AMERICA’S SECRET WEAPON IN THE OIL WAR

As Saudi Arabia spins from crisis to crisis, U. S. oil hasn’t missed a beat. It’s stronger and more resilient than ever – and it has nothing to do with OPEC oil production cuts.
In this war, U. S. oil wins, and the recent purge of billionaire princes in Saudi Arabia is icing on the cake.
But when Saudi Crown Prince Mohammad bin Salman arrested key members of the royal family on corruption charges two weeks ago all of them his rivals – oil shot up. West Texas Intermediate (WTI) spiked more than $2 a barrel, closing around $57 a barrel – a nearly two-year high.
OPEC cuts have done little to boost oil prices, and Royal Family arrests are welcome news for oil tycoons the world over, but it’s still not what’s kept the U. S. on the winning side in this war: Fracking bust the U. S. through the front line, and major advancements in enhanced oil recovery (EOR) are cementing the victory.

This post was published at The Daily Sheeple on NOVEMBER 27, 2017.

WTI Spikes Over $57 For The First Time Since July 2015

Having legged higher at the opens of Asia, Europe, and US markets, WTI is extending gains overnight on middle-east tensions…
Brent is trading above $62 amid anti-corruption drive led by Saudi Crown Prince Mohammed bin Salman, which may consolidate his control in OPEC’s largest oil producer, and WTI has pushed above $57 as producers such as Nigeria, Saudi Arabia signal they support a potential extension of OPEC output cuts.

This post was published at Zero Hedge on Nov 6, 2017.

The Real Economy: What The Interest Rate Fallacy Truly Means

Just a little over a year ago, the Institute for Supply Management (ISM) released its purchasing manager index for the services sector for August 2015. Though the level was down slightly from July, coming amidst the immediate aftermath of the ‘shocking’ financial quakes starting in China and spreading to markets all over the world, the 59.0 non-manufacturing PMI was welcome relief. In the mainstream narrative where the unemployment rate was meaningful, any positive indication about the services economy allowed economists and policymakers to assert that any weakness was either temporary or isolated.
When oil prices first dropped starting in late 2014, the narrative was far more the former (‘transitory’). By August last year, when financial markets far beyond WTI were drawn inward into the ‘unexpected’ maelstrom, the narrative changed to admit that weakness might be a problem but only for manufacturing. In writing about the ISM Non-manufacturing PMI for August 2015 the Wall Street Journal assured us:

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ September 6, 2016.

RIP: Oil ‘Supply Glut’

The most remarkable aspect of the WTI crude oil futures curve this month has been its amazing ability to maintain its shape no matter which direction or by how much. Previously, as ‘dollar’ pressures either built or ebbed, the futures curve would either steepen at the front (liquidation pressure) or flatten toward more normal backwardation (easing of the ‘dollar’ difficulties). That was the case since June 8 when the WTI curve was at its flattest in well over a year; but as funding pressures built primarily, I believe, via Japan (increasingly negative and record negative cross currency basis swaps) the curve morphed from nearly flat to once more highly angular contango in the tell-tale sign of the ‘dollar.’
In short, the Japanese end of the Asian ‘dollar’ had become distressingly disruptive through June and July, but much less so once BoJ singled out the ‘dollar’ in its actual policy changes. Thus, from around June 8 until about August 2, the Japanese-connected ‘dollar’ pressure was increasingly acute and globally disruptive (stock markets obviously notwithstanding because of their own liquidity supply and buying interests, largely myths about what central banks can’t do). Since August 2, much less so; leaving oil once again as a function of ‘dollars’ this time in relatively better shape. [emphasis in original]

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ September 1, 2016.

