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Whither Crude

Tyler Durden's picture




 

As Brent and WTI prices ebb and flow from local and global fundamentals and risk premia, Morgan Stanley notes that to be bullish from here, one would need to believe a supply disruption is coming. Considering conflict with Iran, sustained Middle East tensions, and the potential for sustained supply disruption their flowchart of price expectations notes that prices follow inventories and that as price rises, fundamentals will weaken (as without an OPEC production cut, inventories would balloon by 2Q12) and therefore to maintain current prices across the curve, supply risk premia must continue to grow. They raise their estimate for 2012 average Brent price to $105/bbl from $100/bbl which leaves them bearish given the forward curve priced around $115/bbl, as their base case adjusts to a belief that Middle East tensions persist but a conflict with Iran does not occur as they address QE3 expectations and EM inflation/hard landing concerns.

But What Is Driving Price Higher?

1. Geopolitical tensions and supply concerns likely to persist.

Iran is one of the world’s largest oil producers with production near 3.5 mmb/d. More important, Iranian exports have averaged ~2.2 mmb/d. A complete loss of these exports would likely push effective spare capacity towards zero, leaving little buffer for future supply disruptions in other parts of the world.

An SPR release could be used to combat short-term disruptions, but not a sustained global imbalance. If demand exceeds supply, prices would need to surge to restore equilibrium. The end result would be a significant shock to the global economy, lower oil demand, and a high likelihood of a global recession.

2. Abating EM inflation and hopes for monetary easing.

As we noted recently the relief rally in emerging markets has far outpaced the rally in developed markets. With concerns of a China hard landing subsiding, investors have been willing to take on more risk. At the same time, slowing inflation in many emerging market countries has created the expectation for additional easing to stimulate economic growth. As a result, the global risk demand index has reached its highest since 2007. Higher oil prices, however, may arrest the recent decline exhibited in EM CPI.

3. QE3 expectations and a risk-on environment.

QE3 could create a bid in commodities broadly, all else equal, but fundamentals are more important. The growing likelihood of QE3 is also supporting commodities. However, as Exhibit 8 illustrates, fundamentals are important, hence the volatility of oil price around growing money supply. In other words, fundamentals tend to trump any apparent relationship between money supply and commodity prices, and the fundamental picture for oil remains bearish near term.

 

Source: Morgan Stanley

 

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Fri, 02/10/2012 - 10:41 | 2145632 CvlDobd
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AAPL will fix this.

Fri, 02/10/2012 - 10:54 | 2145697 The4thStooge
The4thStooge's picture

Rumor floating around that Kim Jong un has been assasinated.

Fri, 02/10/2012 - 10:59 | 2145720 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

That makes me ronery.

Fri, 02/10/2012 - 11:14 | 2145775 Taint Boil
Taint Boil's picture

Maybe Kim Jong Il comes back as corn.

Fri, 02/10/2012 - 10:59 | 2145718 4realmoney
4realmoney's picture

Doug Casey discusses his views on Gold and why now is a good time to buy US Real Estate. very interesting:

http://djia.tv/doug-casey/doug-casey-how-to-invest-successfully-36/

Fri, 02/10/2012 - 10:59 | 2145721 vast-dom
vast-dom's picture

oil at anything lower than $115 is beyond the scam that the markets are. but then again SP above 850 is too. so bust out any (flow)charts and tell us how we're on the precipice and how Greece is defaulting etc etc but the reality is there is no real reality save for the reality-defying scams we are witnessing.

Fri, 02/10/2012 - 11:20 | 2145793 Ruffcut
Ruffcut's picture

The CL seems to like the 100 bucky mark, almost like a gravitational pull. Appears very controlled.

Actually this commodity should be pulled from trading and be controlled. The futs market on forward month contracts deciding the daily price at the pump is still a major fucking scam upon the people and gas station owners. Oil money still has alot to say in these markets and the general reasons for all this bullshit war and takeovers. Thus allowing the financial criminals to play cleanup to further oppress all people on the planet.

I can't wait for when the price changes when I am pumping.  Like a futures ninjatrader trade dom at the pump.

Fri, 02/10/2012 - 10:42 | 2145636 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

People that invest in crude are terrists because if you do then you are disrupting the supply chain and the West needs oil to continue to be #1!

Fri, 02/10/2012 - 10:41 | 2145637 GeneMarchbanks
GeneMarchbanks's picture

Dying FIAT = Crude becomes currency = higher price?

Fri, 02/10/2012 - 10:48 | 2145664 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Crude won't function as a very sound currency.

Fri, 02/10/2012 - 10:50 | 2145681 kito
kito's picture

maybe not, but it sure makes for enticing barter.............

Fri, 02/10/2012 - 11:00 | 2145725 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Obviously.

