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Exuberant Crude Bounce Reverses, WTI Tests $47 Handle As 'Rig Count-Production Link' Meme Breaks
It appears the new narrative for why oil prices surged Friday and this morning is that a record-breaking drop in the US Rig Count means production levels will drop (and thus Saudi Arabia wins). This was enough to spark a melt-up squeeze on Friday which extended this morning running stops above $50.50. However, since that stop-run was exhausted, prices have tumbled back lower - testing a $47 handle - as investors realize the link between production and rig count is spurious at best and anti-correlated at worst.
Thge last time rig count tumbled... production rose!?
and markets are starting to realize that...
Charts: Bloomberg
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For over 4 years, ZH is where i get my news.
Thanks ZH!
I sometimes question the meme... Especially with 12 moving averages and 7 indicators saying WTI is a strong buy at this level and it just crossed back over $49...
Cue Admiral Ackbar...
buying because everybody else is buying works ... uintil the top is reached .... and then it fails rather spectacularly, doesn't it .....
if i didn't know any better i'd think somebody struck oil
High crude price levels: Economy is strong; good for equities
Low crude price levels: Good for the consumer; good for equities
Rising crude price levels: Bottom is in; good for equities
XYZ: Bla bla bla; good for equities
Ten year at 1.67%, 30 year at 2.22% Rate increase imminent..... Lol
They keep accelerating this "bond monster machine". And after it will crash at full speed it into a concrete wall, then they will go:
"Nobody could have seen this one coming..."
"Total surprise"
"Black swan"
i blame bush for obamas sooper recovery
Blame Reagan too !
the decline in the price of oil is directly correlated with the decline of the petro dollar. and the price will remain depressed until it shakes off the dollar as its means of payment.
Exactly.
The reset is already in progress.
oil deals will be the first, then later all trade will be done in gold (and other stores of tangible value). the BRICS will initiate it, and the rest of the world will have no choice but to follow real value or else be left in the dustbin with all the green paper.
The Fed needs oil @ $75 or better, purely to "soak up" dollars....that said, acc'd to AEP over at the Telegraph, so much globally has been borrowed in dollars the last 15+ yrs, the repayment cycle is kicking in, and this is why it's a scramble to get the greenback.
see: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/113004...
Bingo. That is the magic of modern central banking-- when the currency created is lent into existence at interest, it creates a huge future demand for that currency. The more you create, the more that is demanded in the future-- it is a positive feedback loop.
Everyone assumes that the more dollars that are created, the less they must be worth. It is difficult to wrap ones head around the fact that it is actually entirely the opposite.
The only natural braking mechanism is the interest rate at which the money is lent-- that interest rate MUST be driven to zero, and then driven to negative rates. That is the only way the system can slow itself down, until the internal contradictions and stresses cause it to inevitably fly apart.
the usd is strong because of the demise of the dollar? that is some funny shit right there. https://www.youtube.com/watch?v=xwdba9C2G14
Don't worry. Some dollar-denominated derivatives will blow up and soak up excess liquidity.
Perhaps somebody realized that production commences after the drilling rig is pulled. The small operators can't choke back the wells until they don't need the liquidity to pay off the junk bonds that funded this year's drilling program.
These markets are an accident waiting to happen. Amazing how few know what is really happening around our planet. We have become a nation of citizens that just does not seem to care. After 6 long years and patiently waiting the Pied Piper will soon be repaid!
I love my daughter....if it were not for her i would vanish..at 45 i am tired of this bullshit world we live in.... really am..
I'm with you man,I never wanted kids but before I was married I committed to having 2 kids and they're both good.I don't know why but I was always worried about the future and that was over 20 years ago.I remember as a kid my grandparents always talked about the great depression and I remember thinking at the time it could never happen now because we were smarter than those old people.So here I am trying to do what I can to help protect them and my wife thinks I'm halfed wacked,you can only try your best.
Organic gardening offers a good return to reality. Use this year to build up the soil then put some seeds into the ground next year. Until then, use pots.
Very therapeutic.
In the meantime --
https://www.youtube.com/watch?v=HQTtjxWR7tM
One day at a time friend, one day at a time. If you let them get inside your head then they've already won.
I completely agree, kids and grandkids the only thing worth a shit in this world.
Dude, you need to cultivate nature; and curiosity itself....simply to have a sense of wonderment, lack of critical judgement, as well as a desire "to find out how it all turns out". Barring this, I'd recommend a low dose (10mg) of Citalopram daily...and GO ON A "NEWS-FAST". The ladder does wonders for your state of mind, esp out in the wild.
Oil companies do not stop pumping their existing wells.
really poor headline tyler.
The connection between rig count and production is simply lagged due to the fact that its not the internet. Well drilled still need to be fracked, wells fracked in November might only now be being connected to delivery systems, etc.
Its certainly not a MEME. The connection between rigs and production is absolute. The only question is what is the delay from previously drilled wells and other already "in the pipe" activities.
really poor headline tyler.