US Crude Oil Stockpiles At 97-Year High, Gasoline Shorts Most Bearish On Record

Money managers have never been more certain that oil prices will drop.
They increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings ofExxon Mobil Corp. and Chevron Corp. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week.
‘The rise in supplies will add more downward pressure,’ said Michael Corcelli, chief investment officer at Alexander Alternative Capital LLC, a Miami-based hedge fund. ‘It will be a long time before we can drain the excess.’
Hedge funds pushed up their short position in West Texas Intermediate crude by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest increase in data going back to 2006. WTI dropped 3.9 percent to $42.92 a barrel in the report week, and traded at $41.19 at 8:23 a.m.
WTI fell by 14 percent in July, the biggest monthly decline in a year. It’s down by 19 percent since early June, bringing it close to the 20 percent drop that would characterize a bear market.

This post was published at David Stockmans Contra Corner By Mark Shenk, Bloomberg Business – August 1, 2016.

What Oil Price Recovery – – -It’s August Again, Stupid!

On February 6, 2008, oil prices (WTI) dropped to $87.16, the lowest price since the prior October. Oil had been rising as the market misunderstood and dramatically mispriced what was going on; buying on the idea of monetary policy accommodation in growing intensity, while at the same time not factoring the hidden monetary destruction that was far greater. It was in many ways an extension of then-Fed Chair Ben Bernanke’s March 2007 Congressional testimony that, ‘problems in the subprime market seems likely to be contained.’ Whatever was happening in global finance, the illiquidity was expected both to stick to MBS and mortgages exclusively while being overcome by the ‘Greenspan put’ of greater monetary effort under Bernanke.
From early February on, despite all the unfolding disaster leading up to Bear Stearns that March, oil prices were financially insulated by those misconceptions. There was only a brief pause in the surge just after Bear, as WTI fell from about $110 to $100 only to take off again once it appeared (as was repeatedly claimed and emphasized) that monetary policy was working. It wouldn’t screech to a halt until oil hit $145 per barrel the day before the July 4th holiday.
There was some volatility in the days following, but on July 14, 2008, WTI was right back at $145. In between, Indymac had failed and, more troubling, the giant GSE’s had come under severe funding strain, with their stock prices tanking dramatically. As a result, the SEC announced on July 15 that it would effective July 22 ban naked short selling of not just the GSE’s but also primary dealer banks. It was, effectively, an announcement that dollar funding was really much more than Fed talk, and that all the optimism about the dollar in response to monetary policy was dangerously misplaced.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ July 27, 2016.

The ‘Dollar’ May Only Ever Rhyme

It isn’t just that oil prices are falling, that is only one dimension of the full oil spectrum concentrating in the spot market. The more interesting and important information is contained within the whole WTI futures curve. As ‘dollar’ funding pressure has built up since the front month peak on June 8, it has steepened the curve into deeper contango; raising expectations for even more crude heading toward storage in the near future.
That process continues, but in the past few weeks the entire WTI curve has again been influenced by the front. As we have seen in prior episodes, the ‘dollar’ ‘wins’ by pulling down the shorter maturities first so that those expectations for storage become paramount at the back end (so much oil inventory reduces the willingness of anyone who might be willing to buy and store crude to sell at a future date, therefore a lower price further into the future).

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ July 26, 2016.

The New Oil Traders – – Moms and Millennials

When Erika Cajic woke before dawn one morning in early May and read that wildfires were breaking out in an oil-producing region of Alberta, she sat down on the family room couch with a cup of hot chocolate and her laptop and bought shares of an investment linked to crude.
The 45-year-old full-time parent of two in Mississauga, Ontario, like many investors, reasoned that the production outages would drive up the price of oil. By buying the VelocityShares 3x Long Crude Oil UWTI -0.73 % exchange-traded note, she tripled down on her hunch, as the product uses derivatives that aim to rise and fall at triple the daily change in oil.
Within about four days, she estimated she made about 500 Canadian dollars (US$384) on those trades after converting from U. S. dollars.
‘The swings are gigantic lately,’ she said of the product, known by its ticker UWTI, and the other energy products she has traded in recent months.
For some individual investors, crude is the new hot trade. Oil in the U. S. fell to its lowest level since 2003 in February but has surged roughly 90% since then. On Thursday, it traded above $50 a barrel for the first time since October. That compares with a stock market that has offered nowhere near that momentum.
‘I just thought, let’s throw a couple of hundred dollars in it…and try it out,’ said Matt Krasnoff, 26, of New York, who bought shares of UWTI last year after hearing about it from a friend. ‘I just enjoy the risk and the thrill of the market in general.’