Fri, 02/10/2012 - 10:51 | 2145687 GeneMarchbanks
GeneMarchbanks's picture

Depends on who you are. I'm pretty sure the days of crude for FIAT are over, at least between sovereigns.

Fri, 02/10/2012 - 10:58 | 2145713 francis_sawyer
francis_sawyer's picture

except for the ones with the fat ass ray guns...

Fri, 02/10/2012 - 10:58 | 2145714 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

That is a strawman; fiat is barely currency as it is.

Fri, 02/10/2012 - 11:04 | 2145744 BW
BW's picture

In gold, no.  In USD, we will see.

Fri, 02/10/2012 - 10:42 | 2145641 SheepDog-One
SheepDog-One's picture

I dont understand this flow chart...you seem to have left out the 'Steve Liesman' box?

Fri, 02/10/2012 - 10:51 | 2145688 kito
kito's picture

sheepie, funniest line of the day by this article.......The growing likelihood of QE3..............

Fri, 02/10/2012 - 10:52 | 2145692 SheepDog-One
SheepDog-One's picture

LOL I just wrote about it below!

Fri, 02/10/2012 - 10:43 | 2145642 Jason T
Jason T's picture

Have you seen the oil consumption numbers for the US??  We don't need oil when we have a magic money tree.

Fri, 02/10/2012 - 10:48 | 2145670 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ah yes!  The magic money tree!  It's leaves green and full of everlasting life!

Fri, 02/10/2012 - 10:43 | 2145644 LawsofPhysics
LawsofPhysics's picture

Morgan Stanley looking fo another entry point?  Time to buy.

Fri, 02/10/2012 - 10:44 | 2145645 blindfaith
blindfaith's picture

$8.00 oil destroyed the USSR. $150 oil will destroy China. The USA has to much natural gas and is near 80% independent. So goes the plan....

Fri, 02/10/2012 - 10:49 | 2145676 GeneMarchbanks
GeneMarchbanks's picture

Thanks for pointing that out. You have an uncanny way pointing out the simplicity of a solution. All in just four sentences too...

Fri, 02/10/2012 - 10:57 | 2145710 LawsofPhysics
LawsofPhysics's picture

perhaps, but ignoring the capital and energy cost to set-up the infrastructure, what is the energy capacity of this gas again?  How fast would the world burn through it given current demand?  The devil is in the details, hopefully the government is not in charge of this, otherwise we all know how it will turn out, real losses will be made up for with higher taxes.

Fri, 02/10/2012 - 10:59 | 2145722 francis_sawyer
francis_sawyer's picture

long 'Snuggies'

Fri, 02/10/2012 - 11:35 | 2145858 Bicycle Repairman
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The context here is defeating China.  If $150 oil beats China, this is not a decades long process.  We have enough natural gas to accomplish that.  Easily.

Fri, 02/10/2012 - 11:58 | 2145940 Flakmeister
Flakmeister's picture

For shits and giggles, could you provide the source of your information??

The most conservative estimate for US NG supply is 23 years.... unless of course all that shale stuff becomes economical....

Small detail...

But details are a real bitch...

http://www.theoildrum.com/node/8914

Oh in case you are wondering the guy that penned the above article is a former editor of the Oil and Gas journal... i.e. an industry insider....

Edit:

Anyone really interested in the NG situation should also read this

http://www.theoildrum.com/node/8859

Fri, 02/10/2012 - 12:13 | 2146060 falak pema
falak pema's picture

+10.

you're faster on the draw than I am !!

Fri, 02/10/2012 - 12:10 | 2145999 falak pema
falak pema's picture

I think your energy paradigm is screwed. Usa has no 100 year time line on gas. Its back up is neither gas nor shale oil; its Coal. Read the facts on the energy shift in USA since the mid 80s. If energy constraints were to hamstrung a debt ridden USA which couldn't import all its needs; it'll spell good bye economic recovery. Read my comment on the importance of petrodollar hegemony. 

Read this for Primary energy US potential : http://www.theoildrum.com/

The article on alternative energy matrix. 

Fri, 02/10/2012 - 10:45 | 2145653 ZippyBananaPants
ZippyBananaPants's picture

Does anyone think 'they' are pushing up Apple to $500 so CNBC and Bloomberg can talk about all day and for the next week while Greece burns?

 

 

Fri, 02/10/2012 - 10:49 | 2145679 EyeQ
EyeQ's picture

What's happening in Greece?

(Anonymous CNBC reporter)

 

Fri, 02/10/2012 - 10:49 | 2145667 SheepDog-One
SheepDog-One's picture

'The growing likelihood of QE3'? Where? Based upon what?

Give me a break...you people are going to keep peddling 'QE3 comin any minute folks' until the minute nukes are raining down on major US cities.

Fri, 02/10/2012 - 10:52 | 2145694 kito
kito's picture

i just scrolled down to see this comment after stating the same thing............

