• 3 hours LNG Glut To Continue Into 2020s, IEA Says
  • 5 hours Oil Nears $52 With Record OPEC Deal Compliance
  • 9 hours Saudi Aramco CEO Affirms IPO On Track For H2 2018
  • 11 hours Canadia Ltd. Returns To Sudan For First Time Since Oil Price Crash
  • 12 hours Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 3 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 3 days Shell Restarts Bonny Light Exports
  • 4 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 4 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 4 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 5 days Kinder Morgan Warns About Trans Mountain Delays
  • 5 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 5 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 6 days China To Take 5% Of Rosneft’s Output In New Deal
  • 6 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 6 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 6 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 7 days U.S. Oil Production To Increase in November As Rig Count Falls

Breaking News:

LNG Glut To Continue Into 2020s, IEA Says

Alt Text

IEA: Oil Prices To Hit A Ceiling In 2018

Global oil markets appear to…

Alt Text

Oil Prices Poised To Rise In Early 2018

A consistent fall in comparative…

Kent Moors

Kent Moors

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment. His…

More Info

Oil Prices Haven’t Plateaued Yet

Oil

Only a few weeks ago, pundits were bemoaning the collapse of oil prices.

Then, these self-proclaimed soothsayers became doomsayers, and started predicting oil prices would decline to $40 a barrel (or below).

When Hurricanes Harvey and Irma hit, these self-same founts of wisdom declared Mother Nature had hurled at us a double whammy, guaranteeing problems in oil infrastructure, refinery demand, and distribution interruptions.

Certainly, both hurricanes had an impact.

With refineries – heavy users of crude oil – shut down, demand for oil declined.

And as residents in South Texas and around here in South Florida quickly learned, the availability of gasoline soon became a major issue.

Oil exports – another big “use” for American oil – also took a big hit.

Now, it’s only been just under two years since Congress lifted the U.S. oil export ban.

But in that time, American companies have raced ahead to more than 1.1 million barrels a day of oil being moved out of the country, largely from the Gulf Coast.

That, of course, is where Harvey hit. Especially the coast from Corpus Christi to Galveston and beyond was badly affected, and that’s were many of America’s oil export terminals are located.

This would seem to set the oil market up for a major fall.

But despite what the doomsayers would have you believe, the effect in each case turned out to be very short-lived.

The pundits’ fear quickly went by the board. Related: Aramco Optimizes Oil Trading Operations Ahead Of IPO

That’s because in today’s oil market, demand is a combination of elements that are much more difficult to understand than any talking head on TV can get out in thirty seconds…

Even if they had the genuine experience and knowledge required.

Here’s what these doomsayers are missing…

Despite All the Doom and Gloom, Oil Prices are Heading Up

As of 2.30 p.m. Eastern yesterday (the close of oil trading in New York) WTI stood at $52.22 a barrel, while Brent was at $58.87.

WTI stands for West Texas Intermediate, the benchmark crude rate for futures contracts on the NYMEX. Brent is the other primary global standard, set each day in London.

Despite two hurricanes and the Chicken Littles appearing on the tube, wailing that the (oil) sky is falling, WTI was up 3.1% yesterday alone, 5.5% for the week, and 9.1% for the month. Brent is on an even greater tear – 3.6% yesterday, 6.7% for the week, and a hefty 12.8% for the month.

That, by the way, is where I predicted oil prices would be by the end of September. Yesterday, WTI hit and Brent blew past the pricing floors I’d called for – $52 and $56, respectively.

Here’s what’s happening.

First, the run-of-the-mill oil prognostication you see on TV is often less objective than it may appear.

“Analysts” are often fronting for their brokerages… and those agencies are taking short positions on oil.

In other words, if the Chicken Little on TV can persuade the market that oil is going to decline, then his “The Sky is Falling” parent firm makes a nice trip to the bank.

That’s not to say shorts don’t have their place in a market; they do. But that place is hardly as the first reaction, and never to satisfy a self-justifying manipulative move.

Over the past several days, as oil prices rose, these guys have had to quickly wind down their short positions. That’s an expensive proposition.

It only goes to show that there may be some justice in the world after all.

Second, when you get down to the actual oil market fundamentals, you notice some interesting developments…

Oil Demand is Rising Faster than Expected

Oil demand is accelerating, not just in the U.S. but globally (where the price of oil is really determined). The International Energy Agency (IEA), the U.S. Energy Information Administration (EIA), and OPEC all agree on this.

There’s certainly more than enough excess supply that can be easily extracted, especially in the U.S. But this surplus does not factor into the equation unless it’s actually lifted.

Managing the amount of excess in the market is a necessary component of keeping prices higher. Most oil companies now understand this.

As such, the IEA, EIA, and OPEC are all now projecting that a balance in the oil market will emerge much earlier than initially expected.

However, it’s important to understand what that balance actually means.

This is not a case of supply meeting demand exactly. That “just in time” provision of crude to the market would be disastrous, with no one being sure whether they’d be able to buy another barrel of oil or not.

If that were to happen, excessive volatility would rule and average oil prices would be flirting with $100 a barrel.

No, the balance we want requires a surplus, as a safety cushion. It’s the size of that surplus, not simply that one is present, that determines the impact on prices.

The balance currently in the works takes this into account, and provides some leverage for producers in the process.

There is also another sort of offset in play…

Energy Investors are About to See Some Nice Profits

The OPEC-Russia agreement to limit production will be extended into 2018.

Now, there is some excess production seeping into the market despite the accord. In addition, American production has never been a party to this accord.

Nonetheless, production declines have intensified in Venezuela, Libya, Nigeria, and Mexico. These moves down are offsetting higher production elsewhere. It may not be an exact match, but it’s close enough to sustain the wider balance.

Finally, the perception of oil traders has moved decidedly away from the doomsayers.

As you’ve seen several times here, setting futures contracts (the “paper” barrels that control forward consignments of actual barrels of oil – “wet” barrels) requires a different view of pricing.

In a “normal” market (and to be honest, I’m not sure what that really means anymore), traders peg prices to the expected cost of the next available barrel. They will then run options on those futures contracts to hedge their bets.

Related: Is This The End Of U.S. Dominance In Global Energy?

However, if traders see oil prices moving down, they’ll peg prices to the least expensive next available barrel. That’s because the trader is more concerned with a surprise fall in price, so they try to lock in as low a price as possible to begin with.

If, on the other hand, traders see prices rising, they start pegging prices to the expected most expensive next available barrel. Here, it’s the upside that the trader must protect against.

We are rapidly entering this latter environment. The best indication of that is the consistent rise in the floor of the pricing range.

As veteran readers of Oil & Energy Investor well know, the floor is far more important than the ceiling. A rising floor provides for traders’ higher expectations of barrel prices.

To this, the doomsayers have no effective response.

Of course, no price trajectory is straight up or down. But oil prices are beginning to ratchet up – meaning more moves up than down, even if it’s not a straight line.

And that’s all we need for some nice investment profits.

By Dr. Kent Moors

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Citizen Oil on September 30 2017 said:
    Equally, there are analysts that are always bullish and they are certainly a front for some long bets. It's hard to trust anyone when they are flogging a stock or commodity. You have to do your own research. If you don't like the price of oil , wait a day . Or sometimes 5 minutes.

Leave a comment




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