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Oil's "Surprise" Collapse: It's The Demand, Stupid

Tyler Durden's picture




 

Submitted by Jeffrey Snider via Alhambra Investment Partners,

Crude oil futures have been quite volatile of late, particularly in the front months where even the slightest changes in expectations of whatever factor (rig counts, CEO comments, etc.) send WTI surging or tumbling by turn. Despite that, however, the outer years on the curve have seen not just more stability but a steady downward pressure of late. I think a lot of that has to do with futures investors reconciling actual contango options with the idea that demand is far more of not just a problem, but a longer-term problem.

At the front end, rig counts have gained most attention but only as they relate to the surge in inventory. The US is overflowing with oil and production remains at a record high, but the two of those factors together don’t actually count as much in terms of price as is made out by most commentary. It is far too difficult for many to discount the entire economics professions’ complete dedication to the US “booming” economy in order to see a huge demand problem in oil prices; far easier to simply repeat the words “record supply” and leave it at that.

ABOOK Feb 2015 Crude WTI Futures

If you actually view the futures curve of late, the curves of recent days has crossed in the outer years. In other words, where prices have moved around at the shorter end, out at the long end the curve has shifted significantly downward regardless of short term pricing. That relates to both contango, as noted above, but also I believe growing recognition that supply is overwrought and demand is what may be impaired – perhaps more permanently than anyone thought possible only a few months ago.

In order to believe that crude prices are solely a supply problem you simultaneously have to believe that futures investors are all stupid. This is not to say that they are never wrong, but in this case it would mean that they cannot even perform basic tasks of financial discounting in order to set an orderly and clearing market price. That is the only way you can look at “record supply”, which is clearly the case, and think it has anything much to do with the collapse in oil prices (latest monthly figures through November 2014).

ABOOK Feb 2015 Crude Production US

US domestic supply has been rising precipitously since July 2011! And it has done so in a remarkably stable fashion, nearly a straight line to match even the S&P 500 in slope. In other words, “record supply” has been a continuous facet of oil markets for almost four years now and the trend in the level of production should not surprise anyone let alone futures investors. If anyone was surprised by the level of crude oil production heading into 2015, enough to sell, sell and sell to the tune of an almost 60% price drop, they had to be utterly incompetent especially as futures prices are supposed to be the purest form of discounting future considerations. The supply part of the equation is decidedly easy and clear.

What is driving prices now is the record buildup in crude stocks, which has only recently become problematic.

ABOOK Feb 2015 Crude Stocks US

Each weekly release of the US EIA estimates of crude inventory has been market-moving in January and February, to both fuel rebounds and kick off erosion in prices, because the amount of building inventory is immense.

ABOOK Feb 2015 Crude Inventory

Given the cumulative assessments here, it seems far more likely that if some variable has changed, and done so dramatically, it is not a “surprise” surge in crude supply but rather a sudden and sharp drop in demand that had reasonably matched growing supply until only more recently. The nature of futures markets being what they are, imperfect as they may be, it is even likely that investors there took financial cues in the “rising dollar” to mean that the probability of demand matching supply was falling. The heightened illiquidity into October and then December simply confirmed growing financial problems which would reflect in far lower probabilities of economic stability.

In other words, futures markets assume that supply may be a problem but only because now, all of sudden, demand, including US demand, will no longer keep up. The fact that such an imbalance created a nearly 60% collapse in price speaks to the growing probability of any economic shortfall occurring as well as the far more important and greater discounting of its severity and/or duration. It bears overstating that these kinds of price movements only occur during severe economic dislocations of a global scale.

Either all futures market participants are comically inept or demand is the variable that shifted hard. Those are the only two possibilities.

 

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Sun, 02/22/2015 - 19:05 | 5816392 Cadavre
Cadavre's picture

Hate to spoil the party, but ...

Sun, 02/22/2015 - 19:11 | 5816405 knukles
knukles's picture

CA Progressives say demand's falling off the cliff because of all the electric cars.
When I point out that miles driven's falling off a cliff they say its because of electric cars
When I point out that the Saudi's cut the price of oil they say it's because of electric cars
I shit you not

Sun, 02/22/2015 - 19:16 | 5816436 kaiserhoff
kaiserhoff's picture

From an arbitrage standpoint, the lines in that top graph should be fairly straight after 90 days from present.

They are not, because a lot of people thought, hoped, prayed, that prices would quickly bounce back up.

The futures prices will decline, putting pressure on spot prices, as producers hedge more of their future production.  Absent a major supply disruption, this puppy is going lower.

Sun, 02/22/2015 - 19:27 | 5816477 knukles
knukles's picture

BTW  Didja all know that there's been a settlement with the Longshorpeoples and Boat Owners?

http://www.polb.com/

 

Or was it just me asleep over the weekend, not paying attention to the temporal distraction?

Sun, 02/22/2015 - 19:32 | 5816495 Arnold
Arnold's picture

Nope, no coverage on the east coast, but I am not well informed, not watching TV and all.

Sun, 02/22/2015 - 19:50 | 5816539 ZerOhead
ZerOhead's picture

Here's the updated global oil supply/demand graph that puts the collapsing demand story to bed...

https://marketrealist.imgix.net/uploads/2015/02/prod-vs-conss.png?w=660&...

Of course the Chinese are stockpiling such a shitload lately you almost think they expect a war will be happening soon...

Sun, 02/22/2015 - 20:05 | 5816592 Bossman1967
Bossman1967's picture

Stockpiling happens before war and no money no deman. They killed us traveling salesman so where I used to use a tank a day now tank in 2 weeks. 6 million traveling ins salesman just like me so they are getting what they asked for fuckem

Sun, 02/22/2015 - 22:10 | 5816880 11b40
11b40's picture

The nature of the traveling salesman has changed. Not nearly as much travel, and a lot more computer time. Conference calls, too. I had 3 of those last week. 5 years ago, I didn't have many more than that in a year.

Sun, 02/22/2015 - 21:18 | 5816748 Burls
Burls's picture

Ummm ... how, exactly does that graph "put the collapsing demand story to bed"?

