Why is oil being sold off? The long anticipated fourth quarter of 2005 is here and a record strength hurricane sits in the Gulf of Mexico. Yet prices still fall.
Plus, who sold $1.4 billion of Exxon Mobil shares this week? Who is saying the Gulf recovery could take "years" and what will happen to the oil price if a cold winter hits oil-hungry nations?
Oilcast chats with Bruce Evers of Investec Bank in London as we discuss these subjects and many more...
Listen here (MP3 file, 6.0 MB)
Oilcast #26: Who sold Exxon? Who is selling crude and why?
Moderator: Peak Moderation
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Adam Porter
- Posts: 22
- Joined: 24 Nov 2005, 11:09
- Contact:
Personally I think the questions he asks are the right ones and interesting, but the analytical followthrough is a teensy bit naive (though far better than you'd expect from most common-or-garden journalists).
All reasons for things happening in the oil markets are supplied after-the-fact. If an analyst or even a trader tells you something, it may or may not be accurate, and even if accurate, it may or may not have actually had some tangible impact on a price somewhere.
Case in point:- Gasoline imports to the US are huge at the moment, 1.5mb/d, twice as large as this time last year. This has prevented a crisis in US gasoline inventories. But where is the gasoline coming from, and is it sustainable? Is it coming from European inventories, or the IEA emergency stock release? If so, will we see a sudden dramatic fall in the PADD 1 gasoline imports as the cargoes that set off from Europe after Katrina all reach their destination? Or are we seeing European refiners deciding to postpone their autumn maintenance in order to keep the US supplied? Or is it both? Or neither? Does anyone know the answer to these questions? Analysts will claim to, but I've heard analysts express all these views and more over the past week.
Then you talk to traders and they'll swear blind that the crude import numbers reported by the EIA this week were physically impossible, given the damage to the pipeline infrastructure. So were the traders wrong, or were the EIA doing a little creative accounting? Who to believe.
That folks try to model the entire global oil market framework using two or three variables and expect to have any success is astonishing. And then you get journalists reporting and commentating and interpreting what's been through the bullshitizer twice or thrice already.
On a score of 1-100, the average person's knowledge about the interactions of global oil markets is zero. Your typical trader or analyst might score 15. A journalist... 10 if they're dedicated. A hedge fund manager... ooh, 7? And each analyst, trader & journalist sees a little corner or thread and thinks they've found the touchstone of it all.
I could give you several reasons for why Oil went down this week, but you shouldn't believe me. Never believe me.
All reasons for things happening in the oil markets are supplied after-the-fact. If an analyst or even a trader tells you something, it may or may not be accurate, and even if accurate, it may or may not have actually had some tangible impact on a price somewhere.
Case in point:- Gasoline imports to the US are huge at the moment, 1.5mb/d, twice as large as this time last year. This has prevented a crisis in US gasoline inventories. But where is the gasoline coming from, and is it sustainable? Is it coming from European inventories, or the IEA emergency stock release? If so, will we see a sudden dramatic fall in the PADD 1 gasoline imports as the cargoes that set off from Europe after Katrina all reach their destination? Or are we seeing European refiners deciding to postpone their autumn maintenance in order to keep the US supplied? Or is it both? Or neither? Does anyone know the answer to these questions? Analysts will claim to, but I've heard analysts express all these views and more over the past week.
Then you talk to traders and they'll swear blind that the crude import numbers reported by the EIA this week were physically impossible, given the damage to the pipeline infrastructure. So were the traders wrong, or were the EIA doing a little creative accounting? Who to believe.
That folks try to model the entire global oil market framework using two or three variables and expect to have any success is astonishing. And then you get journalists reporting and commentating and interpreting what's been through the bullshitizer twice or thrice already.
On a score of 1-100, the average person's knowledge about the interactions of global oil markets is zero. Your typical trader or analyst might score 15. A journalist... 10 if they're dedicated. A hedge fund manager... ooh, 7? And each analyst, trader & journalist sees a little corner or thread and thinks they've found the touchstone of it all.