The connection between rig count and production is simply lagged due to the fact that its not the internet. Well drilled still need to be fracked, wells fracked in November might only now be being connected to delivery systems, etc.
Its certainly not a MEME. The connection between rigs and production is absolute. The only question is what is the delay from previously drilled wells and other already "in the pipe" activities.
I expect better off ZH. The last time, Shale and its 40% well depletion rates were a small fraction of production. Of course the near term effect is to fully utilize existing wells. In 12 months it will plateau and then the decline will be profound and accelerating.
You are doing the banksters bidding as they try to secure real assets and real options with their phantom and senior fractional reserve banking ponzi claims.
Is that the graph for total rigs or oil-focused rigs?
sarcssm off.
time has run out.,
practice mercy,
and mercy will be shown to you.
current production is a lagging indicator - unlike rig counts which are a leading indicator. It takes time for the rig count to filter in. So yes, they are not correlated right at this moment....but they will be.
Is this another perfectly-timed ZH article to catch the bottom in a window of time? I am now seeing WTI (March Futures) pushing upward to just under $50 on CME (as of this post - quotes are delayed by approximately 10 minutes):
https://www.google.com/search?client=opera&q=wti+crude+futures&sourceid=...
US Steelworkers union just called a strike at 9 refinery sites in the USA .... this will be bullish for gas prices, bearish for crude ....
http://rt.com/usa/228427-oil-refineries-strike-usw/
For over 4 years, ZH is where I get 100% incorrect market calls and racist/anti Semitic rants by juvenile peasants.
Burn in your miserable life ZH!
Somebody didn't BTFD.
Again the idiocy via zerohedge continues on the oil articles as Tyler continues to be focused on WRONG things.....firstly even if production holds flat declien rates of 6-8% will kick in....take 7% of 90mm/d and what do u get? HEY DOPE do the math its greater than the 1.5M BB/D you have on the supposed glut..in fact much more.....further those average decline rates are not near the shale decline rates with approach 50% with 6 mths of initial production. Whats worse CHV CEO stated that virtually no new production WW is viable on $50 oil. So again with demand increasing 1M BB/D where is the oil going to come from...Are you a dense idiot u cant do math as u continue to post dummy articles that do no research then critiicize everyone else for not doing real work? Typical hypocracy.....
"firstly even if production holds flat declien rates of 6-8% will kick in"
Grade A contradiction there, champ.
Perhaps he meant that if the production of new holes in the ground is such that the total over time remains flat we'll still experience normal decline rates.
Or, if you prefer, or even if you don't because it's a fact either way: 6-7% of global supply comes from wells with annual decline rates of ~60% in an environment where it is not economically feasible to complete new wells of that type despite a global "oversupply" of ~1%. Net result: "pop" goes the crude market, probably about Q3 - Q4 2015.
Sure, he may have had a good point, but it's tough to tell based off that post. I'm not one to nitpick about typos, grammar, etc... because this is not some place where I expect people to judiciously edit their posts, but at some point, the meaning becomes muddled.
And yes, if fewer wells get drilled due to sub $50/bbl oil, tight oil will go into decline rather rapidly.
Again the idiocy via zerohedge continues on the oil articles as Tyler continues to be focused on WRONG things.....firstly even if production holds flat declien rates of 6-8% will kick in....take 7% of 90mm/d and what do u get? HEY DOPE do the math its greater than the 1.5M BB/D you have on the supposed glut..in fact much more.....further those average decline rates are not near the shale decline rates with approach 50% with 6 mths of initial production. Whats worse CHV CEO stated that virtually no new production WW is viable on $50 oil. So again with demand increasing 1M BB/D where is the oil going to come from...Are you a dense idiot u cant do math as u continue to post dummy articles that do no research then critiicize everyone else for not doing real work? Typical hypocracy.....
if you call this blog idiocy, then why don't you get lost from here?
watch reuters & bloomberg for nonidiocy.
Simple maths demonstrates why the drop is oil price is so problematic.
Assuming $120/barrel oil and 90M barrels per day consumption, this equates to $3.942 trillion dollars p.a. pumped into the world economy. Reduce consumption by say, 2M barrels/day to 88M barrels per day, priced at $45/barrel reduces this amount to $1.409 trillion dollars. That's $2.532 trillion dollars no longer circulating in the world economy, the equivalent of a bit less than the GDP of the UK ($2.8T), or a bit more than the GDP of Brazil ($2.24T).
How can you take out such a large component of world GDP in such a short space of time and not expect major repercussions?
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Can somebuddy please explain how a decrease in oil rigs translates to an increase in production?
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V-V
The wells that have been drilled can go into production after the rigs are gone.
The rig count tells you about future production. Expect a falling rig count to translate into a fall in production sometime in the future. In the case of shale plays, make that sometime in the not too distant future.
What may be instructive is to find out how many fresh holes have not been fracked but abandoned.