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Regarding Those "Less Tight" Crude Supply Fundamentals...
As part of Goldman's second hit piece in oil which the cynically inclined could interpret as merely providing Goldman with an attractive entry point to being long crude, David Greely cites supply-demand fundamentals which supposedly are "less tight." This is great. It would be even greater if it was based on fact. Because according to the IEA "crude output fell by around 890,000 b/d in March as other member states failed to make up for a sharp drop in production from conflict-riven Libya." For those unfamiliar with the lingo, this translates as follows: i) supply fell (which anyone who has taken Econ 101 is aware what it means to equilibrium price, especially ahead of Japan's imminent massive oil restocking to replace nuclear power plant capacity), and ii) Saudi Arabia was lying about its spare potential capacity. "The IEA estimated production from Saudi Arabia in March at 8.9 million b/d, unchanged from February." Yes, this is the country that was screaming from the rooftops that it would hike oil output immediately if not yesterday (since buying the eternal adoration of our citizens does not come cheap). So, we ask Mr. Greely, does he care to revise his thesis about relative "tightness" - perhaps he could phrase his point alternatively: "some of our traders would love to buy up Brent on the cheap so please sell to us post haste?"
From Platts:
Despite current high prices, the IEA said internal disagreements within OPEC meant that the group was unlikely to agree to raise its existing crude output targets when it next meets in June.
In its latest monthly oil market report, the IEA said OPEC crude output averaged 29.2 million b/d in March, down from 30.08 million b/d in February.
Libyan output slumped from 1.39 million b/d in February to just 450,000 b/d in March, and is now believed to be completely shut in following three separate attacks by government forces on rebel-controlled facilities in the east of the country, the IEA said.
Nigerian production also declined in March, falling to 2.05 million b/d from 2.16 million b/d in February, the IEA said.
These falls were slightly offset by higher output from Kuwait, the UAE and Angola.
The IEA estimated production from Saudi Arabia in March at 8.9 million b/d, unchanged from February.
Saudi Arabia has publicly pledged to make sure the market is not left under-supplied as a result of the Libyan outage, and has even created special crude blends which more closely resemble Libyan grades, but the IEA said the Saudi offer of extra crude had met with only "tepid demand" from refiners.
"Other OPEC producers have so far struggled to place extra barrels on the market at prevailing, inflated prices," it said.
OPEC "continues to dismiss the need for holding an extraordinary meeting to discuss supply levels before the previously scheduled gathering in June, arguing the market has enough oil," the IEA said, adding that "disagreement over existing, but largely redundant, output targets potentially makes consensus on increased quotas difficult to achieve."
Gee, we wonder why: maybe it has to do with the fact that once QE3 comes around, which it will in due course, crude will shoot straight up to $200+, at which point any oil minister will have been fired for selling more when it was merely $120 (ref: Gordon Brown and UK's former gold stash).
And some other perspectives on the supply "tightness" which apparently is "transitory" - just like surging inflation.
Saudi Arabia, which controls about three-quarters of Opec’s spare capacity, raised its output in the first quarter of 2011, producing an average of 310,000 b/d more than during the final quarter of 2010.
But Saudi production remained flat in February and March, averaging 8.9m b/d in both months. Earlier estimates suggested that the kingdom had raised its output by more than 400,000 b/d compared with the end of 2010 to reach a total above 9m b/d.
The fact that output rose by substantially less was partly due to factors beyond the kingdom’s control. “The earthquake and tsunami that have devastated north-eastern Japan reduced overall demand for the country’s crude,” said the IEA report. “A number of cargoes en route to Japan were diverted elsewhere in the region.”
Consequently, Saudi Aramco, the kingdom’s national oil company, decided to “throttle back production in mid-March”, added the IEA.
In addition, Saudi Arabia found it difficult to provide like-for-like replacements for the high-quality blend of crude offered by Libya. “Saudi Aramco saw only tepid demand from refiners for extra barrels due to the quality mismatch with lost Libyan supplies,” the report said.
Alas, you can't eat your cake and have it too: all those calling for an imminent surge in Japan GDP realize that any crude imports lost will have to be more than made up in the coming weeks and months. Which means demands is about to surge. Or else, if not, Japan's GDP is about to plunge, killing global (and US) GDP forecasts, and ushering in even more global quantitative easing (and once again confirming what a joke the ECB's rate hike was).
Pick your poison.
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The technical term for the oil market ex: Cushing
"Tighter than a bull's ass in fly time"
Hey Tyler,
What about those oil inventory numbers? I thought we're flood with oil.
I'm not being sarcastic... I'm honestly confused over this whole oil thing.
You're correct. There never was any "tightness" and there's far less now at this price level.
Once the speculators start really fleeing (this little correction may just be a blip) OIL is back to the 80s.
There's no growth or demand from the world economy, which is headed down, not up. Oil prices will go with it. It's just a matter of time.
Not to $80 unless spec money moves to long USD
No tightness eh? Look at the world market and the great Saudi disappearing act...
Total selling panic today.
Lots of "flash crashes" in the Canadian oil trusts today.
Everyone is selling first and asking questions later.
And piling into safe havens like WMT and TGT.
You do realize that with your CONSTANT exaggeration that no-one takes a word you say seriously, right?
Post a minute chart, or STFU.
You do realize that with your CONSTANT exaggeration that no-one takes a word you say seriously, right?
Thanks for this breath of fresh air. The BS is getting pretty thick whilst the backroom boys try to explain away PO. Also, Cushing is meaningless, world and U.S. reality is the Brent market.