This post was published at David Stockmans Contra Corner by Wall Street Journal ‘ May 27, 2016.

One Step Forward After Two Steps Backward……..Is Not Recovery

It seems as if some ‘markets’ are having a difficult time coping with the different speed at which the economy is changing. Maybe that should be expected given the dramatic transformation of them into often computer-driven frenzies of headline scans. But this is something else, made so by the nature of this current economic condition as divorced from our experience. As my colleague Joe Calhoun observed, it makes investing an entirely different animal trying to figure the fundamentals into an overall tendency to ignore them at the first sign that it might be convenient to do so.
The most obvious example of this dichotomy is oil. This is true in terms of oil as one expression of risk, but also as oil prices are themselves split up and pushing two very different narratives. As I examined last week, the WTI futures curve appears to be pricing something else at the front since February 11 where the backend is looking still at a world that has too much crude and ‘somehow’ no one in a rush to use it.

This post was published at David Stockmans Contra Corner on May 4, 2016.

Why The Crude Oil ‘Bottom’ Is Way Below $30

The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.
Apparently even that is not so easy to see, since when prices did indeed go up after, some 3% at the ‘top’, ‘analysts’ fell over each other talking up ‘bottom’, ‘rebound’ and even ‘recovery’. We’re really addicted to that recovery idea, aren’t we? Well, sorry, but this is not about recovering, it’s about covering (wagers).
Same thing happened on Thursday after Brent hit that $20 handle, with prices up 2.5% at noon. That too, predictably, shall pass. Covering. On this early Friday morning, both WTI and Brent have resumed their fall, threatening $30 again. And those are just ‘official’ numbers, spot prices.
If as a producer you’re really squeezed by your overproduction and your credit lines and your overflowing storage, you’ll have to settle for less. And you will. Which is going to put downward pressure on oil prices for a while to come. Inventories are more than full all over the world. With oil that was largely purchased, somewhat ironically, because prices were perceived as being low.
Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.
All the talk about Saudi Arabia’s ‘tactics’ being aimed at strangling US frackers never sounded very bright. By November 2014, the notorious OPEC meeting, the Saudi’s, well before most others including ‘analysts’, knew to what extent demand was plunging. They had first-hand knowledge. And they had ideas, too, about where that could lead prices. Alarm bells in the desert.

This post was published at David Stockmans Contra Corner on January 15, 2016.

Demolition Derby – – Saudi Light Crude Down To $27.54 Vs. WTI At $31.41

Saudi Arabia seems to be engaged in a Demolition Derby with US oil producers. Saudi Arabian light crude is now down to $27.54/US … compared to West Texas Intermediate Crude Oil at $31.41/US.

This post was published at David Stockmans Contra Corner by Justin Raimondo ‘ January 11, 2016.

Increasingly Durable Correlations

There are a few correlations that I find particularly compelling. The first is Chinese RMB (or CNY) next to WTI crude oil, as both are proxies in their own way of multi-dimensional crosscurrents between global ‘dollar’ finance and real economy function. Since March, that correlation has come into renewed and tight focus. In the past few days, the CNY has traded and fixed narrower, perhaps indicating an end to the latest run that has demonstrated huge ‘dollar’ tightness. WTI, however, is still on the way down ‘catching up’ to CNY and thus signaling instead only a short-term pause in the financial downgrade and downdraft.
The second is the Russian ruble compared to more ‘mid-grade’ US corporate junk. Again, you have the same overtones of finance and real economy, with both indications presenting heavy energy exposure but nowhere limited to just that. The ruble declares Russia’s expected oil fortunes, and thus the ability to ‘service’ dollar financial conditions, but also more than that as the overall Russian economy sinks toward its next abyss.

