Posts Tagged ‘Oil’

It scares me that OPEC is so quiet.

OPEC countries usually love to grab the spotlight during big meetings (and the media loves to shine the spotlight on anyone that looks anywhere close to being an oil minister!).

That’s not happening for the big confab tomorrow, though… where everyone universally believes OPEC will extend their production cuts.  After all, the leading OPEC members said as much in a press conference on Monday.

Quiet is a bad sign… as is the Middle East unanimously agreeing on anything.

Could there be some hugely negative surprise tomorrow?

There have been little chirps here and there about Iran (the #2 player in OPEC) not wanting production cuts to apply to them…

… but nothing disruptive.  Indeed, everything seems civilized… which is a word not many would associate with the players involved.

Unbelievably, I think there’s a really good reason why OPEC may be in agreement:  The production cuts seem to be working.

Crude oil is trading about 15% higher than before the production agreement was announced last Nov.  Maybe more significantly, it dramatically changed the trend line.  Before the announcement oil was spiraling downward, everyone (there’s that “universally” thing again) was sure it would soon be trading in the 30’s.  OPEC’s agreement seemed to single-handedly stop the decline in its tracks…

… and there in lies the major motivation for cooperation:  Oil in the 50’s is a lot better than oil in the 30’s.

Guess we’ll see how it plays out in the next 24 hours or so.

 

OPEC Games?

Posted: May 22, 2017 in Business, Farros, Oil, OPEC, Royal
Tags: , , , ,

To say the oil market is sensitive to news coming out of the Middle East is an understatement.

In November I wrote, “If I Were A Bad (Oil) Guy“… essentially wondering if countries in the Middle East might be jerking oil markets around on purpose to earn a little side money.

Guess we’ll find out this week… there’s another very big meeting on Thursday… and while everything seems quite hunky-dory right now… it will be interesting to see if anyone tries to upset the oil cart this week.

Stay tuned.

P.S.  It’s quite possible that something like this already happened… UWT (which tracks crude oil 3x) was trading just under 23 about a month ago… about two weeks ago it his just above 13.50… that’s a pretty sizable drop in such a short period of time.

UWTI and DWTI are wildly popular 3x ETF’s that track WTI oil.

That means they approximate three times the daily move by WTI oil… and there’s a lot of daily volume so there are no weird trading patterns.

WTI was up about 0.33% today, which means UWTI should have been up about 1% today… and DWTI should have been down about 1%.

But, UWTI was up about 5.5%… while DWTI was down about 5.5%.

That makes no sense.  I’ve tracked these ETFs daily for years and I’ve never seen this.

There are some extracurriculars going on here, most notably it was announced yesterday that Credit Suisse AG is going to shut down the wildly popular UWTI and DWTI ETFs.  I don’t think this affected price because if it did, it would have had an equally negative impact on both.   Instead, both issues had completely mirrored performance today, just as you would expect — only, the mirrored performance was off by almost 6x!

Also, it could have been some kind of rumor out of the “practice” meeting at Doha, but, if that were the case, that would have affected WTI price first, which it did not… WTI was relatively calm today.

I’m trying to figure out whether this is one of those rare times when some kind of inefficiency affected price.  If that’s true, you would expect a snap back rather suddenly on Monday, possibly an interesting trading opportunity.  Problem with that thinking is these ETFs trade in such high volume, that kind of inefficiency is almost impossible.

This one certainly has me scratching my head.

The great historical fiction writer Leon Uris characterized in The Haj how difficult it was to negotiate with the Middle East… I roughly remember the language he used:  “Do you know how hard it is to negotiate with horse-traders that have been negotiating for 1,500 years?”

That’s not a direct quote… just something I read a long time ago that made an impression on me.

It’s also what I’ve observed when it comes to the Middle East.

Sometimes I wonder — since oil is incredibly sensitive to any comments coming out of Saudi Arabia — and since the Saudis clearly have a cash flow problem these days — whether they’re speculating on the side.

In my experience, almost all professions do it… it’s said that an honest bartender only steals 10% of the evening’s take… and that’s why we have insider trading laws and regulators.

I can only imagine how ineffective any kind of laws and/or regulators are in an area of the world as wild, wild west as the Middle East.

If I was a bad oil guy and wanted to make a chunk of cash speculating in oil in the next few weeks, I would have a “practice” meeting and leak that it was an utter failure.  That would send oil plummeting.  Then, miraculously, at the final meeting, I would triumphantly declare success, grabbing victory straight from the jaws of defeat… and, of course, sending oil soaring.

Even though people would eventually unravel the terms of the deal and find that it was mostly hype over substance…

… as a bad oil guy, short term I would still win on both ends of that horse trade.

Just sayin’.

(Note:  The “practice” meeting is in Doha, Qatar tomorrow… and the final meeting in Vienna, Austria on Nov 30th.  Stayed tuned.)

