virus, our CDC damn well knows as much as the communists do at this point, so there is that.

GM

I didn't say "Am I missing something here."  nathan_john did.

You make a lot of good points.  

As for Chinese affect, they are running out of storage for the excess oil, they are turning away some tankers and sending them to South Korean storage.

Many of the March contracted deliveries for Asia/China that would be leaving ports soon have been cancelled and quickly fill up storage at the producer country's to the West. 

There will be a flood of oil sloshing around by April and thus  will be reflected in the price.. Let's assume best case scenario and virus dissipates by end of April. The oil, gasoline and diesel storage tanks will be all full, a huge inventory that will take months to bring g down. 

Nobody knows how long this will go on.  So far seems like the virus transfers very easily.

Probably short term, but nobody knows.  

China has tried to reduce the credit bubble but now that is no longer a concern .  China will pump billions into their economy, mostly into infrastructure.  

Edited February 12, 2020 by BLA

[0R0 + 6,251]

I think it is safe to say that you take 6 MMBbl/d for further shut down from here so long as China is still locked down and business has yet to start up  from the extended Lunar New Year holiday.

OPEC will squabble and cut. Saudi has 2 MMBbl/d of orders suspended and they can afford to stop production for the spot market. Russia, not so much.

I am surprised prices have not fallen more. I guess the undersupply before the Coronavirus was deeper than I suspected.

[BLA + 1,666]

 

Agree. Whatever loss there is will be--very likely--temporary. President Xi is going to have to put the pedal to the metal of his OneRoad/OneBelt Initiative is toast. He is under the gun--by his own people and the world. He does not want to fall to the wayside. He is no dummy, so I suspect he's going to play nice with the US. Whatever the guts of that virus, our CDC damn well knows as much as the communists do at this point, so there is that.

Great !

Let's all cheer for the Chinese economy and world dominance.

[wrs + 893]

14 hours ago, BLA said:

 

As for Chinese affect, they are running out of storage for the excess oil, they are turning away some tankers and sending them to South Korean storage.

Many of the March contracted deliveries for Asia/China that would be leaving ports soon have been cancelled and quickly fill up storage at the producer country's to the West. 

There will be a flood of oil sloshing around by April and thus  will be reflected in the price.. Let's assume best case scenario and virus dissipates by end of April. The oil, gasoline and diesel storage tanks will be all full, a huge inventory that will take months to bring g down. 

 

Do you have any actual original source data for this because so far I don't see it.  The refineries are still running and they export product to other buyers.  If they don't run then other buyers will not be supplied and will buy elsewhere creating shortages.  China is not shut down, part of it is locked down but they are using energy for heating and electricity as well as transportation.  The govt is a sigificant energy consumer, it's not energy-less to ENFORCE LOCKDOWNS on their population.  The extreme to which this idiotic meme has been pushed to destroy oil prices is tiresome.

We are not seeing 3mmbbl/day demand loss, in fact I saw a calculation that said the lost flights amount to only 16,000 barrels per day of jet fuel.  Most of this is over-hyped.

Edited February 12, 2020 by wrs

[Gerry Maddoux + 3,627]

^

Agree. And the reason LNG tankers were being turned down--force majeure was actually probably a bonafide call--is that during the last year, as the tariffs bit in, Xi has built more little "Teapot" coal-fired utility plants than you can imagine. They're using the "lignite"-electricity to charge their electric cars. Now figure that one out.

Whether anyone thinks it's justified or not, the world is pretty sour on Xi right now. He truly needs to get with the program and stop burning all that lignite to create his own see-through Fata Morgana. 

I think the only reason Putin was dragging his heals on a production cut was because he knows that Trump now has the upper hand in this trade deal. There are reports that the concept of running two nuclear-powered ice-cutters ahead of a giant LNG tanker from the Yamal Peninsula to China through the North Sea Route is not the cat's meow it was said to be. I actually think the US can get along just fine selling $2 pipeline gas, and whatever the market will bear for LNG--as long as we can have smooth LTO production. 