Nah, WTI isn't meaningless. It's a propaganda tool.
oil imports in February were the lowest in 12 years.
considering oil was $85 for the 1st half of the month, cant wait to see those numbers collapse even further as gas/diesel consumption crash.
demand destruction => lower overall economic activity.
Airline stocks on fire.
Huge move off the lows, helping the Transports.
All GS needs to do is keep the markets dancing to their tune. If you dance with them when the night is over you're going to be hungover with an itchy crotch.
CRB Index falling into the crash window.
the 'fundamentals' of Oil are terrible... there's vast over-supply, every year a new country finds the stuff, and every year the State (particuarly the US who has larger un-tapped reserves than Saudi Arabia) bans exploration and drilling ...so the long term fundamentals for Oil are drastically lower prices, well below their usual $30 per barrel decadal average
...what they're doing at $120 is probably the same puzzle as what Gold is doing at $1,600 and Silver at $40
PS. Saudi has just cut production due to slack global oil demand (despite problems in Libya etc)
Except, of course, that with IEA's acknowledged conventional 5.1-6.7% decline rate, we need to find a new Saudi Arabia every two years.
http://en.wikipedia.org/wiki/Peak_oil
"Except, of course, that with IEA's acknowledged conventional 5.1-6.7% decline rate, we need to find a new Saudi Arabia every two years."
Think about that for a second. How many new Saudi Arabias have been found in the last 50 years?
Yep, that's my point.
Oil reserves and the potential production of oil are state (and corporate) secrets. The IEA only knows what they are told. And if their job is to blab to the public, they won't be told anything useful.
I think you'll find the IEA has slightly more on their plate than "blabbing to the public".
Invest as you see fit, personally I think it's more than a stretch to believe anything but us hitting peak any minute now, if not already there.
Invest as you see fit, personally I think it's more than a stretch to believe anything but us hitting peak any minute now, if not already there.
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How abundant is Carbon as an element in the universe?
What proportion is found here on earth?
And, what form(s) is it found in?
There's your starting, underlying basis for crude stocks in the earth (and we've only been poking into the crust) ...
That is completely ignoring exactly how the carbon chains we know as crude came to exist. They don't just spontaneously appear out of nowhere.
Seriously, feel free to post all the disinfo you can, but take it over to theoildrum instead, where they have more time to point you in the right direction.
That is completely ignoring exactly how the carbon chains we know as crude came to exist. They don't ju ...
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Right; carbon existed in the life-cycle of plants and animals before it existed as an element found in/on/within the earth and the our solar system ...
I forgot that part ...
/sarc
"There's your starting, underlying basis for crude stocks in the earth (and we've only been poking into the crust) ..."
You make it sound so easy! The problem is when you approach the point where it essentially takes a barrel of oil to produce one. It is not even that easy to 'poke' at the crust, let alone go deeper. There may be more oil, but not at cheap prices.
The problem is when you approach the point where it essentially takes a barrel of oil to produce one.
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Like ethanol?
We're there with that one!
Seriously, we have quite a ways to go to reach the 1:1 point as far as hydrocarbon-based fuels ...
They probably have a lot more on their plate. And they are probably just as competent dealing with the rest of their "portfolio."
Kool aid much?
So, we ask Mr. Greely, does he care to revise his thesis about relative "tightness" ... .
Thesis. Rhymes with faeces. Which causes one to pause and reflect on the differences between a Wall Street churnside forecast and a ponzeconomy™-sized bag of barbecued poo. But not for long, 'cause there aren't any.
Gold just nose-dived. $1447.
And look at the feeding frenzy that has caused as BTFD rages. The price is going back up faster than it was taken down.
yeah, as tight as prom night
Just out:
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This morning, Saudi Arabia said it was reducing daily production 500,000 barrels a day to 8.5 million a day, citing weak demand.
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How convenient for them. They have ALWAYS done this. They have no spare capacity and they hide it behind an alleged lack of demand. What happened to their new sweet blend that was to fill in for Libya's 1.5 mbpd? What happened to it is they made 1 million barrels, in a month, and stopped.
While it seems clear that this retracement in the price of oil is fishy at best, and engineered to make Squid some money, I can't help but wonder, too, how the cause and effect of the oil price run-up in 2008 and subsequent finacial crash factors into the Squid's (I will term this loosely) thinking. Oil prices are high enough to start having a negative impact, once the refiners buckle and pass on the pain - prehaps Squid is anticipating the price will choke recovery and they are getting out near (potentially) top, or, I actually had this tin-foil-cap worthy thought right off the bat, perhaps they have been gently encouraged by the gov to take thier profits now and run down the price to attempt to prevent another crash.
anyone who utters supply-damand fundamnental immediately loses all credibility.
Its okay, because in a week or two, Abby Cohen and Jan will come out with massively bullish reports and say that oil has to go to $130. That way these guys don't have to do the dirty work of both talking it down and then talking it up. They only have the job of sourcing it cheap. Someone else will pump it.
Ordinary Squiding. Move on, nothing to see here folks.
Must read for those wanting to understand the Saudi situation.
http://www.theoildrum.com/node/7767
Yes.... it allows you to identify the trend but not trade the noise.
Any mention of Science (data & fact based science),as opposed to government "Science", brings out the Shillista commies very quick like.
Can not let the peak oil myth die!
http://climaterealists.com/index.php?id=6261
Factism.
Queue the Abiotic wing nuts....