Oil Shorts Soar By 2nd Most In History As OPEC Hope Fades

Tyler Durden's picture

During a week that saw WTI crude prices erase all post-OPEC-production-cut-deal gains, after the Saudis admitted 'cheating' (but rapidly back-pedalled), oil speculators added almost 80,000 contracts to their short positions - the 2nd most in 34 years.

 

This surge in shorts reduced the massive record net long crude positioning by the 2nd most in history - but clearly it remains extremely one-sided still...

 

This is the 3rd weekly drop in a row for the net long position, as hedge funds cut their net bullish positions by the most ever to 14-week lows.

 

All of which happened as oil prices drifted lower waiting and watching for OPEC's next move (as OilPrice's Matt Smith explains)... prices are struggling as market participants try to weigh up whether OPEC is going to continue its production cuts (or even implement them in the first place). Hark, here are five things to consider in oil markets:

1) We've been highlighting for a while that Saudi Arabia could be looking at supplementing lost revenues from the OPEC production cut by exporting more products. We have published a white paper in recent days (accessible here) which digs into this theme a bit more, as well as other key elements of the current oil market.

The chart below is lifted from the white paper. The refinery utilization rates of Saudi Arabian and UAE refineries have been lower than the rates of their global peers; ramping up their refining activity would allow the two producers to ship more petroleum and make more money while keeping crude oil out of the global balance. February's rebound is pointing furiously to that, after seasonal maintenance comes to a close:

(Click to enlarge)

2) Following on from the above, Saudi and UAE have built additional export-focused refinery capacity to the tune of 1.4mn bpd in the last four years. Saudi is planning to double its global refining capacity within ten years, with these additions starting by the end of the decade:

(Click to enlarge)

3) Here we are, supposedly in the midst of the OPEC production cut, and Iraq continues to export with seeming reckless abandon. According to a spokesman at Iraq's oil industry, exports from both northern and southern Iraq were at 3.87mn bpd last month; we see in our ClipperData that this month's pace is even higher.

To add further fuel to the fire, Iraq is planning to increase output to 5mn bpd by the end of the year. The country is - apparently - still committed to the OPEC production cut. Hum dee dum.

4) According to reports, Rosneft has been offered a 10 percent stake in a joint venture in Venezuela's Orinoco Belt, as PdDVSA - Venezuela's state-run oil company - scrambles to try and raise cash. PdVSA needs to service its debt, with its next obligations estimated at $3 billion in April.

5) There is an interesting take on global demand in the WSJ, which draws attention to the fact that global oil demand usually gets revised up from initial estimates. Over the last 7 years, the IEA's annual estimates for global demand have been revised up by 880,000 bpd.

Both the IEA and OPEC see demand growth easing lower from last year's pace. IEA sees demand growth slowing to 1.4mn bpd this year, from 1.6mn bpd in 2016, while OPEC sees it slipping from 1.38mn bpd in 2016 to 1.26mn bpd this year.

While in isolation, this may seem bullish for prices, it does raise a key question: if the IEA is missing the target on demand, isn't it just as likely to miss on its supply estimates?

(Click to enlarge)

Of course, as a reminder, it is the speculative futures flows that really drive the oil markets (more-so than fundamentals most of the time) which have become massively financialized over the past years...

As Mike Rothman from CornerstoneAnalytics shows above, the paper market for oil is 29.5 times world demand of the physical stuff. In 1997, it was 3.3 times!

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BritBob's picture

Falklands oil - worth a punt?

 

Rockhopper Exploration has issued an update on planning for Phase 1 of the Sea Lion oil field development in the offshore North Falkland basin. Operator Premier's latest estimate of capex to first oil is US$1.5 billion, with life of field costs (capex, opex, and lease) of around US$35/bbl for Phase 1.

 Rockhopper CEO Sam Moody described this as “highly attractive” in the context of the current oil price. The estimated break-even price is US$45/bbl.
The partners have submitted an environmental impact statement and revised draft field development plan to the Falkland Islands government, and discussions are set to continue on a range of operational, fiscal, and regulatory matters.
They have also reached a settlement on an insurance claim relating to costs incurred on the Isobel Deep exploration well during the 2015/16 North Falkland basin exploration campaign. Value is US$90 million (after deductions) on a gross basis. (MercoPress 23.12.16)

What about the Argentinians?

