• 2 minutes CV19: New York 21% infection rate + 40% Existing T-Cell immunity = 61% = Herd Immunity ?
  • 4 minutes Is The Three Gorges Dam on the Brink of Collapse?
  • 7 minutes Sources confirm Trump to sign two new Executive orders.
  • 2 hours Is the oil & gas industry on the way out?
  • 9 hours In a Nutshell...
  • 13 hours Better Days Are (Not) Coming: Fed Officials Suggest U.S. Recovery May Be Stalling
  • 3 days No More Love: Kanye West Breaks With Trump, Claims 2020 Run Is Not A Stunt
  • 3 hours COVID is real now
  • 9 hours Australian renewables zone attracts 27 GW of solar, wind, battery proposals
  • 2 days Where is Alberta, Canada headed?
  • 3 days Putin Paid Militants to Kill US Troops
  • 3 days A Real Reality Check on "Green Hydrogen"
  • 19 hours Why Oil could hit $100
  • 3 days During March, April, May the states with the highest infections/deaths were NY, NJ, Ma. . . . . Today (June) the three have the best numbers. How ? Herd immunity ?
  • 3 days The Coal Industry May Never Recover From The Pandemic
Second Covid Wave Could Send Oil Prices Into “Tailspin”

Second Covid Wave Could Send Oil Prices Into “Tailspin”

Oil prices face significant downside…

Top Energy Analyst Sees Oil Prices Soaring To $66 In 2021

Top Energy Analyst Sees Oil Prices Soaring To $66 In 2021

Energy Aspects’ Amrita Sen sees…

ZeroHedge

ZeroHedge

The leading economics blog online covering financial issues, geopolitics and trading.

More Info

Premium Content

Oil Soars 6 % As Andy Hall Warns Of A “Violent Reversal”

WTI Crude is up over 6 percent in 24 hours since yesterday's surprise build (and production cut), as the machines squeeze out an over-exuberant short positioning once again. However, just as we saw last year around this time, Astenbeck's infamous oil veteran Andy Hall is warning that a "violent reversal higher" looms again amid extreme positioning and potentially improving fundamentals. Exaggerating the move further is the surge in the contango which has once again made sea-storage profitable, sending yield-seeking traders into the carry trade (and squeezing shorts further).

As Bloomberg reports, despite what Hall called a “miserable month" for oil in July, supplies are still shrinking, he said in his letter, setting up prices to reverse themselves. “Prices are now back at levels that would ensure the eventual bankruptcy of most of the oil industry", hammering both private oil companies and producing countries like Iraq, Nigeria and Venezuela, Hall said. “Prices at current levels are just not sustainable."

(Click to enlarge)

“The market is being driven by its own momentum and currently that is down," Hall wrote to investors in his Stamford, Connecticut, hedge fund, Astenbeck Capital Management LLC.

“But extreme positioning coupled with improving fundamentals should ultimately – and at potentially any time – result in a strong reversal."

(Click to enlarge)

And we note a major case of deja vu all over again...

Last August/September oil prices exploded 25 percent in just a few days as options markets were manipulated (chatter at the time was Hall faced big losses and used call volume to squeeze a heavily short positioned market) to create the most violent reversal ever in crude...

(Click to enlarge)

However, even more worrying for front-end shorts is the return of the carry trade...

Six-month Brent contango structure now covers cost of dirty VLCC time charter for the same period, making it economical to store crudes that are priced off benchmark, according to Bloomberg survey of 6 traders and analysts.

VLCC time-charter rate for 6 months at $25k-$28k/day, say 2 shipbrokers, 1 charterer; that’s equivalent to $2.25- $2.52/bbl for the half-year period

(Click to enlarge)

Brent’s 6-month contango has averaged $2.83/bbl this month, higher than the freight cost

Contango has widened almost 4 times from its narrowest level for this year on April 29

In other words, the moment the contango got big enough to be profitable, everyone started loading oil back again on to tankers... hoping to earn a modest yield on the carry trade. But this kind of demand is temporary (as the chart above shows).

By Zerohedge

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Kr55 on August 04 2016 said:
    People may be getting tricked by oil that already existed off books suddenly being brought into visible storage for these over-analysed US stock reports, mistaking it as a sign that supply is going back up. It could be hiding what is really happening to supply.

    Will be interesting if there is a sudden collapse in the import numbers and people start to freak out trying to explain why. The hidden barrels being finally counted was always going to be a necessary step in the re-balancing process, but it's being hard sold by shorts and people gambling on their $35 options as a sign of boosting production.
  • Walter Libby on August 09 2016 said:
    It's the global economy, stupid! I know, it's a worn out phrase, but nonetheless what it translates into is the need for a plan B...

Leave a comment




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