NOV 30 UPDATE:  Well, the timing was a bit off… they mostly waited to about a week before the meeting… but, yes, oil, which had a dramatic move downward in the last few days, is now soaring this morning on the heels of a (still unconfirmed) deal… so there may be bad oil guys in OPEC after all.  Go figure.

The setup:  Since last Friday, it seemed like a deal was completely and utterly dead.  First, it was announced the Saudis would not attend the preliminary Monday session, which was viewed as being a negative sign that the Saudis were putting their feet in the ground, including horrible “R” word rumors:  That they may be reneging on prior agreements.  

Then came the slew of press releases stating things like, “the Saudis can go pound sand, we’re not cutting!”… and “we think a freeze right now is the same thing as a cut in 2017″… and such.  

Over the weekend the head Saudi oil minister was even quoted as saying, “oil is rebalancing, anyhow, so if there’s not an agreement, everything will still be fine.”

Then came the last 24 hours where things appeared to be so bad, the Saudi oil minister even resorted to “sneaking in a side door” to avoid having to face the press and other countries.  Understand there is a lot of pomp and showing of strength (i.e., “mine’s bigger”) at these meetings so not making a formal entrance was also considered very negative.

Magically, though, an agreement — even bigger than what was expected — emerged this morning.  And now oil is soaring.

Imagine that.

 

 

 

Data is one of the things that moves the oil market these days.

Every Tuesday at 1:30pm pst we get data from the American Petroleum Institute (API).

I have found Marketwatch does a great job covering this report — which we mere mortals can’t actually get directly since we don’t pay the big bucks for a data subscription.

Yesterday Marketwatch reported a 3.65 million barrel build… compared to a 2 million barrel decline that analysts were expecting.  Relatively speaking, that’s a big miss… and would be quite bearish for oil prices.

CNBC, on the other hand, reported a 3.6 million barrel build… BUT as compared to analysts expectations of a 1.5 million barrel INCREASE.  That’s obviously a less dramatic miss.

So who’s right?

Who knows!  In this highly automated news era, it’s impossible to get in touch with any news agency to ask them to verify potentially big typos in reporting.  I’ve been trying to leave comments on the CNBC site… and am logged in correctly (since I got the “Welcome, Royal!” message)… but for some reason (maybe a bug) my comments aren’t posting.  (And, no, I don’t post a lot of comments so I haven’t been banned or anything.)

Technology is absolutely wonderful but still has a ways to go, eh?

Guess we’ll find out the true answer when the U.S. Energy Information Administration (EIA) reports at 7:30am pst today.

That is, if the news agencies can get the reporting right.

UPDATE:  The EIA reported that the actual build was 5.3 million barrels… which I’m happy to say both news agencies got right… BUT, Marketwatch still is using an analyst figure of an expected decline of 2 million barrels… while CNBC is still using an analysts figure of a 1.5 million barrel increase.  Ugh!  Go figure.

OPEC just announced some “kinda” agreement about production levels and freeze.

Oil just skyrocketed on the potential “news” (up 5.3% @ $47.05 for the Nov ’16 contract).

Everyone has been waiting for this moment… a signal from OPEC that the strategy it’s employed the last few years is changing.

Everyone — 100% of all analysts — have come out saying this will put a floor under oil prices now.

The contrarian in me says when everyone thinks one way, the opposite usually happens.

What could possibly go wrong?

Maybe this inspires more U.S. shale oil to be produced… that was one of the reasons oil dropped from the triple digits not so long ago.

Maybe the “cuts” aren’t real cuts, just natural scale-back given the time of year (between summer driving and winter heating)… so any temporary euphoria in the market will soon get replaced with the commonsense observation that everyone is still pumping at near-record levels.

Maybe it’s just all of the OPEC members playing games with each other — and the world — again.

Who knows, but it will be interesting to see!

 

Everyone is asking when the market will crash.

They’re pointing to overvaluation… interest rates… the bull running way too long… P/E ratios… unemployment… wages… Europe and International melting down… etc., etc. *

Long-time readers know that I care most about one single, solitary metric:  The price of oil.

When oil spikes — like it did in 2008 — it affects the price of everything… and I mean absolutely, positively every item & service in the global economy.

That, of course, affects consumer purchases, which account for about 70% of all purchases and are truly the engine of the aforementioned global economy.

That, of course, affects corporate earnings, which affect stock price.

So, while everyone comes up with ever-increasing and complex ways to predict the market, I just keep my eye on oil… as I do every single day.

While the price of oil is subject to change at a moment’s notice… it’s been behaving for a while now.  That’s my signal that it’s safe to stay in the water.

 

*  P.S.  They’re also talking about global military actions and terrorism… which absolutely do have the ability to derail the market in the short run… those are — depending on whether you are short or not — unfortunately or fortunately constant wildcards in this connected, modern world we live in.