Falklands – Territorial Waters: https://www.academia.edu/10574593/Falklands_Islands_Territorial_Waters

 

All hot air...

fx's picture

"As Mike Rothman from CornerstoneAnalytics shows above, the paper market for oil is 29.5 times world demand of the physical stuff. In 1997, it was 3.3 times!"

Does it occur to this genius that gross trading turnover has little to do with market size? Notional open interest in relation to physical demand would give much better picture and judging by that, the paper oil markets are not yet nearly as large relative to the physical markets. Yes, the futures markets do increasingly influence oil prices but they are not yet the driving force. The majority of the deals still happen otc in private transactions, most of them, btw. in Geneva, Switzerland.


cheka's picture

peak oil dupes....have you had enough?

if not, look up the definition and purpose of a cartel

hope_talk's picture
hope_talk (not verified) cheka Mar 19, 2017 6:58 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Yog Soggoth's picture

Thank's Brit Bob (boy on boy), but I am looking at investing in Iran for more than oil and natural gas resources. Where will you be when The USA bombs the city of London off the face of the Earth? Twinkling your self I'd imagine. Get lost buggar!    Yours truly, Yog.

One Ton Lady's picture

But, but, but 

 

Dennis Gartman said.............

pndr4495's picture

Where does the oil G-d weigh in on all this? His omniscience can help here.

coast1's picture

I only do this about 2-3 times a month....for those that like music, and hearing new interesting brilliant stuff, here is a link to this violinist (I want to marry her, she makes my penis move), and Ian Anderson of Jethro Tull....ya gotta see this, it gives me chills.....in regards to oil, it doesnt matter, I just know that gasoline prices are thru the rood in Oregon, and I dont know why...I think the bankers are taking every last dime before the collapse, stocks, gas prices etc..They are gonna shake every dime out of your pocket....I dont know about Trump, but seems same as the old boss...here is the link to song, ya gotta see this. https://www.youtube.com/watch?v=qHsxmjpkeFI

Karl Marxist's picture

Yeah, yeah, good 'n all that but this is THE shit no two ways about it. Makes Ian Anderson sound like a punk. https://www.youtube.com/watch?v=-VBoGCPtbdY

Can you stand it? I say, can you stand it ladies and gentlemen?

Arnold's picture

Rood is Northwest vernacular for something,

rood
ro?od/
noun
noun: rood; plural noun: roods

1.
a crucifix, especially one positioned above the rood screen of a church or on a beam over the entrance to the chancel.
2.
Britishhistorical
a measure of land area equal to a quarter of an acre.

I lerned somtin.

Yog Soggoth's picture

Jazzy rock. Interprertrial or Interpretive dance optional.

Arnold's picture

When the Aramco IPO becomes more firmed up, the target barrel price of $50 is where they want to be.
Speculators can bounce it up and down pretty well at will until then...

Three assumptions.

1. No war footing demand.
2. No new Zero point Energy developments.
3. Winter, Summer and Fall continue as planned.

Zepper's picture

Like I said before and I will continue to say it until reality sets in(hard in a world where governments care more abour refugees of other countries then their very own refugees living on the streets)... THERE IS WAY TO MUCH OIL IN THE WORLD! Billions of barrels in storage BILLIONS! Not to mention you have BIllions of barrels just waitng to be tapped in new wells. SA and Russia just fixed the markets over the last 6 months to the upside on ...

 

100% BULLSHIT!!!!!!!!!!!

 


 

 

Arnold's picture

I give credit to the Iranians.
Zero to hero in the oil markets in a blink.

Nigeria and the Avenger have been quiet on my radar lately, and when on a roll are good for quite a bit o' cheap to produce oil that has no conscious where it goes.

What's left of Venezuelan production is going towards Chink debt accounting,not real successfully I may add.

Wildcatters have always been Boom/bust in the US.
That will not change soon.

sinbad2's picture

Have you read about the ports railways and roads being built in Iran?