The crucial part of the graph you provide is 'projected demand';

not ACTUAL DEMAND.

And therein lies the proximate cause of the present glut.

Actual demand is lower than projected demand.

Also, the Chinese stockpiling has started to fall off.

So there's an artificial source of demand that will soon be gone.

Once the storage capacity for crude in America becomes full in a month or so,

another source of artificial demand, motivated by contango related stockpiling, will ebb off as well.

So ZH's reporting has been spot on in this regard.

Sun, 02/22/2015 - 22:59 | 5817017 Yao
Yao's picture

We've yet to see any hard numbers on the alleged collapse in demand though we've been hearing all sorts of conjecture as to why it simply *must* be occurring ... for about twenty years now.  And yet all that time demand has continued to tick up around 1 percent per year like clockwork.  Is this time different?  Maybe but that's not the way to bet, at least not with your own money.

However on the supply side we know that: US shale outstripped even Wall St.'s most optimistic estimates, the Saudis for the first time ever refused to play the swing producer role, Iraq stabilized and brought a few MMbbl/day back on line, the Arab Spring passed in Libya and abated the temporary loss of 1MM bbl/day it had caused, etc.  Etc. in an awful lot of places actually.  It's not that traders were dumb it's that they (rightly) never believed that the confluence of circumstances that occurred would ever come to pass simultaneously.

Salt to taste but given the four percent natural annual decline and historic one percent annual demand increase we're likely to need around 23 - 24 MMbbl/day of new production between now and 2020.  This:  http://static1.businessinsider.com/image/5478971b69bedd1f6b9bd367-2581-1... and today's long-dated futures together imply around half that will come online by then.  And, of course, that there will be absolutely no geopolitical disruptions in supply over the next five years.  And no unexpected failures.  And no environmentalists blocking new production.  And readily available capital for drillers whenever they need it.  And ....  Good luck with that.

 

 

Mon, 02/23/2015 - 02:23 | 5817519 roadlust
roadlust's picture

And you're also implying that there will be no disruptive alternative to oil.  With technology making "things" exponentially more efficient, and world economies collapsing, "demand" could be reduced exponentially, even while new supplies of oil come online. 

Oil has been artificially high for years through shere manipulation.  It's harder to do that at this point, so the fixers have moved on.  See: the "stock market." 

Mon, 02/23/2015 - 08:56 | 5817845 Yao
Yao's picture

Oil's value as an industrial input guarantees that there won't, in our lifetimes, be a "disruptive alternative to oil" as oil is simply required for most of modern life.

Perhaps it will fade as a motor fuel but ethanol, the great hope to become oil's replacement as a liquid motor fuel, hasn't worked out so well (and cellulosic will be no better when they discover the amount of chemical fertilizer necessary to support yields).  

And the Chevy Volt's 38 mile all-electric range is approximately identical to that of electric cars that were quite popular a century ago so I won't be holding my breath there either.  Doubtless there will be improvements even though there haven't been in the past century.

So ... a displacement of oil in the next five years?  Unlikely.

Mon, 02/23/2015 - 02:50 | 5817541 sun tzu
sun tzu's picture

Oil demand among the developed world has been falling for almost 10 years now. The growth is from China and that is slowing too.

 

http://www.usfunds.com/media/images/frank-talk-images/2011-frank-talk/ju...

http://www.energytrendsinsider.com/wp-content/uploads/2012/06/Oil-Consum...

Mon, 02/23/2015 - 08:31 | 5817807 Yao
Yao's picture

And the precise location of demand matters in the global oil market because ...?  Global economic development won't halt after China and China is far from finished.

Sun, 02/22/2015 - 19:34 | 5816498 kaiserhoff
kaiserhoff's picture

Thanx.  ZH has been rather "selective" in news coverage lately.

Sun, 02/22/2015 - 19:44 | 5816521 Never One Roach
Never One Roach's picture

The Federal Reserve Bank of New York released its latest report showing that total U.S. household debt went up by $117 billion from the third quarter of 2014 to the fourth quarter. As of the end of 2014, total household debt stood at $11.83 trillion.

 

Total household debt increased $306 billion from the previous year, with the biggest increase coming from mortgage debt. But virtually all major forms of debt were up across the board, including student loan debt, auto loans, and credit card debt.

 

While the increase in debt over the last year is not huge, it is a somewhat disturbing — although not surprising — trend that we have seen before. In the early and mid-2000s, there was a big run up in debt, particularly in mortgages. We know how that ended.

 

So ... it's all Boooyaaaahhhhh! Merikan Consumers can't be held down, can't be held back, by little things like massive debt despite huge joblessness, stagnant wages and disastrous layoffs in the O&G sectors.

Sun, 02/22/2015 - 21:08 | 5816720 nightshiftsucks
nightshiftsucks's picture

That must be why retail sales were down in Dec and Jan.

Sun, 02/22/2015 - 19:52 | 5816543 Harbanger
Harbanger's picture

We need to offset this global cooling cycle by burning all this cheap fuel, Bitchez.  I have a study for that.

Sun, 02/22/2015 - 19:17 | 5816442 maskone909
maskone909's picture

We lie to to the public and tell them they arnt in a depression. The numbers look great. Then we stockpile tons of oil before ww3. The "reset" will be after new borders are drawn. Its not easy maintaining the illusion, you know?

Sun, 02/22/2015 - 21:01 | 5816706 Carpenter1
Carpenter1's picture

OIL GOING TO $200 CAUSE RIG COUNT DROPPED!!

LMFAO!!

So many here bought into that utter bull shit, and some still do.

Sun, 02/22/2015 - 19:18 | 5816446 kaiserhoff
kaiserhoff's picture

So when Wenchley is having a really bad "time of month",

  it's because of electric cars?

Sun, 02/22/2015 - 19:25 | 5816467 sleigher
sleigher's picture

When I point out there is a world outside California they say no there isn't.  