This post was published at David Stockmans Contra Corner on December 21, 2015.

Still Fragmentation In The Money Market – – T-Bills Haven’t Gotten The Rate Hike Memo

There are a few correlations that I find particularly compelling. The first is Chinese RMB (or CNY) next to WTI crude oil, as both are proxies in their own way of multi-dimensional crosscurrents between global ‘dollar’ finance and real economy function. Since March, that correlation has come into renewed and tight focus. In the past few days, the CNY has traded and fixed narrower, perhaps indicating an end to the latest run that has demonstrated huge ‘dollar’ tightness. WTI, however, is still on the way down ‘catching up’ to CNY and thus signaling instead only a short-term pause in the financial downgrade and downdraft.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ December 21, 2015.

The Wrong Kind of Fertile Ground

On December 11, 2014, spot WTI closed at $60.01, down sharply from $76.52 the week before that Thanksgiving. In the space of only a few weeks, oil prices had collapsed far more than anyone thought possible; and yet there was very little urgency to the outcome. Economists, in particular, parroted throughout the media, were quick to assert both a supply ‘glut’ as well as how very beneficial low oil prices were in macro terms for consumers. Paradoxically, Janet Yellen’s increasing use of the word ‘transitory’ meant that on one side the decline in oil prices wasn’t meant to last even though on the other that meant the consumer ‘benefit’ would not either. Thus, in orthodox terms it was better that oil prices would return to oppressive levels and therefore any consumer aid was just the silver lining for the interim.
The word ‘transitory’ would define, then, not just oil prices themselves but an entire array of market balances and economic interpretations that come from oil being the economic center of even a services economy. In terms of assets, junk and high yield corporates were uniquely bombarded by the ‘unexpected’ oil crash, leaving many investors to lighten up in what was a great shift in probabilities and perceptions – better to sell a little just in case Yellen got it wrong.
Even though oil fell below $50 spot WTI as soon as January 6, 2015, and then even flirted with the $30′s not long after, by the middle of the year WTI was back above $55 and even intermittently in the very low $60s. For many, far too many, that seemed as if Yellen had it right and that junk bonds were being overly cautious even when the prior year’s selloff (to December 16) was being limited in commentary to just the oil sector. By mid-year, oil and gas were back within the dominant narrative:

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ November 30, 2015.

Oil Bulls Lose Faith in Recovery as Russia Adds to Global Glut

Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.
Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.
U. S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U. S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since June last month as China’s slowing economy and the highest Russian output in two decades signaled the global glut will linger.
‘The U. S. producers are the only ones doing their part to reduce the global glut,’ John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. ‘Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren’t going to have much impact, especially given the slowing global economy.’
WTI decreased 1.3 percent in the report week to $45.23 a barrel on the New York Mercantile Exchange. It settled at $45.54 Friday.

This post was published at David Stockmans Contra Corner on October 4, 2015.

OPEC Just Kicked Oil Back Into The $30s Club

Increased pumping by OPEC as Chinese demand appears to be slackening could drive oil to the lowest prices since the peak of the financial crisis.
West Texas IntermediateCRUDE FUTURES skidded through the year’s lows and looked set to break into the $30s-per-barrel range after the Organization of the Petroleum Exporting Countries admitted to more pumping and China devalued its currency, sending ripples through global markets.
‘The familiar theme of oversupply and shaky demand is getting punctuated today,’ said Again Capital partner John Kilduff, who has expected WTI to aim for $30 per barrel. WTI futures for September fell more than 4 percent Tuesday and traded below $43.26 per barrel, the March 17 low.
Kilduff said, ‘$42.03 is going to be key. Then we’ll be back to extrapolating back down to the low 30s from the financial crisis.’ The intraday low in 2015 was $42.03, also reached in March. Brent futures, meanwhile, were just below $49 per barrel.
‘Overall, I think this devaluation by the Chinese suggests maybe the slowdown in economic growth is greater than people anticipate, and that’s where fear on the demand side is coming from and driving us lower,’ said Gene McGillian, analyst with Tradition Energy.