I could give you several reasons for why Oil went down this week, but you shouldn't believe me. Never believe me.
Agree. Let's spice it up a bit more:Tess wrote:Personally I think the questions he asks are the right ones and interesting, but the analytical followthrough is a teensy bit naive (though far better than you'd expect from most common-or-garden journalists).
All reasons for things happening in the oil markets are supplied after-the-fact. If an analyst or even a trader tells you something, it may or may not be accurate, and even if accurate, it may or may not have actually had some tangible impact on a price somewhere.
Case in point:- Gasoline imports to the US are huge at the moment, 1.5mb/d, twice as large as this time last year. This has prevented a crisis in US gasoline inventories. But where is the gasoline coming from, and is it sustainable? Is it coming from European inventories, or the IEA emergency stock release? If so, will we see a sudden dramatic fall in the PADD 1 gasoline imports as the cargoes that set off from Europe after Katrina all reach their destination? Or are we seeing European refiners deciding to postpone their autumn maintenance in order to keep the US supplied? Or is it both? Or neither? Does anyone know the answer to these questions? Analysts will claim to, but I've heard analysts express all these views and more over the past week.
Then you talk to traders and they'll swear blind that the crude import numbers reported by the EIA this week were physically impossible, given the damage to the pipeline infrastructure. So were the traders wrong, or were the EIA doing a little creative accounting? Who to believe.
That folks try to model the entire global oil market framework using two or three variables and expect to have any success is astonishing. And then you get journalists reporting and commentating and interpreting what's been through the bullshitizer twice or thrice already.
On a score of 1-100, the average person's knowledge about the interactions of global oil markets is zero. Your typical trader or analyst might score 15. A journalist... 10 if they're dedicated. A hedge fund manager... ooh, 7? And each analyst, trader & journalist sees a little corner or thread and thinks they've found the touchstone of it all.
I could give you several reasons for why Oil went down this week, but you shouldn't believe me. Never believe me.
How could we possibly expect to know anything close to "truth" when it comes to the trading situation in oil and gas?
1) Fossile fuel is the very basis of this high-tech civilisation.
2) We take collective pride in the various technological and scientific breakthroughs the last 200 years, but it's fossile fuels which lie at the root of it all.
3) Pretty much all actors want to keep key as many figures as possible concealed for various reasons.
4) Of course there are social taboos which prevent an open discussion about the very foundations of our societies.
I also wonder like hell about the current US situation; Are the refiners making enough heating oil to last the entire winter? Or have they shifted production from heating oil/diesel to gasoline? What about nitrogen fertilizer from NG? Are they making enough? Or will there be a little surprise in the fall of 2006 when harvests start to come in?
According to the EIA statistics, US refineries are currently focused on gasoline. Gasoline yields are at record highs relative to heating oil production. And this despite the supposed worries about having enough heating oil to last a cold winter.MacG wrote: I also wonder like hell about the current US situation; Are the refiners making enough heating oil to last the entire winter? Or have they shifted production from heating oil/diesel to gasoline? What about nitrogen fertilizer from NG? Are they making enough? Or will there be a little surprise in the fall of 2006 when harvests start to come in?
On the other hand, the EU refineries are almost a mirror image of the US. Over here the refineries are all maximising heating oil/diesel output, and yields of such middle distillates are increasing relative to gasoline.
It's confusing to me why the US would be still focused on gasoline production when gasoline crack spreads are at $9 and heating oil cracks are twice as much. Perhaps they are not in fact focusing on gasoline, but the temporary relaxation of gasoline specs in the US means that much more can be produced more easily? Here's a thought: Have gasoline yields increased everywhere or primarily on the gulf coast where lots of complex refinery capacity has been offline? Would we expect to see gasoline yields go up relative to heating oil when heavy crude upgrading capacity goes offline? If true, how significant a factor is this in the market? Are US refineries in fact already trying to maximise heating oil as best they can, contrary to appearances?