Sun, 02/22/2015 - 19:28 | 5816482 knukles
knukles's picture

Yours respond?  Mine just look kinda like they been tricked or sumptin'

Sun, 02/22/2015 - 19:40 | 5816508 kaiserhoff
kaiserhoff's picture

Here in the hills and hollers, you are considered quite stupid if you don't know exactly what they know,

like, when Billy Bob's cousin's big birthday bash is..., or where the Meadowbrook Dairy building USED TO BE!

The lack of perspective is comic/tragic.

Sun, 02/22/2015 - 20:22 | 5816620 Fish Gone Bad
Fish Gone Bad's picture

All news is regional.  When I drive to San Diego, they don't give a shit about Los Angeles.  When I drive to Las Vegas, they pretty much couldn't care less about anything other than a casino robbery.  Up in Seattle, they are just so pleasant all the time.  Perhaps nothing bothers them.

Sun, 02/22/2015 - 21:30 | 5816787 espirit
espirit's picture

It's the weather's fault they're so nice in Seattle.

Antidepressants are required to remain there. 

Sun, 02/22/2015 - 19:41 | 5816514 sun tzu
sun tzu's picture

I know what you mean. I had training with some dunskies from California a few years ago and they were bitching about how there's nothing good to eat outside of California. They were also surprised that there were sushi restaurants in other states. The same can be said of people from NYC. They act worldly, but they are the most clueless people living in their little bubbles.

Sun, 02/22/2015 - 19:53 | 5816548 knukles
knukles's picture

Nothing good to eat outside of CA?  Holy be-Jesus!
CA has perverted every single type of food preparation CA'inizing it and by and large, it's for the shits.
No good Italian, especially pizza.  Hamburgers come on pretzel and swirly wheat hard roll buns, everything has fucking avocado on it.  Everything.  Steak.  Sure, just cook it Philly 'blue" OK, not raw, not charred.  Just cook it. 
Now, fruits and veggies... where I live, near much one of the great fruit and veggie growing areas, we get the stuff all year round fresh as can be.  Like farmer's markets, picked yesterday evening fresh.  Booyah!
But to qualify veggies.... everything is foo foo kale, broccolini, squash... all the odd shit that can't get sold outside CA.
You cannot even see or taste the land of origin in most stuff as it's been made into "California Fusion."  French in most cases cannot be identified, etc.  German, give me a break.  Italian... shit, it's pasta with red sauce on it, whaddyawant?
Good food?  Try NYC, baby.

Sun, 02/22/2015 - 20:01 | 5816576 Crisismode
Crisismode's picture

 

 

You eat Hamburgers?

You eat steak?

Welcome to the stent artery replacement ghetto . . .

Hope you like your stay in the American Medical Gulag.

 

Best wishes dude, but you will pay for this in the end.

 

Sun, 02/22/2015 - 20:21 | 5816617 kaiserhoff
kaiserhoff's picture

On a long enough time line...

Sun, 02/22/2015 - 20:28 | 5816628 Crisismode
Crisismode's picture

Yup . . .

He will never respond to the comment,

too bad,

sometimes he's good

sometimes he's awful,

This time he's awful.

 

 

Sun, 02/22/2015 - 21:32 | 5816800 espirit
espirit's picture

I'm thinking that CA Fusion is comin' from NuKuFuKu.

Sun, 02/22/2015 - 21:46 | 5816824 WonderDawg
WonderDawg's picture

Still buying into that "red meat is bad for you" bullshit? You probably eat canola instead of butter, too, right? You're the one that will pay in the end.

Sun, 02/22/2015 - 22:10 | 5816879 palmereldritch
palmereldritch's picture

Maybe he's a soy boy

http://americannutritionassociation.org/newsletter/whole-soy-story

Soy contains chemicals that mimic estrogen and lower testosterone levels. About two thousand years ago, tofu - the drained curds from cooked, pureed soybeans - became a regular food for monks and assisted their sexual abstinence. These plant estrogens (phytoestrogens) cannot be wholly removed from any variety of soy food. The only way to remove the phytoestrogens is by "alcohol extraction." There is much reason to be concerned about the wide promotion of soy formulas for infants. Dr. Daniel has a chapter entitled. "Soy Infant Formula-Birth Control for Baby?"...

Cancer can be promoted by hormone mimickers, like the plant estrogens in soy. These so-called phytoestrogens are also suggested for "natural hormone replacement therapy" and as possible new cancer drugs. Questions remain.

Mon, 02/23/2015 - 09:58 | 5818001 Chump
Chump's picture

Lookit this guy still buying into the Food PyramidTM.  A scam to get you to shovel harmful shit down your gullet brought to you by the same people shoving QE up the other end.  Enjoy!

Mon, 02/23/2015 - 00:06 | 5817273 OldPhart
OldPhart's picture

When we leave the State of Commiefornia we make it a point to stop at mom & pop places for meals.  Usually ask for whatever it is that they're proudest of.  Hasn't failed us.  One restaurant owner in Williams, AZ (http://www.tripadvisor.com/Restaurant_Review-g31407-d2299875-Reviews-Goldie_s_Route_66_Diner-Williams_Arizona.html) sat at our table for our meal talking about how cool it was for us to ask in that manner.  A very nice lady.  Gave us a history lesson for the area and best stuff to see locally (#1 Grand Canyon).

Rangers at Grand Canyou were actually surprised to see Americans there.  Apparently the majority of visitors these days are foreign.

 

Mon, 02/23/2015 - 09:40 | 5817942 swmnguy
swmnguy's picture

That's a great way to dine on the road under any circumstances.  It's getting tough to do, though.  A lot of smaller towns have lost all their "mom & pop" places.  You have to get off the main highway, drive all the streets in every town (which won't take you that long, but it will take more time), and every third town or so you'll find your "mom & pop" place.  It's always worth it though, as you say.

The tourists at the Grand Canyon are either Chinese or German, right?  Those are the two countries that still have a middle class, that middle class is curious and educated enough to travel and see the sights, they have the money to do the travel and the sense not to spend it all on mispriced luxury.

Tue, 02/24/2015 - 06:09 | 5821637 OldPhart
OldPhart's picture

Yeah, it gets tough finding Mom and Pop's, but they're in every town.  No idea who the other tourists were at the GC.  We had our own 'moment', though it sounded russian.