Fri, 02/10/2012 - 10:56 | 2145705 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Do you guys understand how Treasury auctions are working?  You are aware that POMO continues?  Do you know how this sets up OT2?  I guess my real question is, are you guys fuckin' serious???

Fri, 02/10/2012 - 10:58 | 2145715 LawsofPhysics
LawsofPhysics's picture

Precisely, QE has never stopped.

Fri, 02/10/2012 - 11:14 | 2145769 kito
kito's picture

right lennon, the printing presses continue, sure......thats why gold is off its 1900 highs. and silver off its 49 high. and why the dollar hangs around 80. are you serious? the entire world is shaking in fear under the umbrella of u.s. debt paper right now. all hail the one eyed king. no qe coming lennon this year. give it up....

Fri, 02/10/2012 - 11:29 | 2145832 LawsofPhysics
LawsofPhysics's picture

Right, what is the CME doing again?  The silver I purchased at $8 still looks pretty damn good.  Let's see what will those same $8 do for me now?  Rrrriiiiiggghhhht.

Fri, 02/10/2012 - 12:57 | 2146304 kito
kito's picture

Your 8 buck silver jumped thanks to qe1 and 2. It hasnt moved higher because there has been no qe3

Fri, 02/10/2012 - 13:57 | 2146636 LawsofPhysics
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Funny, still purchases the same.  All I care about in the event of a calamity.

Fri, 02/10/2012 - 11:43 | 2145905 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Your post is junk.

Fri, 02/10/2012 - 11:18 | 2145791 SheepDog-One
SheepDog-One's picture

Yea! I DO get it! Thats why this talk of 'The growing likelihood of QE3 at any minute is RIDICULOUS!

I mean, I got to LAUGH! Here Ive been saying for over a year that 'QE3' is not going to happen, it hasnt, and now I am the one people thinks doesnt get it? Wow!

Fri, 02/10/2012 - 11:24 | 2145817 kito
kito's picture

we are always wrong because it will happen...bwwhaaahahaha. 

Fri, 02/10/2012 - 11:06 | 2145749 Caviar Emptor
Caviar Emptor's picture

We been sayin' it, Sheepie

Fri, 02/10/2012 - 11:19 | 2145790 IAmNotMark
IAmNotMark's picture

The problem is:  The guys with their fingers on the QE triggers are as insane as the guys with their fingers on the nuke triggers.  So, which ones pull the triggers first?

Fri, 02/10/2012 - 11:20 | 2145798 SheepDog-One
SheepDog-One's picture

There is no one with their finger on a 'QE trigger', theyre just pumping whatever they feel like now, there wont be any 'package' free gift for stocks, its just going on under the table so no one can see it. 

Fri, 02/10/2012 - 10:48 | 2145668 scatterbrains
scatterbrains's picture

Using M1 money supply this guy is suggesting we are below 08 peaks. What is the real money supply with all the printing and queezing that the world central bankers have been engaged in and lets overlay crude prices against THAT chart and see if oil might still be way too cheap.

Fri, 02/10/2012 - 10:48 | 2145671 Northeaster
Northeaster's picture

Don't these banks need to recoup their money from the SPR release before? Didn't they buy at $105/bbl? Or did they recoup that aready?

Fri, 02/10/2012 - 10:54 | 2145698 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Don't these banks need to recoup their money from the SPR release before?

The Blueblood Banking Houses, as Rick Santelli called them today, act as proxy for the fascist oligarchs, as does the Fed, and the government of the US.  As long as the banker henchmen get their bonuses, the only thing that matters is that thy will be done. 

The current goal is to mitigate peak oil and hold the flood wall of the Fiat Ponzi up long enough to fully establish the Police State.  Selling oil is not done for revenue, it is done to buy time.  Shorting silver is not done for profit, it is done to buy time.  Yes, there is a little money to be made on the way, but why does that matter, when they can have bailout taxes ad infinum?

Fri, 02/10/2012 - 11:05 | 2145746 francis_sawyer
francis_sawyer's picture

So at the point that it finally all does topple, all the oligarchs will have all the gold, silver, & resources they need...

Some ZHers will still have their hands on some of the silver & gold... Does that mean we get to be "Dukes"?

In that case... Who around here is 'Mortimer'?

Fri, 02/10/2012 - 11:11 | 2145764 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I know.  Their plan is to destroy and rebuild.  They will issue the SDR to save all Nations.  But that will be when we stand up and say no.  That will be when we fight the power, audit the gold vaults, hunt down the Rotheschildes, and take what they have, because it was never theirs in the first place.  It is all of ours.

That time is fast approaching.

Fri, 02/10/2012 - 11:06 | 2145747 Citxmech
Citxmech's picture

Your green arrow button is AFU

+1

Fri, 02/10/2012 - 10:52 | 2145695 Yen Cross
Yen Cross's picture

 I guess all the Monkeys got tired of chewing on Fly Swatters!

