• 1 day Shell Oil Trading Head Steps Down After 29 Years
  • 1 day Higher Oil Prices Reduce North American Oil Bankruptcies
  • 1 day Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 1 day $1.6 Billion Canadian-US Hydropower Project Approved
  • 1 day Venezuela Officially In Default
  • 2 days Iran Prepares To Export LNG To Boost Trade Relations
  • 2 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 2 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 2 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 2 days Rosneft Announces Completion Of World’s Longest Well
  • 2 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 2 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 3 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 3 days Santos Admits It Rejected $7.2B Takeover Bid
  • 3 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 3 days Africa’s Richest Woman Fired From Sonangol
  • 3 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 3 days Russian Hackers Target British Energy Industry
  • 3 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 3 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 4 days Lower Oil Prices Benefit European Refiners
  • 4 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 4 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 4 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 4 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 4 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 5 days OPEC To Recruit New Members To Fight Market Imbalance
  • 5 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 5 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 5 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 5 days GE Considers Selling Baker Hughes Assets
  • 5 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 5 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 5 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 6 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 6 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 8 days The Oil Rig Drilling 10 Miles Under The Sea
  • 8 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 8 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 8 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Alt Text

Can Oil Prices Hit $65 This Week?

Crude prices climbed quickly as…

Alt Text

Why Oil Prices Will Keep Moving Up

With oil smashing through two-year…

Alt Text

Is OPEC Deal Compliance About To Crash?

OPEC’s victory lap to celebrate…

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

Offshore rig by night

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:




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