Tue, 02/24/2015 - 06:11 | 5821638 OldPhart
OldPhart's picture

Sorry, spastic finger...nerve damage does this.

Mon, 02/23/2015 - 07:54 | 5817756 Last of the Mid...
Last of the Middle Class's picture

I just snorted coffee all over a brand new keyboard. Damn that's funny.

Mon, 02/23/2015 - 09:16 | 5817878 EBT excepted
EBT excepted's picture

yeah why cuz free lectric...d'lectric jus come out d'wall...

Sun, 02/22/2015 - 19:06 | 5816393 davidalan1
davidalan1's picture

Incredible, M-2 record low velocity, Baltic index record low, polar votex, Oil collapse, Feds printing monopoly money, record low interest rates.

 

No clues here, move along... Be safe

Sun, 02/22/2015 - 19:12 | 5816413 Uber Vandal
Uber Vandal's picture

Speaking of Monopoly Money.......

http://www.businessinsider.com/reddit-fed-monopoly-money-image-2013-3

Can't make this up. Just can't.

Sun, 02/22/2015 - 19:47 | 5816524 Dragon HAwk
Dragon HAwk's picture

Uh.. the article says the poster cheated a bit on the color schemes

Sun, 02/22/2015 - 20:08 | 5816596 Son of Loki
Son of Loki's picture
Why We're All Becoming Independent Contractors

 

The rise of "independent contractors" is the most significant legal trend in the American workforce -- contributing directly to low pay, irregular hours, and job insecurity.

What makes them "independent contractors" is the mainly that the companies they work for say they are. So those companies don't have to pick up the costs of having full-time employees.

 

http://www.huffingtonpost.com/robert-reich/why-were-all-becoming-indepen...

Sun, 02/22/2015 - 19:17 | 5816440 XqWretch
XqWretch's picture

Yeah dont go to World Mall! Terrists!

Sun, 02/22/2015 - 19:09 | 5816401 TomGa
TomGa's picture

Put your demand data series where your mouth is.

Sun, 02/22/2015 - 19:46 | 5816523 sun tzu
sun tzu's picture

US oil consumption peaked in 2006 and has been decreasing since them. It's a combination of fewer people working and more fuel efficient vehicles. I'm sure you could look it up yourself, but here's some help.

http://www.indexmundi.com/energy.aspx?country=us&product=oil&graph=consu...

Sun, 02/22/2015 - 19:11 | 5816402 JustObserving
JustObserving's picture

Either all futures market participants are comically inept or demand is the variable that shifted hard. Those are the only two possibilities.

That is a failure of imagination.  There can be a third possibility that oil prices are being restrained to constrain Russia since 50% of its exports are energy related.

The Saudi-engineered collapse of oil to $10 a barrel in 1986 caused the collapse of the USSR most believe.

Are falling oil prices part of a US-Saudi plan to inflict economic damage on Russia, Iran and Venezuela?

Venezuelan President Nicolas Maduro seems to think so. In a recent interview that appeared in Reuters, Maduro said he thought the United States and Saudi Arabia wanted to drive down oil prices “to harm Russia.”

Bolivian President Evo Morales agrees with Maduro and told journalists at RT that: “The reduction in oil prices was provoked by the US as an attack on the economies of Venezuela and Russia. In the face of such economic and political attacks, the nations must be united.”

Iranian President Hassan Rouhani said the same thing,with a slightly different twist: “The main reason for (the oil price plunge) is a political conspiracy by certain countries against the interests of the region and the Islamic world … Iran and people of the region will not forget such … treachery against the interests of the Muslim world.”

US-Saudi “treachery”? Is that what’s really driving down oil prices?

http://www.globalresearch.ca/did-the-u-s-and-the-saudis-conspire-to-push...

The New York Times in their article, “Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad,” finally admits, “Saudi Arabia has been trying to pressure President Vladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices. “

http://www.globalresearch.ca/mystery-behind-dropping-oil-prices-solved-c...

Sun, 02/22/2015 - 19:16 | 5816429 GMadScientist
GMadScientist's picture

Perhaps someone can point out that Putin needs a naval base at Tartus and there's fuck all chance he will relent on that point because some wahabist assholes say so.

Seems more like an "attack" on the economies of Texas and North Dakota from here.

Sun, 02/22/2015 - 19:42 | 5816517 ZerOhead
ZerOhead's picture

Because Obama...

Sun, 02/22/2015 - 19:26 | 5816473 XqWretch
XqWretch's picture

Can we just stop with this "manipulation" nonsense. If someone can produce and sell a product cheaper than you and you are losing money, tough shit. Get out of that industry then. Or, get out and wait until demand picks up and prices go up and then get back into the industry. This idea that Saudi Arabia is lowering it's price of oil is just ridiculous. Are they? Maybe. But every company strives to beat it's competition, so what? If Store A is selling hamburgers cheaper than Store B, you will probably go to Store A for hamburgers. If Store A is actually selling it's hamburgers below cost, it is only a matter of time until they go bankrupt. So Store B (oil manipulator theorists) bitch and moan and say it is unfair but guess what? That is called competition. If you can't survive another provider of your product lowering their prices lower than yours, you dont deserve to stay afloat anyways.

Sun, 02/22/2015 - 19:37 | 5816505 Arnold
Arnold's picture

You steel dumping commie ,you.

Sun, 02/22/2015 - 19:48 | 5816530 sun tzu
sun tzu's picture

What if store A is backed by their government and store B isn't? Is it manipulation?