China and India have been flooding Iran with money, the Iranians have completed a railway line from the Arabian sea port of Chabahar, to Afganistan, and will join to the China Afghanistan rail link.

Chabahar is a major oil exporting port, outside the Persian Gulf. So if the Persian Gulf was closed due to war, Iran could still export oil via sea and rail.

cheka's picture

fossil fuel....lmao!  how many fossils are hundreds/thousands of feet below surface?  hundreds of trillions  of barrels of them???

nyc got us good on the fossil fuel peak oil crap.  but some people refuse to unlearn what skype taught them

Pasadena Phil's picture

So the 92% of oil contracts held by speculators is now betting that oil prices are going down. Aren't these the same speculators who just got crushed betting that $70 oil was imminent? I'm sticking to the conventional wisdom that oil prices will hover around $55 for at least the end of 2017. Hey but that's just me. I like to make money. It clouds my judgment.

sinbad2's picture

According to reports, American producers break even at $50, so expect prices to be under $50.

Pasadena Phil's picture

Oilprice.com had a post that listed the current marginal cost of US shale at $37 and still going down. Considering that the average breakeven price for the entire US oil industry in 2016 was generally reported as$56, $50 is very likely the new number.

I believe that oil prices are being controlled for the purpose of "draining the swamp" of state-sponsored Islamic terrorism (aka OPEC) so pegging the price in the $55-60 range makes sense. I also believe that prices will eventually be allowed to rise above that range if for no other reason than to confirm that there is a market equilibrium price. It is critical to peg the market price close to that point if regulating price is going to be effective. The Texas Railroad Commissions used to stabilize prices that way by dictating how much oil could be transported by rail each month. Pipelines could perform most of that stabilization function today lessening the need for regulatory intervention.

I believe we are heading to a good place, one that will stabilize the global economy eventually.

 

sinbad2's picture

Why should the price be pegged, what happened to the free market?

As long as supply is greater than demand, prices should fall in a free market.

I can see 2 oil prices evolving, the official US/EU price, and the real cheaper price that China and India pay.

Kansased's picture
Kansased (not verified) Pasadena Phil Mar 18, 2017 7:52 PM

They are all clueless.

Kansased's picture
Kansased (not verified) Mar 18, 2017 7:52 PM

ShepWave has been nailing crude too

www.shepwave.com/blogs

 

ShepWave 

ShepWave IMPORTANT Updates for Monday Published. 
by ShepWave.com
Posted: 3/17/2017 19:19 EST

 

Still Watching CNBC?  Time to turn off the chatter!

The importance of this current time in market history cannot be ignored. Now is not the time to be tied into the emotionalism of CNBC and others.

Read through these ShepWave Updates for Monday to see trigger areas, target areas and expected action in equities as well as crude oil and gold. These vehicles have been extremely predictable; despite the fact that the popular pundits miss move after move.

In these two updates for Monday you will find the weekly analysis for: the US equity indexes as well as Crude Oil and Gold, and you will find the daily time frame analysis for: the US equity indexes as well as Crude Oil, Gold and the VIX.

GOLD TRADERS WILL DEFINITELY WANT TO READ THESE UPDATES CAREFULLY. NEW SIGNALS!

It is time to turn off CNBC. The talking heads will once again be vague and promote personal agendas and proceed to cheerlead.

Log In at www.shepwave.com for Monday's TWO IMPORTANT ShepWave Updates.

 

Irvingm's picture

I also read shepwave.  It was funny for the past several weeks oil has just sat within a tight range. SW said it would break down at least initially when it did break.  I still think a lot of oil traders were off in their timing of the move. Again, that is why it is so valuable to have someone like SW who can actually time the move with a clear signal.  Good trade this week in oil for sure.  How about their gold trades.  I mean they have been nailing that like no one's business.  The head fake to the downside we saw recently did not fool them at all.  

MrNoItAll's picture

Speculative longs have been holding the price of oil well above what it should be given supply/demand.  A reverse of those longs would sink the price of oil, and a lot of "proven reserves" based on current price along with it.  There's already not enough oil in the pipeline to replace what we're burning, not even close.  Soon to be even more so.  Disaster awaits.