This post was published at David Stockmans Contra Corner on August 11, 2015.

Frack Now, Pay Later – -Kicking The Can In The Shale Patch

WithOIL PRICES now dipping close to six-year lows, the energy sector is getting thumped across the board.
The double-dip will likely cause fresh cuts to spending, drilling, and staff. Last week, Baker Hughes reported a surprise uptick in the number of rigs drilling in North America, which jumped by 10 to 884 for the week ending on August 7.
OIL PRICESfell even further on the news, with both WTI and Brent dropping by 2 percent to close out the week. Even though the additional rigs are a rounding error when compared to the 1,000 rigs that disappeared over the past year, the markets took the data as evidence that the supply overhang may not balance out in the near term, as new drilling could be taking place before oil production has appreciably declined.
Over the course of the last year, the companies that arguably suffered the worst were those whose business relies on drilling activity. Oilfield service companies offer rigs, drilling completions, equipment, and other services that actually allow drilling to happen. When drilling slows down, their business dries up. They bear the brunt of a market downturn.

This post was published at David Stockmans Contra Corner on August 11, 2015.

$50 Oil And $235 Billion Of Debt – – Why The Shale Patch Jobs boom Is At Risk

With the recently concluded nuclear deal between Iran and the P5 1 countries, oil prices have already started heading downward on sentiments that Iran’s crude oil supply would further contribute to the already rising global supply glut. The economic crisis in Greece, OPEC’s high production levels and China’s market turmoil have created more pressure on oil prices, making a price rebound look highly unlikely in the near future.
So, with the prices of both Brent and WTI moving towards $50 per barrel, the short to medium-term outlook for oil remains mostly bearish. This is bad news for the U. S. shale sector which is already dealing with rising debt and the ever-increasing risk of default.
A recent Bloomberg report stated that U. S. driller’s debts stood at $235 billion at the end of first quarter of 2015, which is quite worrying. Does this mean that the U. S. oil sector is likely to witness a lot more layoffs than we have seen so far? Surprisingly, a recent IHS study had revealed that the U. S. shale sector has been boosting job creation in addition to supporting around 1.7 million jobs in U. S.
All this as the overall unemployment rate in U. S. has been declining since previous years. But with rising negative sentiment pertaining to oil prices, is U. S. the shale sector prepared to face one of its biggest tests yet? Will the industry be able to sustain another long period of low oil prices or will it once again resort to trimming its workforce?

This post was published at David Stockmans Contra Corner on July 20, 2015.

Oil’s Not Coming Back – -Here’s Why

Oil bulls who’ve cheered a rebound of 40 percent from a six-year low should take heed: Unless demand accelerates, the rally is in danger.
The omens aren’t good. The U. S. government expects global consumption to grow next year at less than half the rate of 2010, when the world was emerging from a previous recession. The growth is insufficient to close the gap with rising supply, according to Royal Dutch Shell Plc, Europe’s biggest energy producer.
The last time oil crashed, during the 2008 financial crisis, China’s appetite for commodities seemed insatiable, and powered prices higher. This time, Chinese fuel use is growing at half the rate of the past decade, and sliding U. S. shale output could reverse as prices rise, smothering the gains.
‘The recent rally appears driven by investors looking at catching the bottom of the market and the expectation that U. S. oil production has reached a turning point,’ said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. ‘But fundamentals, notably in the U. S., have not changed much.’ West Texas Intermediate crude, the U. S. benchmark, has climbed more than $17 a barrel from a six-year low of $43.46 on March 17. WTI for June delivery added 60 cents to $61.35 a barrel at 9:31 a.m. on the New York Mercantile Exchange.

This post was published at David Stockmans Contra Corner on May 13, 2015.