Sun, 02/22/2015 - 21:08 | 5816716 XqWretch
XqWretch's picture

Well this is just another argument for free market capitalism right? In an economy free of government we dont have these distortions. But both Saudi Arabia and Russias energy sectors are run and controlled by their governments. I wouldnt piss on a government run company if it was burning. So I know my point may not be popular but it is correct. One government controlled energy sector is able to price manipulate better than another government controlled energy sector? Cry me a fuckin river. Again, the point is that if Russia could export oil as cheaply as Saudi Arabia, for the same period of time (supposed manipulation period) then Saudi Arabia would go broke. The fact that Russia is having to cut back and Saudi Arabia is doing fine proves that whatever SA is doing is more cost effective than what Russia is doing. Now, I dont know what the FED or the US govt is doing with SA or Russia, but take the government out of the equation and none of this matters. You think any company on the planet would buy oil from SA just because it is an OPEC country and the US says so? No, they buy whatever is cheapest, they dont care about politics. So it sucks for the Russian people that they may be getting screwed over in the geopolitics war, but hey, if their GDP wasnt basically based on a government run company, they would be doing fine. If they were producing a product cheaper than the next guy, they would sell it. Because they can't, they are struggling.

Sun, 02/22/2015 - 23:09 | 5817059 Almost Solvent
Almost Solvent's picture

Yup

Sun, 02/22/2015 - 21:10 | 5816717 XqWretch
XqWretch's picture

another dupe

Sun, 02/22/2015 - 21:09 | 5816721 XqWretch
XqWretch's picture

dupe

Sun, 02/22/2015 - 20:07 | 5816595 Quus Ant
Quus Ant's picture

"it's called competition"

competing for fedbucks.  Keep that oil flowing, schmucks, we'll keep the presses rolling.

Screw your eyes up and it almost looks like utopia.

Mon, 02/23/2015 - 01:49 | 5817484 anomalous
anomalous's picture

Store A gets to sell their burgers because we pay for the security in their shitty neighborhood. Let them pay for their own security and we'll see who's burgers get sold.

Sun, 02/22/2015 - 20:41 | 5816656 ISEEIT
ISEEIT's picture

BINGO!!!

 

Basically we've got some punk-assed faggot running the country. He doesn't have a clue what the fuck he's actually doing and the shitheads 'advising' him are NWO pawns.

Period.

Valerie is the liaison.

Sun, 02/22/2015 - 21:51 | 5816837 WonderDawg
WonderDawg's picture

LMAO You think the president runs the country? How fucking quaint. You've got it exactly backwards. The shithead NWO pawns aren't "advising" him, they're telling him what the fuck he's going to do. They give the orders, the president takes them and sells them to us.

Sun, 02/22/2015 - 19:11 | 5816409 cowdogg
cowdogg's picture

It is not demand. It is Goldman Sachs, stupid.

Sun, 02/22/2015 - 19:11 | 5816410 Thirst Mutilator
Thirst Mutilator's picture

Where's that map from the other day that showed how we've become a nation of truckers?

Sun, 02/22/2015 - 19:23 | 5816458 kaiserhoff
kaiserhoff's picture

See knuck's post above.

  The trucks are all electric.

Sun, 02/22/2015 - 19:39 | 5816507 Thirst Mutilator
Thirst Mutilator's picture

lol (sorry, missed that. I was focused on SWIRLIES on the other thread)

Sun, 02/22/2015 - 22:36 | 5816961 post turtle saver
post turtle saver's picture

it's sitting next to the report showing that trucking efficiency has increased almost 50% since 2006... and is scheduled to do so again with the latest Cummins/Eaton driveline tech...

expect to see more of this since refineries in the US are built to produce more gasoline than ULSD... that ratio has closed somewhat over the past 10 years but US refineries overall tilt towards gasoline production... as diesel prices and associated taxes stay up, the incentive to drive up efficiencies will be there in force...

Sun, 02/22/2015 - 19:11 | 5816411 GMadScientist
GMadScientist's picture

Someone still thinks that market prices are determined by supply and demand rather than speculators. How quaint.

Sun, 02/22/2015 - 19:51 | 5816541 disabledvet
disabledvet's picture

Anytime you wanna jump in there and trade dollar/yen go right ahead.

 

"Taint no FDIC there" as all those folks shorting the Swiss Franc found out.

 

Commodities have collapsed....ahem, that would be ALL coomdities btw...because of what is called "the carry trade" apparently.

 

In other words my carrying cost (storage) for money itself is in fact, well...zero in the world of ones and zeros.

 

So apparently all these CFO's do is trade dollar/yen and dollar/euro all day.

 

Everything else is just marketing.

 

Not like they're asking us for our vote.

 

Nor is anyone on Congress perturbed about spending a quarter of a trillion dollars on the US Navy alone.

 

You think folks like this care about the price of a pizza?

Sun, 02/22/2015 - 19:12 | 5816416 Magooo
Magooo's picture

Global growth is cratering.  Japan and Europe are effectively in Depression mode and the rest of the world is on drip feeds.

So where could demand for oil come from?

 

Of course deficiency of demand is why oil prices have crashed.

Sun, 02/22/2015 - 19:16 | 5816437 GMadScientist
GMadScientist's picture

War: what is it good for? It's good for business!

Sun, 02/22/2015 - 19:56 | 5816555 disabledvet
disabledvet's picture

Yep.

 

Oh, and "they vote too."

 

For the rest of us?  Looks like the weather channel.

 

Next stop:  Kharkov.

 

Hmmmm...where have I heard that word before...

Sun, 02/22/2015 - 20:51 | 5816680 GMadScientist
GMadScientist's picture

I can't help but notice that their votes are millions of times larger than my "votes".

Sun, 02/22/2015 - 19:15 | 5816427 Uncle Remus
Uncle Remus's picture

Saw a blurb on the front page of a local rag about how crude was piling up in Cushing.

Sun, 02/22/2015 - 19:18 | 5816448 DavyRoySixPack
DavyRoySixPack's picture

But, but, in the academic circles they always DECREED to us that oil demand would be eternally inelastic.

Sun, 02/22/2015 - 20:22 | 5816494 kaiserhoff
kaiserhoff's picture

Inelastic does not mean unchanging.  It means changing less in percentage terms than the change in price.

So, for example, the 50% decline in price has resulted in little or no increase in demand.

Inelastic yes, comprehensible..., good luck with that;)

Sun, 02/22/2015 - 23:22 | 5817109 Babaloo
Babaloo's picture

1. Markets are funny,  Supply and demand can be unbalanced for a long time before market players wake up and prices adjust.  