I dont yet know the answers, but my point is that there is so much complexity underneath the apparent decisions of US refiners to focus on gasoline leaving the EU to focus on gasoil/diesel. The rabbit hole goes very deep and my thinking above only barely scratches the surface. Traders in the physical markets (as opposed to financial OTC & exchange trading) see all kinds of temporary and permanent bottlenecks in the supply system that only manifest to analysts as vague statistical blips.
So many times I see commentators blaming a WTI oil price rise on, say, terrorism in iraq, while the physical oil market traders on the ground in Houston will know that the rally was triggered by some local refinery coming back online and sucking additional crude in a bottlenecked system. The rule of thumb seems to be: if two events happened roughly simultaneously and a causal link is plausible, then it's safe to report it as cause and effect. Who can gainsay you, really?
Here's another thing: Some analysts will tell you that a release of emergency heating oil reserves in the US this winter (for which the very stringent price-triggered rules have (I believe) already been met by the way) would be bearish on the market. Seems reasonable, eh? Others take the view that once the US has shot its last bullet, the heating oil market would shoot to the moon on the knowledge that there's nothing more the US can do, much as OPEC's promises to increase production were more bullish than bearish last year as traders focused on the dwindling spare capacity more than the extra crude. Oil reserves are only bearish factors while they're held in reserve & never used...
(As for NG and fertilisers I have no clue. Dont have any idea how NG costs filter into fertiliser costs and thence into food costs. No idea at all).
But if we don't believe you then we won't believe that you asked us never to believe you and if don't beleive that....Tess wrote:I could give you several reasons for why Oil went down this week, but you shouldn't believe me. Never believe me.
I just don't want to think where this is going to lead me, I need a nap or a beer or maybe a beer then a nap.
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SherryMayo
- Posts: 235
- Joined: 24 Nov 2005, 11:09
- Location: Melbourne, Australia
Watching the markets on short time-scales is likes watching a bunch of twitchy gazelles - small bits of news or a panicked move by a prominent twitchy gazelle and the whole herd follows. Something other mirage appears on the horizon and they all head off miles the other way out of all proportion to anything real. Now and then the odd gazelle goes the "wrong" way and makes a killling. Meanwhile on the sidelines the market report tells us the totally rational reason they are doing what they are doing to maintain the fiction of independant rational actors determining the optimum marketplace price. Bit of a worry really.
Cheers for the kind words etc. Much appreciated. All awards welcomed! 
If you want to go on Oilcast's mail list just mail me at oilcast at gmail dot com...just will give you alerts as to when a new one is out etc.
As regards the analysis...I get what you're saying Tess. I think we did point out that heating distillates vs gasoline is the important thing right now (although will Wilma impact on demand like Katrina and Rita did ?) but one may even see prices fall to $56/57...despite this others are saying $75 by years end...
But I think we'd need at least an hour to fit all the various scenarios in! But you never know...one day...
best
adam
If you want to go on Oilcast's mail list just mail me at oilcast at gmail dot com...just will give you alerts as to when a new one is out etc.
As regards the analysis...I get what you're saying Tess. I think we did point out that heating distillates vs gasoline is the important thing right now (although will Wilma impact on demand like Katrina and Rita did ?) but one may even see prices fall to $56/57...despite this others are saying $75 by years end...
But I think we'd need at least an hour to fit all the various scenarios in! But you never know...one day...
best
adam
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peaky
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fishertrop
- Posts: 859
- Joined: 24 Nov 2005, 11:09
- Location: Sheffield
I'm a big fan of the Oilcast programs and was initially sadened to hear it would likely become a paid-access service - generally I avoid such (tho I appreciate the practical need to fund these types of commitments).Oilcast wrote: But I think we'd need at least an hour to fit all the various scenarios in! But you never know...one day...
On reflection tho, I think I would possibly sign up to a paid-for Oilcast sub IF:
1) It was a 60 min show
2) It allowed payment via well-known existing services like worldpay or paypal etc
3) I could pay-by-the-show (I really hate yearly-tie-ins)
Oilcast is such a stand-out program that personally I think it could be worth paying for.
My only remain question would be - how much?