[nathan_john + 26]

Coronavirus is taking the majority of the blame for the current low price environment but nobody is talking about this promised oil export ban by a couple presidential candidates. US is currently exporting 8.5 MBOPD (current US production is around 13M). If we think the US market is oversupplied now just wait until that 8.5 that normally gets exported can't leave. WTI could go to $30. I wouldn't even call it a black swan event since they are literally saying what their plans are if they win. In my opinion, this uncertainty will keep oil capped all year even if the coronavirus tapers off in the next couple months. Or I'm wrong and it's just another politician talking crap trying to get votes.

[Gerry Maddoux + 3,627]

36 minutes ago, nathan_john said:

Coronavirus is taking the majority of the blame for the current low price environment but nobody is talking about this promised oil export ban by a couple presidential candidates. US is currently exporting 8.5 MBOPD (current US production is around 13M). If we think the US market is oversupplied now just wait until that 8.5 that normally gets exported can't leave. WTI could go to $30. I wouldn't even call it a black swan event since they are literally saying what their plans are if they win. In my opinion, this uncertainty will keep oil capped all year even if the coronavirus tapers off in the next couple months. Or I'm wrong and it's just another politician talking crap trying to get votes.

There is no way in hell an oil export ban is going to get through Congress. And if it does, I can tell you for certain that Texas is going to draw up Articles of Secession. They say this is impossible, but I don't think so. 

There is just so far these left-leaning folks can push their agenda. They would do well to read that CO2 emission has been flat since 2013. That's quite a while before the electric car craze. The IMO2020 is going to possible change the weather: 60,000 oceangoing freighters changing from 3.5% sulfur bunker fuel to NG or low sulfur diesel is one hell of an impact. 

This country is not going to become socialistic. There is no way. We may have to fight for our rights, but if we do, bring it on. 

[BLA + 1,666]

1 hour ago, wrs said:

Do you have any actual original source data for this because so far I don't see it.  The refineries are still running and they export product to other buyers.  If they don't run then other buyers will not be supplied and will buy elsewhere creating shortages.  China is not shut down, part of it is locked down but they are using energy for heating and electricity as well as transportation.  The govt is a sigificant energy consumer, it's not energy-less to ENFORCE LOCKDOWNS on their population.  The extreme to which this idiotic meme has been pushed to destroy oil prices is tiresome.

We are not seeing 3mmbbl/day demand loss, in fact I saw a calculation that said the lost flights amount to only 16,000 barrels per day of jet fuel.  Most of this is over-hyped.

You don't see it? Where are you looking?

China has cut refining.  It all takes time.  Less gasoline use . . .  so  gasoline inventory/storage fills up. .  .  .  .   Then refiners reduce production so the crude storage tanks fill up.  .  .  .  Then China starts to refuse delivery of crude. .  .  .   Then much of this crude is diverted to other Asian country's. So far most sent to South Korea or floating storage.

Remember the virus urgency didn't really take hold  until the middle of January.  Difficult, if not impossible to stop contracted crude delivers already in transit.  Takes time to ship oil to Asia. Time lag.

Now there is time to cancel some March deliveries. 

China was  importing about 11 million bbls/day. They didn't just stop 3 mm bbls/day.   Excess went to storage.  Storage takes time to fill.  

Source: Trader at International Trading firm.  

The first to be cut are the secondary producers, the spot market.  South American producers and even Iran have already been hit.  

Price was weakening before virus. Prices seem to be holding here in the low to mid $50's.  

Inventory storage in the OPEC producing countries will start to fill soon enough. THEN YOU WILL SEE  .  .  .  .  .

.  .  .  YOU WON'T SEE the full affect of the virus on  price until later in March.

How long it lasts . . . Nobody knows.

Trying to guess the under/over on duration of virus is gambling.  If you want to gamble go to Vegas. 

Also, many of these Asia viruses go dormant during warmer weather only to reemerge in the Fall.

Don't believe the virus numbers China puts out.  They lie as much or more than the Saudis.

Edited February 12, 2020 by BLA

[wrs + 893]

47 minutes ago, BLA said:

You don't see it? Where are you looking?

China has cut refining.  It all takes time.  Less gasoline use . . .  so  gasoline inventory/storage fills up. .  .  .  .   Then refiners reduce production the crude storage tanks fill up.  .  .  .  Then China starts to refuse delivery of crude. .  .  .   Then much of this crude is deverted to other Asian country's. So far most sent to South Korea or floating storage.