2.  Supply and demand curves for oil are very steep.  Small changes in supply and/or demand cause very large price changes

Sun, 02/22/2015 - 19:24 | 5816463 directaction
directaction's picture

Enjoy this while we can. It won't last.

The peak in world oil production will be looked back upon as a period of a supply glut.

Sun, 02/22/2015 - 19:56 | 5816542 sun tzu
sun tzu's picture

The West has already reached peak oil consumption. Old and shrinking populations don't drive or consume as much. 

 

http://www.globalresearch.ca/global-systemic-financial-crisis-2015-geopo...

http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/

Sun, 02/22/2015 - 19:25 | 5816471 hooligan2009
hooligan2009's picture

to get some handle on the stupidity or otherwise of market participants, what was the price of the 2018 and 2019 back monthsa year ago?

to get some handle on the "rip-offedness" of oil and gas prices, how much extra does it cost now to extract either compared to 1, 2 or 5 year ago?o

i suggest that the futures prices were not that far off the (interest rate/storage cost) theoretical forward curves and close to west texas spot prices, one year ago. I don't recall anyone saying that 2018/2019 forward prices were $65 in 2013/early 2014.

I also suggest that it costs about the same to extract the resources this year, last year and the year before, meaning that profits are simply lower by the amount of costs saved by consumers, for zero net effect on GDP.

just saying

 

 

Sun, 02/22/2015 - 19:57 | 5816566 sun tzu
sun tzu's picture

It depends who whose GDP. Since the US imports roughly 50% of its oil, other countries are taking the half the hit to GDP from lower oil prices. For the global GDP, it's a zero sum game. 

Sun, 02/22/2015 - 19:26 | 5816475 Beatscape
Beatscape's picture

Yes, the demand for oil in the USA is leveling off and starting to drop -- at least the author got this right. But this analysis does not mention that the number one factor that has been driving up oil prices for the past several years is growth in the demand for oil in India and China and other large ROW economies that are on a path to raise their standards of living to western standards. Whoever wrote this piece is overlooking the elephant in the room issue for oil demand and appears to be comically inept. This USA centric viewpoint is off the mark -- it is a global market. Tylers, I expect better from you.

Sun, 02/22/2015 - 20:02 | 5816582 sun tzu
sun tzu's picture

Demand in the US, EU, and Japan has been dropping for almost a decade now. Chinese growth is going to take a hit for the next few years as they digest all that bad debt from their RE bubble and overproduction of just about everything. Notice the BDI collapse. 

Sun, 02/22/2015 - 22:37 | 5816964 NeverForgetSilver
NeverForgetSilver's picture

Overproduction of everything? Do you mean that Chinese is living much better than US? I heard the inflation problem is serious there. If it has over production, how can price go up?

 

RE can either crash or level off, I think it is more likely to be the latter.

Sun, 02/22/2015 - 23:17 | 5817084 sun tzu
sun tzu's picture

Overproduction of expensive RE and products to export. The Chinese can't afford those $200,000 condos when the average income is less than $7,000/yr. The EU and US don't need all the crap that the Chinese keep producing. How many TV's and iphones can a person buy? 

Sun, 02/22/2015 - 22:44 | 5816983 post turtle saver
post turtle saver's picture

this assumes that countries like India and China have near the logistics and infrastructure available to pick up the slack... they simply don't...

it was like that comical poster about the BRICs share of total world economy vs. population and the percentile growth mind trick that always gets used... overlooking that a single nation (the US) drives more GDP than all those BRICs put together... throw in EU and Japan and the comparison for demand potential is laughable... the ankle biting third world simply needs to get over the fact that when advanced economies sneeze they're going to get pneumonia... that's where the demand for most everything they sell is coming from, their local economies simply don't compare...

Sun, 02/22/2015 - 23:23 | 5817115 petkovplamen
petkovplamen's picture

Japan and Europe are effectively in Depression mode; the only thing driving US's economy was the higher fees people were forced to pay for Obama are. Try looking at Reality. Most people can't even afford to eat at McDonalds anymore. 

Mon, 02/23/2015 - 01:50 | 5817485 post turtle saver
post turtle saver's picture

if US health care revenue were its own country, it would be ranked 12th in the world by nominal GDP (ahead of Australia)... I think a lot of people on this board have trouble grasping the type of numbers being talked about when we're talking about first world advanced economies... they're absolutely fucking HUGE compared to the BRICs combined... US/EU/Japan is over 50% of the world's nominal GDP for cryin' out loud... the US is 22% alone... when these economies slow down you're going to see an impact no matter which way you slice it... if you depend on selling into these monsters and they're not buying anymore who, realistically, are you left to sell to... sure, China... but only because (wait for it) they have money from selling so much shit to the advanced economies! think they don't feel a slowdown when it happens? think again...

Sun, 02/22/2015 - 19:30 | 5816489 eddiebe
eddiebe's picture

Or is it ecat? Maybe the big boys are switching gears.

http://www.extremetech.com/extreme/191754-cold-fusion-reactor-verified-b...

Sun, 02/22/2015 - 19:40 | 5816509 FreeShitter
FreeShitter's picture

Demand my ass, it's about economic warfare thats about to turn into a shooting war.

Sun, 02/22/2015 - 23:51 | 5817229 bid the soldier...
bid the soldiers shoot's picture

 

If strangling demand isn't economic warfare, nothing is.

Sun, 02/22/2015 - 19:41 | 5816516 artytom
artytom's picture

The story is inconsistent. Are nations stock piling and preparing for war or is there a shortage of demand?

Sun, 02/22/2015 - 20:05 | 5816590 sun tzu
sun tzu's picture

Nations are stockpiling due to low prices and there's less demand. 

Sun, 02/22/2015 - 20:15 | 5816606 dreadnaught
dreadnaught's picture

IF you dont have a job-youre not driving to work-or out bying plasma tee vees, MS Surfaces or Android phones-hence less demand

Sun, 02/22/2015 - 23:49 | 5817219 bid the soldier...
bid the soldiers shoot's picture

I wonder how the Pentagon, the largest consumer of crude oil, is handling these low prices?

