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WTI Slides As Goldman Warns $20 Oil Looms, Crude Storage "Too Full For Comfort"
Despite spoiradic algo-crazed ramps, crude oil prices continue to slide back towards a $34 handle (in Jan '16 contract) this morning following a reiterated downbeat note from Goldman warning that storage levels are "too full for comfort," that positioning is not as stretched short as some believe, and confirming that this will not end until prices near cash costs to force production cuts, likely around $20/bbl.
Positioning still not stretched short
The move lower was amplified by positioning, with short covering and new ETF long positions ahead of the OPEC meeting providing sufficient ammunition to push prices to new lows. This move was also likely exacerbated by a negative gamma effect around the large WTI Jan-16 $40/bbl strike option open interest. With Brent positioning still off its lows, continued weak oil fundamentals can still push prices lower. Beyond oil, it is also important to note that oil net speculative short positions have tracked dollar long positions closely this year...
OPEC and storage concerns weighing on oil prices
The decline in oil prices has resumed, driven by the aftermath of the OPEC meeting, renewed weakness in distillates and exacerbated by positioning. Although prices are now below our 3-mo $38/bbl WTI forecast, we still see high risks that prices may decline further, as storage continues to fill.
In further confirmation of these concerns, Genscape data saw a 1.4 mm barrell build at Cushing.
The canary in the coal mine
For now, the European distillate market is showing the most acute symptoms of nearing storage capacity with gasoil timespreads, cracks and cash basis falling sharply.
Tank tops not our base case, but too close for comfort
Our oil price forecast remains anchored by the view that high producer financial stress and shut funding markets near $40/bbl can halt the oil surplus by 4Q16, mainly through declining US production. Our base case remains that the global oil stock build will on aggregate remain shy of storage capacity, although the storage buffer has once again narrowed, to 340 kb/d on average for 2016. But this rebalancing is far from achieved:
(1) the US rig count and E&P guidance remain too high to achieve the required supply decline,
(2) we see risks to our OPEC production forecast of 32 mb/d next year as skewed to the upside (Iran),
(3) storage continues to fill with the odds of hitting storage constraints by the spring rising.
As a result, we reiterate our concern that “financial stress“ may prove too little too late to prevent the market from having to clear through “operational stress” with prices near cash costs to force production cuts, likely around $20/bbl.
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Its a recovery dammit!
News Headline 2020
World in Panic from Oil Shortage due to forced reduction in production levels from the 2015 price collapse
Experts say it could take 5-10 years for marginal oil resources to be brought back online
Where are our $150 oil guys today?
You guys doing OK?
Baby boomers are all in in oil. There retirement does not look rosy
Oldest trick in the book: Goldman uses its muppet-hunters (they'd be their vaunted sellside analysts) to jawbone/test the lows, at which point their prop desks BUY BYE BYE! Lamp posts - I want to see some Goldman-logoed Gucci loafers swingin' from em!
They will make up the price difference in volume....
OK? No. Laying people off left and right. Oil is the lifeblood of a healthy economy. The more it flows, the more macroeconomic activity flows. This should scare the shit out of you.
Where's Saddam Hussein when ya need him? He sure as hell knew how to get rid of that excess oil.
Oil is the lifeblood of the oil industry. It's flowing now and macro is going to shit. Which goes to show that consumer demand is the lifeblood of a healthy economy.
If we were to close that "oil spigot" for two weeks, you might see things differently. If I was operating a business at a loss every fucking day, that's exactly what I would do.
Saudi can break even at $15/barrel and they are solvent until 2020, so closing the spigot is exactly what they are going to force on US companies. When it comes to oil we are OPEC's little bitch. The only way we are going to ever reduce dependence on foreign oil is to reduce our depence on oil period.
Mainly pointing out that this drop in pricing has not spurred demand or economic activity other than people buying trucks when they might have bought a prius. that's the behavior change - the economy is saved.
Crude slides becuase the dollar is on a f'ing moonshot.
"Crude slides becuase the dollar is on a f'ing moonshot."
The dollar is a fucking concrete boat.
Inflation is on a fucking moonshot.
But an oilless recovery.
"Goldman warns"....
the speculators can just store it on paper /s
btw - thanks janet /s
Why would we build all that storage capacity if we never intended to use all of it?
Shovel ready jobs.
The future....is solar panels.
Someone is gonna blow up. Give it a couple months and there will be blood in the water.
but the rate hike fixed that
Lord knows the fucking price won't dip below 2 bucks no matter how low the shit goes.
Set those CDS in motion?
Where are you at? North central USA has regular unleaded at $1.81 last I filled up.
Clarksville AR. Reg. Unleaded, $1.67 (Cash price). add .02 if you want to use plastic...
Prices ARE below cash costs. Oil extractors just keep getting financed for some reason.
In real life, cash costs include debt service.
So the world has about 4 days of extra storage (outside of China).
It's a complete banker induced oil tsunami, banda aceh style. The layoffs industry wide will be kicking hard come the new year.
From almost a year ago:
http://www.reuters.com/article/us-usa-crude-stocks-kemp-idUSKBN0L2299201...
Odd how history rhymes.
Odd indeed.
Great gem you dug up there. I never realized peak oil stupidity had been parroted back then, too.
Deeper I go down the rabbit hole...
Everything I see indicates net energy from oil extraction (energy put over energy in) peaked years ago. Contrary information welcome (but not just ideology).
That's gay!
Nice find.