Fri, 02/10/2012 - 10:56 | 2145702 falak pema
falak pema's picture

there are many ways to biflate; but there is only ONE way to control the game : Petrodollar hegemony. It stays the key. All scenarios in first world Oligarchy land stay constant on this one; as united front against BRIC takeover of world. 

Chindia is fine as surrogate in Oligarchy land, never as equal. But does Chindia see it that way? Iran may be a key. Wait n see. 

Fri, 02/10/2012 - 11:12 | 2145766 GeneMarchbanks
GeneMarchbanks's picture

Petro$ is a psyops mirage. That battle has been lost. The magic is gone. Back to life, back to reality.

Fri, 02/10/2012 - 11:24 | 2145814 falak pema
falak pema's picture

tell that to the Sauds, if its been lost its due to FIRE REaganomics gone mad on this side. But USA still holds the gun to Saud land..."Once you're ours you never leave the Famiglia!!"... Ask Mario Puzo! Of Don and Omerta fame. 

Fri, 02/10/2012 - 11:27 | 2145827 GeneMarchbanks
GeneMarchbanks's picture

They recycle, the Saudis. It's not a pile of treasuries they store. You've been had if you believe otherwise.

Fri, 02/10/2012 - 11:49 | 2145893 falak pema
falak pema's picture

Yes but the recycling could change direction; towards Chindia and bye bye west!!! That's the nightmare. Imagine if Saud linked in with China and India DIRECTLY without US moneyline? End of USD hegemony, and USA exposed as mega Argentina or Greece! 

Imagine if Chindia and Saudis decided to develop Africa without West, all indebted...

What the f*** does an investor want to put money in a region which has a saturated consumer market, a debt mountain, aka no prospects for growth when there are 5 billion out there ready to explode in growth and wages next to nil.

All it takes is vision and WILL and the face of the third world can change; if its allowed by first world...Familigia bitchez!!!

But the Saud Princes are not modernista leaders; they be the Romanovs and the Hapsburgs of AMerican Metternich's construct of petrodollar 1973; Mr K.  Whence...familigia blood line.

Fri, 02/10/2012 - 11:02 | 2145734 valley chick
valley chick's picture

OT:  Has anyone heard the rumors today about Kim Jung-un being assassinated?  Coming off the Alex Jones site.

Fri, 02/10/2012 - 11:07 | 2145751 Caviar Emptor
Caviar Emptor's picture

I saw him bowling last night with some strippers. 

Fri, 02/10/2012 - 11:13 | 2145768 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

That was just me in my Kim Jong outfit.

Fri, 02/10/2012 - 11:33 | 2145852 Non Passaran
Non Passaran's picture

Suddenly that Banzai's piece with the late Kim and Michelle came to my mind :-)

Fri, 02/10/2012 - 11:20 | 2145760 lolmao500
lolmao500's picture

It's all over Chinese twitter apparently.

And you sure it's not Kim Jong Il?? Because there were rumors of that.

Fri, 02/10/2012 - 11:45 | 2145915 Use of Weapons
Use of Weapons's picture

He's certainly been meme'd to death already:

 

http://kimjongunlookingatthings.tumblr.com/

http://www.metafilter.com/112316/Kim-Jong-Un-Looking-at-Things

http://mlkshk.com/p/C8VK

http://www.theatlantic.com/infocus/2012/02/kim-jong-un-looking-at-things...

 

 

But, if it's from Alex Jones, it's merely completing the Axis-of-hot-spots-we-want-WWIII-already.

Fri, 02/10/2012 - 11:30 | 2145838 slewie the pi-rat
slewie the pi-rat's picture

0MGeewhiz!  ya mean all this sabre-rattling and inexplicable iranian "deee-stah-beeel-ee-tee' is about keeping oil 'producers' flush?

<palm-slap to forehead>  well, i'll be dipped in prop-wash!

they keep our dollar "strong" in the raceToTheBot-TumTM & we keep their oil price strong so they can enjoy life at the top0'theMerc!

win-win, BiCheZ!

with enemies like this, who needs friends?

 

Fri, 02/10/2012 - 11:51 | 2145944 JohnFrodo
JohnFrodo's picture

IRAN - the war to keep oil prices high

Fri, 02/10/2012 - 12:01 | 2145980 Flakmeister
Flakmeister's picture

Iran: the war to keep oil priced in dollars and therefore available to the average US citizen....

There fixed it for you....

Fri, 02/10/2012 - 17:29 | 2147668 Bicycle Repairman
Bicycle Repairman's picture

I thought America's oil came from Canada, Mexico and Venezuela.

Fri, 02/10/2012 - 12:22 | 2146103 connda
connda's picture

When Congress goes long on Oil, then you know the attack on Iran is right around the corner.

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