War is a lot more doable at $50 a barrel.

Mon, 02/23/2015 - 00:00 | 5817255 buzzy_the_pirate_dog
buzzy_the_pirate_dog's picture

True dat!, cheap JP1 and juice for the MRAP...getting about time, like what every 5 years (like "business cycle" timeline) for a new anti-something-or-fucking-nothing war?  MOAR.

Mon, 02/23/2015 - 03:20 | 5817579 bid the soldier...
bid the soldiers shoot's picture

This time it's going to be different, matey.

Mon, 02/23/2015 - 09:48 | 5817974 Mike Honcho
Mike Honcho's picture

The term "budget" is loose for them, $150 a gallon for green jet fuel.

 

http://freebeacon.com/national-security/report-pentagon-paid-150-per-gallon-for-green-jet-fuel/

Sun, 02/22/2015 - 19:58 | 5816568 disabledvet
disabledvet's picture

"Commie capitalism!"

Sun, 02/22/2015 - 20:19 | 5816613 jpintx
jpintx's picture

As to "It's the demand stupid"....maybe, however I would point out there is an element of the Hockey Stick in how these charts are constructed.  Total monthly refined product (gasoline, distillate(diesel mostly), kero jet etc.) demand peaked at 603,656,000 barrels per month in August 2005, that is over 25 billion gallons per month.  Demand from that point fell sharply for three years to 490,858,000 barrels in September 2008, 16%.......from that point through Nov 2014 it has been occilating aroud a flat trend line at about 490,000,000.  Here is a link to the chart; http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbbl_m.htm

And here is a link to a chart made from weekly demand data, my memory is that the weekly total includes propane and other liquids whereas the monthly data base is strictly refined products....this isn't important as regards trends.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WRPUPUS2&f=W

So, a) don't call me dummy, you don't know as much about this shit as I do, b) play fair when you do analysis....if you are a good analyst your first duty should be to be scrupulously honest, not to fiddle data to make a pre-determined point. 

Sun, 02/22/2015 - 20:20 | 5816615 wrs1
wrs1's picture

The build up of supply here in the US is due to continued imports that don't reflect rising production here in the US.  I don't know if there were longer term contracts for delivery and that is the problem or it's dumping but I know for sure that no one on his board ever believed shale could do for US production what it has.  Thus it's very likely that supply managers in the refining business were caught off guard as well and while they have a local supply that is easier to access and proces, they have longer term commitments for imported oil because of the failure to see what shale was going to do.  Ultimately, if shale is able to continue to maintain these production levels, imports will drop and prices will rise as surpluses drop.   The developing nations are going to consume this cheap excess because they can use it for growth at these prices, not so much at $100/bbl but they will burn up the surplus and the price will be back at $100 in a year I would bet.   This isn't a long term structural issue, that is just stupid.

Sun, 02/22/2015 - 20:23 | 5816624 swmnguy
swmnguy's picture

During this boom, we've gone from producing domestically about a quarter of our consumption in July, 2011 to producing about a half of it last July?

What was that idea I heard about selling all our boom-oil to Europe to wean them away from Putin?

Sun, 02/22/2015 - 20:57 | 5816687 Felix da Kat
Felix da Kat's picture

But there is a third possibility :  Both.

(per Snider's last sentence)

Sun, 02/22/2015 - 21:16 | 5816751 Sages wife
Sages wife's picture

Accurate conclusion.

Sun, 02/22/2015 - 22:25 | 5816933 NeverForgetSilver
NeverForgetSilver's picture

This is one of the most stupid articles. The title says that it is demand, stupid. However, the content of the article says it is the supply, stupid. Does the author proof read his article?

 

Obama msut be laughing. Even he told the media that he lowered the oil price to weaken Russia, people still keep ignoring him by making this kind of strange claim. Saudi is also laughing since even they increase the production by 1.5 million barrel a day and openly claim it is challenging US shale companies, there are still so many people playing deaf.  How stupid people have to be?

There are plenty of demand and there are plenty of supply in oil. However, the balance is not at this price. US shale has been producing at a loss even when oil is at $100/barrel. it is tipical DOT COM style credit fueled expansion. It will come to an end. Saudi and US has increased > 2.5 million barrels a day production since last summer at a loss. When they do this, they are suffering to benefit China. Russia is not affected much since Ruble has devaluaed to more than compensate for the oil price drop.

 

Let's wait for a year, all of this type of analysis will be forgotten, just like 2008. 

 

Sun, 02/22/2015 - 22:48 | 5816993 El Hosel
El Hosel's picture

Supply and demand ..... LOL

Mon, 02/23/2015 - 04:29 | 5817628 Cadavre
Cadavre's picture

Supply and demand ... hmmm ... In Afghanistan, fueling the boys kill toys with gasoline twixt 675K gals :: 800K gals / day @ 400 to 500$ Gal. The sticker shock aspect for fueling the industrial genocide got less airplay than Lady Gag-Me-To-Death Gaga's [slightly] used tampon sale on Ebay! An Abrams tank burns 350 gal/hour. Rebuild (break it / then rebuild it - that's insanity for ya!) contractors paid 300K for 600 gals of diesel.

Dubby's first executive order was to abolish the tariff big oil paid for cartage across federal lands, "fed lands" means "our land".

Future hits on the industry, including once public utility, now commercial, centralized power conglomerates. Jim Jones, the guy that found nano-thermite (military grade) in the 911 dust, pooh poohed cold fusion back in the daze, but now the Ruskies )and others have found that cold fusion, does, indeed produce more energy than just a chemical reaction and have offered up their findings for peer review. The Japanese were puring billions into cold fusion before the General Electric design flawed Fukushima made itself more than apparent and began poisoning the Pacific, released their working papers last summer.

Only those void of any trace of survival skills would pitch industrial genocide again - however - the exceptionalistic self image of the hill's kiddie fondlers should not be underestimated. 

Off the grid residential technology is making a lot of headway - kicking Bloom Server's efficiency and cost in the ass (how long can the green subsidies continue).