Goldmans Business Plan
Step 1: Leverages Oil Short Positions 100 to 1
Step 2: Buy A Couple of Tanker Loads of Oil Offshore or From Non Publicly Counted Storage
Step 3: Flood Official Storage Areas With Oil
Step 4: Release Negative News About Oil Prices
Step 5: Profit When Oil Prices Fall
Step 6: Repeat
Long overpriced SUVs and Pickups.
GM, FoMoCo, and FCA must be licking their chops to sell more 'mericans more trucks to cruise the mall parking lots and show off how rich they are.
No money down! 120 month 0% loan. Come one, come all!
Fedspeak isn't fixing this growing crisis in the oil and gas sector.
Storage is full so the price drops. Ok.
Where will they store all the $20 oil?
Hard to ask more money for a good no one wants.
That's when they start to just burn it. I'm going to position long on some contracts myself as I don't see this lasting much longer.
I sometimes think that's why they decided to start bombing IS oil tankers
The oil producers will be forced to cut production when the storage problems eventually backs up to the wellhead.
One would assume that enough producers would have shit the bed by then and the remaining producers would just be producing the daily consumption but that means one has to "assume" and we know how that works out....
I know my municipal water system stops pumping from the treatment plant once the storage towers are full, even though they are capable of producing much more.
Yes, and the same with my sanitary district.
The world is shorting ISIS.
Over production just cause loans be cheap leads to bankrupt energy companies and banks holding bad loans...but not to worry us as taxpayers will pay it cause god forbid a bank take a write-down.
Sounds like a glorious opportunity for some cheap buying by big oil and big banks in the coming months. I had heard a number of the major oil corps weren't in on the oil sands boom...too bad that the oil is so low that they're gonna fold up./sarc
Ahh yes, failure by the many means even greater power, money, and influence by the few.
And $999 Au, $12 Ag and $30 crude are just days away:
http://m.investing.com/commodities/
Stacking cash to buy more PMs, lower, later - is still working.
Whats 'stacking'?
Unlikely. The Saudis cant take too much more of this, no matter Uncle Sugar's hopes and dreams.
If the Saudis are out to crush US shale production, it wouldn't seem to make much sense for them to let up now.
Keep in mind, Russia is also getting hit by this too. Between cheap oil and the "economic sanctions", they're getting pummeled on multiple economic fronts.
Saudis poison the well and hope like hell they have enough antidote to hold them off longer than Russia and USA shale.
Russia claims they will keep on pumping oil even at low prices:
http://money.cnn.com/2015/12/14/news/economy/russia-30-oil-budget/
They dont have any choice. I *think* us shale is less of a threat to SA than some have made out, i think its mostly the us using them to help the us economy some (transpo costs are sig even if any household excess just goes to mortgage and credit cards) and mostly punishing russia and iran.
But - you might be right and they may figure they can do this for a while...
But all of a sudden they are sinking into Yemen's sands and have a lot less cash in the piggy bank for shit like offshore drilling and desalinization - i dunno... But they are greedy fuckers and they could well begin looking to stop the insanity.
I guess youd have to have a sense of how long they can go so long so low, and I just dont know. But the Yemen thing has to be a drag already now this rumored 100k anti isis (anti assad) army? Mucho dinero.
Russia gets hit but it is nothing in the scale of US shale companies.
Or Saudi. The Russians know hardship....the Saudi's need to keep the lid on the population. One way or another.
Pretty sure I read an article a few mojths on ZH that said oil was going to $20.
Today: Crude oil futures down 2% today, gasoline futures up 2.5%.
Since mid November: Crude down 15%, Gasoline down 2.3%
Corporate fascism at work, good bye middle class.
We could always set the surplus oil on fire. Think of all the jobs it would somehow create.
Gonna be a sharp countertrend rally here that is playable. Where and when is the entry? I have no clue at the moment. After that runs its course drifts down to the mid 20's by mid year 424ish gun to my head.
The beast is laid down in his lair
Putin did warn of shale gas bubble few years ago. Obviously, the west has too much ego to listen.
Yea, we noticed.
Average price $ 7.30 a gallon here in Europe.
https://www.youtube.com/watch?v=j_quhkYVuKc
In the UK, it's 25 pence a litre....plus 75 pence tax.
With crude prices so low, wouldn't it make sense for the US government to be filling the strategic oil reserve?
It would but we're talking about the federal government - they'll wait until it goes up to $150 barrel before they buy. It's just OUR money.
Translation: Go short so we can squeeze the shit out of you, then we'll go short when you panic and cover. Because our balance sheet is bigger than all of yours combined.
100% this
Prices are down to $1.94 gallon as of yesterday (Delaware). I'm not complaining.
According to Mike Maloney's playbook, oil is going to $10 (deflation), then central banks are going to Ctrl+P like there's no tomorrow (hyperinflation). I thought it was too fantastic at the time but not anymore in light of recent developments.
This is going to be a drag on Pootin's dreams of world conquest.
If Goldman is short oil, I am going long. Guaranteed winner!
I can't wait to see how they go about ramping oil up the next go round. If there isn't a large war they will come up with something.
We will get hit from multiple directions at once. Saudi will have shut down the spigots, oil infrastructure will be damaged, our oil storage will be reported full one week and then some fissure will open up and drain the SPR meanwhile ISIS has slant drilled into Gulf storage tanks and disabled their oil level readings under the cover of cloaking devices. Shale will have long been shuttered.
CRB has broken hard through 40 year support. Next stop 135 (currently 170). That was previous resistance for last 200 years.
It's what happens when you kill the economy and demand.
China is still declining. So is Europe.
I <3 realistic gas prices.