• 4 hours WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 9 hours Norway Grants Record 75 New Offshore Exploration Leases
  • 13 hours China’s Growing Appetite For Renewables
  • 16 hours Chevron To Resume Drilling In Kurdistan
  • 19 hours India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 20 hours India’s Reliance Boosts Export Refinery Capacity By 30%
  • 21 hours Nigeria Among Worst Performers In Electricity Supply
  • 1 day ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 1 day Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 2 days Saudis To Award Nuclear Power Contracts In December
  • 2 days Shell Approves Its First North Sea Oil Project In Six Years
  • 2 days China Unlikely To Maintain Record Oil Product Exports
  • 2 days Australia Solar Power Additions Hit Record In 2017
  • 2 days Morocco Prepares $4.6B Gas Project Tender
  • 2 days Iranian Oil Tanker Sinks After Second Explosion
  • 4 days Russia To Discuss Possible Exit From OPEC Deal
  • 4 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 5 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 5 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 5 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 5 days Falling Chinese Oil Imports Weigh On Prices
  • 5 days Shell Considers Buying Dutch Green Energy Supplier
  • 5 days Wind And Solar Prices Continue To Fall
  • 6 days Residents Flee After Nigeria Gas Company Pipeline Explodes
  • 6 days Venezuela To Pre-Mine Petro For Release In 6-Weeks
  • 6 days Trump Says U.S. “Could Conceivably” Rejoin Paris Climate Accord
  • 6 days Saudis Shortlist New York, London, Hong Kong For Aramco IPO
  • 6 days Rigid EU Rules Makes ICE Move 245 Oil Futures Contracts To U.S.
  • 6 days Norway Reports Record Gas Sales To Europe In 2017
  • 6 days Trump’s Plan Makes 65 Billion BOE Available For Drilling
  • 6 days PetroChina’s Biggest Refinery Doubles Russian Pipeline Oil Intake
  • 7 days NYC Sues Five Oil Majors For Contributing To Climate Change
  • 7 days Saudi Aramco Looks To Secure $6B In Cheap Loans Before IPO
  • 7 days Shell Sells Stake In Iraqi Oil Field To Japan’s Itochu
  • 7 days Iranian Oil Tanker Explodes, Could Continue To Burn For A Month
  • 7 days Florida Gets An Oil Drilling Pass
  • 8 days Oil Prices Rise After API Reports Staggering Crude Oil Draw
  • 8 days Tesla Begins Mass Production Of Solar Shingles
  • 8 days EIA Boosts World Oil Demand Forecast For 2018 By 100,000 Bpd
  • 8 days Businessman Seeks Sale Of $5.2B Stake In Kazakhstan Oil Field
Leonard Brecken

Leonard Brecken

Leonard is a former portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities. You can reach Leonard on Twitter.

More Info

Fed Defers Rate Hike, But Oil Fundamentals Don’t Matter Anyway

Fed Defers Rate Hike, But Oil Fundamentals Don’t Matter Anyway

I have long maintained that various distortions of fundamental data by the media and analysts are partly to blame for why oil prices are de-coupled from reality. The insistence of even the smartest people on relying upon government agency data without questioning it is also a major contributing factor. The latter is especially true as the both the EIA & IEA slowly revise production down and demand up, as they can’t hide the facts forever.

Instead they use revisions to bury the trends and refocus attention to newly minted worries like Chinese demand. These worries stay in focus in markets & media until such time as those placing them in the public domain have repositioned their portfolio or have moved on because the data becomes too obvious to hide. Dubbed “selective perception” we are now at the tipping point where the data showing falling U.S. production and inventories can’t be hidden from investor’s radar. The production declines are real and are being confirmed slowly by the very agency that has missed it so badly. Below demonstrates the massive drop in U.S. production as prices have collapsed and as new worries surface on demand and Iran. Related: For Canadian Oil Sands It’s Adapt Or Die

(Click to enlarge)

The never ending revolving door of negatives (dubbed moving the goal posts by the media, creating “selective perception” among investors) also serves in explaining how under-weight investors are in energy despite the supposedly “good” economy. Look at the chart below and explain how bearishness goes far deeper than even the 2008 credit crisis, the worst economic meltdown since the Great Depression. Related: The Shale Delusion: Why The Party’s Over For U.S. Tight Oil

(Click to enlarge)

At the same time we are now coming to the E&P mea culpa as the fall redetermination is upon us. This has been the trigger repeatedly mentioned in the media and by some investors (probably those short) as the event to create the capitulation bottom in equities. Those who are short would of course spin it as such because, as I said, shale producers were not free cash flow positive before the crash even when oil prices were at $100 oil.

This is why cries from Goldman Sachs and others that oil will remain low (now for 15 years) are simply absurd. I call it “spin” because bankruptcies shouldn’t be the pivotal point. Bankruptcies are unlikely to change production at all as either the underlying assets will still produce to cover interest on debt or get sold to better financed players. Yet I believe it will serve as the catalyst to bring equities to bottom as shorts will use it as the psychological trigger. Related: Aussie PM Ousted As Commodities Pressure Proves Too Much

Today we found out the fate of interest rates via the Fed. They held at zero finally admitting my long held view that the economy is slowing. I simply don’t subscribe to a rate increase anytime soon, due to deteriorating underlying data, despite media spin telling otherwise.

Whether the insistence to raise rates is tied to a grander plan to prop the U.S. dollar based on fears of de-dollarization or to depress commodities using them as QE4, who is to say? Given the madness of central banks and the amount of price manipulation going on, it wouldn’t surprise me that they do raise rates over next few quarters if only to provide the impression that things are getting better even though they are not. Regardless I believe the U.S. dollar has peaked and will decline either way as recognition that the U.S. economy isn’t on sure footing starts to sink in. A rate increase will only serve to put a nail in any strength left in the U.S. economy.

Despite all these factors, I honestly can’t say where prices are going. This past year proves that it is impossible to predict when the markets will start paying attention to fundamentals vs. propaganda. It’s obvious that forces want low oil; if nothing else to boost consumer spending or reduce carbon emissions or to force bankruptcies in the E&P sector. When that reverses, I simply can’t say, as markets remain decoupled from fundamental reality.

By Leonard Brecken for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News