When new technology makes issues a press release, something always seems to prevent it from making it to market. Like spray on IR solar energy collectors that hit the wires 10 years ago. 800% more efficient than photo voltaic technology - the moon would produce energy with this stuff. Home Depot don't have any cans of it. It hasn't made it to market despite the promise it was commercially feasible in 2010.

One has to wonder: Is the tenderloin cut from a politician tastier than a banker's? 

I guess we Americans just love getting a limp worm shoved up our ass by "8 inches or less" kiddie fondlers.

Sun, 02/22/2015 - 22:58 | 5817029 Cycle
Cycle's picture
Oil's "Surprise" Collapse: It's The Demand, Stupid

 

and oversupply due to mailinvestment due to endless debt money printing. 

Sun, 02/22/2015 - 23:20 | 5817093 petkovplamen
petkovplamen's picture

No it isn't. Major US newspapers admitted it was to cause financial problems to Russia. Talking heads on PBS admited it too on the nightly news. I heard them wif my own ears.

Sun, 02/22/2015 - 23:44 | 5817199 bid the soldier...
bid the soldiers shoot's picture

The supply part of the equation is decidedly easy and clear.

Indeed.  In 35, 45 years the supply part will be quite a bit less than it is today.

But because the demand part will have fallen out of bed no one will even notice.

 

In 1973 the Pentagon, the world's largest consumer of crude oil, learned that the earth may one day run out of oil.  It (Peak Oil) could be prevented, though, one of two ways: 1) if an infinite source of oil was discovered or 2) if only the Pentagon were permitted to consume it.

As the American and global economies were highly dependant on the use and consumption of oil, a very difficult decision had to be made:

Should the global economy which was slowly but surely exhausting the the finite supply of oil be permitted to do so, robbing the US military of crude oil in the mid to end of the 21st century?

Or should a wondrous bubble be created and then popped causing a worldwide recession and a recovery from it that will never get into gear?

As far as that surprising drop in demand you cite, is it possible that there are no more strategic reserves or empty tankers to fill with more oil?


Mon, 02/23/2015 - 00:10 | 5817279 asophocles
asophocles's picture

WTF?  I thought falling oil prices were the result of a devious conspiracy perpetrated on the American people to lower their costs at the gas pump...?

Only Zero Hedgers understand that higher prices are actually preferable to lower prices.

Exxon-Mobil is responding to this market demand for higher prices and will be rolling out a special lane of pumps for those (chumps) who prefer to be (quite literally) bent over a barrel at the filling station.

Take a deep breath and grab your ankles, Zeroes!  

 

Mon, 02/23/2015 - 03:15 | 5817564 bid the soldier...
bid the soldiers shoot's picture

There's difference between lower prices caused by an ocean of crude oil and lower prices which are the vanguard of the Mother of All Depressions.

I hope that tidbit of information doesn't keep you from grabbing your ankles which we all is one of your favorite postures.. 

Mon, 02/23/2015 - 02:51 | 5817549 Jack Daniels Esq
Jack Daniels Esq's picture

Reagan fed USSR, Obama ... a recession

Mon, 02/23/2015 - 03:01 | 5817558 TeethVillage88s
TeethVillage88s's picture

Monopolies solve all these problems.

Prepare to have you wife stolen, you kids turned into prostitutes, and all financial matters become suspect of Fraud.

The Monopoly Season is upon us.

Get ready for inane MSM articles, and history taking a dive.

You won't know what happens, but the big money and big power is now moving in to the USA.

Monopoly.

Centralization is Communism, but now is just Big banking, and Big Business in the USA.

Kiss you ass goodbye.

Mon, 02/23/2015 - 03:25 | 5817582 Ms No
Ms No's picture

An oilboom collapse must have a feedback loop in respect to energy prices to some extent also.  The amount of diesel fuel alone that has been spent would probably be equivalent to a small war.  Then you have the destruction of the only jobs that have been created in 10 years, so demand destruction is a given just with the bust alone. 

Your still going to pay 200 a barrel it's just a matter of when.

Mon, 02/23/2015 - 07:57 | 5817761 Last of the Mid...
Last of the Middle Class's picture

I'll give 'em one thing, the bankers are doing every thing they can to keep $2.00 gasoline, Don't think they can maintain err manipulate prices to keep it there tho.

Mon, 02/23/2015 - 07:58 | 5817763 Last of the Mid...
Last of the Middle Class's picture

reminds me, the checks in the mail, it's my first time, i'll just stick the head of it in, and now low oil prices are bad for the economy Shiittttt

Mon, 02/23/2015 - 10:11 | 5817866 Zodiac
Zodiac's picture

Of course the outer years WTI price is falling.  Every investment bank, hedge fund, and private equity firm has been leasing storage capacity to take advantage of the conango in oil futures and capture a risk free margin between the next month delivery price and the outer month price (net of storage, insurance and the cost of capital).  Of course, this is being leveraged up with almost zero interest money.  Now, a lot of oil has been sold forward, and as more becomes available, the price goes down.  Is Alhambra that stupid?

Mon, 02/23/2015 - 11:43 | 5818347 millerd1
millerd1's picture

Saw a oil market specialist predict US free of wate born import sometime in the 2016-2020 worst case period.  Assumed Excel pipeline was operational by this date. 

When $70-75/bbl shale oil was cheap oil.  Bakkan oil production needs just $35/bbl.  Heard it reported horizontal drilled decline curves 40-70%/yr, saw another claim declines of 60-90%/yr (doubt that one). At a 40-70% decline rate it will take 6-12 months for produciton fall off to be come materially effective.  Tar sands needs $25-30/bbl. 

SA needs to kill off some shale production that will take E&P compant BKs or takeover mergers.  Heard of any yet?

Putin move was/is to cut Ukraine off from developing huge oil ad gas formations within the continental limits which would compete with Russia energy sales to EU.  Those formations were first described here at ZH, and from few others since.

Mon, 02/23/2015 - 14:23 | 5818986 OutaTime43
OutaTime43's picture

Don't forget the effect of a spiking US dollar as well. Demand may be part of it as well, but the strong dollar just weighs prices down even more.

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