Remember the virus urgency didn't really start until the middle of January.  Difficult, if not impossible to stop contracted crude delivers already in transit.  Takes time to ship oil to Asia.

Now there is time to cancel some March deliveries. 

China was  importing about 11 million bbls/day. They didn't just stop 3 mm bbls/day.   Excess went to storage.  Storage takes time to fill.  

Source: Trader at Internation Trading firm.  

The first to be cut are the secondary producers, the spot market.  South American producers and even Iran have already been hit.  

Price was weakening before virus. Prices seem to be holding here in the low to mid $50's.  

You wont see the full affect of the virus on  price until March.

How long it lasts . . . Nobody knows.

Don't believe the virus numbers China puts out.  They lie as much or more than the Saudis.

So no source data.

[BLA + 1,666]

1 hour ago, Gerry Maddoux said:

There is no way in hell an oil export ban is going to get through Congress. And if it does, I can tell you for certain that Texas is going to draw up Articles of Secession. They say this is impossible, but I don't think so. 

There is just so far these left-leaning folks can push their agenda. They would do well to read that CO2 emission has been flat since 2013. That's quite a while before the electric car craze. The IMO2020 is going to possible change the weather: 60,000 oceangoing freighters changing from 3.5% sulfur bunker fuel to NG or low sulfur diesel is one hell of an impact. 

This country is not going to become socialistic. There is no way. We may have to fight for our rights, but if we do, bring it on. 

When Texas joined the Union their articles of incorporation for statehood gave them the option to secede. 

Is that still valid today ?

Edited February 12, 2020 by BLA

[wrs + 893]

Just now, BLA said:

When Texas joined the Union there articles of incorporation for statehood gave them the option to seceed. 

Is that still valid today ?

No such option ever existed.  Here was the resolution of annexation.

https://www.tsl.texas.gov/ref/abouttx/annexation/march1845.html

Ultimately the reconstruction acts forced Texas to adopt a new constitution and in the process, seccession was renounced.

https://www.tsl.texas.gov/ref/abouttx/secession/15march1866.html

Be it ordained by the people of Texas in Convention assembled, That we acknowledge the supremacy of the Constitution of the United States, and the laws passed in pursuance thereof; and that an Ordinance adopted by a former Convention of the people of Texas on the 1st day of February, A.D. 1861, entitled "An Ordinance to Dissolve the Union between the State of Texas and the other States, united under the compact styled 'Constitution of the United States of America,'" be and the same is hereby declared null and void; and the right heretofore claimed by the State of Texas to secede from the Union, is hereby distinctly renounced. Passed 15th March, 1866.

[BLA + 1,666]

1 hour ago, wrs said:

So no source data.

wrs I'm lying.

Go long oil contracts .  Let me know how it works out for you. 

No source I'm gonna tell you about.  Sorry. 

Fly over to South Korea and check out the storage tanks.

 

 

Edited February 12, 2020 by BLA

[BLA + 1,666]

10 minutes ago, wrs said:

No such option ever existed.  Here was the resolution of annexation.

https://www.tsl.texas.gov/ref/abouttx/annexation/march1845.html

Ultimately the reconstruction acts forced Texas to adopt a new constitution and in the process, seccession was renounced.

https://www.tsl.texas.gov/ref/abouttx/secession/15march1866.html

Be it ordained by the people of Texas in Convention assembled, That we acknowledge the supremacy of the Constitution of the United States, and the laws passed in pursuance thereof; and that an Ordinance adopted by a former Convention of the people of Texas on the 1st day of February, A.D. 1861, entitled "An Ordinance to Dissolve the Union between the State of Texas and the other States, united under the compact styled 'Constitution of the United States of America,'" be and the same is hereby declared null and void; and the right heretofore claimed by the State of Texas to secede from the Union, is hereby distinctly renounced. Passed 15th March, 1866.

It was originally

As you point out they later renounced it.

[wrs + 893]

Just now, BLA said:

It was originally

As you point out they later renounced it.

Well can you point out where it was originally?  I linked the original resolution of annexation and it doesn't have anything in it about secession.

[wrs + 893]

4 minutes ago, BLA said:

wrs I'm lying.

Go long oil contracts .  Let me know how it works out for you. 

No source I'm gonna tell you about.  Sorry. 

 

I already have, not worried about it a bit.  Takes different opinions to make a market.

Edited February 12, 2020 by wrs

[BLA + 1,666]

4 minutes ago, wrs said:

Well can you point out where it was originally?  I linked the original resolution of annexation and it doesn't have anything in it about secession.

I can't right now .  Your point is well taken.  They can't anymore.  Good research.  

[BLA + 1,666]

5 minutes ago, wrs said:

I already have, not worried about it a bit.  Takes different opinions to make a market.

You naked long ? Or hedged

[Ward Smith + 6,615]

3 hours ago, wrs said:

Do you have any actual original source data for this because so far I don't see it.  The refineries are still running and they export product to other buyers.  If they don't run then other buyers will not be supplied and will buy elsewhere creating shortages.  China is not shut down, part of it is locked down but they are using energy for heating and electricity as well as transportation.  The govt is a sigificant energy consumer, it's not energy-less to ENFORCE LOCKDOWNS on their population.  The extreme to which this idiotic meme has been pushed to destroy oil prices is tiresome.

We are not seeing 3mmbbl/day demand loss, in fact I saw a calculation that said the lost flights amount to only 16,000 barrels per day of jet fuel.  Most of this is over-hyped.

Do you subscribe to “hydrocarbon processing”? I do and get their newsletter on my computer, not this device. Every day my inbox has multiple notices of refineries in China closing or lowering capacity. Today says something about Henqli Petrochemical shutting in about 3.2 million tons per year of capacity. Look it up

[Gerry Maddoux + 3,627]

31 minutes ago, BLA said:

When Texas joined the Union their articles of incorporation for statehood gave them the option to secede. 

Theoretically, according to the Constitution, it is impossible for ANY state to secede from the Union. Back when we--as a nation--were dependent on foreign oil, it was made a Congressional Act that no oil could be exported. This wasn't acted on for years after we got to the point where we could export oil.

Well, as is all too obvious, there is too much oil in the world--currently. To prevent a total collapse in the market, and to keep the Saudis at bay, it is imperative to export oil. Most of that oil comes from Texas. I'm just saying, try to tell Texas that they can't export oil and there's going to be a fight. Right now that's not an issue, because Trump loves Texas. But someday, we'll have one of these lefties in as president, and he or she will almost certainly try to ban fracking and exports of oil. That will not end well for that person.

On the other topic of going long or short on oil, I'm not taking sides here but I'd be very careful shorting oil. I think oil is dramatically oversold--perhaps as much as I've ever seen in my life. Despite this virus, oil supplies aren't all that expanded. In fact, I suspect they may be contracting. But who knows? We get these guestimates from different agencies that are usually wrong. Then some of the people who write articles for this oilprice.com make a drama out of it, and the market moves--not entirely from these articles, obviously. The point is, anyone under the age of about a hundred and forty thinks that hydrocarbons have destroyed the planet, which is horseshit. And we have a bunch of dangerous politicians--Sanders, Warren, Bloomberg, Biden--who are pandering to them. Add in Elon Musk who has a growing chorus of cheerleaders, and oil and gas is being "over-propagandized." But supply-demand will win out in the long run. I think we're going to have the mother of all shortfalls in oil come about October, November.

[wrs + 893]

13 minutes ago, Ward Smith said:

Do you subscribe to “hydrocarbon processing”? I do and get their newsletter on my computer, not this device. Every day my inbox has multiple notices of refineries in China closing or lowering capacity. Today says something about Henqli Petrochemical shutting in about 3.2 million tons per year of capacity. Look it up

No I don't get that.  I was asking for some links.  I haven't seen articles saying this yet but US refineries are reducing runs too.  It's winter and I believe gasoline demand is lower in the winter and builds are normal because reduced runs are normal.  I would like to have some links if you can provide them.

Edited February 12, 2020 by wrs

[wrs + 893]

16 minutes ago, BLA said:

You naked long ? Or hedged

I buy USO which buys futures, strictly a long trade.  I started buying when USO got to around 11, it's a good entry.  I have also been buying XOM but I have a good position established now and will just wait to see how all this turns out over the next few months.